UNITED STATES ENVIRONMENTAL PROTECTION AGENCY RESEARCH TRIANGLE PARK, NC 27711



### MEMORANDUM

To: Docket EPA

‐ HQ

‐ OAR

‐ 2015

‐ 0199

From: Toni Jones, U.S. Environmental Protection Agency

Date: August 25, 2015
Subject: Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

This memorandum summarizes the EPA’s interagency communications regarding development of a proposed federal plan for the Clean Power Plan. The table below lists the topics covered in each attachment. Some attachments, due to size or the file type, are submitted to the docket

as separate entries identified as an attachment to this memorandum.

Attachment Topic Date/Time of Email A Email thread of correspondence between EPA and OMB staff regarding possible times for an overview of the CPP federal plan July 6, 2015 11:56 AM

– 3:46 PM (ET) B Email thread of correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan proposal package July 18, 2015 4:23 PM (ET)

– July 19, 2015 9:04 PM (ET) B.1 File attached to B with filename SummaryofInteragencyComme ntsUnderEO12866_13563_Federal PlanNPRM_7182015.docx C Email correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan proposal package July 25, 2015 5:36 PM (ET)

C.1 File attached to C with filename SummaryofInteragencyComme ntsUnderEO12866_13563_Federal PlanNPRM_7252015.docx D Email correspondence between EPA and OMB staff providing the CPP federal plan preamble, CPP federal plan rule text, and a document of responses to OMB comments on the rule package July 27, 2015 4:55 PM (ET)

### Attachment Topic Date/Time of Email D.1 File attached to D with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150727 RLSO.docx [preamble] D.2 File attached to D with filename CPP Federal Plan Model Rule OMB 7_27_15 clean.docx [rule text] D.3 File attached to D with filename EO12866 13563 Federal Plan NPRM Response to OMB Comments 072715.docx [response to OMB comments] E Email correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan proposal package July 28, 2015 1:19 PM (ET)

E.1 File attached to E with filename SummaryofInteragencyComme ntsUnderEO12866_13563_Federal PlanNPRM_7282015.docx F Email thread of correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan proposal package July 28, 2015 1:20 PM

– 3:38 PM (ET) G Email correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan proposal package July 28, 2015 6:49 PM (ET)

G.1 File attached to G with filename SummaryofInteragencyComme ntsUnderEO12866_13563_Federal PlanNPRM_7282015_650pm.docx H Email correspondence between EPA and OMB staff providing the draft CPP federal plan RIA and draft RIA spreadsheet for ROCIS July 28, 2015 9:26 PM (ET) H.1 File attached to H with filename EO12866_CPP_Federal_Plan_2060_AS47_RIA Final_20150728.docx [RIA] H.2 File attached to H with filename EO12866_CPP_Federal_Plan_ 2060_AS47_RIA_Spreadsheet Final_20150728.xlsx [RIA spreadsheet] I Email correspondence between EPA and OMB staff providing CEIP text July 29, 2015 1:54 PM (ET) I.1 File attached to I with filename CEIP language FP 7.28.15_clean 1043pm.docx J Email correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan proposal package July 29, 2015 5:30 PM (ET)

J.1 File attached to J with filename SummaryofInteragencyComme ntsUnderEO12866_13563_Federal PlanRIA_7292015.docx

### Attachment Topic Date/Time of Email K Email correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan RIA July 29, 2015 8:01 PM (ET) K.1 File attached to K with filename SummaryofInteragencyComme ntsUnderEO12866_13563_Federal Plan_RIA_7292015.docx L Email thread of correspondence between EPA and OMB staff regarding interagency review comments on CPP federal plan documents July 29, 2015 8:05 PM (ET)

M Email correspondence between EPA and OMB staff providing responses to OMB comments and the CPP federal plan preamble July 29, 2015 10:36 PM (ET) M.1 File attached to M with filename EO12866 13563 Federal Plan NPRM Response to OMB Comments 072915 final.docx [response to OMB comments] M.2 File attached to M with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150729 RLSO.docx [preamble] N Email correspondence between EPA and OMB staff regarding TSDs July 30, 2015 6:30 PM (ET) O Email correspondence between EPA and OMB staff providing responses to OMB comments on the CPP federal plan RIA and the CPP federal plan rule text July 30, 2015 7:19 PM (ET)

O.1 File attached to O with filename EO12866_CPP Federal Plan RIA_20150730 Response to Comments.docx [response to OMB comments] O.2 File attached to O with filename CPP Federal Plan Model Rule OMB 7_30_15 clean.docx [rule text] P Email correspondence between EPA and OMB staff regarding interagency review comments on the CPP federal plan proposal package July 31, 2015 8:48 AM (ET)

P.1 File attached to P with filename SummaryOfInteragencyComme ntsUnder_EO12866_13563_Federal Plan.docx Q Email correspondence between EPA and OMB staff providing the CPP federal plan preamble, CPP federal plan rule text, and responses to OMB comments on the rule package July 31, 2015 5:42 PM (ET)

Q.1 File attached to Q with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150731.docx [preamble] Q.2 File attached to Q with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150731 RLSO.docx [preamble with redline strike out] Q.3 File attached to Q with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150731 Rule Text.docx [rule text]

### Attachment Topic Date/Time of Email Q.4 File attached to Q with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150731 Rule Text_RLSO.docx [rule text with redline strike out] R Email correspondence between EPA and OMB staff providing the CPP federal plan RIA documents July 31, 2015 8:08 PM (ET) R.1 File attached to R with filename EO12866_CPP_Federal_Plan_2060_AS47_RIA Final_20150731.docx [RIA] R.2 File attached to R with filename EO12866_CPP_Federal_Plan_2060_AS47_RIA Final_20150731_RLSO.docx [RIA with redline strike out] R.3 File attached to R with filename EO12866_CPP_Federal_Plan_ 2060_AS47_RIA_Spreadsheet Final_20150731.xlsx [RIA spreadsheet] S Email correspondence between EPA and OMB staff providing the CPP federal plan preamble, CPP federal plan rule text, and CPP federal plan RIA August 1, 2015 4:43 PM (ET)

S.1 File attached to S with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150801 Preamble.docx [preamble] S.2 File attached to S with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150801 Preamble RLSO.docx [preamble with redline strike out] S.3 File attached to S with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150801 Rule Text.docx [rule text] S.4 File attached to S with filename EO12866_CPP Federal Plan 2060 AS47 NPRM_20150801 Rule Text RLSO.docx [rule text with redline strike out] S.5 File attached to S with filename EO12866_CPP_Federal_Plan_2060_AS47_RIA Final_20150731_Clean.docx [RIA] T Email thread of correspondence between EPA and OMB staff regarding the CPP federal plan proposal package documents August 1, 2015 5:15 PM (ET) U Email thread of correspondence between EPA and OMB staff regarding the completion of review of the CPP federal plan proposal package August 2, 2015 10:37 AM (ET)

### Attachment A.From: Jones, Toni <Jones.Toni@epa.gov> Sent: Monday, July 6, 2015 3:46 PM To: Frey, Nathan J. Cc: Culligan, Kevin; Vasu, Amy Subject: Possible times for overview of the CPP federal plan

Hi Nathan, As Amy mentioned in her previous email, I am following

‐ up with some potential dates and times for a teleconference to give an overview of the CPP federal plan. I am currently holding the following on the calendars of the appropriate EPA staff: Wednesday, 7/8, 11:00

– 12:00 Thursday, 7/9, 1:00

– 2:00 Tuesday, 7/14 11:30 ‐ 12:30 Please let me know which of these works best, and I will follow

‐ up with a call

‐ in number.

Kind regards, Toni

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

From: Frey, Nathan J. [mailto:Nathan_J._Frey@omb.eop.gov] Sent: Monday, July 06, 2015 1:52 PM To: Vasu, Amy Cc: Culligan, Kevin; Jones, Toni Subject: RE: Possible times for update on changes to CPP preamble & reg text

Hi Amy,

We’ve settled on Tuesday 11:30

‐ 1:00 for the briefing on CPP rule changes. Can you send call

‐ in info when available? Thanks,

Nathan

From: Vasu, Amy [ mailto:Vasu.Amy@epa.gov ] Sent: Monday, July 06, 2015 11:56 AM To: Frey, Nathan J. Cc: Culligan, Kevin; Jones, Toni Subject: Possible times for update on changes to CPP preamble & reg text


### Nathan,

Possible times for the update on changes to the CPP preamble & reg text since 5/29/15 are:

### + Tuesday, July 7, 11:30am

‐ 1:00pm (preferred; we’d like to provide this sooner than later)

+ Friday, July 10, 9:30

‐ 11:00am

+ Friday, July 10, 12:30

‐ 2:00pm

We will follow up with you separately about scheduling a briefing on the federal plan.

Thank you.
Amy

~~~~~~~~~~~~~ ~~~~~~~~~~ Amy B. Vasu U.S. EPA / OAQPS Sector Policies and Programs Division email: vasu.amy@epa.gov phone: 919.541.0107

### Attachment B.From: Vasu, Amy <Vasu.Amy@epa.gov> Sent: Sunday, July 19, 2015 9:04 PM To: Jones, Toni; Boswell, Colin; Swanson, Nicholas Cc: Culligan, Kevin Subject: Additional comments ‐‐ Summary of Interagency Comments Under EO12866 and 13563 ‐‐ Federal Plan Requirements for GHG emissions from Electric Utility Generating Units



### All,

Attached are additional comments on the federal plan.

Thank you.
Amy

From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Saturday, July 18, 2015 4:23 PM To: Culligan, Kevin; Harvey, Reid; Vasu, Amy; Lamason, Bill Cc: Szabo, Aaron; Grossman, Andrea Subject: Summary of Interagency Comments Under EO12866 and 13563 ‐‐ Federal Plan Requirements for GHG emissions from Electric Utility Generating Units

Attached please find an additional summary of interagency comments under EO 12866 and 13563 on EPA’s draft NPRM: Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rule.

Thank you and please let me know if you have any questions.

Nathan

### Attachment B.1RIN 2060 -A S4 7 Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rule 1) Mass. Reviewer recommends that EPA propose only a mass

- based plan for the federal plan. To the extent that some states may select a state rate

- based plan, reviewer recommends leaving in the requirements necessary to submit an approvable state rate

- based plan a s a model rate

based trading rule. If EPA does propose both, r eviewer recommends putting the mass

- based implementation approach before the rate approach, making their discussion and outline parallel, and highlighting the lower administrative burden for mas s- based plans with respect to allowance tracking compared to rate

- based plans with respect to ERC generation and tracking. Reviewer notes that given EPA’s stated view that it would like to enable as much trading between states as possible (which would be enhanced by coordination on mass vs rate), there is value in proposing only a mass

- based plan now rather than a year from now when the states have to submit initial plans.
2) Technology Neutral. Reviewer recommends proposing (rather than taking comment on) th at all

non

- BSER technologies and measures that are acceptable to generate ERCs in the emission guidelines (EGs) be proposed as approved under a federal plan. That would include, but not be limited to, distributed RE generation, demand side energy efficiency, new or up

- rated nuclear generation, offshore wind
, and CCS retrofits

. N ot allowing certain abatement measures to be credited reduces the cost effectiveness of the policy. EM&V requirements for state plans on

non

- BSER technologies are the same as the req uirements for the federal plan, so comments should be requested on the EM&V methodolog ies , and not on which technologies and

measures should be valid compliance mechanisms. Reviewer also notes that EPA takes comment on what the process should be for demon strating the “appropriateness” of additional technologies, but never explains what the “appropriateness” standard requires. All technologies and measures could be held to a strict standard to be quantifiable, verifiable, and additional. Any technology or measure that can pass the re quirements should be permitted to generate credits under a federal plan.

Reviewer recommends that the allowances that are set

- aside for low - or zero

- emission activities be distributed using a technology

- neutral methodology and not reserved exclusively for RE. (Reviewer notes that selecting only RE for a set aside, as suggested in the current version of the plan, is selecting particular technologies without sufficient justification.) Reviewer suggests that EPA take comment on a proposed federal plan that is technology neutral. Reviewer also recommends renaming this group of allowances as the Clean Energy Set

- Aside to avoid confusion with the set

- aside for existing NGCC.

It should be explicitly stated on pages 99, 103 and 110

- 12 0 that incremental, new nuclear after 2012 should be afforded equal treatment with renewable energy under this rulemaking consistent with the final Clean Power Plan. The nuclear units that are currently under construction represent a significant amount of zero

- emitting baseload capacity that should be allowed to create ERCs in the federal plan and model trading rule.3) Se t

- aside. Reviewer recommends that the RE set

- aside be changed in the proposed federal plan such that allowances be set aside for low - and zero

- emitting generation and be distributed to those low - and zero

- emitting EGUs or projects in the first two interim compliance periods (i.e., 2022

- 2024 and 2025

- 2027) in proportion to the incremental generation of those EGUs or projects during the 2020 a nd 2021 years (relative to historic generation between 2010 and 2012). This would have the added benefit of incentivize clean energy builds in 2020 and 2021.

4) ERC Issuance to NGCC. Reviewer recommends clarifying the formula for calculating ERC issuance from NGCC because the current formula and data available in previously released TSDs do not enable the reviewer to arrive at the same result of 0.09 ERCs/MWh NGCC.

General Comments 1) P age 12, 85, “The EPA is strongly considering taking a single approach (i.e., either the mass

based or rate

- based approach) for every state in which it promulgates a federal plan, and we are inviting comment on this. We also invite comment on which approach , mass

- based or rate

based, should be selected if we opt to finalize a single approach.” Comment: Reviewer recommends that EPA propose only a mass

- based plan for the federal plan. To the extent that some states may select a state rate

- based plan, reviewer recommends leaving in the requirements necessary to submit an approvable state rate

- based plan as a model rate

- based trading rule. Reviewer also recommends putting the mass

- based implementation approach before the rate approach, making their discussion and outline parallel, and highlighting the lower administrative burden for mass

- based plans with respect to allowance tracking compared to rate

- based plans with respect to ERC generation and tracking. Reviewer notes that given EPA’s stated view that it would like to enable as much trading between states as possible (which would be enhanced by coordination on mass vs rate), there is value in proposing only a mass

- based plan now rather than a year from now when the states have to submit initial plans.
2) Page 147, 224. “The EPA requests comment on whether there are reasons that a state should be allowed to transition from a federal plan to a state plan in the middle of a compliance period and if so what requirements should be put in place to do so while ensuring th e integrity of both the federal plan and the state plan and while enabling the affected EGUs covered by the plans to understand and meet their compliance requirements.” Comment: Reviewer recommends that states not be allowed to switch plans within a compli ance period (either from a state plan to a federal plan or from a federal plan to a state plan) because, in rate

- based plans, that would greatly complicate compliance given differences in ERC generation options between the Federal plan and possible state p lans or, in mass

- based plans, the federal plan allocates all allowances for the compliance period at the beginning of the period.
Reviewer also recommends that any state that switches between a federal plan and a state plan or a rate plan and a mass pla n needs to demonstrate a strategy for accounting for banked ERCs/Allowances that maintains the environmental integrity of the program.

3) Page 175. “ The agency requests comment on the idea of auctioning all, or a portion of, each state’s allowances in the p roposed federal plan, on how much of each state’s allowances toau ction if not the entire amount, on the frequency (e.g., yearly or every few years), design of auctions (e.g., spot or advance) and who may participate in the auction.” Comment: Reviewer recommends that the Federal mass

- based plan encourage (but not require) states to auction at least a portion of their allowances instead of freely allocating all of them to affected EGUs and the set

- aside. Periodic auctions are done in many othe r mass

- based environmental compliance programs (California’s AB32, RGGI, the EU Emission Trading Program) because they facilitate allowance price discovery by market participants and allow for the efficient distribution of allowances. Reviewer acknowledges that EPA may not be able to run the auction on behalf of states, but reviewer recommends that EPA set up the auction infrastructure

– for example, by establishing a turnkey auction platform with one of the many auction platform providers on the market – t hat can be used by states who choose to adopt the federal plan or a state plan. Reviewer recommends that the auctions should be online, multi

- round, uniform price auctions. A standard auction platform would reduce transaction costs for EGUs that operate ac ross multiple states as well as reduce the likelihood of technical glitches in some state auctions.
4) Page 215 – 216. “ The EPA requests comment on this proposed approach for addressing leakage in a state allowance

- distribution methodology and on any other approaches for doing so.... In this federal plan proposal, the EPA requests comment on an alternative option where a state that chooses to submit a state allowance

- distribution methodology could provide a demonstration that leakage will not occur (without implementing the allocation strategies specified here) due to specific characteristics of the state.” Comment: Reviewer recommends that the federal mass

- based plan include an option whereby new NGCC is included under the mass goal as a mechanism for addressing leakage. Such an example would include the methodology for adjusting the state mass goal to reflect emissions from new NGCC.
5) Page 223. “ The EPA requests comment on other approaches to provide a smooth transition from federal

- plan implementation to implementation by state plans, and on its proposed approach of not replacing a federal plan for any compliance period for which allowances were already recorded.” Comment: Reviewer agrees that switching between plan types should not be allowed for any complian ce period for which allowances were already distributed/recorded. In any situation, reviewer recommends that switching should only be allowed at the beginning of a compliance period.

Trading Comments 1) Page 49/50. “The EPA also requests comment on expandin g the scope of interstate trading to include linking states covered by the rate

- based trading federal plan with any state that has an approved rate

- based trading state plan meeting the proposed conditions for linkages and that uses an EPA

- designated ERC tr acking system that is interoperable with an EPA

- administered ERC tracking system.” “The EPA also takes comment on allowing a state that has an approved rate

- based trading state plan meeting the proposed conditions for linkages and that uses an EPA

- designa ted ERC tracking system to register with the EPA, and after registration, to link with states covered by the rate

based trading federal plan.”Co mment: Reviewer strongly recommends not allowing states that select rate

- based trading programs to link to other states unless all states within the linkage have select the same rate

based approach (i.e., either technology

- specific rates or have the same blended rate). Reviewer notes that such a rule is important in states with rate

- based goals to prevent unintend ed increases in emissions from otherwise identical EGUs that are operating under higher rates.
2) Page 50, 51. “In this proposed rule, the proposed approach to link from the mass

- based trading federal plan to state plans could result in linking of the federal plan to state plans that include

non

- affected emission sources. The EPA requests comment on this proposed approach.” Comment: Reviewer supports the intent to allow any approved mass

- based plan to trade allowances with any other approved mass

- based plan, even if one or more of those mass

- based plans cover non

- affected sources. Reviewer requests clarifications, on page 50, that state plans that include non

- affected sources will have undergone a demonstration outlined in the EGs to ensure that the plan will result in affected sources meeting the mass

- based target for covered sources. Also on page 50, reviewer requests clarification that the import and export adjustments required in the EGs will include allowances issued from approved state plans that cover affected and non

- affected sources.
3) Page 51. “The EPA requests comment on this expectation of a competitive ERC market and a competitive allowance market, and on potential program design choices that could address any identified market power concern.” Comment: Reviewer recommends that a competitive and liquid ERC/allowance market is most likely to exist when there is a) Transparent release of information on regulatory changes. Reviewer recommends that EPA adopt communications strategies about ERC/Allowa nce issuance and other policy changes similar to communication strategies used by the Federal Reserve in discussing monetary policy, public companies in releasing financial information, or the EU Emissions Trading System in making policy announcements. In all cases, new information has the potential to affect billions of dollars of assets. Specifically, reviewer recommends that EPA should maintain a publicly available website and listserve that notifies the public in advance of announcements (e.g., 2

- 5 da ys) and is the first location announcements are released to the public. To the extent possible, reviewer encourages EPA to adopt a regular schedule in which updates or changes are announced (e.g., 10am on the first Wednesday of every month). Reviewer

reco mmends that EPA establish highly confidential procedures for guarding the release of such information to avoid information leakage to traders who would benefit financially from the information. Beyond the website, the reviewer recommends that EPA publicly designate a limited number of people who can speak about changes to the program (such that market observers would discount comments from undesignated individuals). Reviewer notes that the ERC or Allowance market is anticipated to be a multi

- billion dollar market and policies and procedures that ease the market’s ability to quickly and accurately absorb new information will greatly enhance liquidity in the market and remove costly and unnecessary volatility. b) Limited uncertainty about the total volume of ERCs available. Reviewer recommends issuing ERCs as frequently as possible (e.g. monthly for those ERC sources that can be issued monthly or quarterly for other sources ) and at regular ,pr e

- determined times to reduce uncertainty about how many ERCs are pr esent in the market , which will reduce volatility in the price of ERCs

. c) Strict monitoring of fraudulent ERCs/Allowances. Reviewer recommends strict oversight of allowance market to prevent the type of fraud experienced in the EU at the launch of their pro gram. d) No limits on ERC/Allowance ownership. Reviewer believes that all types of entities can provide benefits to the market and encourages EPA to not limit the type or number of firms that can hold ERCs/allowances. e) Market monitor enforcement against man ipulation. Review recommends that EPA assign a market monitor to provide oversight of the various linked markets that form and report on potential market manipulation. Reviewer strongly recommends that EPA also require states to adopt similar practices a s EPA with respect to the release of information about policy changes or ERC issuance because states will also play an important role in facilitating liquid and competitive markets.
4) Page 141

- 142, 156. “The EPA requests comment on whether there should be a quantitative limit or cap on the number of ERCs that can be banked. The EPA also requests comment on whether an ERC should be eligible to be banked between the interim and final compliance periods. The EPA is also proposing that ERCs will not expire after any duration of time. The EPA requests comment on the shelf

- life of an ERC.” Comment: Reviewer does not believe there should be a limit on the number of ERCs/Allowances that are banked. Reviewer recommends that ERCs/Allowances be allowed to be banked betw een the interim and final compliance periods.
5) Page 146. “The EPA requests comment on a broader approach that would allow all affected EGUs that are located in states with approved rate

- based state plans to participate in the federal plan trading program. In other words, this would extend federal

- plan linkage to rate

- based programs that are not set up to be “presumptively approvable,” or which use a set of emission rates for affected EGUs that are different from the national uniform subcategorized rates. W e request comment specifically on what conditions or requirements would be needed in these cases in order to participate in the federal plan trading program in a way that is administratively feasible and maintains the integrity of all of the linked program s.” Comment: Reviewer strongly recommends that EGUs should not be allowed to trade with other EGUs in other states unless EGUs of the same technology type operate under the same rate. Without that restriction, the policy would probably lead to unintended increases in emissions. Reviewer does not believe there is a mechanism that maintains emissions outcomes and at the same time allows linkages between state trading programs when “emission rates for affected EGUs...are different from the national uniform subcategorized rates

. ”
6) Page 146. “Although the agency has serious concerns about the administrative complexity of this approach, we also request comment on the feasibility and potential mechanism of allowing EGUs in states with approved mass

- based state plans to participate in a federal rate

- based trading plan.” Comment: Reviewer strongly recommends that EPA include in the Federal Plan that a llowances should not be an acceptable compliance instrument in any rate

- based program (regardless ofth e conversion fro m mass to rate) and that ERCs should not be an acceptable compliance instrument in any mass

- based program (regardless of the conversion from rate to mass).

7) Page 156, 158. “The EPA is not proposing to allow allowance borrowing across compliance periods in the mass

- based trading federal plans; however the agency is requesting comment on the use of borrowing across compliance periods.” Comment: Reviewer notes that limited borrowing is implicitly allowed due to the 2 to 3 year compliance period. Reviewer does not recommend any borrowing beyond that implicit amount because it could encourage EGUs that anticipate shutting down to borrow significan t quantities of ERCs/ a llowances and then declare bankruptcy at the same time they shut down.

Compliance Comments 1) Page 56. “The EPA requests comment on whether there is any reason to use shorter compliance periods than the proposed periods, and how modi fying these periods could be done in a manner that is consistent with the Emission Guidelines.” Comment: Reviewer notes that a two to three year compliance period seems to be used successfully in other programs; however, reviewer encourages EPA not to furt her extend the compliance period beyond the currently proposed two to three years. A longer compliance period would likely have EGUs building up a larger ERC/Allowance liability prior to the conclusion of the compliance period, which might reduce their so lvency if not sufficiently incorporated into planning.
2) Page 138, 159, 231. “The agency also requests comment on an earlier allowance transfer deadline [compared to November 1], such as June 1 or March 1, of the year after the last year in the compliance p eriod.” Comment: Reviewer recommends an earlier deadline for allowance compliance transfer, namely May 1, or the earliest that can be supported based on ERC issuance. The longer submission period (i.e., November 1) allows EGUs to build up a larger compliance liability. Reviewer is concerned about two specific situations. 1) An EGU that had planned to go out of business would have a longer period to emit before having to shut down or turn in compliance instruments. 2) An EGUs had not acquired or planned for acquiring sufficient compliance instruments, would build a larger compliance liability prior to being found to be out of compliance. That could contribute to an increased likelihood EGUs declare bankruptcy or otherwise exit the market. To somewhat address those situations, reviewer also recommends that 30 percent to 50 percent of an EGU’s expected annual compliance requirement be due in each of the interim years of the compliance period to prevent the buildup of large liabilities by EGUs.
3) Page 140, 232. “T he EPA solicits comment on sources owing two ERCs to make up for each insufficient ERC in previous compliance periods and whether two for one is the proper make

- up rate or whether there should be a stricter or a more lenient ratio.” Comment: Reviewer recom mends clarifying on pages 140 (for ERCs) and 232 (for allowances) the timeframe within which an entity out of compliance would have to provide the two ERCs/allowances for every one that was needed but missing from its account, assuming that none are availa ble to be automatically deducted.Rev iewer notes that it appears that the EGs no longer include the requirement that sources owe two ERCs to make up for each insufficient ERC in the previous compliance period. Reviewer requests that EPA consider if the penalty for being out of compliance should be the same in the EGs and in the federal plan or if there is justification for the different treatment

.

Mass Allocation & Set

- Asides Comment 1) Page 54, 178, 186

- 188. “The EPA takes comment on both the set

- aside f or output

- based allocation and the set

- aside of allowances for RE generation.” Page 202. “We are also requesting comment on options for a percentage of allowances to be reserved [for the RE set

- aside] ranging from 1

- 10 percent of total allowances in each s tate.” Comment: Reviewer recommends that the RE set

- aside be changed in the proposed federal plan such that allowances be set aside for low - and zero

- emitting generation and be distributed to those low - and zero

- emitting EGUs or projects in the first two interim compliance periods (i.e., 2022

- 2024 and 2025

- 2027) in proportion to the incremental generation of those EGUs or projects during the 2020 and 2021 years (relative to historic generation between 2010 and 2012). Reviewer suggests that the distribution of allowance vintages for both compliance periods occur at the same time. Such an allocation strategy would encourage early action, increase the likelihood that the United States achieves its international carbon reduction commitments, and provide information to the market about the future price of allowances. In subsequent interim compliance periods, reviewer suggests that allowances are allocated proportional to generation in the previous interim compliance period. That would simplify the allocation approach relative to the proposed Federal Plan and reduce uncertainty for developers of low - and zero

- emitting EGUs. Reviewer suggests that this becomes the default and EPA take comment on it in the proposed federal plan.

Reviewer suggests that the proposed a pproach in the current version of the federal plan for allocation (i.e., projected future generation) is complicated, creates uncertainty, and is vulnerable to manipulation by firms over - or under

- projecting their generation in an effort to affect ERC pric es.
Reviewer also suggests that EPA propose a larger set

- aside or provide a rationale for limiting the set- aside to 2 percent of available allowances instead of a larger or smaller number. Specifically, on page 203 EPA states that 2 percent was chosen be cause “at a range of possible allowance prices...[it would] incent the development of additional RE projects.” Reviewer recommends clarifying the meaning of additionality in that statement.
2) Page 148. “The EPA is proposing that allowances be issued in metric tons for the federal plan, and also requesting comment on the issuance of allowances in short tons.” Comment: Reviewer recommends that allowances be issued in metric tons, which is consistent with the units of an allowance adopted by California.
3) Page 162 , 172. “the EPA is requesting comment on an alternative allocation approach that would first divide the total number of allowances from each state’s mass goal by source category and then allocate to affected EGUs within each category based on shares of his toric generation.”Co mment: Reviewer recommends that EPA clarify how the alternative allocation approach would be implemented. On page 172, “this alternative approach would divide the total number of allowances from a state’s mass goal... by affected EGU source categories. “ Reviewer recommends clarifying whether it is the affected EGU source categories generation or emissions (and if it is the average from 2010

- 2012) that are placed in the denominator.

Reviewer also recommends clarifying the following phrase located on the top of pa ge 173, “...and multiply historic NGCC

- unit generation by the NGCC

- unit source category

- specific CO 2 emissions performance rate.” Is the intended emission performance rate the average eight year interim rate from the EGs, the yearly emission performance rate s from the Goal Computation TSD, or the federal 2 or 3 year interim compliance period average emission performance rates?
4) Page 165, 247. “The agency requests comment on the proposed historic

- generation based allocation approach and on other allocation app roaches.” Comment: Reviewer recommends that EPA take comment specifically on whether the historic generation allocation should reflect generation or emissions from affected EGUs.

Reviewer recommends, in the discussion on Pg. 247 regarding calculation st eps for the proposed historic

- generation

- based allocation approach, explaining whether/how historical operational data for plants during emergency/reliability events (i.e., unplanned outages, excess generation to offset outages) are considered in the averaging/allocation formula to avoid skewing the results.
5) Page 174. “The EPA requests comment on the use of other updating allocation approaches [instead of the historical allocation method].” Comment: Reviewer recommends that EPA encourage states to reduce t he size of the historic

generation

- based allocation over time because it does not contribute to market efficiency.
6) Page 176

- 178. “The EPA requests comment on the design and utility of allocating allowances to LSEs to help mitigate electricity price impac ts. In particular, the EPA requests comment on options to establish conditions requiring pass through of allowance value and verification of such pass

- through, whether it would be appropriate to identify any conditions related to equitable distribution of allowance value among ratepayer categories, as well as EPA’s legal authority to apply any such conditions.” “The EPA recognizes that allocation to LSEs, by reducing rate impacts, could reduce incentives for socially efficient demand response, including potential investment in energy efficiency. The EPA solicits comment on the magnitude of this effect, relative to alternative allocation options, and design options that could help mitigate this effect.” Comment: Reviewer recommends that EPA note in the federa l plan preamble and include in their approvability criteria that allowances allocated to LSEs may be used to help mitigate the effect of the policy on electricity consumers. Reviewer recommends that EPA also note that if the LSE passes through the value fr om selling the allocated allowances in a lump sum amount that is not associated with consumers’ electricity bills the incentives for economically efficient end

- use energy efficiency are maintained

. Finally reviewer suggests that EPA make clear that allowin g LSEs to pass through the value of allocated allowances in a mechanism proportional to electricity usage will increase the cost of the program.7) Pag e 190, 192, 194, 196. “The EPA accordingly solicits comment on key parameters for the appropriate design of the output

- based allocation approach used for this proposed set

- aside [to fossil generators] .” Comment: Reviewer suggests also taking comment on having a higher limit on the size of the output based set aside for existing fossil NGCC EGUs because this s et

- aside improves the economic efficiency of the program (by reducing generation shifts to unaffected sources), whereas the historic generation allocation provides no safeguards against leakage to unaffected

sources.
8) Page 199. “ The EPA also requests com ment on extending output

- based allocation from this set aside to affected utility boiler s .” Comment: Reviewer agrees with EPA’s reasoning for not extending output

- based allocations to fossil steam EGUs.
9) Page 199

- 200. “The EPA solicits comment on the general merits of the proposed set

- aside and the output

- based allocation used under this set

- aside. In addition, the agency solicits comment on how such an approach could be targeted to improve implementation of the proposed mass

based trading federal plans and improve overall environmental and economic performance. In particular, the EPA solicits comment on which affected EGUs should receive any output

- based allocation, the proper allocation rate(s), the total size of the set

- aside, and from which complian ce period’s total allowances the set

- aside should be drawn.” Comment: Reviewer recommends using an allocation rate that is similar to the emission rate of new NGCC units (i.e. ~800 – 900 lbs CO 2 /MWh) using a rate higher than this would not align the incen tives between existing and new NGCC generation.
10) Page 204. “The agency is requesting comment on an additional condition that would limit eligibility to project providers that are also the owners or operators of affected EGUs.”

“ Eligible projects must be lo cated in the mass

- based state for which the set

- aside has been designated. The agency invites comment on whether capacity outside the state should be recognized, and how that could be implemented.” Comment: Reviewer recommends against limiting the set

- asid e to owners and operating of affected EGUs; owners and operators of eligible set

- aside projects who do not also own an affected EGU are equally important to reducing emissions and should not be disadvantaged in the set

- aside policy. Such a limit would probably result in some type of market distortion such that eligible projects would be sold to owners of affected EGUs or owners of eligible projects would purchase affected EGUs. Reviewer recommends against issuing set

- aside allowances to EGUs outside the state because BSER is calculated based on generation within the state and not generation outside of the state. EGUs outside the state would presumably be eligible to receive set- aside allowances within their own state

. 11) Page 210, 212. “ The EPA is also seek ing comment on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities.”

“ The EPA seeks comment on how a low

- income community should be defined under this set

aside. We seek comment on how much of the set -a side should be designated as targeted at low

income communities. We also request comment on whether the methods of approval and distribution of allowances to projects that benefit low

- income communities should differ from the methods that are proposed to apply to other RE projects.”Co mment: Reviewer recommends including a discussion of the importance of considering impacts on economically disadvantaged communities in the context of allowance allocation decisions described beginning on page 160.

12) Page 214, 221

- 222. “ We request comment below on the advantages and disadvantages of allowing a state to handle allocations via a delegation of federal plan authority.” Comment: Reviewer recommends clarifying, on page 218, that if a state chooses to auction

some or all of the allowances under a federal plan, that the state could choose to alter how the state spends the auction revenue, even though the allocation plan indicating what level of allowances will be auctioned “would be final and not subject to modificatio n.”

ERC Issuance Comments 1) Page 52. “This can be demonstrated through: 1) the provision of a power delivery contract or power purchase agreement in which an entity in the rate

- based state contracts for the supply of the MWhs in question and 2) documentati on that the electricity was treated as comparable to a generation resource used to serve regional load that included the rate

- based state. This demonstration must be included as part of the project application for ERC issuance to the EPA from the RE provider in the mass

- based state. Once the project is approved, subsequent applications for issuance of credit to the EPA will need to reference that the MWh submitted are achieved by an approved project located in a mass

- based state. The EPA requests comment o n this approach.” Comment: Reviewer agrees that the first demonstration option ensures that ERCs are not double counted. However, reviewer recommends clarifying option 2 by including an example of how option 2 could be demonstrated and how it does not lead to double counting.
2) Page 102. “The EPA broadly solicits comments on all aspects of the subcategorized rate approach.” Comment: Reviewer notes that the subcategorized rate approach is the BSER from the EG. Recommend clarifying exactly what the EPA is inv iting comment on, and that they are not re

opening up BSER for comment.

Reviewer requests that EPA request comment on pages 101

- 102 on using the statewide blended rate target as the rate option for the model rate trading rule. Reviewer notes that subcateg orized rates create a larger incentive for coal generation compared to a state blended rate, which may result in additional emission from coal under the subcategorized rate approach. Reviewer recommends EPA clarify how “subcategorized rates allow(s) for: ( 1) an equitable distribution of burden for emission reductions. Additionally, over what entities is the burden equally distributed?
3) Page 99, 103, 111

- 112, 134

- 135. “This section describes how a rate

- based federal plan would be designed and operated, and how measures consistent with the CPP EGs building blocks can generate ERCs. The EPA requests comment on these means of generating ERCs and whether other sources of low - or zero

- emitting electricity not included in the building blocks should also be eligible to generate ERCs for compliance purposes.” Comment: Reviewer recommends proposing (rather than taking comment on) that all non

- BSER technologies that are acceptable to generate ERCs in the emission guidelines (EGs) be proposedas approved under a federal plan. That would include, but not be limited to, distributed RE generation, demand side energy efficiency, new and up

- rated nuclear generation, offshore wind, and CCS retrofits . By not allowing certain abatement measures to be credited, the cost effectiv eness of the policy is reduced both for the federal plan and for states that adopt a “presumptively approvable” plan modeled after the federal plan. EM&V requirements for state plans on non

- BSER technologies are the same as for the federal plan, so comment s should be requested on the best EM&V methodology, , and not which technologies and measures should be valid compliance mechanisms or not. Reviewer also notes that EPA takes comment on what the process should be for demonstrating the “appropriateness” of additional technologies, but never explains what the “appropriateness” standard requires. All technologies and measures could be held to a strict standard to be quantifiable, verifiable, and additional. Any technology or measure that can pass the re quirem ents should be permitted to generate credits under a federal plan.
4) Page 108. “The EPA requests comment on this approach and requests comment and suggestions on other approaches for existing NGCCs to generate ERCs at all times. The EPA is considering this methodology that BB2 ERCs are generated for all NGCC generation because it ensures that all existing NGCCs are encouraged to run at a greater capacity. The EPA is requesting comment on alternative methods for NGCCs to generate BB2 ERCs. Specifically, the E PA solicits comment on NGCCs generating BB2 ERCs once a threshold of generation for the year is achieved.” Comment: Reviewer found that the equation presented on page 106, using data from the Goal Computation TSD, does not compute to a 0.09 BB2 ERCs/MWh. Specifically, from the TSD, reviewer notes that NGCC Gen Post BB2 is 987TWh and NGCC Gen in 2012 is 734TWh, which leads to a BB2 ERC generating factor of 0.25 BB2 ERCs/MWh. Reviewer requests clarification on the correct formula and how “the collective sum of the BB2 ERCs generated realizes the amount of the emission reductions described in Building Block 2 when 75 percent capacity is achieved.” (p. 105).

Additionally, reviewer recommends that EPA clarify the purpose of the equation on the top of page 109. Reviewer first thought this equation only applied to either of the threshold approaches, but upon closer study it appears that this equation may be the key to reproducing the BB2 ERC generating factor of 0.09 ERCs/MWh.

Reviewer recommends clarifying the text on the top of page 105. The first full sentence, “To account for...Building Block 2.”, makes it sound like only incremental NGCC will generate BB2 ERCs instead of all NGCC generation.

Reviewer recommends that EPA clarify over what time period the aver age NGCC generation is taken and after what building block in the following sentence from page 106. “...EPA has taken the average NGCC operation in the Eastern Interconnect and divided it by the 75% of Building Block 2...”

Reviewer recommends not proposing or asking for comment on the first threshold calculation option on page 108. S uch an approach would appear to create a clear opportunity to game the BB2 ERC calculation without actually increasing generation from NGCC relative to 2012. For example, an owner of two NGCC EGUs could increase generation for one EGU relative to 2012an d decrease generation from the other EGU relative to 2012, thus generating new ERCs but not increasing generation or reducing emissions. Alternatively, EPA could mention they consid ered this option, but decided against it for the reason above. Reviewer also requests clarification on the second threshold calculation option presented for BB2 ERC generation, as it is not clear from the text how the percentage threshold is calculated

or applied: “The other threshold option is to use a percentage threshold. This percentage is the 2012 regional NGCC generation of total NGCC regional capacity in 2012. This percentage is applied at the unit level and all generation by the NGCC that exceeds th at percent capacity at the NGCC is eligible to credited with BB2 ERCs.”
5) Page 110. “We invite comment on this approach [EGU based ERC generation] as a method of implementation of a federal plan and model trading rule.” Comment: Reviewer recommends adding a short paragraph at the beginning of the section on “EGU Based ERC Generation” on page 103 to give an overview of the 2 ways that NGCC can generate ERCs, with a sentence describing each, and an explanation of the differences between ERCs and BB2 ERCs. It was not until the end of this section that it became clear how NGCCs and ERCs interact.
Reviewer also recommends against issuing two types of ERCs in the federal plan. Because BB2 ERCs can be used for steam compliance and general ERCs can be used for both steam and NGCC compliance and because the vast majority of ERCs are expected to be used for steam compliance, one would expect there to be a single price for the two types of ERCs in a competitive market. R eviewer notes that maintaining two types of dist inct ERCs makes the program more complicated and increases the transaction costs of compliance without providing any additional environmental benefits.
6) Page 111. “The EPA requests comment on the inclusion of various types of demand

- side EE as eligible measures, such as state and utility EE programs, project

- based demand

- side EE, state building codes, state appliance standards, and conservation voltage reduction. The agency also requests comment on the inclusion of combined heat and power (CHP) as an eligib le measure.” Comment: Reviewer recommends that all EE measures and CHP projects with rigorous verification and that would be approvable under the EGs be included under the federal rate

based trading program. Reviewer recommends that EPA state these measure s are approvable rather than taking comment on whether they should be approvable.
7) Page 128, 129. “However, we solicit comment on the annual issuance of ERCs and whether issuance should occur at different intervals (e.g., quarterly, biannually, or other time frames). The EPA requests justification along with corresponding comments regarding issuance of ERC intervals.” Comment: Reviewer recommends increasing the frequency of ERC issuance at intervals less than a year. Automatic issuance of ERCs based on monthly generation data after a facility has been approved for eligibility would decrease the administrative burden on generators and the ERC tracking system, reduce price volatility, encourage continual operation of efficient markets, and provide certainty for low - or zero

- emission EGUs or projects

. To the extent that EM&V requirements prevent the monthly issuance of ERCs from some types of projects, reviewer suggests that ERCs from those projects be issued as frequently as possible. Reviewer notes thatPJM currently generates certificates in PJM

- GATS on a monthly basis ( http://www.pjm

eis.com/getting

- started/faq.aspx#genentq1). This will allow more time for EGUs to acquire the necessary ERCs and provide more market certainty for ERC generators.
8) Page 131. “ The agency requests comment on whether a quarterly or semi

- annual application process [for RE project and program eligibility applications and regulatory approval as well as information on ERC transfers] is appropriate. These applications will be accepted through the entirety of all compliance periods.” Page 128 - 133: "As required in the final EGs, we are proposing a two

- step application process to the federal plan tracking systems for RE ERCs... The EPA takes comment on all aspects of the proposed ERC issuance process. " Comment: Reviewer recommends streamlining the proposed ERC issuance for RE, other generating measures, and demand side EE to reduce the reporting burden and allow ERCs to be issued more frequently than once per year. As proposed, RE measu res must first submit a project application and then a separate application for credit issuance. Reviewer recommends having a single application process for RE or EE projects, which when approved allows automatic issuance of ERCs on a more than annual freq uency based on recorded generation or estimated savings. An annual EM&V report could be created and reviewed by a third

- party verifier; if discrepancies are identified, a NODA would be issued indicating the discrepancies and ERC adjustments taken for the relevant accounts.
Reviewer also recommends (on page 132) that EM&V methods for RE providers be approved during step one of the credit issuance process. Then in step two, only MWh would need to be submitted such that the process can be less onerous and time consuming.

Administration Comments 1) Page 48. “The state plan must use an EPA

- administered tracking system (we are also requesting comment on expanding this to include a state plan that uses an EPA

- designated tracking system that is interoperable with an EPA

- administered system, as detailed below).” Comment: Reviewer supports an EPA

- designated tracking system that is interoperable with EPA

designated/approved state tracking systems, as described on page 48, be included in the FIP. Reviewer recommends reque sting comment on page 125 if additional information should be tracked in the ATCS to ensure compliance with trading rules laid out in the EGs and contribute to a more competitive market. Reviewer recommends EPA take comment on using a 3 rd party to run the tracking system for a federally enforceable implementation plan. Reviewer recommends taking comment on needs for interoperability, using existing REC exchanges as a starting point.

Reviewer requests clarification on the integrity lost through linking sta te

- approved and federally administered tracking systems. If each of the state

- approved tracking systems meets the EPA requirements and exchange protocols that are determined, then integrity should be maintained (once emissions increases issues described ab ove are addressed).

2) Page 83. “the agency believes it would be efficient and potentially avoid the need for recourse to litigation, to provide an administrative appeals process. Therefore we are proposing, and requesting comment on, the use of the regulati ons for appeals procedures set forth in 40 CFR Part 78, to provide for the adjudication of certain disputes that may arise during the course of implementation of a federal plan under section 111(d).”Co mment: Reviewer recommends that any administrative appeals process be sufficiently transparent to facilitate ERC/Allowance price discovery by market participants . Reviewer notes the potential for such an administrative appeals process to be highly disruptive (an d introduce significant price volatility) to the market for ERCs/Allowances if done in secrecy with sporadic releases of market

- moving information.

Reliability 1) Page 64. “Therefore, a reliability safety valve for the federal plan is not needed. EPA invites comments on this aspect of the proposed federal plan.” Comment: Reviewer recommends further explaining why emergency events (on Pg. 64) that would otherwise trigger the reliability safety valve would not do so under a federal plan, especially with respect to any short

- term modifications to a federal plan that may be needed (noting that this depends on how the final CPP is clarified on this issue). Further, reviewer recommends considering (and explaining) why, given the limited circumstances under which a reliability safety valve would be exercised, the opportunity to do so is foreclosed with compliance under a federal plan, especially given that the federal plan structure (trading) cannot guarantee that a reliability safety valve

- qualifying emergenc y event would not occur.
2) Reviewer recommends that, in the event that the RSV is triggered, all excess emissions should be made up to maintain the stringency of the program on page 1163.

Biomass Feedstock Eligibility 1) Page 114

- 115. “ Provided for comment below are options for biomass treatment under the rate

based federal plan, which would also apply to eligible generation under the mass

- based plan allowance set

- aside and to the calculation of covered emissions for affected EGUs that are co

firing biomass, which include:

a. A list of specific acceptable biomass fuels b. General principles and/or specific criteria regarding biomass fuel production, processing and use for energy

c. A combination of the above options. “ Comment : Reviewer recommends EPA not take comm ent on options 2 and 3 as presented. Reviewer recommends to instead take comment on only two options: 1) EPA’s option 1 and 2) a modified version of EPA’s option 3.

For the modified version of EPA’s option 3, the reviewer recommends that EPA still create a list of acceptable biomass feedstocks that are updated over time (Option 1). The primary criteria for approving acceptable biomass feedstocks would consist of evaluating the carbon reduction benefits through a life

- cycle emissions analysis of the biomass feedstock.

A secondary method of evaluation for including biomass feedstocks onto a pre

- approved list, is the sustainability and best forest management practices (with some caveats as commented on below ) outlined in Option 2 (pgs. 116

- 117). This method would provide clarity for common feedstocks, and emphasize carbon reduction as a metric for other feedstocks.2) P ag e 114

. “The revised Framework ...finds that it is not scientifically valid to assume that all biogenic feedstocks are ‘carbon neutral’...” Comment : The reviewer agrees with this comment, but notes that it is also not scientifically valid to assume that no biogenic feedstocks are carbon neutral, or that all emissions from biogenic feedstocks are additional to the emissions that would have occurred we re they not used as a feedstock. Reviewer recommends inclusion of this clarification.
3) Page 115: “ The first option offered for comment is to specify a list of specific pre

- approved acceptable biomass fuels. ” Comment: Reviewer notes that the first option is similar to the feedstock/pathway approval process used for the RFS. Recommends noting this in text.
4) Page 115. “ The second option offered for comment would be to establish general principles and/or specific criteria concerning the production, processing and use of biomass fuels.” Comment: Reviewer notes that the second option is presented under a discussion to develop principles and criteria for eligibility of feedstocks when the underlying issue with option two is implementation. The concern is that the third party verification/certification sets a potentially unwanted precedent of having Forest Service and BLM managers subject to a few selected individuals, and that the process would be redundant to current NEPA pr ocesses. Recommend clarifying how these interactions between agencies (EPA, USDA, DOI) would occur under the federal plan.
5) Page 116. “ Under this option, the EPA could specify criteria for the production, processing and use of forest - and agriculture

- deriv ed biomass fuels that could also include the preservation of, and/or limiting or restricting the use of biomass fuels from, natural and old growth forests...” Comment: Reviewer notes that nearly all federal forests are “natural forests.” Removal of biomass f rom these forests would offset the cost of needed treatments for these forests which are overstocked and prone to fire and pest epidemics. Reviewer recommends explicitly stating that this definition of “natural forests” would not exclude federal forests.
6) Page 116. “ L imitations on deforestation and targeted land use change, especially of high carbon and/or otherwise ecologically sensitive areas for the production of bioenergy feedstocks “ Comment: Reviewer recommends defining “deforestation” as meaning land use changes and unrestricted logging in ecologically sensitive areas.
7) Page 117. “ Use of the best scientific information and systems available to assess landscape health , carbon stock attributes and net carbon emissions attributable to production and use of biomass for combustion, and to continually refine and update inventories of these attributes ” Comment: Reviewer suggests clarifying “continually refine and update inventories of these attributes” as it is a nebulous term that could have large economic a nd workload implications.
8) Page 117. “ Ensure forest and landscape productivity, and economic viability, including primary and secondary products. “ Comment: Reviewer recommends taking comment on “ensuring forest and landscape productivity” as it is a difficult task.

Biomass Compliance1) Pa ge 118. “ The EPA also requests comment on options for demonstrating compliance with the options listed above that include criteria that reflect sustainability and sustainable practices that are additional to the EM&V requirements discussed in section &&& above. These options for demonstration of compliance with criteria are described below.“ Comment : pg. 118

- 119, Reviewer recommends taking comment on Options 3 and 4 only, as they focus on existing certification and car bon accounting methodologies.
2) Page 118. “ The first option offered for comment would require provision of sufficient credible evidence, such as monitoring records and metrics showing that the forest/agricultural feedstock sources meet the criteria listed above and any others that might be adopted, and are at low risk of non

- compliance.” Comment: Reviewer notes that the first option for demonstrating compliance requires evidence that defeats the purpose of having biomass fuels that are “pre

- approved.” Rec ommend clarifying what the additional reporting for this would be beyond what would be required for just determining if a feedstock qualified or not.
3) Page 118. “ The second option offered for comment would require the provision of approved third party veri fication and/or certification entities or programs to demonstrate compliance with established sustainability criteria. ” Comment: Reviewer notes that NEPA compliance generally supersedes third party verification/certification programs, and that this option for compliance would be a redundant and costly requirement. Recommend addressing how NEPA compliance could be used under this option.
4) Page 119. “ The third option offered for comment allows for the use of any other verification programs or entities to demonstrate compliance which are not pre

- approved but can be proven to employ generally accepted sustainability metrics .” Comment: Reviewer supports the third option presented for compliance, as it would conceivably include NEPA compliance on federal forests and certifications for private lands. Recommend making this the preferred options and the other options as alternatives.
5) Page 119. “ The fourth option offered for comment requires a determination of the biogenic emissions and sequestration related to the production, processing and use of the biomass fuel, with supporting records.” Comment: Reviewer notes that the fourth compliance option presented is also part of the proposed methodology for determining if a feedstock is eligible. Recommend clarifying whe ther carbon accounting if done for showing eligibility as a feedstock would not have to be repeated to show compliance under this option.
6) P age 152

. Reviewer recommends the following change: “ This proposed requirement to hold and surrender allowances equal to emissions for each compliance period would apply to all reported emissions from a facility’s affected EGUs including any emissions from co

- fired biomass as calculated according to the methodology discussed in the final Framework for Assessing Biogenic Carbon Dioxide for Stationary Sources .”

Reliability Safety ValveEP A indicates that a reliability safety valve is not needed for the federal plan (page 64). This is based on the assumption that affected EGUs can obtain allowances or credits as and when needed. However, the availability of allowances and credits would depend on the number of states that come under a federal plan or under a state plan that is “presumptively approvable.” Moreover, based on market fluctuations and operational anomalies, credits and allowances may not be available at a critical time when a system is faced with a serious reliability risk, or may be available but only at prohibitive prices. Accordingly, reviewers suggest that EPA set out certain limiting criteria for a safety valve in the federal plan instead of not including a safety valve at all. In addition, reviewer suggests that EPA allow the creation of ERCs and allowances before the compliance period begins in 2022. This would result in early emission reductions and enviro nmental benefits and would also allow states and EGUs to create a bank of ERCs or allowances in advance of the compliance period to reduce the possible dependence on a safety valve in the early years of the initial compliance period.

New Source Review

Th e preamble states in several places (see e.g. pages 80

- 81) that the “situations will be very few” in which NSR applicability is triggered because of undertaking a physical change or change in the method of operation. EPA needs to substantiate this conclusion through an analysis to show why it believes that measure taken under BB 1 and BB2 would trigger NSR only in a “few situations.” This conclusion that NSR would be triggered in only a “few situations” appears inconsistent with EPA’s policies on implementa tion of NSR. While this is an NSR issue, it has bearing on this rulemaking because widespread triggering of NSR for the BSER measures under this rule may have an impact on the ability to meet the compliance schedule under this rule. The preamble cites UARG v. EPA for the proposition that greenhouse gas emissions alone cannot trigger NSR requirements. However, this case would not necessarily help sources avoid NSR with respect to the implementation of the Clean Power Plan because BSER measures under BB1 and BB2 could result in an increase in emissions of GHG and criteria pollutants (SO2, NOx, PM, etc.), resulting in those sources being considered “anyway” sources.
Generation of ERCs Through Operation of non

- BSER Sources The draft of the federal plan discuss es (pages 110 to 120) the RE measures that would be eligible for ERC generation. To ensure consistency with the final Clean Power Plan, reviewers suggest that the federal plan allow the generation of ERCs from a broad range of zero

- emitting non

- BSER source s such as new nuclear and demand response EE, subject to EM&V requirements and verification/certification protocols. EPA is justifiably concerned about the impact of “leakage” from certain non

- affected EGUs (e.g. new NGCC units) on the effectiveness of the BSER measures. However, zero

- emitting sources such as nuclear and demand response EE would not cause leakages, and there is no principled basis to treat them differently from the RE measures that EPA has identified as being eligible for ERCs. By the same token, these other zero

- emitting non

- BSER measures should be eligible for receiving set

- aside allowances in a mass

- based program.
Likewise, the draft federal plan sets out certain criteria under which ERCs generated from RE measures operated in mass

- based states can be used to meet compliance obligations in rate

- based states. Reviewers suggest that the use of ERCs generated from other zero

- emitting sources located in mass

ba sed sources (such as nuclear and demand response EE) should likewise be allowed to meet compliance obligations in rate

- based states.
Participation in Federal Plan Trading Program As to interstate trading (pages 144

- 147), reviewer recommends the use of the broader approach such that EGUs in states under a federal plan and in states with a “presumptively approvable” plan, could trade with EGUs in other states that are not under a federal plan or “presumptively approvable” plan. Creating such a mechanism that facilitates trading through a common federal trading rules (mass

- based and rate

- ba sed) is critical as, otherwise, states would not have an incentive to develop state plans using a “state measures” approach. This is also a more equitable and economical approach to compliance. Moreover, the fact that state plans using a “state measures” a pproach would have the federal plan as a backstop minimizes the risk of harm in allowing trading between states under state and federal plans.

Retired Units Many utilities own units that meet load and serve customers in multiple states. Therefore, utilit ies must make decisions for their generating fleet as a whole, not as isolated units in individual states. An owner of EGUs in two states with a mass

- based plan may retire a unit in one state and need those allocations to help a unit in another state compl y. In order to allow this flexibility, reviewer suggests the following approach that is not currently in the proposed rule. Reviewers suggest that the initial allocation of allowances for each unit be held constant and not removed from the unit regardless of the unit’s status throughout the compliance period. It would be inequitable to take allocations from EGU owners that retire units as a result of this rule. EPA could require EGU owners to demonstrate the need for excess allocations, due to unit retireme nt, to be used by its EGU in another state for compliance. Without this demonstration for need, the excess allowances could be distributed to other units in the state where the retired unit is located. Under the proposed federal plan, a unit that does not operate for two consecutive years would receive allocations for four years after it ceases operation (page 211). This scheme does not account for units that were placed in an extended outage to address major equipment maintenance, or were mothballed for u se at a future date. Units that have maintained their Title V and other environmental permits with a view to restarting in the future, and have undertaken preventative maintenance while in extended outage or mothballed condition, should not be penalized merely because of non

- operation for a two year period. Accordingly, reviewer suggests that the criteria for retired units be revised such that the
two

- year, non

- operation clock would run only under certain conditions.

Other General Comments With regards to the output

- based allocation, commenters recommend giving the allocation to all clean new and existing generation in addition to all existing natural gas generation

— in other words, to all generation that results in lower emissions rather tha n higher emissions. This will (1) ensure that the full incentive to build new renewables and preserve existing zero

- carbon generation will be maintained and (2) eliminate market distortions associated with the threshold

- based allowance allocation

Commente rs recommend that EPA take comment on a BB2 ERC approach that generates some fraction of ERCs through the reduction in steam generation (in contrast to the central proposal that only focuseson increases in natural gas generation). In particular, this coul d be accomplished through a pro

- rated additional demand for ERCs placed on steam generation.

Commenters recommend that new nuclear power and uprates, distributed PV and offshore wind be among the creditable technologies under a rate

- based plan

Commenters r ecommend that ERCs be issued as often as possible to provide the most information and certainty to markets. If this cannot be done for all types of ERCs, it should be straightforward to do for RE.

Commenters recommend that States under a mass

- based federal plan be allowed to take advantage of the full 8

- year averaging across the interim compliance period, especially in light of the lack of an RSV. States could convert to a state plan provided that they either are at a zero or positive bank or that they

acco unt for any borrowed emissions in their state plan.

Commenters understand that the ERC crediting mechanism will be established in the emission guidelines, so is it correct to assume that the proposed options for ERC crediting in the FP will be removed?

It would be helpful to have a clarification of the current thinking on the process for finalizing a federal plan for a state in terms of the notice and comment requirements, if any, and what that timeline would be.
Would it be possible to provide for EPA paym ent of verifiers (through fees assessed to energy efficiency developers) to avoid having developers themselves paying verifiers, and the incentive structure that creates?

Could EPA discuss how it will be assured that states with a rate

- based FP approach would have sufficient access to ERCs?
Would it be possible for a state to choose to opt

- in its new sources under a mass

- based FP, perhaps by making the anti

- leakage design element one of the places where a state could choose to make a design decision for the FP?
Other Specific Comments
1) Page 144, 235. “The EPA also requests comment on requiring monitoring and reporting of CO 2 mass and net generation for the year before the initial compliance period begins, i.e., to commence January 1, 2021.” Comment : Reviewer recommends requiring monitoring and reporting of CO 2 mass and net generation for the year before the initial compliance period so the effects of the first year of the policy may be measured and analyzed and so that any kinks in processes can be ironed out before compliance obligations begin.
2) Page 180, 220. “The EPA requests comment on the proposed approach of recording allowances seven months prior to the start of each compliance period, and on an alternative of recording allowances 13 months prior to the start of each compliance period.”Co mment: Reviewer requests clarification on whether EGUs can use allowances from the next compliance period to comply with a current compliance period since allowances will be issued for the preceding compliance period eit her 7 or 13 months before the current compliance period ends.

Technical Comments 

### 1) Page 48

- 49

. Reviewer request clarification on the passages on page 48

- 49. Is there a difference between “EGUs” and “sources”? Does EPA intend to make a distinction in the dir ection of trading? I f not, consider using “between” instead of “from”

.
“ The EPA proposes that interstate ERC trading could occur both i) from affected EGUs in states covered by the rate

- based trading federal plan to affected EGUs in states with approved r ate

based trading state plans meeting the proposed conditions for linkages, and ii) from sources in such state

- plan

- covered states to sources in federal

- plan

- covered states. ”


### 2) Page 63

. Reviewer recommends expanding use of the ISO/RTO Council to reliability coordinators and planning authorities because the IRC does not encompass all areas of the country.


### 3) Page 103: Reviewer also recommends on page 103 changing the signs on “EGU limit” and “EGU operating rate” in the numerator of the equation, so that if “ERC MWh” is calculated to be positive it indicates how many ERC need to be surrendered and if it is calculated to be negative it indicates the number of ERCS that are being generated. This will then make the sign of “ERC MWh” that need to be surrendered consistent with other equations in the preamble (for example on page 107).


### 4) Page 104

. Reviewer recommends deleting the following sentence on page 104. The sentence is correct, but it contains the same information as the equation and text on the previous page, but it is stated in a way that requires careful review to determine that fact. “The needed quantity of ERCs for any given amount of generation can be easily calculated by dividing the total emissions of the affected EGU by the applicable emission rate limit, and then subtracting the generation of the affected EGU.”


### 5) Page 104: Reviewe r requests clarification on the meaning of pro

- rata in the sentence: “To incentivize and capture the emission reductions of Building Block 2 of the CPP EGs, the EPA proposes in the federal plan that NGCC generation has the capability to generate ERCs on a pro

rata basis reflecting incremental NGCC generation. “


### 6) Page 106

. Reviewer recommends clarifying the following, as it is not clear what is meant by “when the region reaches 75 percent summer time capacity...” does this mean, “when the interconnect region g eneration reaches the level that would be generated if all NGCCs in the region operated at a 75% capacity factor” ?


### 7) Page 124 & 127

. Reviewer suggests clarification that ERCs in a compliance account are retired and no longer available for trade when used for compliance purposes, which follows current terminology in REC tracking systems: “A compliance account would be the account in which any ERCs used by the affected EGU for compliance with the emissions limitations would have to be held until retired for c ompliance .”“Accordingly and if necessary, the appropriate number of ERCs will be deducted from retired in the EGU’s compliance account to adjust the emission rate of the EGU to be equal to the emission standard.


### 8) Page 127

. Reviewer recommends clarifying the source of the data for the “total pounds of CO2 emitted over the compliance period” and “the net MWh of energy the affected EGU produced.” Reviewer recommends that the source of data be sufficiently verified to ensure accurate data.


### 9) Page 128

. Reviewe r recommends clarifying the difference between ERC unique serial numbers and tracking numbers.


### 10) Page 130

. Reviewer recommends clarification of how text on page 130/131 differs from previously described EPA

- administered Allowance Tracking and Compliance Sys tem. Is this an alternative or additional tracking system for RE facilities or for EM&V? “The EPA is proposing that the agency will establish a tracking system for administering the rule that provides for transparent access to RE project and program eligib ility applications and regulatory approvals as well as information on ERC transfers and third party verifiers (third party verifiers are further discussed below as part of Evaluation, Measurement and Verification).”


### 11) Page 131

. Reviewer supports EPA’s abili ty to designate an agent to coordinate project applications to prevent burdening the agency with these tasks which can be accomplished by other groups. “It is proposed that EPA may designate an agent to coordinate the project application process and assist with review of applications.”


### 12) Page 132

. Reviewer seeks clarification on whether the text on page 132 indicates when facilities may apply for approval to generate ERCS versus actually issuing ERC s

. “The agency is proposing that ERC issuance applications will be accepted after the beginning of the first compliance period, as soon as the agency is able to establish an application process, and that applications will be accepted on a periodic basis, either quarterly or semi

- annually. These applications will be accepted through the entirety of all compliance periods.”


### 13) Page 133. There is a reference to the “clean energy investment pool” here, which is the only time that is mentioned. Reviewer suggests the discussion be extended to explain more about how it w orks. In addition, reviewer suggests including a discussion of this in the mass

- based plan section, which would reduce confusion about why the rate

- based plan discusses “mass

based allowances.”


### 14) Page 139

. Reviewer recommends clarifying that when calculat ing the number of ERCs needed to be in compliance, the Adjusted Emission Rate must equal the Emission Standard in the first equation. AAAAAAAAAAAAAAAA EEEEEE EEEEEE RRRR = MM oo CCCC 2 ( llll ) GG GG ( MMMM h ) + MMMM h EERR CC = EEEEEE EEEEEE SS Reviewer also recommends the following edit to the second equation because the adjusted emission rate may not equal the emission standard for EGUs that are out of compliance.MMMM h EE = MM oo CCCC 2 ( llll )

EEEEEE EEEEEE SS ( llll MMMM h ) − GG GG ( MMMM h )



### 15) Page 160. Reviewer recommends the following edit on page 160 since the initial allowance allocation can affect the overall environmental results if emissions fr om non

- covered sources are considered. “The initial allowance allocation approach does not affect the environmental results of the program or generation patterns, except as it effects generation shifts between covered and un

covered sources.”


### 16) Page 167

. Re viewer recommends clarifying (step 3) that EGUs that generated in 2010

- 2012, but that are no longer operating, have their generation be removed from the sum total of historical generation and not be awarded allowances.


### 17) Page 181. Reviewer recommends the following text because there is some risk of leakage to new sources under a rate based standard depending on the level at which the rate is set. “This risk is not as great or is not present, depending on the difference between the intensity of

a new unaffected source and the performance emission rate, present for existing EGUs under a rate

- based plan...”


### 18) Page 186. In the federal plan, reviewer recommends accounting for lost large zero carbon generation by subtracting the lost generation in the denomina tor of the rate

- based compliance calculation for the state beginning in the year that the EGU goes offline.


### 19) Page 196

- 197. Reviewer recommends that EPA include an equation in addition to the text on these pages that explains how the number of allowances in the set

- aside is calculated. Reviewer’s understanding from the section is that Allowances in Set

- Aside = 98% of Total Allowances x Allocation Rate x 2014 NGCC Generation between 50% Capacity Factor and 70% Capacity Factor , but there are certain places i n the text where this is not clear.


### 20) Page 235. R eviewer recommends updating the r eference to MATS to reflect recent court decisions

. 

### 21) Page 259

. Reviewer recommends adding to the list of completeness criteria discussed on Pg. 259 the 111(d) plan requirement regarding demonstrating that the state has consulted with the planning authority/reliability coordinator.


### 22) Reviewer recommends that the struct ure of the rate plan and mass plan, in terms of headers and content, should be roughly parallel.

Typographical Comments 1) Page 52: Reviewer recommends revising the following sentence to infer that application of ERCs could be submitted to agent of EPA run ning a tracking system. (Page 52 and throughout text).“ Th is demonstration must be included as part of the project application for ERC issuance to the EPA or its agent from the RE provider in the mass

- based state.”
2) Page 53: Reviewer recommends the following edit because there are cases where RE located in a mass state can be counted in a rate state. “Under the proposed mass

- based approach there is a restriction to counting RE that is located in a mass state in a rate

- based system : , if RE providers that receive mass

- based set

- aside allowances for their generation

. In this case RE generation is are barred from being issued having ERCs issued for that generation in a rate

- based state.”
3) Page 54: A sentence says “remain under the mass, thereby” which is miss ing a word after “mass”
4) Page 71: Harmonize language to use either “step

- down approach” or “glide path” – the latter was used exclusively in the preamble and it is suggested that this language be made consistent here and throughout the text: “At that point, the agency is using a step

- down approach, or glide path...”
5) Page 101: Reviewer recommends revising the emissions standards in the table to match those in the redline preamble.

6) Page 104: “ Through Building Block 2 there is a call to shift represents shifting generation from fossil steam EGUs to NGCCs because NGCCs generate electricity at a lower carbon intensity and, thus, reduces CO 2 emissions for the same level of generation”

7) Page 107: “ The NGCC is subject to a final period emission rate limit of 780 lbs CO 2 /MWh. Since the NGCC is always subject to its NGCC emission rate limit of 780 lbs/MWh and it is operating at a rate above that limit it will owe non

- BB2 ERCs for all generation”

8) Page 107: Reviewer recommends editing the variable name in the second equation to be consistent with elsewhere in the text. NGCC Generation * BB2 ERC Generating Factor on Rate = BB2 ERCs
9) Page 110: Reviewer recommends the following edit. “This treatment for eligible measure types is also proposed for the set

- as ide for RE that is part of the proposed mas

- based implementation approach in the federal plan ,...”
10) Page 111: Reviewer recommends striking this comment because it should not be a relevant consideration for ERC generation eligibility purposes: “ These technologies are also expected to be able to deploy on an economic basis during the compliance period, as discussed in the final EGs (see Sec. V.E.6).”

11) Page 142: “The EPA would require that ERC emissions generation data be reported to the EPA quarterly st arting on April 30, 2022, and continuing every three months thereafter (i.e., the 30th of April, July, October, and January).”12) Pag e 152 and Page 154: Reviewer suggests clarifying the terminology “interim compliance period” because the EG tends to use that phrase to denote the entire eight year period between 2022 and 2029 whereas the federal plan states that the interim compliance represent s the three and two year periods within that 8 year span. The EG refers to the periods of three and two years as interim steps. Reviewer recommends that t his should be done throughout the text.

13) Page 159 : Reviewer recommends including a discussion of designated representatives in both the rate

- based and mass

- based sections (currently it is just in the rate

- based section).

14) Page 175: It appears there is an unnecessary “The EPA requests” at the start of the first fill paragraph.

15) Page 202 : “The E PA is proposing that five percent of allowances will be reserved from the allocation for each state for the purpose of the set

- aside.” Reviewer believes this should be 2 percent, based on earlier language.

### Attachment C.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Saturday, July 25, 2015 5:36 PM To: Culligan, Kevin; Harvey, Reid; Vasu, Amy Cc: Szabo, Aaron; Grossman, Andrea Subject: Summary of Interagency Comments Under EO 12866 and 13563 ‐‐ Federal Plan Requirements for GHG emissions from EGUs; Model Trading Rule

Attached please find a summary of interagency comments under EO 12866 and 13563 on the EPA draft NPRM, Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rule.

Thanks and please let me know if you have any questions.

Nathan

### Attachment C.1

### a. Set-asides for Output-based Allocation
The EPA is proposing a set

- aside approach referred to as
output-based allocation, which provides targeted allocations of a
limited portion of allowances to existing NGCC and zero -emitting
units as a means of mitigating emissions leakage to new units or
existing units covered by a rate

- based plan in a neighboring state

.
The EPA believe s that this proposed set

- aside would help ensure

the environmental integrity of a mass

- based plan, and could
potentially reduce costs , and address incentives for generation to
shift away from EGUs covered under mass

- based plans to new

unaffected EGUs or EGUs in rate

- based states . We seek comment on
all aspects of this proposal and its underlying rationale.
Under the output-based allocation approach we are proposing,

some of the total allowances within each mass -based state are
allocated to existing NGCC and zero-emitting units based, in part,

on their level of electricity generation in a recent period. The
allocation to an eligible EGU is not fixed, but instead depend s on
its generation multiplied by a constant factor . Each eligible EGU

may would get a larger allowance allocation if it generates more
such that owner/operators of eligible EGUs will have an incentive
to generate more in order to receive more allowances, making them
more competitive than they would be without the set -aside. Because

### the total number of allowances is limited, this allocation approach

will not exceed the overall emission goal; instead, it merely
modifies the distribution of allowances in a manner designed to
mitigate emission leakage.

Output- based allocation provides an incentive for eligible

EGUs in mass

- based states to increase their generation in order to
increase their allocation of allowances. This incentive helps
align the generation incentives for eligible EGUs in mass -based

states with new EGUs within mass

- based states that are not subject

to the mass

- based limits as well as analogous EGUs in other states
covered by emission rate limits, mitigating emissions leakage. The
EPA also solicits comment on another potential ancillary benefit

of this set -aside: mitigating electr icity price impacts associated
with the proposed federal plan -- recognizing that this rate and
bill impacts can also be achieved mitigated through other

mechanisms . Output- based allocation lower s the marginal production

cost of eligible EGUs. Therefore, if these EGUs influence
electricity prices, the reduction in their production costs will
place downward pressure on the electricity price. In the specific
situation where eligible EGUs are in cost-of-service regions, the
effect on electricity prices would depend on the relative cost of
producing electricity from these EGUs relative to the cost of
procuring power from EGUs subject to emission rate standards.

### It is important that the output-based allocation approach be
designed to avoid unintended consequences. In particular, the
design should reflect the fact that its application mayavoid, to
the extent possible, any reduc tion in e the incentive s to invest in
maintainingmaintain or invest in existing orand adding new zero or low

- emitting generation as a result of the downward pressure it

the allocation scheme may place on electricity prices. We take
comment on whether and to what extent aAwarding allowances to new

zero- emitting generation as well as existing zero -emitting
generation and existing NGCC units wsh ould have this result, and

whether additional allowance allocations to these resources are

necessary.
Furthermore, providing too strong a generation incentive to

affected EGUs eligible for the set -aside could increase total
electricity production costs. Specifically, if applied too

strongly , output

- based allocation can go beyond the alignment of

incentives across similar EGUs and lead to undesirable differences
in incentives in the other direction. For example , if eligible
affected EGUs receive too a large number of allowances for each
MWh of generation this could incentivize generation that is high
cost, exclusive of the cost associated with obtaining the mass

based emission limit, and disincentivize lower-cos t generation
subject to emission rate standards. This could raise the total

### cost of achieving overall emission levels with relatively little
environmental benefit. The output

- based allocation set-aside
should be designed to address these economic concerns.
The EPA accordingly solicits comment on key parameters for
the appropriate design of the output

- based allocation approach
used for this proposed set-aside. Key parameters to be identified
under the output-based allocation approach include which affected

EGUs and other sources receive the allocation, the vintage for

allowances, the allocation rate(s), and the size of the set -aside.
EPA solicits comment on what other key parameters may be relevant
for design of an appropriate output-based set-aside.

T he EPA first solicits comment on which EGUs should be
eligible to receive output

- based allocation from the set -aside.
The EPA proposes that only NGCC units subject to the final
emissions guidelines and zero -emitting sourcesgeneration receive

output- based allocat ion from the set -aside , subject to limitations

described below. The EPA recognizes that performance of output

based allocation may be improved by targeting which units receive
this additional incentive. In particular, this approach can most
effectively address emission leakage if targeted to those affected
EGUs that face the greatest difference in their incentive to
generate relative to otherwise similar EGUs subject to emission

rate standards. As noted in the discussion of the allocation rate

### below, new combustion turbines would be expected to generate more

absent this set

- aside. Therefore, the difference in generation
incentives between affected stationary combustion turbines under

mass- based implementation and otherwise similar new stationary
combustion turbines subject to the 111(b) standards is likely one
of the most salient deviations in production incentives to address.
However, as noted above, it is important to retain incentives for
zero-emittingclean generation even as the incentive difference

between affected and new NGCC sources is decreased.
As discussed further below, under this proposal other

affected EGUs , and EGUs not subject to the emissions guidelines,
would not receive output

- based allocations from this set -aside

.
Below we also take comment on whether sources other than combustion
turbines sources subject to the emissions guidelines those

mentioned here should be eligible for output

- based allocations

under this set-aside.

Second, EPA requests comment on options for the allocation
rate under this approach. The allocation rate is the emissions

equivalent number of allowances that an eligible EGU receives per

one net MWh of generation eligible for the set -aside. In
particular, we request comment on setting the allocation rate equal

to the emissions rate of an advanced NGCC generator, in order to
align the generation incentives across EGUs eligible for the set### aside and the type of new emitting source that would generate more
absent this set-aside [&&&REF]. We also specifically take comment
on using a value such as 850 lbs/MWh

- net or any other value. We
additionally take comment on setting the allocation rate equal to

the emission rate standard (on a net

- basis) for new stationary

combustion turbines under 111(b). With all these choices, an y
additional MWh of eligible generation would earn allowances equal
to the emissions rate chosen here. In particular, all eligible
sources would receive an equal allocation per MWh to ensure that

the allocation does not introduce further distortions into the

market.

In addition to an allocation to all eligible generation

described above , The the EPA also proposesFor the portion of the
updated generation

- based allocation described above dedicated to
existing NGCC generation, EPA takes comment on an alternatethat

this approach be that is targeted towards marginal generation by

only providing , in addition to allocations to zero -emitting
generation , allocations to existing NGCC under this set -aside

only to the portion of generation from eligible existing NGCC

unitsEGUs that exceed s a certain average capacity factor over the
compliance period . T he allocation rate would only apply above a
particular average capacity factor because it is intended to
incentivize marginal generation and not generation that would have

### otherwise occurred absent the output- based allocation from the

set-aside . Under this approach, eligible affected EGUs would

receive no allowances from this set -aside for generation below
this average capacity factor ( although all affected EGUs will still
receive allowances through the default allocation approach and any
applicable set -aside) . This approach avoids incentivizing
production at lower levels of generation from an eligible source,
and therefore avoids discouraging a relatively inefficient or
infrequently used EGU from retiring. 1 

### The EPA proposes takes
comment on an approach under whichthe idea that each existing

NGCCEGU eligible for the set -aside would receive output-based
allocation at the allocation rate only if its average capacity

factor in the compliance period is above 50 percent on a net -basis

[&&& check net]. Furthermore, under such an approach, we propose

take comment on , under such an approach, the idea that each
eligible EGU existing NGCC receiv inges allowances at the
allocation rate for all generation above an average capacity factor

of 50 percent . That is, there would be no “maximum” average
capacity factor above which output

- based allocations are not

1 As discussed below, if a source would no longer receive allowance allocations after it retires it would be discouraged from retiring, which may increase total production costs. The logic for not providing output

- based allocations to sources with low capacity

- factors is the same, although the strength of the incentive to not retire is lower for output

- based allocation than it is when the entire allocation to the source may be forfeit through retirement.

### earned by an EGU eligible to receive them

. 2 

### This is to maintain
the marginal incentive to generate from the affected EGU. (The

total number of allowances available in the set-aside is limited,

however, as described below.) EPA takes comments on the
implications of this approachoption towardsfor the operation and
efficiency of electricity markets. EPA also takes comment on
whether to apply this approach to other eligible sources.

NextThird , the EPA solicits comment on selection of a source
of allowances that is a specific vintage for allocation. This key
parameter determines which compliance period’s allocation is

distributed based , in part, on current period generation.

Alternatives include the current compliance period’s allocation,
which is the period in which the eligible generation occurs, an d

a future compliance period’s allocation. If allowances are
allocated from a future period’s allocation, affected EGUs eligible

sources can receive additional allowances in a given future period,
based on their additional generation in the current compliance
period.
Both approaches create an incentive to increase generation in

the current compliance period to secure additional allowances ; the
difference is in when those allowances may be used. Allocating

2 Effectively, the allocation rate of output

- based allocation is zero up u ntil this average capacity factor.

### current compliance period allowances based on current year
generation may create uncertainty in that affected EGUs may not
know if they will be allocated sufficient allowances to cover their

emissions or will have to buy allowances, because their total
allocation will not be fixed until the end of the period when their
cumulative generation is known. Therefore, an advantage of
allocating allowances from a future compliance period is that

affected EGUs will know ex

- ante how many allowances they will be
allocated in a given period. However, if there is an expec tation
that the federal plan will be replaced by a state plan in the
future compliance period, the incentive to respond to output -based
allocations is potentially diminished. The longer the lag between
the eligible generation and the output

- based allocation, the
greater the potential for uncertainty to lower the incentive
associated with output

- based allocation. At the same time, the
ultimate effect of output

- based allocation timing will also depend
on expectations about future allowance prices relative to current
prices and the degree to which the banking of allowances is
permitted.
Weighing these observations, the EPA specifically proposes
allocating allowances based on generation from eligible EGUs in
the preceding compliance period. In the first compliance period of

the federal plan, allowances allocated to affected eligible EGUs

### would be distributed per the historic-generation- based approach

described above (with no further adjustment). The EPA also requests
comment on other approaches to selecting a vintage (or vintages)
for allocating allowances for an output-based allocation setaside.
Further, we request comment on options for the allocation
rate under this approach. The allocation rate is the emissions

equivalent number of allowances that the affected EGU receives per

one net MWh of generation eligible for the set -aside. In
particular, we request comment on setting the allocation rate equal
to the emission rate standard (on a net-basis) for new stationary

combustion turbines under 111(b ). ), in order to align the
generation incentives across EGUs eligible for the set-aside and
the type of new emitting source that would generate more absent

this set -aside [&&&REF]. Specifically, an additional MWh of
eligible generation would earn the affected EGU allowances equal
to the level of emissions permitted per MWh of net generation under

the 111(b) new source standard, which is &&&___lb/MWh-net.
The EPA proposes to calculate allocations to NGCC units from

the output

- based set

- aside using data from the preceding
compliance period. For example, the EPA would calculate set-aside
allowances for the second compliance period (2025 through 2027)

based on data from 2022 through 2024. Each NGCC-unit affected EGU

### with an average capacity factor above 50 percent in the preceding
compliance period would earn set-aside allowances.

In the scenarioapproach based on a unit’s capacity factor,

The the EPA proposes to calculatetakes comment on calculating an

NGCC unit’s the capacity factor based on the previous compliance
period’s net generation and net summer capacity of the unit. The
EPA is proposing to require affected EGUs to report net generation
to the agency (see section V.H for proposed monitoring and
reporting requirements). 3 

### The EPA proposes takes comment on to

us inge net summer capacity as reported to EIA. In the alternative,

the EPA proposes takes comment on to requir inge that NGCC units
report net summer capacity directly to EPA; we would add EGU -level
net summer capacity as a required data field in the certificate of
registration that a unit’s owner/operator would submit to the
agency per the procedure detailed in section V.G. The EPA requests
comment on the relative efficiency of obtaining net summer capacity
from data reported to EIA or of adding net summer capacity as a
required data field on the certificate of registration. The EPA
also requests comment on an alternative approach of basing the
capacity- factor calculation on nameplate capacity instead of net
summer capacity.

3 The EPA proposes to make the reported generation data available to the public on the agency’s website.

### After identifying NGCC units with average capacity factor

above 50 percent the EPA would then calculate the amount of
allowances these affected EGUs would receive from the output -based

set- aside as the unit’s net generation in the preceding compliance
period multiplied by the 111(b) rate standard for NGCC units of

&&&__lb/MWh-netthe emissionsallocation rate of the NGCC unit . (The

proposed approach to determine the size of the set

- aside is

detailed below.)
The EPA proposes to provide notice of the capacity and
generation data used, and the resulting allocations, by August 1
of the first year in each compliance period, e.g., by August 1,
2025 for the compliance period that commences in 2025. The agency
proposes to provide 30 days for comment on the data and
allocations, until August 31, and to provide notice of the final

set- aside allocations by November 1 of the same year and record

the allocations in the source accounts at that time. The EPA
requests comment on other approaches to providing notice of the

data and allocations.

The EPA requests comment on all aspects of the proposed
approach to calculate output-based set-aside allocations. Further

details of the proposed approach are in the Allowance Allocation
Proposed Rule TSD in the docket.
The EPA proposes a particular size of the set

- aside that is

### based on the total allocation, the allocation rate , the capacity
factor above which eligible generation may receive the output

based allocations , and an average capacity factor across all
sources potentially eligible for allowances from the set -aside . In
particular, EPA proposes that the share of the total used for the

set-aside be equal to the allocation rate, multiplied by the amount
of potential generation from all EGUs eligible for the set aside

in the state above an average capacity factor of 50 percent and

below an average capacity factor of 70 percent , based on 2014 data

as detailed below

. 4 

### The 50 percent average capacity factor is the
capacity factor above which eligible generation may receive the

output- based allocations. The 70 percent capacity factor limits

the size of this set

- aside, which increases the share of the

allowances allocated based on historic

- generation [&&& section

V.D.1]. Maintaining a large share of allowances allocated based on
historic generation provides all EGUs subject to the mass -based

plan certainty in their allowance allocation

. Furthermore,
limiting the size of the set-aside avoid s the risk of incentivizing
too much generation from eligible sources.
The EPA proposes to determine the size of the output -based

set- aside for each state using data reported to EIA for the year

4 The capacity eligible for the set

- aside would be determined from data provided at the end of the previous compliance period.

### 2014. The EPA would calculate the size of the set-aside as based

on the sum of net generation from NGCC- unit affected EGUs that
operated above 50 percent and below 70 percent capacity factor
eligible sources in 2014 multiplied by the the 111(b) rate

standardemissionsallocation rate for of the NGCC units of &&&___

lb/MWh-net

. 5 

### The set

- asides resulting from this proposed approach
using an allocation rate of 850 lbs/MWh -net are shown in Table

&&&. The set

- asides in the table would apply to every compliance
period except for the first compliance period for which there would

be no output

- based set

- aside. Although the size of the set -aside
would remain the same for each compliance period, as the mass goals
decrease with each step in the Interim Period and to the Final

Period, the set

- asides would constitute an increasing share of a
state’s mass goal. The Allowance Allocation Proposed Rule TSD
further details the proposed approach to determine the size of the

set-aside.
**Table &&&. Proposed Size of Output-based Set-aside (Metric Tons)**  **State** Allowances in Out put

- based Set

aside (Metric Tons)

5 Using net summer capacity and net generation data for 2014 as reported by facilities to EIA.

### The EPA proposes to determine the size of the output -based

set- aside once, before the start of the program, and not to change
the size. The EPA also requests comment on updating the size of
the set-aside once after the start of the Final Period using data
from 2030 or another year, and also seeks comment on updating the

size of the set

- aside more than once after 2030, for example every
six or eight years. If the EPA updated the size of the set-aside,
we would provide notice of the data upon which we intended to rely
and opportunity for comment; the EPA requests comment on this

approach.
Given the proposed limit on the total size of the set-aside,
and the amount of potential generation eligible for the set aside,
there may be fewer allowances available in the set aside than can
be earned at the allocation rate. The EPA proposes that, if the

amount of total generation eligible for the set aside multiplied
by the allocation rate exceeds the size of this set -aside , then

the allowances in this set -aside would be allocated to eligible
generation on a pro-rata basis.
We propose that if the number of allowances allocated from

the set aside is less than the size of this set -aside, then the
remaining allowances would be distributed to all EGUs using the

### historic-generation based-approach described above.
The EPA also requests comment on extending output -based

allocation from this set aside to affected utility boiler s . Outputbased allocation for steam generating units may increase
generation subject to the mass limit , leading to reduced generation
from new emitting sources. However, the EPA does not propose this
approach because it is not as effective as output

- based allocation.

This is because output- based allocation to utility boilers would

incentivize generation from relatively high

- emitting EGUs, thereby
leading to high allowance prices, which then counteracts the effect
of lowering the cost of production of sources subject to the

proposed mass-based plan. 6


### The EPA solicits comment on the general merits of the proposed

set- aside and the output- based allocation used under this set

aside . In addition, the agency solicits comment on how such an
approach could be targeted to improve implementation of the

proposed mass

- based trading federal plans and improve overall
environmental and economic performance. In particular, the EPA

solicits comment on which affected EGUs and other generation

sources should receive any output

- based allocation, the proper

6 This effect on the allowance price is also present when output

- based allocation is limited to NGCC units, but because NGCC units have a lower emissions rate the effect is not as strong.

### allocation rate(s), the total size of the set -aside , and from which
compliance period’s total allowances the set-aside should be

drawn.

### Attachment D.From: Jones, Toni <Jones.Toni@epa.gov> Sent: Monday, July 27, 2015 4:55 PM To: Frey, Nathan J. Cc: Culligan, Kevin; Harvey, Reid; Tsirigotis, Peter; Eck, Janet; Cozzie, David Subject: EO 12866 CPP Federal Plan ‐ response to comments

Hi Nathan, I hope this email finds you well. Attached, please find a redline version of the Federal Plan preamble for the Clean Power Plan that reflects changes made to the package since the initial submittal to OMB. Also attached is the federal plan rule text and a document that details responses to OMB comments received

on the rule package. File names for the attachments are:

‐ Redline version of the preamble: EO12866_CPP Federal Plan_2060_AS47_NPRM>20150727_RLSO.docx

‐ Rule text: CPP Federal Plan Model Rule OMB 7_27_15 clean.docx

‐ Responses to OMB comments: EO12866 13563 Federal Plan NPRM Response to OMB Comments 072715.docx

If you have any questions, please do not hesitate to contact me. Kind regards, Toni W. Jones

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

### Attachment D.1

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment D.1.

### Attachment D.2

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment D.2.

### Attachment D.3RIN 2060 -A S4 7 Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units

Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations 1) Mass. Reviewer recommends that EPA propose only a mass

- based plan for the federal plan. To the extent that some states may select a state rate

- based plan, reviewer recommends leaving in the requirements necessary to submit an approva ble state rate

- based plan as a model rate

based trading rule. If EPA does propose both, r eviewer recommends putting the mass

- based implementation approach before the rate approach, making their discussion and outline parallel, and highlighting the lower administrative burden for mass

- based plans with respect to allowance tracking compared to rate

- based plans with respect to ERC generation and tracking. Reviewer notes that given EPA’s stated view that it would like to enable as much trading between states as possible (which would be enhanced by coordination on mass vs rate), there is value in proposing only a mass

- based plan now rather than a year from now when the states have to submit initial plans.

Response: The EPA disagrees that only the mass based approach should be proposed. There are some benefits and drawbacks to either approach. In addition, the proposed FP serves as a model trading rule, and states are interested in seeing, and potentially using, models for both a rate and mass based approach. We h ave made changes in the preamble to more clearly indicate our intention to finalize a single approach for all states that receive a FP. We request comment on which approach should be selected. The agency is interested in the preferences that will be expressed by commenters as to which approach they prefer.
2) Technology Neutral. Reviewer recommends proposing (rather than taking comment on) that all

non

- BSER technologies and measures that are acceptable to generate ERCs in the emission guidelines (EGs) be proposed as approved under a federal plan. That would include, but not be limited to, distributed RE generation, demand side energy efficiency, new or up

- rated nuclear generation, offshore wind
, and CCS retrofits

. N ot allowing certain abatement measures to be credited reduces the cost effectiveness of the policy. EM&V requirements for state plans on

non

- BSER technologies are the same as the requirements for the federal plan, so comments should be requested on the EM&V methodolog ies , and not on which technologie s and measures should be valid compliance mechanisms. Reviewer also notes that EPA takes comment on what the process should be for demonstrating the “appropriateness” of additional technologies, but never explains what the “appropriateness” standard requir es. All technologies and measures could be held to a strict standard to be quantifiable, verifiable, and additional. Any technology or measure that can pass the re quirements should be permitted to generate credits under a federal plan.

Response: T he fe asibility of federal implementation is a key concern , and thus t he EPA is proposing to only include non

- distributed RE and new or up

- rated generation due to requirements and rigor needed to ensure the quality of data and emission reductions achieved throug h the other described ERC generating resources.Rev iewer recommends that the allowances that are set

- aside for low - or zero

- emission activities be distributed using a technology

- neutral methodology and not reserved exclusively for RE. (Reviewer notes that selecting only RE for a set aside, as suggested in the current version of the plan, is selecting particular technologies without sufficient justification.) Reviewer suggests that EPA take comment on a proposed federal plan that is technology neutral. Revi ewer also recommends renaming this group of allowances as the Clean Energy Set

- Aside to avoid confusion with the set

- aside for existing NGCC.

It should be explicitly stated on pages 99, 103 and 110

- 120 that incremental, new nuclear after 2012 should be afforded equal treatment with renewable energy under this rulemaking consistent with the final Clean Power Plan. The nuclear units that are currently under construction represent a significant amount of zero

- emitting baseload capacity that should be allow ed to create ERCs in the federal plan and model trading rule.

Response: The preamble text is being revised to recognize incremental nuclear power and nuclear up

rates, as recognized under the final emission guidelines, as an eligible technology for ERC issuance under the rate

- based federal plan approach. Aside from the recognition of qualifying nuclear, t he EPA disagrees with the approach for recognizing all emission reductions measures eligible under the final emission guidelines for ERC issuance under a rate

- based federal plan. In the context of the federal plan, the feasibility of federal implementation is a key concern, and thus we propose technologies that are widely demonstrated and provide the simplest path for EM&V implementation under a federal plan. We seek comment on how to implement the EM&V requirements for various technologies proposed in the federal plan , and how that could be implemented in the context of the final rule. We also seek comment on a process by which technologies can be determi ned to be eligible. The EPA notes that states that wish to have the ability to recognize all the eligible technologies under the final guidelines have the opportunity to submit an approvable state plan that does so.

The same applies to set

- asides under the mass plan approach. Incremental nuclear power and nuclear up

- rates are not recognized under the set

- aside because they do not face the same economic circumstances as RE capacity, and are not effectively addressed by the incentive provided by a set

- asi de.
3) Set

- aside. Reviewer recommends that the RE set

- aside be changed in the proposed federal plan such that allowances be set aside for low - and zero

- emitting generation and be distributed to those low - and zero

- emitting EGUs or projects in the first two interim compliance periods (i.e., 2022

- 2024 and 2025

- 2027) in proportion to the incremental generation of those EGUs or projects during the 2020 and 2021 years (relative to historic generation between 2010 and 2012). This would have the added benefit of incentivize clean energy builds in 2020 and 2021.

Response: The preamble language is being revised to reflect in more detail the role that the Clean Energy Incentive Program would play in recognizing pre

- compliance emission reductions in both the rate

- based and mass

- based approaches. This program includes the creation of mass

- based set

- asides that recognize RE and EE impacts on emission reductions in 2020 and 2021.
4) ERC Issuance to NGCC. Reviewer recommends clarifying the formula for calculating ERC issuance from NGCC because the current formula and data available in previously released TSDs do not enable the reviewer to arrive at the same result of 0.09 ERCs/MWh NGCC

.Re sponse: There will be a separate TSD that describes how the gas shift ERC (GS

- ERC) rate was calculated.

General Comments 1) Page 12, 85, “The EPA is strongly considering taking a single approach (i.e., either the mass

based or rate

- based approach) for every state in which it promulgates a federal plan, and we are inviting comment on this. We also invite comment on which approach, mass

- based or rate

based, should be selected if we opt to finalize a single approach.” Comment: Reviewer recommends that EPA propose only a mass

- based plan for the federal plan. To the extent that some states may select a state rate

- based plan, reviewer recommends leaving in the requirements necessary to submit an approvable state rate

- based plan as a model rate

- based trading ru le. Reviewer also recommends putting the mass

- based implementation approach before the rate approach, making their discussion and outline parallel, and highlighting the lower administrative burden for mass

- based plans with respect to allowance tracking compared to rate

- based plans with respect to ERC generation and tracking. Reviewer notes that given EPA’s stated view that it would like to enable as much trading between states as possible (which would be enhanced by coordination on mass vs rate), there is v alue in proposing only a mass

- based plan now rather than a year from now when the states have to submit initial plans.

Response: We are proposing approaches to allow the public the opportunity to provide comments and information that will allow the EPA t o make a more informed decision for finalizing the rule

. 2) Page 147, 224. “The EPA requests comment on whether there are reasons that a state should be allowed to transition from a federal plan to a state plan in the middle of a compliance period and if so what requirements should be put in place to do so while ensuring the integrity of both the federal plan and the state plan and while enabling the affected EGUs covered by the plans to understand and meet their compliance requirements.” Comment: Reviewer recommends that states not be allowed to switch plans within a compliance period (either from a state plan to a federal plan or from a federal plan to a state plan) because, in rate

- based plans, that would greatly complicate compliance given differences i n ERC generation options between the Federal plan and possible state plans or, in mass

- based plans, the federal plan allocates all allowances for the compliance period at the beginning of the period.

Reviewer also recommends that any state that switches between a federal plan and a state plan or a rate plan and a mass plan needs to demonstrate a strategy for accounting for banked ERCs/Allowances that maintains the environmental integrity of the program.

Response: The EPA generally agrees with this comm ent and will give further consideration after review of all public comments and information submitted post

- proposal.
3) Page 175. “ The agency requests comment on the idea of auctioning all, or a portion of, each state’s allowances in the proposed federal p lan, on how much of each state’s allowances to auction if not the entire amount, on the frequency (e.g., yearly or every few years), design of auctions (e.g., spot or advance) and who may participate in the auction.”Co mment: Reviewer recommends that the F ederal mass

- based plan encourage (but not require) states to auction at least a portion of their allowances instead of freely allocating all of them to affected EGUs and the set

- aside. Periodic auctions are done in many other mass

- based environmental compliance programs (California’s AB32, RGGI, the EU Emission Trading Program) because they facilitate allowance price discovery by market participants and allow for the efficient distribution of allowances. Reviewer acknowledges that EPA may not be able to ru n the auction on behalf of states, but reviewer recommends that EPA set up the auction infrastructure

– for example, by establishing a turnkey auction platform with one of the many auction platform providers on the market – that can be used by states who c hoose to adopt the federal plan or a state plan. Reviewer recommends that the auctions should be online, multi

- round, uniform price auctions. A standard auction platform would reduce transaction costs for EGUs that operate across multiple states as well as reduce the likelihood of technical glitches in some state auctions.

Response: The proposal provides that states may choose to determine their own allocation approach using a partial state plan, and may choose to conduct auctions . The proposal does no t s pecify design of a state’s auction. In taking comment on the design of the auction for a federal plan as a general matter , the identification of the winning bid is now provided as an example of a specific relevant auction design feature.
4) Page 215 – 216. “ The EPA requests comment on this proposed approach for addressing leakage in a state allowance

- distribution methodology and on any other approaches for doing so.... In this federal plan proposal, the EPA requests comment on an alternative option where a sta te that chooses to submit a state allowance

- distribution methodology could provide a demonstration that leakage will not occur (without implementing the allocation strategies specified here) due to specific characteristics of the state.” Comment: Reviewer recommends that the federal mass

- based plan include an option whereby new NGCC is included under the mass goal as a mechanism for addressing leakage. Such an example would include the methodology for adjusting the state mass goal to reflect emissions from new NGCC.
Response: The agency has concerns about the legal viability of that approach. New sources will be subject to a separate NSPS under section 111(b). While the Emission guidelines recognize that states may cover new sources, so long as the 111(d) r equirements for existing sources are met, the agency does not believe the same approach is available to EPA in a federal plan. On a related but different topic , EPA will re

- propose in this rulemaking an interpretation of the effect of modifications or reconstructions by existing sources covered under section 111(d), and invite comment on the issue. This is to clarify an interpretive issue that was raised in the CPP proposal but not finalized. EPA may through this process be able to revisit the question of whether new sources can be covered in a federal 111(d) program, although, again, the agency does not believe at this stage that this is likely to be viable.
5) Page 223. “ The EPA requests comment on other approaches to provide a smooth transition from federal

- plan implementation to implementation by state plans, and on its proposed approach of not replacing a federal plan for any compliance period for which allow ances were already recorded.” Comment: Reviewer agrees that switching between plan types should not be allowed for any compliance period for which allowances were already distributed/recorded. In any situation,re viewer recommends that switching should onl y be allowed at the beginning of a compliance period.

Response: The agency agrees with this comment and will give further consideration after review of all public comments and information submitted post

- proposal.

Trading Comments 1) Page 49/50. “The EPA also requests comment on expanding the scope of interstate trading to include linking states covered by the rate

- based trading federal plan with any state that has an approved rate

- based trading state plan meeting the proposed conditio ns for linkages and that uses an EPA

- designated ERC tracking system that is interoperable with an EPA

- administered ERC tracking system.” “The EPA also takes comment on allowing a state that has an approved rate

- based trading state plan meeting the proposed conditions for linkages and that uses an EPA

- designated ERC tracking system to register with the EPA, and after registration, to link with states covered by the rate

based trading federal plan.” Comment: Reviewer strongly recommends not allowing states t hat select rate

- based trading programs to link to other states unless all states within the linkage have select the same rate

based approach (i.e., either technology

- specific rates or have the same blended rate). Reviewer notes that such a rule is importa nt in states with rate

- based goals to prevent unintended increases in emissions from otherwise identical EGUs that are operating under higher rates.

Response: We agree with the commenter and will revise the preamble to clarify the Agency’s intent. EGUs th at wish to trade with EGUs subject to the federal plan will need to be under state plans approved as “Ready for interstate trading .” Nonetheless, the agency agrees that linkage between rate

based states requires use of the same emission rate limits for the respective affected EGUs.
2) Page 50, 51. “In this proposed rule, the proposed approach to link from the mass

- based trading federal plan to state plans could result in linking of the federal plan to state plans that include

non

- affected emission sources. The EPA requests comment on this proposed approach.” Comment: Reviewer supports the intent to allow any approved mass

- based plan to tr ade allowances with any other approved mass

- based plan, even if one or more of those mass

- based plans cover non

- affected sources. Reviewer requests clarifications, on page 50, that state plans that include non

- affected sources will have undergone a demonst ration outlined in the EGs to ensure that the plan will result in affected sources meeting the mass

- based target for covered sources. Also on page 50, reviewer requests clarification that the import and export adjustments required in the EGs will include a llowances issued from approved state plans that cover affected and non

- affected sources.

Response: This topic is fully addressed in the EG. The FP preamble cites to the EG section.
3) Page 51. “The EPA requests comment on this expectation of a competitive ERC market and a competitive allowance market, and on potential program design choices that could address any identified market power concern.” Comment: Reviewer recommends that a competitive and liquid ERC/allowance market is most likely to exist when there isa) T ransparent release of information on regulatory changes. Reviewer recommends that EPA adopt communications strategies about ERC/Allowance issuance and other policy changes similar to communication strategies used by the Federal Reserve in discuss ing monetary policy, public companies in releasing financial information, or the EU Emissions Trading System in making policy announcements. In all cases, new information has the potential to affect billions of dollars of assets. Specifically, reviewer recommends that EPA should maintain a publicly available website and listserve that notifies the public in advance of announcements (e.g., 2

- 5 days) and is the first location announcements are released to the public. To the extent possible, reviewer encour ages EPA to adopt a regular schedule in which updates or changes are announced (e.g., 10am on the first Wednesday of every month). Reviewer recommends that EPA establish highly confidential procedures for guarding the release of such information to avoid i nformation leakage to traders who would benefit financially from the information. Beyond the website, the reviewer recommends that EPA publicly designate a limited number of people who can speak about changes to the program (such that market observers would discount comments from undesignated individuals). Reviewer notes that the ERC or Allowance market is anticipated to be a multi

- billion dollar market and policies and procedures that ease the market’s ability to quickly and accurately absorb new informa tion will greatly enhance liquidity in the market and remove costly and unnecessary volatility.

Response: The preamble details our intent to ensure that a ll information and data used for issuing ERCs and allowance s will be publicly available.
b) Limited uncertainty about the total volume of ERCs available. Reviewer recommends issuing ERCs as frequently as possible (e.g. monthly for those ERC sources that can be issued monthly or quarterly for other sources ) and at regular , pre

- determined times to reduce uncertainty about how many ERCs are present in the market , which will reduce volatility in the price of ERCs

.

Re s ponse: Because of the rigor in the ERC issuance process , in addition to the review of data that is required , ERCs will be issued an nually at the same time. We understand the benefits of issuing ERCs more frequently and will give consideration to any comments that present potential avenues to do so.
c) Strict monitoring of fraudulent ERCs/Allowances. Reviewer recommends strict oversight of allowance market to prevent the type of fraud experienced in the EU at the launch of their program.

Response: We agree with the comment.
d) No limits on ERC/Allowan ce ownership. Reviewer believes that all types of entities can provide benefits to the market and encourages EPA to not limit the type or number of firms that can hold ERCs/allowances. Response: Regarding allowances, the preamble states that any party co uld participate in the allowance market under the proposal

.e) Mark et monitor enforcement against manipulation. Review recommends that EPA assign a market monitor to provide oversight of the various linked markets that form and report on potential market ma nipulation. Reviewer strongly recommends that EPA also require states to adopt similar practices as EPA with respect to the release of information about policy changes or ERC issuance because states will also play an important role in facilitating liquid and competitive markets.

Response: This is a topic is being addressed under the CPP EGs.
4) Page 141

- 142, 156. “The EPA requests comment on whether there should be a quantitative limit or cap on the number of ERCs that can be banked. The EPA also requests comment on whether an ERC should be eligible to be banked between the interim and final compliance periods. The EPA is also proposing that ERCs will not expire after any duration of time. The EPA requests comment on the shelf

- life of an ERC.” Comment: Revi ewer does not believe there should be a limit on the number of ERCs/Allowances that are banked. Reviewer recommends that ERCs/Allowances be allowed to be banked between the interim and final compliance periods.

Response: We agree with this comment. Howe ver, to ensure there are no t unforeseen drawbacks , we are taking comment on the approach.
5) Page 146. “The EPA requests comment on a broader approach that would allow all affected EGUs that are located in states with approved rate

- based state plans to parti cipate in the federal plan trading program. In other words, this would extend federal

- plan linkage to rate

- based programs that are not set up to be “presumptively approvable,” or which use a set of emission rates for affected EGUs that are different from the national uniform subcategorized rates. We request comment specifically on what conditions or requirements would be needed in these cases in order to participate in the federal plan trading program in a way that is administratively feasible and maintains the integrity of all of the linked programs.” Comment: Reviewer strongly recommends that EGUs should not be allowed to trade with other EGUs in other states unless EGUs of the same technology type operate under the same rate. Without that restriction, th e policy would probably lead to unintended increases in emissions. Reviewer does not believe there is a mechanism that maintains emissions outcomes and at the same time allows linkages between state trading programs when “emission rates for affected EGUs...a re different from the national uniform subcategorized rates .”

Response: EPA agrees and the preamble language has been revised accordingly.
6) Page 146. “Although the agency has serious concerns about the administrative complexity of this approach, we also request comment on the feasibility and potential mechanism of allowing EGUs in states with approved mass

- based state plans to participate in a federal rate

- based trading plan.” Comment: Reviewer strongly recommends that EPA include in the Federal Plan that a llowances should not be an acceptable compliance instrument in any rate

- based program (regardless ofth e conversion from mass to rate) and that ERCs should not be an acceptable compli ance instrument in any mass

- based program (regardless of the conversion from rate to mass).

Response: EPA agrees and the preamble language has been revised accordingly.

7) Page 156, 158. “The EPA is not proposing to allow allowance borrowing across complia nce periods in the mass

- based trading federal plans; however the agency is requesting comment on the use of borrowing across compliance periods.” Comment: Reviewer notes that limited borrowing is implicitly allowed due to the 2 to 3 year compliance period. Reviewer does not recommend any borrowing beyond that implicit amount because it could encourage EGUs that anticipate shutting down to borrow significant quantities of ERCs/ a llowances and then declare bankruptcy at the same time they shut down.

Response: We agree with this recommendation.

Compliance Comments 1) Page 56. “The EPA requests comment on whether there is any reason to use shorter compliance periods than the proposed periods, and how modifying these periods could be done in a manner that is consistent with the Emission Guidelines.” Comment: Reviewer notes that a two to three year compliance period seems to be used successfully in other programs; however, reviewer encourages EPA not to further extend the compliance period beyond the currently proposed two to three years. A longer compliance period would likely have EGUs building up a larger ERC/Allowance liability prior to the conclusion of the compliance period, which might reduce their solvency if not sufficiently incorporated into planni ng.
Response: EPA agrees and the preamble language has been revised accordingly.

2) Page 138, 159, 231. “The agency also requests comment on an earlier allowance transfer deadline [compared to November 1], such as June 1 or March 1, of the year after the last year in the compliance period.” Comment: Reviewer recommends an earlier deadline for allowance compliance transfer, namely May 1, or the earliest that can be supported based on ERC issuance. The longer submission period (i.e., November 1) allows EGUs to build up a larger compliance liability. Reviewer is concerned about two specific situations. 1) An EGU that had planned to go out of business would have a longer period to emit before having to shut down or turn in compliance instruments. 2) An EGUs had not acquired or planned for acquiring sufficient compliance instruments, would build a larger compliance liability prior to being found to be out of compliance. That could contribute to an increased likelihood EGUs declare bankruptcy or otherwise exit the market. To somewhat address those situations, reviewer also recommends that 30 percent to 50 percent of an EGU’s expected annual compliance requirement be due in each of the interim years of the compliance period to prevent the buildup of large liabilitie s by EGUs.Re sponse: In the mass

- based approach we revised this to propose an allowance transfer deadline of May 1, and also request comment on earlier or later deadlines. Also in the mass

- based approach, we revised this to request comment on requiring EG Us to demonstrate compliance for a portion of their emissions in each year of the multi

- year compliance periods. In the rate

- based approach we are maintaining November 1 to allow time for the EPA to QA/QC the data, allow time for EM&V, propose a NODA for E RC issuance, all a comment period, promulgate the NODA and issue the ERCs, and allow sufficient time for the newly issued ERCs to be traded. If the ERC issuance process can be expedited, there may be room for an earlier date, but this will happen through c omments received.
3) Page 140, 232. “The EPA solicits comment on sources owing two ERCs to make up for each insufficient ERC in previous compliance periods and whether two for one is the proper make

- up rate or whether there should be a stricter or a more lenient ratio.” Comment: Reviewer recommends clarifying on pages 140 (for ERCs) and 232 (for allowances) the timeframe within which an entity out of compliance would have to provide the two ERCs/allowances for every one that was needed but missing from its account, assuming that none are available to be automatically deducted.

Reviewer notes that it appears that the EGs no longer include the requirement that sources owe two ERCs to make up for each insufficient ERC in the previous compliance period. Reviewer requests that EPA c onsider if the penalty for being out of compliance should be the same in the EGs and in the federal plan or if there is justification for the different treatment

. Response : Consistent with practice in the existing emissions budget trading programs that E PA administers , we would notify the facility as soon as we identify a shortage and give them the opportunity to respond

. Regarding the two

- for

- one allowance s urrender penalty in the fed plan proposal , we believe this provides a strong incentive for compliance with the allowance

- holding requirement; states have flexibility in developing state plans and EPA intends to review and evaluate each plan to ensure they meet the requirements of the EGs

.
Mass Allocation & Set

- Asides Comment 1) Page 54, 178, 186

- 188. “Th e EPA takes comment on both the set

- aside for output

- based allocation and the set

- aside of allowances for RE generation.” Page 202. “We are also requesting comment on options for a percentage of allowances to be reserved [for the RE set

- aside] ranging from 1- 10 percent of total allowances in each state.” Comment: Reviewer recommends that the RE set

- aside be changed in the proposed federal plan such that allowances be set aside for low - and zero

- emitting generation and be distributed to those low - and zero -e mitting EGUs or projects in the first two interim compliance periods (i.e., 2022

- 2024 and 2025

- 2027) in proportion to the incremental generation of those EGUs or projects during the 2020 and 2021 years (relative to historic generation between 2010 and 2012 ). Reviewer suggests that the distribution of allowance vintages for both compliance periods occur at the same time. Such an allocation strategy would encourage early action, increase the likelihood that the United States achieves its international carbon reduction commitments, and provide information to the market about the future price of allowances. In subsequent interim compliance periods, reviewer suggests that allowances are allocated proportional to generation in the previous interim compliance period. That would simplify the allocation approach relative to the proposed Federal Plan and reduce uncertainty for developersof low - and zero

- emitting EGUs. Reviewer suggests that this becomes the default and EPA take comment on it in the proposed federal p lan.

Reviewer suggests that the proposed approach in the current version of the federal plan for allocation (i.e., projected future generation) is complicated, creates uncertainty, and is vulnerable to manipulation by firms over - or under

- projecting thei r generation in an effort to affect ERC prices.

Reviewer also suggests that EPA propose a larger set

- aside or provide a rationale for limiting the set- aside to 2 percent of available allowances instead of a larger or smaller number. Specifically, on pag e 203 EPA states that 2 percent was chosen because “at a range of possible allowance prices...[it would] incent the development of additional RE projects.” Reviewer recommends clarifying the meaning of additionality in that statement.

Response: The preamble language is being revised to reflect in more detail the role that the Clean Energy Incentive Program would play in recognizing pre

- compliance emission reductions in both the rate

- based and mass

- based approaches. This program includes the creation of mass

- based set

- asides that recognize RE and EE impacts on emission reductions in 2020 and 2021. Preamble text has also been changed to reflect a larger RE five percent set

- aside, and the EPA will provide in the docket an analysis that clarifies the quantificati on of the 5% set

- aside. The EPA disagrees with the comment that the current proposed RE set

- aside allocation method provides opportunity for manipulation, as providers will need to include an analytical justification for their projections that has been approved by a third party verifier, and will be accountable for any inaccuracies in their projections at the end of the performance year. It should also be acknowledge d that this set

- aside will only affect a subset of the available ERCs. We are also taking c omment on whether set

- asides should be based on actual megawatt

- hours provided by the installation in a prior year or compliance period, or another form of historical generation data.
2) Page 148. “The EPA is proposing that allowances be issued in metric tons for the federal plan, and also requesting comment on the issuance of allowances in short tons.” Comment: Reviewer recommends that allowances be issued in metric tons, which is consistent with the units of an allowance adopted by California.

Response: We have revised this to propose allowances in short tons, consistent with emissions reporting requirements.
3) Page 162, 172. “the EPA is requesting comment on an alternative allocation approach that would first divide the total number of allowances from each state’s mass goal by source category and then allocate to affected EGUs within each category based on shares of historic generation.” Comment: Reviewer recommends that EPA clarify how the alternative allocation approach would be implemented. On page 172, “ this alternative approach would divide the total number of allowances from a state’s mass goal... by affected EGU source categories. “ Reviewer recommends clarifying whether it is the affected EGU source categories generation or emissions (and if it is the a verage from 2010

- 2012) that are placed in the denominator.Re viewer also recommends clarifying the following phrase located on the top of page 173, “...and multiply historic NGCC

- unit generation by the NGCC

- unit source category

- specific CO 2 emissions performance rate.” Is the intended emission performance rate the average eight year interim rate from the EGs, the yearly emission performance rates from the Goal Computation TSD, or the federal 2 or 3 year interim compliance period average emission performance rates?

Response: We ha ve edited the preamble to clarify the alternative allocation approach.
4) Page 165, 247. “The agency requests comment on the proposed historic

- generation based allocation approach and on other allocation approaches.” Comment: Reviewer recommends that EPA take comment specifically on whether the historic generation allocation should reflect generation or emissions from affected EGUs.

Reviewer recommends, in the discussion on Pg. 247 regarding calculation steps for t he proposed historic

- generation

- based allocation approach, explaining whether/how historical operational data for plants during emergency/reliability events (i.e., unplanned outages, excess generation to offset outages) are considered in the averaging/allocation formula to avoid skewing the results.

Response: We added a specific request for comment o n using historic emissions data. The proposed allocation approach would use the average of three years of generation data , and would only use non

zero values in calculating a unit’s average. For a unit that doesn’t have a full year of generation data, the proposed approach would use the same 2012 generation estimates as used in the CPP goal

- setting calculations. The allocations TSD will provide more detailed in formation on the proposed allocation approach.
5) Page 174. “The EPA requests comment on the use of other updating allocation approaches [instead of the historical allocation method].” Comment: Reviewer recommends that EPA encourage states to reduce the size of the historic

generation

- based allocation over time because it does not contribute to market efficiency.

Response: As shown in the Regulatory Impact Analysis for the Emissions Guidelines, the presence of the EG contributes to economic efficiency as th e benefits of the rule are larger than its costs, and that it would do so with historic

- generation

- based allocation (along with the set

- asides described in the FP preamble). The commenter seems to suggest that there would be an alternative , but unidentifie d, allocation or use of the allowance asset value, of which there are many options. The proposal takes comment on s pecific options for allocating allowance value that may improve economic efficiency.
6) Page 176

- 178. “The EPA requests comment on the design and utility of allocating allowances to LSEs to help mitigate electricity price impacts. In particular, the EPA requests comment on options to establish conditions requiring pass through of allowance value and verification of such pass

- through, whether it would be appropriate to identify any conditions related to equitable distribution of allowance value among ratepayer categories, as well as EPA’s legal authority to apply any such conditions.” “The EPA recognizes that allocation to LSEs, by reducing rate i mpacts, could reduce incentives for socially efficient demand response, including potential investment in energy efficiency. TheEP A solicits comment on the magnitude of this effect, relative to alternative allocation options, and design options that could help mitigate this effect.” Comment: Reviewer recommends that EPA note in the federal plan preamble and include in their approvability criteria that allowances allocated to LSEs may be used to help mitigate the effect of the policy on electricity consumer s. Reviewer recommends that EPA also note that if the LSE passes through the value from selling the allocated allowances in a lump sum amount that is not associated with consumers’ electricity bills the incentives for economically efficient end

- use energy efficiency are maintained

. Finally reviewer suggests that EPA make clear that allowing LSEs to pass through the value of allocated allowances in a mechanism proportional to electricity usage will increase the cost of the program.

Response: The FP preamble already takes comment on the EPA’s ability to allocate to LSEs, and what criteria may be applied. The FP preamble also identifies that there may be economic efficiency consequences in the way that the allowance value is returned to consumers and takes comment on form of returning the asset value of allowances to electricity consumers

. Some of the discussion regarding allocation to LSEs that was in the prior version of the preamble has been moved the All owance Allocation TSD for the FP (the TSD is described in the preamble). The discussion of the allocation to LSEs in the TSD will also refer to existing studies that describe and identify the potential efficiency consequences of various forms of returning allowance asset value to consumers (e.g., lump

sum , in proportion to consumption, etc. ).

7) Page 190, 192, 194, 196. “The EPA accordingly solicits comment on key parameters for the appropriate design of the output

- based allocation approach used for this prop osed set

- aside [to fossil generators].” Comment: Reviewer suggests also taking comment on having a higher limit on the size of the output based set aside for existing fossil NGCC EGUs because this set

- aside improves the economic efficiency of the program (by reducing generation shifts to unaffected so urces), whereas the historic generation allocation provides no safeguards against leakage to unaffected

sources.
Response: The preamble takes comment on all elements of the set

- aside that determine the size of the set aside (e.g., the allocation rate, e ligible sources, the capacity factor above which allowances are earned), and ultimately its marginal incentive for reducing leakage to new EGUs.

8) Page 199. “ The EPA also requests comment on extending output

- based allocation from this set aside to affe cted utility boiler s .” Comment: Reviewer agrees with EPA’s reasoning for not extending output

- based allocations to fossil steam EGUs.

Response: No response needed.
9) Page 199

- 200. “The EPA solicits comment on the general merits of the proposed set

- aside and the output

- based allocation used under this set

- aside. In addition, the agency solicits comment on how such an approach could be targeted to improve implementation of the proposed mass

based trading federal plans and improve overall environmental and economic performance. In particular, the EPA solicits comment on which affected EGUs should receive any output

- basedalloc ation, the proper allocation rate(s), the total size of the set

- aside, and from which compliance period’s total allowances the set

- aside should be drawn.” Comment: Reviewer recommends using an allocation rate that is similar to the emission rate of new NGCC units (i.e. ~800 – 900 lbs CO 2 /MWh) using a rate higher than this would not align the incentives between existing and new NGCC generation.
Response: For the reasons that justify EPA’s choice of the 111(b) standard for new combustion turbines, and to maintain consistency with the incentives provided by that standard, we have kept the proposed allocation rate at the 111(b) NGCC standard. However, in response to this comment we have expanded the discussion of the allocation rate to request comment on a range of specific allocation rates that includes t he expected emissions rate from new NGCC units.
10) Page 204. “The agency is requesting comment on an additional condition that would limit eligibility to project providers that are also the owners or operators of affected EGUs.”

“ Eligible projects must be lo cated in the mass

- based state for which the set

- aside has been designated. The agency invites comment on whether capacity outside the state should be recognized, and how that could be implemented.” Comment: Reviewer recommends against limiting the set

- asid e to owners and operating of affected EGUs; owners and operators of eligible set

- aside projects who do not also own an affected EGU are equally important to reducing emissions and should not be disadvantaged in the set

- aside policy. Such a limit would probably result in some type of market distortion such that eligible projects would be sold to owners of affected EGUs or owners of eligible projects would purchase affected EGUs. Reviewer recommends against issuing set

- aside allowances to EGUs outside the state because BSER is calculated based on generation within the state and not generation outside of the state. EGUs outside the state would presumably be eligible to receive set- aside allowances within their own state

. Response: No response required.
11) Pag e 210, 212. “ The EPA is also seeking comment on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities.”

“ The EPA seeks comment on how a low

- income community should be defined under this set

aside. We seek comment on how much of the set

- aside should be designated as targeted at low

income communities. We also request comment on whether the methods of approval and distribution of allowances to projects that benefit low

- income communities should differ from t he methods that are proposed to apply to other RE projects.” Comment: Reviewer recommends including a discussion of the importance of considering impacts on economically disadvantaged communities in the context of allowance allocation decisions described beginning on page 160.

Response: The preamble already discusses that allowance allocations that do not change based on future activity (such as allocations under the proposed historic

- generation based approach) do not affect the distribution of emissions under the program, and that the r ule is expected to achieve significant emission reductions across the power sector. The preamble also requests comment on allocating a portion of allowances to LSEs as a way of mitigating electricity price impacts.12) Pa ge 214, 221

- 222. “ We request comment b elow on the advantages and disadvantages of allowing a state to handle allocations via a delegation of federal plan authority.” Comment: Reviewer recommends clarifying, on page 218, that if a state chooses to auction some or all of the allowances under a f ederal plan, that the state could choose to alter how the state spends the auction revenue, even though the allocation plan indicating what level of allowances will be auctioned “would be final and not subject to modification.”

Response: The text will b e clarified to make clear that states that choose to auction allowances have the discretion to determine how to use the proceeds. However, EPA believes a state that wishes to handle allocations through an auction should submit a partial state plan rather t han seek a delegation of the federal plan allocation program

.

ERC Issuance Comments 1) Page 52. “This can be demonstrated through: 1) the provision of a power delivery contract or power purchase agreement in which an entity in the rate

- based state contracts for the supply of the MWhs in question and 2) documentation that the electricity was treated as comparable to a generation resource used to serve regional load that included the rate

- based state. This demonstration must be included as part of the project a pplication for ERC issuance to the EPA from the RE provider in the mass

- based state. Once the project is approved, subsequent applications for issuance of credit to the EPA will need to reference that the MWh submitted are achieved by an approved project l ocated in a mass

- based state. The EPA requests comment on this approach.” Comment: Reviewer agrees that the first demonstration option ensures that ERCs are not double counted. However, reviewer recommends clarifying option 2 by including an example of ho w option 2 could be demonstrated and how it does not lead to double counting.

Response: This text is being revised in the proposal preamble. The EPA notes that number 1 and number 2 are both required for a sufficient demonstration , these are not two alt ernatives

. 2) Page 102. “The EPA broadly solicits comments on all aspects of the subcategorized rate approach.” Comment: Reviewer notes that the subcategorized rate approach is the BSER from the EG. Recommend clarifying exactly what the EPA is inviting comme nt on, and that they are not re

opening up BSER for comment.

Reviewer requests that EPA request comment on pages 101

- 102 on using the statewide blended rate target as the rate option for the model rate trading rule. Reviewer notes that subcategorized rates create a larger incentive for coal generation compared to a state blended rate, which may result in additional emission from coal under the subcategorized rate approach. Reviewer recommends EPA clarify how “subcategorized rates allow(s) for: (1) an equit able distribution of burden for emission reductions. Additionally, over what entities is the burden equally distributed?

Response: EPA agrees and the preamble language has been revised accordingly.
3) Page 99, 103, 111

- 112, 134

- 135. “This section describes how a rate

- based federal plan would be designed and operated, and how measures consistent with the CPP EGs building blocks cangen erate ERCs. The EPA requests comment on these means of generating ERCs and whether other sources of low - or zero

- emitting electricity not included in the building blocks should also be eligible to generate ERCs for compliance purposes.” Comment: Reviewer recommends proposing (rather than taking comment on) that all non

- BSER technologies that are acceptable to generate ERCs in the emission guidelines (EGs) be proposed as approved under a federal plan. That would include, but not be limited to, distributed RE generation, demand side energy efficiency, new and up

- rated nuclear g eneration, offshore wind, and CCS retrofits . By not allowing certain abatement measures to be credited, the cost effectiveness of the policy is reduced both for the federal plan and for states that adopt a “presumptively approvable” plan modeled after the federal plan. EM&V requirements for state plans on non

- BSER technologies are the same as for the federal plan, so comments should be requested on the best EM&V methodology, , and not which technologies and measures should be valid compliance mechanisms or not. Reviewer also notes that EPA takes comment on what the process should be for demonstrating the “appropriateness” of additional technologies, but never explains what the “appropriateness” standard requires. All technologies and measures could be held to a strict standard to be quantifiable, verifiable, and additional. Any technology or measure that can pass the re quirements should be permitted to generate credits under a federal plan.

Response: T he feasibility of federal implementation is a key concer n , and thus t he EPA is proposing to only include non

- distributed RE and new or up

- rated generation due to requirements and rigor needed to ensure the quality of data and emission reductions achieved through the other described ERC generating resources.

4) P age 108. “The EPA requests comment on this approach and requests comment and suggestions on other approaches for existing NGCCs to generate ERCs at all times. The EPA is considering this methodology that BB2 ERCs are generated for all NGCC generation because it ensures that all existing NGCCs are encouraged to run at a greater capacity. The EPA is requesting comment on alternative methods for NGCCs to generate BB2 ERCs. Specifically, the EPA solicits comment on NGCCs generating BB2 ERCs once a threshold of generation for the year is achieved.” Comment: Reviewer found that the equation presented on page 106, using data from the Goal Computation TSD, does not compute to a 0.09 BB2 ERCs/MWh. Specifically, from the TSD, reviewer notes that NGCC Gen Post BB2 is 987TWh and NGCC Gen in 2012 is 734TWh, which leads to a BB2 ERC generating factor of 0.25 BB2 ERCs/MWh. Reviewer requests clarification on the correct formula and how “the collective sum of the BB2 ERCs generated realizes the amount of the emission reductions described in Building Block 2 when 75 percent capacity is achieved.” (p. 105).

Response: This section has been edited for clarity. There has been a slight change of course so that each unit will have its own BB2/GS

- ERC rate depending on the difference between the emission rate and the steam generating unit ’ s standard.
Additionally, reviewer recommends that EPA clarify the purpose of the equation on the top of page 109. Reviewer first thought this equation only applied to either of the threshold approaches, but upon closer study it appears that this equation may be the key to reproducing the BB2 ERC generating factor of 0.09 ERCs/MWh.Re sponse: This section has been edited for clarity

. Reviewer recommends clarifying the text on the top of page 105. The first full sentence, “To account for...Building Block 2.”, makes it sound like only incremental NGCC will generate BB2 ERCs instead of all NGCC generation.

Response: This section has been edited for clarity

. Reviewer recommends that EPA clarify ove r what time period the average NGCC generation is taken and after what building block in the following sentence from page 106. “...EPA has taken the average NGCC operation in the Eastern Interconnect and divided it by the 75% of Building Block 2...”

Response: This section has been edited for clarity

. Reviewer recommends not proposing or asking for comment on the first threshold calculation option on page 108. S uch an approach would appear to create a clear opportunity to game the BB2 ERC calculation without actually increasing generation from NGCC relative to 2012. For example, an owner of two NGCC EGUs could increase generation for one EGU relative to 2012 and decrease generation from the other EGU relative to 2012, thus generating new ERCs but not increasin g generation or reducing emissions. Alternatively, EPA could mention they considered this option, but decided against it for the reason above.

Response: We agree with this assessment . However we believe it is useful to solicit comment as it most closely follows the CPP EGs BSER.

Reviewer also requests clarification on the second threshold calculation option presented for BB2 ERC generation, as it is not clear from the text how the percentage threshold is calculated or applied: “The other threshold opti on is to use a percentage threshold. This percentage is the 2012 regional NGCC generation of total NGCC regional capacity in 2012. This percentage is applied at the unit level and all generation by the NGCC that exceeds that percent capacity at the NGCC is eligible to credited with BB2 ERCs.”
Response: The language has been modified to help with clarity , and a TSD is being developed to show the calculations that have been made.
5) Page 110. “We invite comment on this approach [EGU based ERC generation] as a method of implementation of a federal plan and model trading rule.” Comment: Reviewer recommends adding a short paragraph at the beginning of the section on “EGU Based ERC Generation” on page 103 to give an overview of the 2 ways that NGCC can generate ERC s, with a sentence describing each, and an explanation of the differences between ERCs and BB2 ERCs. It was not until the end of this section that it became clear how NGCCs and ERCs interact.
Response: Language has been modified to provide clarity

.Re viewer also recommends against issuing two types of ERCs in the federal plan. Because BB2 ERCs can be used for steam compliance and general ERCs can be used for both steam and NGCC compliance and because the vast majority of ERCs are expected to be used for steam compliance, one would expect there to be a single price for the two types of ERCs in a competitive market. R eviewer notes that maintaining two types of distinct ERCs makes the program more complicated and increases the transaction costs of compliance without providing any additional environmental benefits. Response: The EPA understands the complexity concerns , but allowing two different types of ERCs conforms the market to the generation shifts that are desired as part of building block 2.
6) Page 111. “The EPA requests comment on the inclusion of various types of demand

- side EE as eligible measures, such as state and utility EE programs, project

- based demand

- side EE, state building codes, state appliance standards, and conservation voltage reducti on. The agency also requests comment on the inclusion of combined heat and power (CHP) as an eligible measure.” Comment: Reviewer recommends that all EE measures and CHP projects with rigorous verification and that would be approvable under the EGs be included under the federal rate

based trading program. Reviewer recommends that EPA state these measures are approvable rather than taking comment on whether they should be approvable.

Response: The EPA disagrees with th is approach for recognizing eligible emission reductions measures under a rate

- based federal plan. In the context of the federal plan, the feasibility of federal implementation is a key concern, and thus we seek comment on how to implement the EM&V requirements for various demand

- side EE and C HP technologies on which we seek comment, and how that could be implemented in the context of the final rule. We also seek comment on a process by which technologies can be determined to be eligible. We also seek comment on a process by which technologies can be determined to be eligible. The EPA notes that states that wish to have the ability to recognize all the eligible demand

- side EE and CHP technologies under the final guidelines have the opportunity to submit an approvable state plan that does so.

7) Page 128, 129. “However, we solicit comment on the annual issuance of ERCs and whether issuance should occur at different intervals (e.g., quarterly, biannually, or other time frames). The EPA requests justification along with corresponding comments regarding issuance of ERC intervals.” Comment: Reviewer recommends increasing the frequency of ERC issuance at intervals less than a year. Automatic issuance of ERCs based on monthly generation data after a facility has been approved for eligibility would decrease the administrative burden on generators and the ERC tracking system, reduce price volatility, encourage continual operation of efficient markets, and provide certainty for low - or zero

- emission EGUs or projects

. To the extent that EM&V requirement s prevent the monthly issuance of ERCs from some types of projects, reviewer suggests that ERCs from those projects be issued as frequently as possible. Reviewer notes that PJM currently generates certificates in PJM

- GATS on a monthly basis ( http://www.pjm

eis.com/getting

- started/faq.aspx#genentq1). This will allow more time for EGUs to acquire the necessary ERCs and provide more market certainty for ERC generators.Re sponse: The EPA understands the benefits of issuing ERCs more frequently but because of the process needed to issue ERCs, it is a key federal implementation concern . We are requesting comment on means of expediting the process so that the EPA might be able to issue more frequently

. 8) Page 131. “ The agency requests comment on whether a quarterly or semi

- annual application process [for RE project and program eligibility applications and regulatory approval as well as information on ERC transfers] is appropriate. These applications will be accepted through the entirety of all compliance pe riods.” Page 128 - 133: "As required in the final EGs, we are proposing a two

- step application process to the federal plan tracking systems for RE ERCs... The EPA takes comment on all aspects of the proposed ERC issuance process. " Comment: Reviewer recomm ends streamlining the proposed ERC issuance for RE, other generating measures, and demand side EE to reduce the reporting burden and allow ERCs to be issued more frequently than once per year. As proposed, RE measures must first submit a project applicatio n and then a separate application for credit issuance. Reviewer recommends having a single application process for RE or EE projects, which when approved allows automatic issuance of ERCs on a more than annual frequency based on recorded generation or esti mated savings. An annual EM&V report could be created and reviewed by a third

- party verifier; if discrepancies are identified, a NODA would be issued indicating the discrepancies and ERC adjustments taken for the relevant accounts.

Reviewer also recommend s (on page 132) that EM&V methods for RE providers be approved during step one of the credit issuance process. Then in step two, only MWh would need to be submitted such that the process can be less onerous and time consuming.

Response: The EPA understand s the benefits of issuing ERCs more frequently but because of the process needed to issue ERCs, it is a key federal implementation concern . We are requesting comment on means of expediting the process so that the EPA might be able to issue more frequently. The EPA will explore the options above between proposal and promulgation.

Administration Comments 1) Page 48. “The state plan must use an EPA

- administered tracking system (we are also requesting comment on expanding this to include a state plan that uses a n EPA

- designated tracking system that is interoperable with an EPA

- administered system, as detailed below).” Comment: Reviewer supports an EPA

- designated tracking system that is interoperable with EPA

designated/approved state tracking systems, as describe d on page 48, be included in the FIP. Reviewer recommends requesting comment on page 125 if additional information should be tracked in the ATCS to ensure compliance with trading rules laid out in the EGs and contribute to a more competitive market. Revie wer recommends EPA take comment on using a 3 rd party to run the tracking system for a federally enforceable implementation plan. Reviewer recommends taking comment on needs for interoperability, using existing REC exchanges as a starting point.

Reviewer r equests clarification on the integrity lost through linking state

- approved and federally administered tracking systems. If each of the state

- approved tracking systems meets the EPA requirements and exchange protocols that are determined, then integrity sho uld be maintained (once emissions increases issues described above are addressed).Re sponse: An EPA administered system allows for ensured greater security and requirements. It will be difficult to assess all the capabilities for the state tracking system to fully coordinate with the EPA administered system. In the CPP EGs comment period, it was requested that EPA administer a tracking system.
2) Page 83. “the agency believes it would be efficient and potentially avoid the need for recourse to litigation, to provide an administrative appeals process. Therefore we are proposing, and requesting comment on, the use of the regulations for appeals procedures set forth in 40 CFR Part 78, to provide for the adjudication of certain disputes that may arise during the course of implementation of a federal plan under section 111(d).” Comment: Reviewer recommends that any administrative appeals process be sufficiently transparent to facilitate ERC/Allowance price discovery by market participants . Reviewer notes the potent ial for such an administrative appeals process to be highly disruptive (and introduce significant price volatility) to the market for ERCs/Allowances if done in secrecy with sporadic releases of market

- moving information.

Response: The Part 78 process tha t the agency is proposing has been used for many years for similar disputes that may arise in the course of CAA trading programs. Actual need for administrative appeals and dispute resolution has been quite rare in these prior programs and has not been dis ruptive to the functioning of the programs. It is the agency’s expectation that the availability of party

- specific dispute resolution will significantly reduce the possibility of disruption to the program via litigation. The process in Part 78 is ideal be cause it has already been designed to address transparency, participation, and due process needs.

Biomass Feedstock Eligibility 1) Page 114

- 115. “ Provided for comment below are options for biomass treatment under the rate

based federal plan, which would also apply to eligible generation under the mass

- based plan allowance set

- aside and to the calculation of covered emissions for affected EGUs that a re co

firing biomass, which include:

a. A list of specific acceptable biomass fuels b. General principles and/or specific criteria regarding biomass fuel production, processing and use for energy

c. A combination of the above options. “ Comment : Reviewer recomme nds EPA not take comment on options 2 and 3 as presented. Reviewer recommends to instead take comment on only two options: 1) EPA’s option 1 and 2) a modified version of EPA’s option 3.
For the modified version of EPA’s option 3, the reviewer recommends that EPA still create a list of acceptable biomass feedstocks that are updated over time (Option 1). The primary criteria for approving acceptable biomass feedstocks would consist of evaluating the carbon reduction benefits through a life

- cycle emissions an alysis of the biomass feedstock.

A secondary method of evaluation for including biomass feedstocks onto a pre

- approved list, is the sustainability and best forest management practices (with some caveats as commented onbe low ) outlined in Option 2 (pgs. 116

- 117). This method would provide clarity for common feedstocks, and emphasize carbon reduction as a metric for other feedstocks.

R esponse : We have removed options 2 and 3 and therefore are not taking comments on these options. We are taking comment on possible processes for adding biomass feedstocks to the pre

- approved qualified biomass feedstock list.
2) P age 114

. “The revised Framework ...finds that it is not scientifically valid to assume that all biogenic feedstocks are ‘carbon neutral’...” Comment: The r eviewer agrees with this comment, but notes that it is also not scientifically valid to assume that no biogenic feedstocks are carbon neutral, or that all emissions from biogenic feedstocks are additional to the emissions that would have occurred were they not used as a feedstock. Reviewer recommends inclusion of this clarification.

R esponse: We disagree with this recommendation. The S cience Advisory Board peer review report on the 2011 draft Framework clearly stated that: “Carbon neutrality cannot be assumed for all biomass energy a priori. There are circumstances in which biomass is grown, harvested and combusted in a carbon neutral fashion but carbon neutrality is not an appropriate a priori assumption; it is a conclusion that should be reached only after considering a particular feedstock’s production and consumption cycle. There is considerable heterogeneity in feedstock types, sources and production methods and thus net biogenic carbon emissions will vary considerably.” This means that biomass should not be assumed carbon neutral prior to assessment, and through such an assessment, some feedstocks may be found to be carbon neutral.

3) Page 115: “ The first option offered for comment is to specify a list of specific pre

- approved acceptable biomass fuels. ” Comment: Reviewer notes that the first option is similar to the feedstock/pathway approval process used for the RFS. Recommends noting this in text.

Response: As this proposal and the request for comments on potential treatments of biomass therein differ or may differ from those as mandated with the RFS program, adding this reference may confuse stakeholders and add connotations that are not intended by the proposed option . No change.
4) Page 115. “ The second option offered for comment would be to e stablish general principles and/or specific criteria concerning the production, processing and use of biomass fuels.” Comment: Reviewer notes that the second option is presented under a discussion to develop principles and criteria for eligibility of feed stocks when the underlying issue with option two is implementation. The concern is that the third party verification/certification sets a potentially unwanted precedent of having Forest Service and BLM managers subject to a few selected individuals, and that the process would be redundant to current NEPA processes. Recommend clarifying how these interactions between agencies (EPA, USDA, DOI) would occur under the federal plan.

Response: This option has been removed.5) Pa ge 116. “ Under this option, the EPA could specify criteria for the production, processing and use of forest - and agriculture

- derived biomass fuels that could also include the preservation of, and/or limiting or restricting the use of biomass fuels from, natural and old growth forests...” Comment: Reviewer notes that nearly all federal forests are “natural forests.” Removal of biomass from these forests would offset the cost of needed treatments for these forests which are overstocked and prone to fire and pest epidemi cs. Reviewer recommends explicitly stating that this definition of “natural forests” would not exclude federal forests.

Response. This text has been removed.
6) Page 116. “ L imitations on deforestation and targeted land use change, especially of high carbo n and/or otherwise ecologically sensitive areas for the production of bioenergy feedstocks “ Comment: Reviewer recommends defining “deforestation” as meaning land use changes and unrestricted logging in ecologically sensitive areas.

R esponse : This text ha s been removed.
7) Page 117. “ Use of the best scientific information and systems available to assess landscape health , carbon stock attributes and net carbon emissions attributable to production and use of biomass for combustion, and to continually refine and update inventories of these attributes ” Comment: Reviewer suggests clarifying “continually refine and update inventories of these attributes” as it is a nebulous term that could have large economic and workload implications.

R esponse: This text has been removed.
8) Page 117. “ Ensure forest and landscape productivity, and economic viability, including primary and secondary products. “ Comment: Reviewer recommends taking comment on “ensuring forest and landscape productivity” as it is a difficult task.

R esponse: This text has been removed.

Biomass Compliance 1) Page 118. “ The EPA also requests comment on options for demonstrating compliance with the options listed above that include criteria that reflect sustainability and sustainable practices that are additional to the EM&V requirements discussed in section &&& above. These options for demonstration of compliance with criteria are described below.“ Comment : pg. 118

- 119, Reviewer recommends taking comment on Options 3 and 4 only, as t hey focus on existing certification and carbon accounting methodologies.

R esponse: We are taking comments on all options related to biomass in this proposal.
2) Page 118. “ The first option offered for comment would require provision of sufficient credi ble evidence, such as monitoring records and metrics showing that the forest/agricultural feedstock sources meet the criteria listed above and any others that might be adopted, and are at low risk of non

- compliance.”Co mment: Reviewer notes that the first option for demonstrating compliance requires evidence that defeats the purpose of having biomass fuels that are “pre

- approved.” Recommend clarifying what the additional reporting for this would be beyond what would be required for just determining if a fe edstock qualified or not.

R esponse: This text has been removed.
3) Page 118. “ The second option offered for comment would require the provision of approved third party verification and/or certification entities or programs to demonstrate compliance with established sustainability criteria. ” Comment: Reviewer notes that NEPA compliance generally supersedes third party verifi cation/certification programs, and that this option for compliance would be a redundant and costly requirement. Recommend addressing how NEPA compliance could be used under this option.

R esponse: This text has been removed.
4) Page 119. “ The third option offered for comment allows for the use of any other verification programs or entities to demonstrate compliance which are not pre

- approved but can be proven to employ generally accepted sustainability metrics .” Comment: Reviewer supports the third option presented for compliance, as it would conceivably include NEPA compliance on federal forests and certifications for private lands. Recommend making this the preferred options and the other options as alternatives.

R esponse: This text has been removed.
5) Page 119. “ The fourth option offered for comment requires a determination of the biogenic emissions and sequestration related to the production, processing and use of the biomass fuel, with supporting records.” Comment: Reviewer notes that the fourth comp liance option presented is also part of the proposed methodology for determining if a feedstock is eligible. Recommend clarifying whether carbon accounting if done for showing eligibility as a feedstock would not have to be repeated to show compliance unde r this option.

R esponse: This text has been removed.
6) P age 152

. Reviewer recommends the following change: “ This proposed requirement to hold and surrender allowances equal to emissions for each compliance period would apply to all reported emissions from a facility’s affected EGUs including any emissions from co

- fired biomass as calculated according to the methodology discussed in the final Framework for Assessing Biogenic Carbon Dioxide for Stationary Sources .”

R esponse: We do not agree with this comment. The draft 2014 Framework – a policy neutral technical document – is currently undergoing a second peer review with the Science Advisory Board. Generation of ERCs Through Operation of non

- BSER SourcesTh e draft of the federal plan discusses (pages 110 to 120) the RE measures that would be eligible for ERC generation. To ensure consistency with the final Clean Power Plan, reviewers suggest that the federal plan allow the generation of ERCs from a broad range of zero

- emitting non

- BSER sources such as new nuclear and demand response EE, subject to EM&V requirements and verification/certification protocols. EPA is justifiably concerned about the impact of “leakage” from certain non

- affected EGUs (e.g. new NGCC units) on the effectiveness of the BSER measures. However, zero

- emitting sources such as nuclear and demand response EE would not cause leakages, and there i s no principled basis to treat them differently from the RE measures that EPA has identified as being eligible for ERCs. By the same token, these other zero

- emitting non

- BSER measures should be eligible for receiving set

- aside allowances in a mass

- based pr ogram. Response: T he feasibility of federal implementation is a key concern , and thus t he EPA is proposing to only include non

- distributed RE and new or up

- rated generation due to requirements and rigor needed to ensure the quality of data and emission reductions achieved through the other described ERC generating resources.

Likewise, the draft federal plan sets out certain criteria under which ERCs generated from RE measures operated in mass

- based states can be used to meet compliance obligations in ra te

- based states. Reviewers suggest that the use of ERCs generated from other zero

- emitting sources located in mass

based sources (such as nuclear and demand response EE) should likewise be allowed to meet compliance obligations in rate

- based states.
Respon se; Nuclear is now being included and is described in the same vein as RE, but as described above, EE is not being included in the federal plan and thus being discussed for rate and mass overlap.
Participation in Federal Plan Trading Program

As to interst ate trading (pages 144

- 147), reviewer recommends the use of the broader approach such that EGUs in states under a federal plan and in states with a “presumptively approvable” plan, could trade with EGUs in other states that are not under a federal plan or “presumptively approvable” plan. Creating such a mechanism that facilitates trading through a common federal trading rules (mass

- based and rate

- based) is critical as, otherwise, states would not have an incentive to develop state plans using a “state measu res” approach. This is also a more equitable and economical approach to compliance. Moreover, the fact that state plans using a “state measures” approach would have the federal plan as a backstop minimizes the risk of harm in allowing trading between states under state and federal plans. Response: There is the restriction of trading that only affected EGUs in the federal plan may trade with
state s that are “ready

- for interstate

- trading” to ensure that there is no leakage and that all resources are being tr eated the same. The EPA wholly encourages trading, but understands that it must be done in a controlled way to ensure that everything is accurately accounted for. This does preclude not state plan to state plan interactions as described in the CPP EGs.

Ret ired Units Many utilities own units that meet load and serve customers in multiple states. Therefore, utilities must make decisions for their generating fleet as a whole, not as isolated units in individual states. An ownerof E GUs in two states with a ma ss

- based plan may retire a unit in one state and need those allocations to help a unit in another state comply. In order to allow this flexibility, reviewer suggests the following approach that is not currently in the proposed rule. Reviewers suggest that the initial allocation of allowances for each unit be held constant and not removed from the unit regardless of the unit’s status throughout the compliance period. It would be inequitable to take allocations from EGU owners that retire units as a result of this rule. EPA could require EGU owners to demonstrate the need for excess allocations, due to unit retirement, to be used by its EGU in another state for compliance. Without this demonstration for need, the excess allowances could be distributed to other units in the state where the retired unit is located.
Under the proposed federal plan, a unit that does not operate for two consecutive years would receive allocations for four years after it ceases operation (page 211). This scheme does not account for units that were placed in an extended outage to address major equipment maintenance, or were mothballed for use at a future date. Units that have maintained their Title V and other environmental permits with a view to restarting in the future, and have und ertaken preventative maintenance while in extended outage or mothballed condition, should not be penalized merely because of non

- operation for a two year period. Accordingly, reviewer suggests that the criteria for retired units be revised such that the
tw o- year, non

- operation clock would run only under certain conditions.
Response: We have changed the proposed approach so that if an EGU doesn’t operate for two full calendar years, then starting with the next compliance period for which allowances have not yet been recorded, the retired unit would no longer receive allowances. We don’t intend to take back allowances that have already been recorded. If a retired unit began operating again after it didn’t operate for two full calendar years it would be a new unit and wouldn’t need to hold allowances for this program. We added a request for comment on treatment of allocations to units that are in long

- term cold storage.

Other General Comments With regards to the output

- based allocation, commenters recommend giving the allocation to all clean new and existing generation in addition to all existing natural gas generation

— in other words, to all generation that results in lower emissions rather than higher emissions. This will (1) ensure that the full incentive to build new renewables and preserve existing zero

- carbon gene ration will be maintained and (2) eliminate market distortions associated with the threshold

- based allowance allocation
Response: The preamble r equests comment on which generating units should be eligible to receive output

- based allocation from the set

- asi de , and it also proposes a set

- aside for renewable energy projects.

Commenters recommend that EPA take comment on a BB2 ERC approach that generates some fraction of ERCs through the reduction in steam generation (in contrast to the central proposal that o nly focuses on increases in natural gas generation). In particular, this could be accomplished through a pro

- rated additional demand for ERCs placed on steam generation.
Response: This may add a dditional l ayers of complexity with diminishing returns , and t he EPA wants to optimize clarity and simplicity

.Co mmenters recommend that new nuclear power and uprates, distributed PV and offshore wind be among the creditable technologies under a rate

- based plan
Response: The preamble text is being revised to recognize incremental nuclear power and nuclear up

rates, as recognized under the final emission guidelines, as an eligible technology for ERC issuance under the rate

- based federal plan approach. Aside from the recognition of qualifying nuclear, the EPA disagrees with the approach for recognizing all emission reductions measures eligible under the final emission guidelines for ERC issuance under a rate

- based federal plan. In the context of the federal plan, the feasibility of federal implementation is a key concern, and thus we propose technologies that are widely demonstrated and provide the simplest path for EM&V implementation under a federal plan. We seek comment on how to implement the EM&V requirements for various technologies on which we seek comment, and how that could be implemented in the context of the final rule. We also seek comment on a process by which technologies can be determined to be eligible. The EPA notes that states that wish to have the ability to recognize all the eligible technologies under the final guidelines have the opportunity to submit an approvable state plan that does so.

Commenters recommend that ERCs be issued as often as possible to provide the most information and certainty to marke ts. If this cannot be done for all types of ERCs, it should be straightforward to do for RE.
Response: The EPA agrees that ERCs should be issued as often as possible. We will consider options to do this based on information received during the comment peri od for this action.

Commenters recommend that States under a mass

- based federal plan be allowed to take advantage of the full 8

- year averaging across the interim compliance period, especially in light of the lack of an RSV. States could convert to a state plan provided that they either are at a zero or positive bank or that they account for any borrowed emissions in their state plan.
Response: The proposal allows unlimited allowance banking. The multi

- year compliance periods allow averaging across multiple years. The proposal requests comment on allowance borrowing across compliance periods but does not propose to allow cross

- period borrowing for the reasons stated in the preamble.

Commenters understand that the ERC crediting mechanism will be established in the emission guidelines, so is it correct to assume that the proposed options for ERC crediting in the FP will be removed?
Response: No it will not be removed. The ERC issuance and crediting process is expands on the discussion from the EG s.
It would be h elpful to have a clarification of the current thinking on the process for finalizing a federal plan for a state in terms of the notice and comment requirements, if any, and what that timeline would be.Re sponse: EPA has proposed the federal plan for all states with affected EGUs who do not submit approvable plans. EPA is taking comment on the federal plan now. Thus EPA will be in a position to finalize the federal plan, taking into account any comments, for each state, if necessary, as soon as predicate act ion has been taken on the state ’s plan or failure to submit a plan. If states fail to submit anything by the deadline next year, EPA may ministerially determine that there has been a failure to submit. Where a state submits a plan that does not meet requir ements, EPA would propose the plan for disapproval and go through a notice and comment process on the disapproval. The model trading rules may be finalized at any time after the notice and comment process, and EPA states its intention to finalize them by n ext summer. At that point, the expectation is that the agency would respond to comments that are relevant to the general design of the program.
Would it be possible to provide for EPA payment of verifiers (through fees assessed to energy efficiency develo pers) to avoid having developers themselves paying verifiers, and the incentive structure that creates?

Could EPA discuss how it will be assured that states with a rate

- based FP approach would have sufficient access to ERCs?
Response: Primarily, the amount of ERCs that are generated are based on the least stringent region’s ability to generate ERCs so it provides every opportunity for ERCs to be generated so that compliance can be achieved by the EGUs. Also, because there is a national trading platform, ERCs can be traded across the country and between states subject to the FP and states that are ready

- for

- interstate

- trading. This should allow a large and diverse market for states that may not have as much ability to generate ERCs.
Would it be possible for a state to choose to opt

- in its new sources under a mass

- based FP, perhaps by making the anti

- leakage design element one of the places where a state could choose to make a design decision for the FP?
Response: A state can adopt the model rule , and if it c hooses to follow the anti

- leakage flexibility in the EG , it can incorporate those flexibilities to supersede those in the model rule.
Other Specific Comments
1) Page 144, 235. “The EPA also requests comment on requiring monitoring and reporting of CO 2 mass an d net generation for the year before the initial compliance period begins, i.e., to commence January 1, 2021.” Comment : Reviewer recommends requiring monitoring and reporting of CO 2 mass and net generation for the year before the initial compliance period so the effects of the first year of the policy may be measured and analyzed and so that any kinks in processes can be ironed out before compliance obligations begin.

Response: Agre ed, the agency is taking comment to confirm

.2) Pa ge 180, 220. “The EPA requests comment on the proposed approach of recording allowances seven months prior to the start of each compliance period, and on an alternative of recording allowances 13 months prior to the start of each compliance period.” Comment: Reviewer requests clarification on whether EGUs can use allowances from the next compliance period to comply with a current compliance period since allowances will be issued for the preceding compliance pe riod either 7 or 13 months before the current compliance period ends.

Response: Allowances can no t be used from a future compliance period.

Technical Comments 

### 1) Page 48

- 49

. Reviewer request clarification on the passages on page 48

- 49. Is there a difference between “EGUs” and “sources”? Does EPA intend to make a distinction in the direction of trading? I f not, consider using “between” instead of “from”

.
“ The EPA proposes that interstate ERC trading could occur both i) from affected EGUs in states covered by the rate

- based trading federal plan to affected EGUs in states with approved rate

based trading state plans meeting the proposed conditions for linkages, and ii) from sources in such state

- plan

- covered states to sources in federal

- plan

- covered states. ”

R esponse: Preamble e dits have been made accordingly

. 

### 2) Page 63

. Reviewer recommends expanding use of the ISO/RTO Council to reliability coordinators and planning authorities because the IRC does not encompass all areas of the country.
Response: The referen ce to “other planning authorities” addresses this comment.


### 3) Page 103: Reviewer also recommends on page 103 changing the signs on “EGU limit” and “EGU operating rate” in the numerator of the equation, so that if “ERC MWh” is calculated to be positive it indicates how many ERC need to be surrendered and if it is calculated to be negative it indicates the number of ERCS that are being generated. This will then make the sign of “ERC MWh” that need to be surrendered consistent with other equations in the preambl e (for example on page 107).

Response: The EPA disagrees and thinks that the signs send the signal that is intended.


### 4) Page 104

. Reviewer recommends deleting the following sentence on page 104. The sentence is correct, but it contains the same information as the equation and text on the previous page, but it is stated in a way that requires careful review to determine that fact. “T

he needed quantity of ERCs for any given amount of generation can be easily calculated by dividing the total emissions of the affected EGU by the applicable emission rate limit, and then subtracting the generation of the affected EGU.”

Response: Preamble e dits have been made accordingly.

### 5) Page 104: Reviewer requests clarification on the meaning of pro

- rata in the sentence: “To incentivize and capture the emission reductions of Building Block 2 of the CPP EGs, the EPA proposes in the federal plan that NGCC generation has the capability to generate ERCs on a pro

rata basis reflecting incremental NGCC generation. “

Response: Edits made to clarify the language



### 6) Page 106

. Reviewer recommends clarifying the following, as it is not clear what is meant by “when t he region reaches 75 percent summer time capacity...” does this mean, “when the interconnect region generation reaches the level that would be generated if all NGCCs in the region operated at a 75% capacity factor” ? Response: Edits made to clarify the langu age


### 7) Page 124 & 127

. Reviewer suggests clarification that ERCs in a compliance account are retired and no longer available for trade when used for compliance purposes, which follows current terminology in REC tracking systems: “A compliance account would be the account in which any ERCs used by the affected EGU for compliance with the emissions limitations would have to be held until retired for compliance .”

“Accordingly and if necessary, the appropriate number of ERCs will be deducted from retired in the EGU’s compliance account to adjust the emission rate of the EGU to be equal to the emission standard.

Response: Preamble e dits have been made accordingly.


### 8) Page 127

. Reviewer recommends clarifying the source of the data for the “total pounds of CO2 emitted over the compliance period” and “the net MWh of energy the affected EGU produced.” Reviewer recommends that the source of data be sufficiently verified to ensure ac curate data.
Response: Edits made to clarify the language


### 9) Page 128

. Reviewer recommends clarifying the difference between ERC unique serial numbers and tracking numbers.
Response: Edits made to clarify the language


### 10) Page 130

. Reviewer recommends clarification of how text on page 130/131 differs from previously described EPA

- administered Allowance Tracking and Compliance System. Is this an alternative or additional tracking system for RE facilities or for EM&V? “The EPA is prop osing that the agency will establish a tracking system for administering the rule that provides for transparent access to RE project and program eligibility applications and regulatory approvals as well as information on ERC transfers and third party verifiers (third party verifiers are further discussed below as part of Evaluation, Measurement and Verification).”Res ponse: The preamble language is being revised to reflect the following. The commenter is correct that the information on ERC transfers will be held in th e Allowance Tracking and Complia nce System. We are proposing that the information on RE project and program eligibility applications and regulatory approvals, as well as information on third party verifiers will be held in a complementary syst em that will also provide for transparent access to that information via the internet.


### 11) Page 131

. Reviewer supports EPA’s ability to designate an agent to coordinate project applications to prevent burdening the agency with these tasks which can be accomplished by other groups. “It is proposed that EPA may designate an agent to coordinate the project application process and assist with review of applications.”

Response: No response needed


### 12) Page 132

. Reviewer seeks clarification on whether the text on pag e 132 indicates when facilities may apply for approval to generate ERCS versus actually issuing ERC s

. “The agency is proposing that ERC issuance applications will be accepted after the beginning of the first compliance period, as soon as the agency is able to establish an application process, and that applications will be accepted on a periodic basis, either quarterly or semi

- annually. These applications will be accepted through the entirety of all compliance periods.”

Response: The EPA needs to establ ish the application process for approval to generate ERCs and once it is established providers may apply at any time to generate ERCs. ERCs will be issued annually after each year in a compliance period has concluded and the data has been verified.


### 13) Page 133. There is a reference to the “clean energy investment pool” here, which is the only time that is mentioned. Reviewer suggests the discussion be extended to explain more about how it works. In addition, reviewer suggests including a discussion of this in the mass

- based plan section, which would reduce confusion about why the rate

- based plan discusses “mass

based allowances.”

Response: The preamble language is being revised to reflect in more detail the role that the Clean Energy Incentive Program wo uld play in recognizing pre

- compliance emission reductions in both the rate

- based and mass

- based approaches. This includes separate discussions in the rate

- based and mass

based sections.



### 14) Page 139

. Reviewer recommends clarifying that when calculating the number of ERCs needed to be in compliance, the Adjusted Emission Rate must equal the Emission Standard in the first equation. AAAAAAAAAAAAAAAA EEEEEE EEEEEE RRRR = MM oo CCCC 2 ( llll ) GG GG ( MMMM h ) + MMMM h EE = EE SS Reviewer also recommends the following edit to the second equation because the adjusted emission rate may not equal the emission standard for EGUs that are out of compliance.
MMMM h EE = MM oo CCCC 2 ( llll )

EEEEEE EEEEEE SS ( llll MMMM h ) − GG GG ( MMMM h )Re sponse: Changes made accordingly



### 15) Page 160. Reviewer recommends the following edit on page 160 since the initial allowance allocation can affect the overall environmental results if emissions from non

- covered sources are considered. “The initial allowance allocation approach does not affect the environmental results of the program or generation patterns, except as it effects generation s hifts between covered and un

covered sources.”

Response: An approach based on historic data doesn’t affect generation shifts between covered and uncovered sources ; we’ve revised preamble to clarify this point.


### 16) P age 167

. Reviewer recommends clarifying (step 3) that EGUs that generated in 2010

- 2012, but that are no longer operating, have their generation be removed from the sum total of historical generation and not be awarded allowances.

Response: We edited the preamble to clarify that we included generation from units that operated in the historic data period and calculated allowances for such units, and added request for comment on treatment of generation from and allocations to units that retire before the start of the program.


### 17) Page 181. Reviewer recommends the following text because there is some risk of leakage to new sources under a rate based standard depending on the level at which the rate is set. “This risk is not as great or is not present, depending on the difference between the intensity of a new unaffected source and the performance emission rate, present for existing EGUs under a rate

- based plan...”

Response: Text has been edited accordingly.


### 18) Page 186. In the federal plan, reviewer recommends acc ounting for lost large zero carbon generation by subtracting the lost generation in the denominator of the rate

- based compliance calculation for the state beginning in the year that the EGU goes offline.

Response: More clarification is needed from the rev iewer on this comment


### 19) Page 196

- 197. Reviewer recommends that EPA include an equation in addition to the text on these pages that explains how the number of allowances in the set

- aside is calculated. Reviewer’s understanding from the section is that Allow ances in Set

- Aside = 98% of Total Allowances x Allocation Rate x 2014 NGCC Generation between 50% Capacity Factor and 70% Capacity Factor , but there are certain places in the text where this is not clear.

Response: The proposed size of the set

- aside is: 10 % of total NGCC net summer capacity X number of hours in a year X allocation rate. This formula is included as an inline equation in the preamble text after each parameter is defined and discussed.

### 20) Page 235. R eviewer recommends updating the r eference to MATS to reflect recent court decisions

. Response: See footnote 30 for an updated reference to the recent court decision on MATS.


### 21) Reviewer recommends that the structure of the rate plan and mass plan, in terms of headers and content, should b e roughly parallel.

Response: To the extent practicable, the structure of the rate and mass sections will mirror one another. However, in order to outline the details that are unique to each approach, differences in the structure are necessary.

Typog raphical Comments 1) Page 52: Reviewer recommends revising the following sentence to infer that application of ERCs could be submitted to agent of EPA running a tracking system. (Page 52 and throughout text).

“ This demonstration must be included as part of th e project application for ERC issuance to the EPA or its agent from the RE provider in the mass

- based state.”

Response: Changes made
2) Page 53: Reviewer recommends the following edit because there are cases where RE located in a mass state can be counted in a rate state. “Under the proposed mass

- based approach there is a restriction to counting RE that is located in a mass state in a rate

- based system : , if RE providers that receive mass

- based set

- aside allowances for their generation

. In this case RE gener ation is are barred from being issued having ERCs issued for that generation in a rate

- based state.”

Response: The preamble text has been revised.
3) Page 54: A sentence says “remain under the mass, thereby” which is missing a word after “mass”

Response: The preamble text has been revised.
4) Page 71: Harmonize language to use either “step

- down approach” or “glide path” – the latter was used exclusively in the preamble and it is suggested that this language be made consistent here and throughout the text: “A t that point, the agency is using a step

- down approach, or glide path...” 5) Response: “Glide path” is used consistently throughout the remainder of the preamble. Here, the use of the phrase “step

- down approach” simply serves to further qualify the meaning o f “glide path.”

6) P age 101: Reviewer recommends revising the emissions standards in the table to match those in the redline preamble.Re sponse: The emissions standards are up to date

. 7) Page 104: “ Through Building Block 2 there is a call to shift represents shifting generation from fossil steam EGUs to NGCCs because NGCCs generate electricity at a lower carbon intensity and, thus, reduces CO 2 emissions for the same level of generation”

Response: T he preamble text has been revised

. 8) Page 107: “ The NGCC is subject to a final period emission rate limit of 780 lbs CO 2 /MWh. Since the NGCC is always subject to its NGCC emission rate limit of 780 lbs/MWh and it is operating at a rate above that limit it will owe non

- BB2 ERCs for all generation”

Response: T he preamble text has been revised

. 9) Page 107: Reviewer recommends editing the variable name in the second equation to be consistent with elsewhere in the text. NGCC Generation * BB2 ERC Generating Factor on Rate = BB2 ERCs
Response: Terms have been redefined
10) Page 110: Reviewer recommends the following edit. “This treatment for eligible measure types is also proposed for the set

- aside for RE that is part of the proposed mas

- based implementation approach in the federal plan ,...”

Response: The preamble text has been revised.
11) Page 111: Reviewer recommends striking this comment because it should not be a relevant consideration for ERC generation eligibility purposes: “ These technologies are also expected to be able to deploy on an economic basis during t he compliance period, as discussed in the final EGs (see Sec. V.E.6).”

Response: EPA disagrees.
12) Page 142: “The EPA would require that ERC emissions generation data be reported to the EPA quarterly starting on April 30, 2022, and continuing every three mo nths thereafter (i.e., the 30th of April, July, October, and January).”

Response: The preamble text has been revised
13) Page 152 and Page 154: Reviewer suggests clarifying the terminology “interim compliance period” because the EG tends to use that phrase to denote the entire eight year period between 2022 and 2029 whereas the federal plan states that the interim compliance represent s the three and two year periods within that 8 year span. The EG refers to the periods of three and two years as interim steps . Reviewer recommends that t his should be done throughout the text.
Response: This model rule is written in the form to directly regulate EGUs , and thus the term compliance period is appropriate as the affected EGUs are complying with the emission standardsset i n this model rule during the interim compliance periods. In the context of the EG , the state is the intended reader . T he EG s do not req uir e the state to comply with the interim period , but requir e the states to regulate their affected EGUs to comply with those emission standards or
measures set in the state plan.

14) Page 159 : Reviewer recommends including a discussion of designated representatives in both the rate

- based and mass

- based sections (currently it is just in the rate

- based section).

Response: B oth the mass and the rate sections of the preamble discuss designated r epresentati ves. F or mass, the discussion is in section V.G.1. and rate in IV.D.1

15) Page 175: It appears there is an unnecessary “The EPA requests” at the start of the first fill paragraph.

Response: This text has been deleted.

16) Page 202: “The EPA is proposing that five percent of allowances will be reserved from the allocation for each state for the purpose of the set

- aside.” Reviewer believes this should be 2 percent, based on earlier language.

Response: The preamble text has been revised. All instances of this text have been edited to reflect a 5% set

- aside.

### Attachment E.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Tuesday, July 28, 2015 1:19 PM To: Jones, Toni; Szabo, Aaron Cc: Owens, Nicole; Culligan, Kevin; Muellerleile, Caryn; Wiggins, Lanelle; Swanson, Nicholas; Boswell, Colin; Schramm, Daniel Subject: Summary of Interagency Comments under EO 12866 and 13563 ‐‐ Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units

Attached please find an additional summary of interagency comments under EO 12866 and 13563 on the EPA NPRM, Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units.

Thanks and please let me know if you have any questions.

Nathan

### Attachment E.1• P. 150 redline: “... This means that fractional GS

- ERCs are generated for every NGCC MWh and when the interconnect region collectively reaches the level that would be generated if all NGCCs in the region operated at a 75 percent capacity factor there will be an amount of GS

- ERCs that correlates to the emission reductions anticipated under BB2 of the BSER. NGCC units are expected to be incentivized to reach this level of generation in part due to market demand for GS

- ERCs. Thus, GS

- ERCs have the potential to play an important role in the sector meeting compliance obligations . Conversely, the

ex tent to which cumulative NGCC generation will achieve the 75% capacity factor is ultimately related to relative market forces in future years (e.g., cost of natural gas, cost of RE), and the extent to which NGCC generation may fall short of the 75% level

r epresents a potential discount on the benefit of a unit GS

- ERC to actually achieve a zero CO2 emission MWh. For instance, if relative generation prices (with GS

- ERCs and ERCs accounted for) in future years militate toward no or low increase in covered NGC C generation from the 2012 baseline, then a large fraction of the GS

- ERCs will have been issued without any reduction in CO2 emissions, rising proportionally to fully reaching the unit zero emission MWh benefit as the NGCC generation more closely approache s 75%. The additional ERCs required by fossil steam EGUs in situations below 75% NGCC generation would be made up by increased conventional ERC generation and purchase, but not the GS

- ERCs already issued.”

• P.161

- 162 Redline: “While having a baseline threshold for EGU generation to credit GS

ERCs against closely resembles the EPA’s BSER determination, it enables a system in which GS

- ERCs can be generated by replacing NGCC generation from one unit with NGCC generation from another. In this situation there is not necessarily any additional NGCC generation as a subcategory, but a shift in which NGCC units are generating electricity and to what degree. This allows for a situation in which GS

- ERCs can be generated without achieving the anticipated reductions in CO2 emissions. An alternative under such an incremental GS

- ERC system would be to require that system operators that manage more than one covered NGCC EGU to reach a cumulative average dispatch rate for all of their covered NGCC units that is greater than the baseline (2012 or state/regional average), prior to being able to generate GS

- ERCs on any of their NGCC units.”

1. Endangered Species language. This section militates great care to not create adverse sound bites, and some of the current text could be adjusted to be more explicit, sentence by sentence, on what is being conveyed. Comments inserted (redline 423 onward) and below:

• P. 423

- 424 Redline: “The EPA reached this conclusion after evaluating issues relating to potential improvements from the fuel efficiency rule relevant to both temperature and oceanographic pH outputs. The EPA's ultimate finding was that “any potential for a specific impact [of the specific Federal action] on listed species in their habitats associated with these very small changes in average global temperature and ocean pH is too remote to trigger the threshold for ESA section 7(a)(2).” Id. The EPA believes the same conclusion applies to the present rule. See, e.g., Ground Zero Center for Non

Vi olent Action v. U.S. Dept. of Navy, 3 83 F. 3d 1082, 1091

- 92 (9th Cir. 2004). EPA similarly determines that the likelihood of jeopardy to a species from the CPP is extremely remote , and ESA does not require consultation). The EPA’s proposed conclusion is entirely consistent with DOI’s analysi s regarding ESA requirements in the context of federal actions involving GHG emissions.”

### Attachment F.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Tuesday, July 28, 2015 3:38 PM To: Schramm, Daniel; Jones, Toni; Szabo, Aaron Cc: Owens, Nicole Subject: RE: Summary of Interagency Comments under EO 12866 and 13563 ‐‐ Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units

Supposed to be Federal Plan.

From: Schramm, Daniel [mailto:Schramm.Daniel@epa.gov] Sent: Tuesday, July 28, 2015 3:29 PM To: Frey, Nathan J.; Jones, Toni; Szabo, Aaron Cc: Owens, Nicole Subject: RE: Summary of Interagency Comments under EO 12866 and 13563 ‐‐ Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units

Nathan, regarding the suggested edits on the ESA section, I think we are comfortable making these changes, but I have a question. The edits refer to “the CPP” and not to the “federal plan.” Was this intentional, and if so, what is the reasoning? Perhaps you can give me a call to discuss. Thank you,

Daniel Schramm U.S. EPA Office of General Counsel (202) 564

‐ 3377 schramm.daniel@epa.gov

The contents of this message may be subject to the attorney

‐ client, work

‐ product, or deliberative process privileges.

From: Frey, Nathan J. [ mailto:Nathan_J._Frey@omb.eop.gov ] Sent: Tuesday, July 28, 2015 1:20 PM To: Jones, Toni; Szabo, Aaron Cc: Owens, Nicole; Culligan, Kevin; Muellerleile, Caryn; Wiggins, Lanelle; Swanson, Nicholas; Boswell, Colin; Schramm, Daniel Subject: Summary of Interagency Comments under EO 12866 and 13563 ‐‐ Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units

Attached please find an additional summary of interagency comments under EO 12866 and 13563 on the EPA NPRM, Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units.

Thanks and please let me know if you have any questions.

Nathan

### Attachment G.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Tuesday, July 28, 2015 6:49 PM To: Jones, Toni; Szabo, Aaron Cc: Owens, Nicole; Culligan, Kevin; Muellerleile, Caryn; Wiggins, Lanelle; Swanson, Nicholas; Boswell, Colin; Schramm, Daniel Subject: Summary of Interagency Comments under EO 12866 and 13563 ‐‐ Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units

Attached please find an additional summary of interagency comments under EO 12866 and 13563 on the latest draft of the EPA NPRM, Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units.

Thanks and please let me know if you have any questions.

Nathan

### Attachment G.1(p age numbers refer to the RLSO version)

General Comments

1. Reviewer recommends proposing (rather than taking comment on) that all non

- BSER technologies and measures that are acceptable to generate ERCs in the emission guidelines (EGs) be proposed as approved to generate ERCs under a rate

- based federal plan. Reviewer notes that renewable and nuclear are included as defaults but energy efficiency is missing.

2. Reviewer recommends that the allowances that are set

- aside in the mass

- based approach for low - or zero

- emission activities be distributed using a technology

- neutral methodology and not reserved exclusively for RE. For example, on RLSO page 163, reviewer recommends that new nuclear units and capacity uprates at existing nuclear units should be eligi ble to receive set

- aside allowances to provide equal treatment under the rate

- based and mass

- based plans. Reviewer also recommends renaming this group of allowances as the Clean Energy Set

- Aside to avoid confusion with the set

- aside for existing NGCC.

T echnical Comments Page 43 RLSO . Reviewer requests clarifying the meaning and intent of this: “ all of the language and provisions in the regulatory text relevant to these other ERC resources is relevant only to the proposed model trading rule and not to the federal plan as such. “

P age 69 RLSO. Reviewer supports language clarifying restriction on trading to only between other states with subcategory rates, and suggests referencing that this is consistent with the final EGs rules on rate

based trading, as described on pages 1526

- 27 (of 7/25 redli ned version of the preamble).

Page 92 RLSO . Reviewer requests clarifying why a “similar mechanism [to an allowance set

- aside] in a rate

- based approach to address reliability issues in the federal plan” is not needed.

Page 139 RLSO . Reviewer suggests clar ifying changing “certain nuclear” to “new and uprated nuclear”

. p.144 – “(3) new nuclear units and capacity uprates at existing nuclear units, and RE providers that develop metered projects and programs whose results, in MWh, are quantified and verified a ccording to EM&V criteria as described below in section &&& IV.D.6 of this preamble.” Reviewer supports the revised language that includes reference to “metered” RE projects and programs. However, given that the requirement now exists for the projects to be metered, reviewer recommends allowing all renewable energy technologies – including offshore wind and distributed solar – to generate ERCs, provided they are metered and adhere to EM&V criteria. While all renewable energy technologies may not be “expec ted to be able to deploy on an economic basis during the compliance period” (p.164), if they aren’t economic, states are very unlikely to deploy them. This should result in no additional costs or administrative challenges.Pa ge 148 RLSO. Reviewer suggests rewording the following sentence: “This means that most NGCC units are being called to increase annual generation from 2012 baseline emissions.” Reviewer is concerned this could be seen as a requirement for the implementation of part of BSER, which lan guage above reiterates is not the case. Suggested rewording: “This level of generation, for most NGCC units, would represent an increase in annual generation from a 2012 baseline.”

Page 149 RLSO. Reviewer recommends clarifying that (addition in red) “All affected NGCC generation will be credited, with ERCs, by a factor that represents the described emission reductions from incremental generation; ERCs credited in this way will be designated as Gas Shift ERCs (GS

- ERCs) for clarity.” Reviewer also notes that this seems to conflict with the language describing only marginal generation beyond a certain average capacity factor will be credited, as described on pages 316

- 317.

Page 168 RLSO . Reviewer recommends the following language (as highlighted) to allow for the possibility that EPA may in the future find that some biogenic feedstock is carbon neutral: “The revised Framework, and the EPA’s Science Advisory Board (SAB) peer review of the 2011 Draft Framework, finds that it is not scientifically valid to assum e that all biogenic feedstocks are “carbon neutral” and that the net biogenic CO2 atmospheric contribution of different biogenic feedstocks generally depends on various factors related to feedstock characteristics, production, processing and combustion practices, and, in some cases, what would happen to that feedstock and the related biogenic emissions if not used for energy production. A given feedstock may be found to be carbon neutral after appropriate EPA assessment .”

Page 2 27- 244 RLSO. Reviewer notes that pages 227

- 244 appear to be language from earlier versions of draft EM&V guidance documents, and suggests clarifying if the inclusion of the language in this document means that a separate guidance document on EM&V is no longer intended to be provided, or if this is meant to complement the separate guidance.

p.229 – “ These categories include project

- based measurement and verification (M&V), deemed savings, and comparison group approaches such as randomized control trials (RCT). Regardl ess of the approach selected, the EPA is proposing that annual savings values must be quantified using these EM&V methods at specified time intervals (in years) on a recurring basis over the effective useful life of the EE project or measure in order to en sure accurate and reliable savings values. To be considered presumptively approvable, EE providers must conduct apply the above methods at a minimum of four year intervals for building energy codes and product standards; every one, two or three years for p ublicly or rate

- payer funded EE programs, depending on the program type, magnitude of savings, and experience with the program; and annually for large individual commercial and industrial projects, unless the EE provider can credibly demonstrate why this i s not possible and how the accuracy and reliability of savings values will be maintained.”
Reviewer finds the inclusion of deemed savings in this paragraph confusing. Reviewer believes that EPA means that states should update their deemed savings estimates every three years, per the language on subsequent pages, which makes sense. In this paragraph, however, it appears that EPA would require states to repeatedly calculate savings from the same project using deemed savings.Pa ge 319

- 320 RLSO: Reviewer n otes the references to 111(b) seems to be outdated and should updated: “ Specifically, an additional MWh of eligible generation would earn the affected EGU allowances equal to the level of emissions permitted per MWh of net generation under the 111(b) new source standard, which is 1,030 lb/MWh

- net. ”

Typographical Comments p. 18. Given EPA’s intent to finalize a single approach, commenter recommends the following change should delete “if we opt to finalize a single approach” at the end of that paragraph. “We invite comment on which approach, i.e., either mass

- based or rate

- based trading, should be selected if when

we op t to finalize a single approach.”

Page 22. Reviewe r requests clarification on how “vulnerable” communities are defined.

Page 68. Reviewer notes that language is missing here: “The final guidelines specify the concern of leakage... ”.

Page 85. Reviewer requests clarification on how the federal plan can propose a two year compliance period after 2030 when this is finalized in the EG.

Page 90. "The EPA will work with the ISO/RTO Council to convene a face

- to

- face meeting for planning authorities with the EPA during the comment period to discuss any concern s or other feedback on the federal plan from those entities." Comment: Reviewer still recommends expanding use of the ISO/RTO Council to reliability coordinators and planning authorities because the IRC does not encompass all areas of the country. The EPA response refers to text on Pg. 88 in a different context.

Page 144. Reviewer recommends clarifying that “RE providers that develop metered projects and programs...” become the fourth category and not be included in the third category to simplify composition.

Page 148

- 149. Reviewer recommends noting that NGCC will receive “a partial credit” or otherwise clarifying that NGCC will not receive an entire emission reduction credit for every hour of electricity it produces.

Page 158. Reviewer believes that the steam generating unit emissions standard should be 1305 lbs CO2/MWh, a s shown on page 142 (Table 4). That change would also change some of the equations on the page.

Page 163. Reviewer notes that the following sentence is incomplete and requests clarification about what is being proposed: “Further, the EPA is proposing t hat new nuclear units and capacity uprates at existing nuclear units that meet the requirements for eligible resources in the emission guidelines (as specified in the final emission guidelines Sec.VIII.K.) and all other requirements related to ERC issuance in the emission guidelines and this proposal.”p.221

– Reviewer notes a possible typo “ The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection, including the appropriateness of their use for each type of renewable nuclear energy resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Clean Power Plan compliance.”

p. 222 - "Prorated MWh = (1 - incremental CHP emission rate/applicable affected EGU emission limit rate) * CHP MWh output, where the ratio is limited to values between 0 and 1." Reviewer believes the word “limit” is a mistake in the sentence above, and tha t it should be struck to be more consistent with the sentence later on that same page: "The incremental rate would be relative to the applicable CO2 emission rate for affected EGUs in the state and would be limited to values between 0 and 1."

Page 398. Re viewer recommends considering whether the list of completeness criteria discussed on Pg. 398 should include the 111(d) plan requirement regarding demonstrating that the state has consulted with the planning authority/reliability coordinator. (Also applies to the reg text, Pg.3.)

Page 90. Reviewer recommends further explaining why emergency events (on Pg. 90) that would otherwise trigger the reliability safety valve (emissions would not be counted against a state plan) would not do so under a federal plan, especially with respect to any short

- term modifications to a federal plan that may be needed (noting that this depends on how the final CPP is clarified on this issue).

### Attachment H.From: Jones, Toni <Jones.Toni@epa.gov> Sent: Tuesday, July 28, 2015 9:26 PM To: Frey, Nathan J. Cc: Culligan, Kevin; Harvey, Reid; Tsirigotis, Peter; Eck, Janet; Cozzie, David Subject: EO 12866 CPP Federal Plan ‐ RIA

Hi Nathan, I hope this email finds you well.

Attached, please find for your review the draft CPP Federal Plan RIA and the draft RIA spreadsheet for ROCIS. During your review, please be reminded that the impacts from the 111(d) CPP EGs and the federal plan are not additive.

If you have any questions, please do not hesitate to contact me. Kind regards, Toni W. Jones

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

### Attachment H.1

### EO12866_CPP Federal Plan 2060 AS47 RIA Final_20150728



# Re gu latory Impact Analysis

for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rule

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ii [ This page intentionally left blank]

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ii i EPA-452/R-15-006 July 2015



## Regulatory Impact Analysis for the for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or

Before January 8, 2014; Model Trading Rule

U.S. Environmental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Research Triangle Park, NC 27711

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

iv C ONTACT INFORMATION

This document has been prepared by staff from the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy of the U.S. Environmental Protection Agency. Questions related to this document should be addressed to Alexander Macpherson, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, North Carolina 27711 (email: macpherson.alex@epa.gov).

ACKNOWLEDGEMENTS
Thank you to the many staff who worked on this document from EPA Offices including the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy. Contributions to this report were also made by ICF International and RTI International.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

v 

## T AB L E OF 

## C ONTENTS



### L I ST OF 

### T A B LES 

### ........................................................................................................................vii

A CRONYMS 

### ................................................................................................................................ ix

C HAPTER 

### 1: S UMMARY OF 

### P OTENTIAL 

### R EGULATORY 

### I MPACTS 

### ............................................ 1-1

1.1 Introduction ........................................................................................................... 1-1 1.2 Legal, Scientific and Economic Basis for this Rulemaking ..................................... 1-2 1.2.1 Statutory Requirement ................................................................................ 1-2 1.2.2 Health and Welfare Impacts from Climate Change ...................................... 1-2 1.2.3 Market Failure ............................................................................................ 1-3 1.3 Background for the Proposed Federal Plan and Model Trading Rules .................... 1-4 1.3.1 Definition of Affected Sources .................................................................... 1-4 1.3.2 Trade in Compliance Instruments across States in the Federal Plan ............. 1-5 1.3.3 Model Trading Rule .................................................................................... 1-5 1.4 Summary of Regulatory Analysis........................................................................... 1-5 1.4.1 Base Case and Years of Analysis ................................................................ 1-7 1.4.2 Federal Plan Approaches Examined in RIA ................................................ 1-8 1.5 Summary of Regulatory Analysis..........................................................................1-11 1.5.1 Emissions Reductions ................................................................................1-11 1.5.2 Costs ..........................................................................................................1-13 1.5.3 Monetized Climate Benefits and Health Co-benefits ..................................1-15 1.5.4 Net Benefits ...............................................................................................1-27 1.5.5 Economic Impacts......................................................................................1-30 1.5.6 Employment Impacts .................................................................................1-30 1.5.6 Additional Analysis of Output-Based Allocation as a Means of Mitigating Leakage ................................................................................................................1-32 1.5.7 Uncertainty Analysis ..................................................................................1-34 1.6 References ............................................................................................................1-37

C HAPTER 

### 2: S TATUTORY AND 

### E XECUTIVE 

### O RDER 

### R EVIEWS 

### ................................................. 2-1

2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review .................................................. 2-1 2.2 Paperwork Reduction Act ...................................................................................... 2-1 2.3 Initial Regulatory Flexibility Analysis.................................................................... 2-1 2.3.1 Reasons why Action is Being Considered ................................................... 2-1 2.3.2 Statement of Objectives and Legal Basis for Proposed Rules ...................... 2-2 2.3.3 Description and Estimate of Affected Small Entities ................................... 2-3 2.3.4 Compliance Cost Impact Estimates ............................................................2-10 2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements 2-18 2.3.6 Related Federal Rules ................................................................................2-18 2.3.7 Regulatory Flexibility Alternatives ............................................................2-19 2.4 Unfunded Mandates Reform Act (UMRA) ............................................................2-24 2.5 Executive Order 13132: Federalism ......................................................................2-24

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vi 2. 6 E xecutive Order 13175: Consultation and Coordination with Indian Tribal Governments ...............................................................................................................2-24 2.7 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks ..........................................................................................................2-24 2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use .....................................................................................................2-24 2.9 National Technology Transfer and Advancement Act (NTTAA) ...........................2-24 2.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations .....................................................2-25

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vii 

## L I ST OF 

## T ABLES



### T a bl e 1-1. Climate and Air Pollutant Emission Reductions for the Rate-Based Federal Plan Approach ............................................................................................................1-11

Table 1-2. Climate and Air Pollutant Emission Reductions for the Mass-Based Federal Plan Appproach ..........................................................................................................1-12

Table 1-3. Projected CO 2 

### Emission Reductions, Relative to 2005 ...................................1-13

Table 1-4. Compliance Costs for the Federal Rate-Based and Mass-Based Plan Approaches.................................................................................................................1-15

Table 1-5 Quantified and Unquantified Benefits ............................................................1-17

Table 1-6. Combined Estimates of Climate Benefits and Health Co-Benefits for RateBased Approach (billions of 2011$) ............................................................................1-26

Table 1-7. Combined Estimates of Climate Benefits and Health Co-benefits for MassBased Approach (billions of 2011$) ............................................................................1-27

Table 1-8. Monetized Benefits, Compliance Costs, and Net Benefits Under the Ratebased Federal Plan Approach (billions of 2011$) ........................................................1-28

Table 1-9. Monetized Benefits, Compliance Costs, and Net Benefits under the Massbased Federal Plan Approach (billions of 2011$) ........................................................1-29

Table 1-10. Summary Table of Important Energy Market Impacts (Percent Change from Base Case) ..................................................................................................................1-30

Table 2-1. SBA Size Standards by NAICS Code .............................................................. 2-8

Table 2-2. Number of Affected Small Entities in the Base Case, and Projected Impact under the Rate-Based Federal Plan Approach in 2030 .................................................2-14

Table 2-3. Projected Impact on Small Entities in 2030 under Rate-Based Federal Plan Approach ....................................................................................................................2-14

Table 2-4. Number of Affected Small Entities in the Base Case, and Projected Impact under the Mass-Based Federal Plan Approach in 2030 ................................................2-15

Table 2-5. Projected Impact on Small Entities in 2030 under Mass-Based Federal Plan Approach ....................................................................................................................2-15

Table 2-6. Incremental Costs in 2030 under the Rate-based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .........2-16

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vii i Table 2-7. Incremental Costs in 2030 under the Mass-based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .........2-17

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ix 

## A C RONYMS



### [Placeholder]

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-1 

## C H A PTER 

## 1: S UMMARY OF 

## P OTENTIAL 

## R EGULATORY 

## I MPACTS



### 1.1 Introduction

T hi s Regulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of for the “Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rule” (herein also referred to as “proposed federal plan and model trading rules”). In this action, the Environmental Protection Agency (EPA) is proposing a federal plan to implement the emission guidelines for existing fossil fuel-fired EGUs under the Clean Air Act (CAA). The emission guidelines were proposed in June 2014 and finalized on [&&&] as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (also referred to as the Clean Power Plan Emission Guidelines). The EPA is taking comment on many of the elements of this proposal.
This proposal presents two approaches to a federal plan for states and other jurisdictions that do not adopt and submit to the EPA in a timely manner an approvable plan: a rate-based emission trading program and a mass-based emission trading program. The federal plan is an important measure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented. This proposal also constitutes two proposed model trading rules that states can adopt or tailor for implementation of the emission guidelines.
The proposed federal plan is related to but separate from the Final Clean Power Plan Emission Guidelines. The final emission guidelines establish the best system of emission reduction (BSER) for applicable fossil fuel-fired EGUs in the form of a standard of &&& for steam-fired EGUs and a standard of &&& for natural gas-fired combined cycle EGUs and provide guidance and criteria for the development of approvable state plans. The purpose of the proposed federal plan is to establish requirements, directly applicable to a state’s affected EGUs that meet the BSER in order to achieve reductions in carbon dioxide (CO 2 

### ) emissions in the case where a state or other jurisdiction does not submit an approvable plan. The stringency of the emission performance levels established in the final EGs will be the same whether implemented through a state plan or a federal plan.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-2 1. 2 Legal, Scientific and Economic Basis for this Rulemaking
1.2.1 Statutory Requirement
Section 111(d)(2) of the Clean Air Act (CAA), 42 U.S.C. 7411(d)(2) provides the EPA the same authority to prescribe a plan for a state in cases where the state fails to submit a satisfactory plan as the Agency would have under CAA section 110(c) in the case of failure to submit a National Ambient Air Quality Standard implementation plan. In addition, the EPA has authority under CAA section 111(d)(1) to prescribe regulations that establish procedures similar to CAA section 110 with respect to the submission of state plans, and the EPA also has general rulemaking authority as necessary to implement the CAA under section 301. A federal Plan under CAA section 111(d) applies, implements and enforces standards of performance for affected EGUs. Under the Clean Power Plan Emission Guidelines, state plans will be due on [August 31, 2016]. States are also allowed to seek a two year extension for a final plan submittal, upon submitting a satisfactory initial submittal by the same deadline. If a state fails to submit a final state plan or initial submittal, or if either a final state plan or an initial submittal does not meet the requirements of the final emission guidelines, the Agency will take the appropriate steps to finalize and implement a federal plan.
States will remain free, and indeed are strongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jurisdictions. Upon approval of the state plan by EPA, the federal plan will no longer apply to the affected EGUs covered by the approved state plan.
1.2.2 Health and Welfare Impacts from Climate Change
According to the National Research Council, “Emissions of CO 2 

### from the burning of fossil fuels have ushered in a new epoch where human activities will largely determine the
evolution of Earth’s climate. Because CO 2 

### in the atmosphere is long lived, it can effectively lock Earth and future generations into a range of impacts, some of which could become very severe. Therefore, emission reduction choices made today matter in determining impacts experienced not just over the next few decades, but in the coming centuries and millennia.” 1

1 Na t ional Research Council, Climate Stabilization Targets, p.3.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-3 I n 2009, based on a large body of robust and compelling scientific evidence, the EPA Administrator issued the Endangerment Finding under CAA section 202(a)(1). 2 

### In the Endangerment Finding, the Administrator found that the current, elevated concentrations of GHGs in the atmosphere—already at levels unprecedented in human history—may reasonably be anticipated to endanger public health and welfare of current and future generations in the
United States.
Since the administrative record concerning the Endangerment Finding closed following the EPA’s 2010 Reconsideration Denial, the climate has continued to change, with new records being set for a number of climate indicators such as global average surface temperatures, Arctic sea ice retreat, CO 2 

### concentrations, and sea level rise. Additionally, a number of major scientific assessments have been released that improve understanding of the climate system and strengthen the case that GHGs endanger public health and welfare both for current and future generations. These assessments are from the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Change Research Program (USGCRP), and the National Research Council (NRC). These
and other assessments are discussed in more detail in the Final Clean Power Plan Emission Guidelines preamble 3 

### and in Chapter 4 of the Clean Power Plan Final Rule Regulatory Impact Analysis (RIA). 4



### 1.2.3 Market Failure
Many regulations are promulgated to correct market failures, which otherwise lead to a suboptimal allocation of resources within the free market. Air quality and pollution control

2 “ E ndangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” 74 Fed. Reg. 66,496 (Dec. 15, 2009) (“Endangerment Finding”).

3 [Placeholder]

4 U.S. Environmental Protection Agency (U.S. EPA). 2015a. Regulatory Impact Analysis for the Clean Power Plan
Final Rule. EPA-452/R-15-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: <[Placeholder]>.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-4 r e gulations address “negative externalities” whereby the market does not internalize the full opportunity cost of production borne by society as public goods such as air quality are unpriced.
GHG emissions impose costs on society, such as negative health and welfare impacts, that are not reflected in the market price of the goods produced through the polluting process. For this regulatory action the good produced is electricity. If a fossil fuel-fired electricity producer pollutes the atmosphere when it generates electricity, this cost will be borne not by the polluting firm but by society as a whole, thus imposing a negative externality. The equilibrium market price of electricity may fail to incorporate the full opportunity cost to society of generating electricity. All else equal, given this externality, the composition of EGUs used to generate electricity in a free market will not be socially optimal, and the quantity of electricity generated may not be at the socially optimal level. Fossil fuel-fired EGUs may produce more electricity than would occur if they had to account for the cost associated with this negative externality. Consequently, absent a regulation on emissions, the composition of the fleet of EGUs used to generate electricity may not be socially optimal, and the marginal social cost of the last unit of electricity produced may exceed its marginal social benefit. In the instances where the agency finalizes and implements a federal plan for a state’s affected EGUs, this proposed regulation will work towards addressing this market failure by causing affected EGUs to begin to internalize the negative externality associated with CO 2 

### emissions.
1.3 Background for the Proposed Federal Plan and Model Trading Rules
1.3.1 Definition of Affected Sources
Existing fossil fuel-fired electric generating units subject to the final Clean Power Plan Emission Guidelines that are located in a state that does not have an EPA-approved state plan are potentially subject to this proposed action. Existing fossil fuel-fired EGUs are those that were in operation or had commenced construction on or before January 8, 2014. 5

5 A n affected EGU is any fossil fuel-fired EGU that was in operation or had commenced construction as of January 8, 2014, and is therefore an ‘‘existing source’’ for purposes of CAA section 111, and that in all other respects would meet the applicability criteria for coverage under the proposed GHG standards for new fossil fuel-fired EGUs (79 FR 1430; January 8, 2014).

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-5 1. 3. 2 Trade in Compliance Instruments across States in the Federal Plan
The EPA intends to set up and administer a program to track trading programs – both rate- and mass-based – that will be available for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs, or procure zero-emissions megawatt hours (MWhs) from eligible resources, inany other state covered by a federal plan that uses the same approach. In the proposed massbased federal-plan trading program, this would mean that affected EGUs in a state covered by the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by a federal plan. Similarly, in the proposed rate-based federal-plan trading program approach, this would mean that affected EGUs in a state covered by a federal plan could use, as a compliance instrument, an emission rate credit (ERC) issued in any other state covered by a federal plan. We propose that an affected EGU in a state covered by a mass-based trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a state covered by the rate-based trading federal plan must use ERCS for compliance (not allowances).
1.3.3 Model Trading Rule
A state program that adheres to the model trading rule provisions specified in this proposal would be presumptively approvable. Additionally, there are stand-alone portions of the model trading rules, such as the evaluation, measurement and verification (EM&V) procedures, that would be approvable even if a state adopted an approach that differs from the federal plan. The model trading rules serves as a mechanism to create larger trading markets since consistency of state plans with the federal plan allows trading across both the state and federal programs. The EPA expects that a larger trading region would likely result in lower overall costs of compliance to affected EGUs due to the increase in abatement options.
1.4 Summary of Regulatory Analysis
In accordance with Executive Order 12866, Executive Order 13563, OMB Circular A-4, and the EPA’s “Guidelines for Preparing Economic Analyses,” the EPA prepared this RIA for this “significant regulatory action.” This action is an economically significant regulatory action because it may have an annual effect on the economy of $100 million or more or adversely affect

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-6 i n a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities.
This action proposes a federal plan under section 111(d) of the CAA for the control of
CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil-fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass- and rate-based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission performance rates in the emission guidelines. The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.
However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. Because of this lack of information, for this RIA, the EPA has chosen to examine a scenario where all states of the contiguous U.S. will be regulated under a federal plan. Furthermore, because of the lack of information as to which states will adopt the model rule, the EPA has chosen to examine a scenario where all states of the contiguous U.S. adopt the model trading rule. Additionally, we examine two alternative federal plan approach scenarios, which will be described in more detail below, for implementation of federal plans. The first federal plan approach we examine in this RIA assumes all states in the contiguous U.S. are regulated under a rate-based federal plan. The second federal plan approach we examine assumes all contiguous states are regulated under a mass-based federal plan.
This approach is consistent with the analysis presented in the RIA for the final Clean Power Plan Emission Guidelines (U.S. EPA 2015). As a result, this RIA for the proposed federal plan and model trading rules re-presents the key results from the final Clean Power Plan Emission Guidelines RIA. These key results encompass the potential costs, emission reductions, and benefits of the proposed federal plan and model trading rules, as well as the potential impacts on electricity markets, employment, and markets outside the electricity sector.
As mentioned earlier, the EPA is taking comment on many of the elements of the federal plan and model trading rules proposal. The RIA also presents a discussion of limitations of the analysis and solicitations for public comments that may help improve the analysis supporting the

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-7 pr o mulgation of the federal plan and model trading rules. In evaluating the impacts of the proposed federal plan and model trading rules, we address a number of uncertainties.
It is important to note that the potential regulatory impacts presented in the Clean Power Plan Final Rule RIA and the RIA for this proposed rule are not additive. Both RIAs present estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan emissions guidelines. In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading rules, the same performance rates are accomplished but are assumed to be accomplished under the federal plan or model trading rules.
This RIA also presents in Chapter 2 the statutory and executive order analyses that accompany the proposal for this action, including the Initial Flexibility Regulatory Analysis (IRFA). The IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the proposed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on small entities. This IRFA has been prepared following EPA’s guidance document for preparing initial and final regulatory flexibility analyses. 6


### 1.4.1 Base Case and Years of Analysis
The base case for this analysis, which uses the Integrated Planning Model (IPM), includes state rules that have been finalized and/or approved by a state’s legislature or environmental agencies, as well as final federal rules. The IPM Base Case v.5.15 includes the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Rule (MATS), the proposed Carbon Pollution Standards for New Power Plants, the Cooling Water Intakes (316(b)) Rule, the Combustion Residuals from Electric Utilities (CCR), and other state and Federal regulations to the extent that they contain measures, permits, or other air-related limitations or

6 Se e “EPA’s Action Development Process : Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act.” OPEI Regulatory Development Series. November 2006. Available at: <http://www.epa.gov/sbrefa/documents/Guidance-RegFlexAct.pdf>. Accessed July 21, 2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-8 r e quirements. Additional legally binding and enforceable commitments for GHG reductions
considered in the base case are discussed in the documentation for IPM. 7


### To present a complete picture of the potential costs and benefits of the proposed federal plan and model trading rules, this RIA presents results for the analysis years 2020, 2025, and 2030. While 2020 is before the first year of the interim compliance period (2022), the EPA expects states and affected EGUs to perform voluntary activities that will facilitate compliance with interim and final goals. These pre-compliance period activities might include investments in renewable energy or demand-side energy efficiency projects, for example, that produce emissions reductions in the compliance period. Activities might also include preparatory investments in transmission capacity or monitoring, reporting, and recordkeeping systems. As a result, there are likely to be benefits and costs in 2020, so these are reported in this RIA. Meanwhile, cost and benefits are estimated in this RIA for 2025, which is intended to represent a central period of the interim compliance time-frame as states are on glide paths toward fully meeting the final CO 2 

### emission performance goals. Lastly, the RIA presents costs and benefits for 2030, when the emission performance goals are fully achieved.
1.4.2 Federal Plan Approaches Examined in RIA
In the Final Clean Power Plan Emission Guidelines, the EPA translated the source category-specific CO 2 

### emission performance rates into equivalent state-level rate-based and
mass-based CO 2 

### goals in order to maximize the range of choices that states will have in developing their plans. 8 

### As noted above, like the RIA for the Final Clean Power Plan Emission Guidelines, this RIA presents two scenarios designed to achieve these goals, which we term the rate-based federal plan approach and the mass-based federal plan approach.
It is very important to note that the differences between the analytical results for the ratebased and mass-based federal plan approaches presented in this RIA may not be indicative of likely differences between the approaches. In other words, if one approach performs differently

7 D e tailed documentation for IPM v.5.1 5 is available at: http://www.epa.gov/powersectormodeling.

8 See the preamble of the final Clean Power Plan Emissions Guidelines for these state-level rate-based and massbased CO 2 goals.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-9 t h an the other on a given metric during a given time period, this does not imply this will apply in all instances in all time periods in all places.
In the rate-based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, avoided generation from demand-side energy efficiency is counted towards meeting the emission performance rates at affected EGUs. However, this proposed rule does not allow demand-side energy efficiency to directly count toward the compliance rate of affected EGUs in a rate-based compliance approach. Therefore, the EPA estimates that this RIA might understate the incremental compliance costs of the proposed federal plan and model trading rules. 9 

### Compliance strategies under the federal plan that do not rely on demand-side energy efficiency will likely rely on different abatement measures than those modeled for this RIA. The climate benefits and health co-benefits arising from these alternative strategies may be different those presented here. The EPA is inviting comment on the inclusion of demand-side energy efficiency as a direct compliance measure under a rate-based approach in the federal plan and will seek to improve analysis supporting the final rule.
In the rate-based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, affected EGUs may not procure emission reductions from (e.g., by averaging their emissions with) affected EGUs located in other states (which may also have different emission standards) in order to demonstrate compliance. As described in Section 1.3.2, in the proposedrate-based federal plan affected EGUs may procure ERCs from affected EGUs in other ratebased states subject to the federal plan. Furthermore, the rate-based illustrative plan in the Final Clean Power Plan Emission Guidelines RIA assumes that the plan applies a state’s rate-based goal as a requirement for affected EGUs in that state to achieve. 10 

### The proposed federal plan

9 H ow ever, as with states subject to the mass-based approach, energy efficiency activities may be adopted by states to lower demand, which in turn reduces the compliance cost of achieving the performance rates.

10 In the rate-based scenario in the RIA for the final Clean Power Plan Emission Guidelines, the generation-weighted average emission rate from affected EGUs, in which generation is inclusive of their procurement of zero-emitting generation or demand-side EE savings, in a state must be less than or equal to the state goal. One way for a state to achieve this outcome would be to assign in its plan emission rate performance standards to affected EGUs that equal the state emission rate goal, the incentives of which would be consistent with the analysis and results reported in the RIA for the final Clean Power Plan Emission Guidelines.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-10 s pe cifically establishes an emissions rate performance standard that is applied to affected steamfired EGUs and an emission rate performance standard that is applied to affected natural gasfired combined cycle EGUs.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-11 1. 5 Summary of Regulatory Analysis

1.5.1 Emissions Reductions

Table 1-1 shows the emission reductions associated with the modelled rate-based federal plan approach.

Table 1-1. Climate and Air Pollutant Emission Reductions for the Rate-Based Federal Plan

Approach 1
CO 2

(million short tons) SO 2 (thousand short tons) Annual NO X (th ou s and short tons) 2020 Rate-Based Approach Base Case 2,155 1, 311 1,333 Federal Plan Approach 2,085 1,297 1,282 Emissions Change -69 -14 -50 2025 Rate-Based Approach Base Case 2,165 1, 275 1,302 Federal Plan Approach 1,933 1,097 1,138 Emissions Change -232 -178 -165 2030 Rate-Based Approach Base Case 2,227 1, 314 1,293 Federal Plan Approach 1,812 996 1,011 Emission Change -415 -318 -282 Source: Integrated Planning M o del, 2015. Emissions change may not sum due to rounding.
1 CO 2 e m ission reductions are used to estimate the climate benefits of the proposed rule. SO 2 , and NO X reductions are relevant for estimating air quality health co-benefits of the proposed rule. The proposed rule is also expected to achieve reductions in directly emitted PM 2. 5 , which we were not able to estimate for this RIA.



### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 69 million short tons under the rate-based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 232 million short tons under the rate-based approach compared to
base case levels. CO 2 

### emission reductions increase to 415 million short tons annually in 2030 when compared to the base case emissions. Table 1-1 also shows emission reductions for criteria air pollutants.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-12 T a ble 1-2 shows the emission reductions associated with the modeled mass-based federal plan approach.

Table 1-2. Climate and Air Pollutant Emission Reductions for the Mass-Based Federal Plan

Appproach 1
CO 2

(million short tons) SO 2 (thousand short tons) Annual NO X (th ou s and short tons) 2020 Mass-Based Approach Base Case 2, 155 1, 311 1,333 Federal Plan Approach 2,073 1,257 1,272 Emissions Change -81 -54 -60 2025 Mass-Based Approach Base Case 2,165 1, 275 1,302 Federal Plan Approach 1,901 1,090 1,100 Emissions Change -265 -185 -203 2030 Mass-Based Approach Base Case 2,227 1, 314 1,293 Federal Plan Approach 1,814 1,034 1,015 Emission Change -413 -280 -278 Source: Integrated Planning M o del, 2015. Emissions change may not sum due to rounding.
1 CO 2 e m ission reductions are used to estimate the climate benefits of the proposed rule. SO 2 , and NO X reductions are relevant for estimating air quality health co-benefits of the proposed rule. The proposed rule is also expected to achieve reductions in directly emitted PM 2. 5 , which we were not able to estimate for this RIA.



### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 81 million short tons under the mass-based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 265 million short tons under the mass-based approach compared to
base case levels. CO 2 

### emission reductions increase to 413 million short tons annually in 2030 when compared to the base case emissions. Table 1-2 also shows emission reductions for criteria air pollutants.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-13 T a ble 1-3 presents CO 2 

### emission reductions relative to 2005 for the two federal plan approaches.
Table 1-3. Projected CO 2 

### Emission Reductions, Relative to 2005

CO 2 Emissions (million short tons) CO 2 Emissions: Change from 2005 (million short tons) CO 2 Emissions Reductions: Percent Change from 2005

2005 2020 2025 2030 2020 2025 2030 Base Case 2,683 -528 -518 -456 -20% -19% -17% Rate-based - -598 -750 -871 -22% -28% -32% Mass-based

- -610 -782 -869 -23% -29% -32% Source: Integrated Planning M o del, 2015.


### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 598 million short tons (22 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that
CO 2 

### emissions will be reduced by 750 million short tons (28 percent) under the rate-based approach compared to 2005 levels. Under the rate-based approach, CO 2 

### emission reductions increase to 871 million short tons (32 percent) in 2030 when compared to 2005 levels.
Under the mass-based approach in 2020, the EPA estimates that CO 2 

### emissions will be reduced by 610 million short tons (23 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 782 million short tons (29 percent) under the mass-based approach compared to 2005 levels. Under the mass-based approach, CO 2 

### emission reductions increase to 869 million short tons (32 percent) in 2030 when compared to 2005 levels.

1.5.2 Costs
The compliance cost estimates in this analysis are the change in electric power generation costs between the base case and federal plan approach policy cases, including the cost of demand-side energy efficiency measures and costs associated with monitoring, reporting, and recordkeeping requirements (MR&R). 11 

### In the rate-based approach, energy efficiency activities are modeled as being used by EGUs as a low-cost method of demonstrating compliance with their rate-based emissions standards. In the mass-based approach, energy efficiency activities are assumed to be adopted by states to lower demand, which in turn reduces the cost of achieving the

11 S e e Chapter 3 of the Clean Power Plan Final Rule RIA for a detailed discussion of the compliance cost estimates.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-14 m a ss limitations. The level of energy efficiency measures is determined outside of IPM and is assumed to be the same in the two federal plan approaches. 12 

### The compliance assumptions, and therefore the projected “compliance costs” set forth in this analysis, are illustrative in nature.
The annual incremental cost is the projected additional cost of complying with the proposed rule in the year analyzed and includes the net change in the annualized cost of capital investment in new generating sources and heat rate improvements at coal-fired steam generating units, the change in the ongoing costs of operating pollution controls, shifts between or amongst various fuels, demand-side energy efficiency measures, and other actions associated with compliance. The total compliance cost estimates presented here include the costs associated with monitoring, reporting, and recordkeeping. 13 

### The costs for both federal plan approaches are
reflected in Table 1-4 below. All dollar estimates are in 2011 dollars.
The EPA estimates the annual incremental compliance cost for the rate-based approach for the proposed federal plan and model trading rules to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 2030, including the costs associated with monitoring, reporting, and recordkeeping. 14 

### The EPA estimates the annual incremental compliance cost for the mass-based approach for the federal plan and model trading rules to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030, including the costs associated with monitoring, reporting, and recordkeeping.

12 F o r more detailed information on demand-side energy efficiency, see U.S. EPA. 2015b. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

13 These costs are estimated outside of the IPM modelling framework as IPM only models the contiguous U.S. and does not incorporate monitoring, reporting, and recordkeeping requirements specific to the Clean Power Plan
Final Rule.

14 The MR&R costs of the proposed federal plan and model trading rules are assumed to be the same as those estimated for the Clean Power Plan Final Rule. These MR&R costs estimates are $65 million in 2020, $15 million in 2025 and $15 million in 2030 and are assumed to be the same for both rate-based and mass-based plan approaches. Note the MR&R costs in 2020 are related to facilities setting up net energy output monitoring and upgrading data acquisition systems.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-15 T ab le 1-4. Compliance Costs for the Federal Rate-Based and Mass-Based Plan Approaches Incremental Cost from Base Case (billions of 2011$) R ate -b ased Approach Mass-based Approach 2020 $2. 5 $1. 4 2025 $1. 0 $3. 0 2030 $8.4 $5.1 Source: Integrated Planning Model, 2015, with post-processing to account for exogenous demand-side management

e n e rgy efficiency costs and monitoring, reporting, and recordkeeping costs. See Chapter 3 of the Clean Power Plan Final Rule RIA for a more complete explanation.



### The costs reported in Table 1-4 represent the estimated incremental electric utility generating costs changes from the base case plus the estimates of demand-side energy efficiency program costs (which are paid by electric utilities), demand-side energy efficiency participant costs (which are paid by electricity consumers), and MR&R costs. For example, in 2030, under the rate-based approach, the incremental electric utility generating costs decline by about $18.0 billion from the base case. MR&R requirements in 2030 are estimated at $16.0 million, and demand-side energy efficiency costs in 2030 are estimated to be $26.3 billion, split equally between program and participants using a 3 percent discount rate (see Chapter 3 of this RIA for more details on these estimates). These cost estimates sum to the $8.4 shown in Table 1-4 and represent the total costs of the rate-based federal plan approach in 2030. The same approach applies in each year of analysis for the rate-based and the mass-based federal plan approaches.
The compliance costs reported in Table 1-4 are not social costs. These costs represent the estimated expenditures incurred by EGUs, the costs to participants in demand-side energy efficiency programs, and states to comply with the BSER goals for the Final Clean Power Plan Emission Guidelines. These compliance cost estimates are compared to estimates of social benefits to derive net benefits of the proposed federal plan and model trading rules, which are presented later in this Chapter.
1.5.3 Monetized Climate Benefits and Health Co-benefits
The climate benefits estimates have been calculated using the estimated values of marginal climate impacts presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866 (May 2013,

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-16 R e vised July 2015) , henceforth denoted as the current SC-CO 2 

### TSD. 15 

### Additionally, this analysis takes into account the social benefits of changes in emissions of non-CO 2 

### pollutants from the electricity sector. The range of combined benefits reflects different concentration-response functions for the air quality health co-benefits, but it does not capture the full range of uncertainty inherent in the health co-benefits estimates. Furthermore, we were unable to quantify
or monetize all of the climate benefits and health and environmental co-benefits associated with the proposed federal plan and model trading rules, including reductions in directly emitted PM 2.5 

### , reduced exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility improvement. The omission of these endpoints from the monetized results should not imply that the impacts are small or unimportant. Table 1-5 provides the list of the quantified and unquantified health and environmental benefits in this analysis.

15 T e chnical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf> Accessed 7/11/2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-17 T ab le 1-5 Quantified and Unquantified Benefits

Benefits Category Specific Effect Effect Has Been Quantified Effect Has

Be e n Monetized More Information

Improved E nv i ronment

Reduced climate

e f f ects Global climate impacts from CO 2

— 1  SC-CO 2 TSD

Climate impacts from ozone and black carbon (directly

e m i tted PM) — — Ozone ISA, PM ISA 2 Other climate impacts (e.g., other GHGs such as methane, aerosols, other impacts) — — IPCC 2 Improved Human Health (co-benefits) Reduced incidence of pr e m ature mortality from exposure to PM 2.5 Adult premature mortality based on cohort study estimates

and expert elicitation estimates (age >25 or age >30)   P M ISA
Infant mortality (age <1)   PM ISA

Reduced incidence of

mo r bidity from exposure to PM 2.5 Non-fatal heart attacks (age > 18)   PM ISA

Hospital admissions—respiratory (all ages)   PM ISA Hospital admissions—cardiovascular (age >20)   PM ISA Emergency room visits for asthma (all ages)   PM ISA Acute bronchitis (age 8-12)   PM ISA Lower respiratory symptoms (age 7-14)   PM ISA Upper respiratory symptoms (asthmatics age 9-11)   PM ISA Asthma exacerbation (asthmatics age 6-18)   PM ISA Lost work days (age 18-65)   PM ISA Minor restricted-activity days (age 18-65)   PM ISA Chronic Bronchitis (age >26) — — PM ISA

2 Emergency room visits for cardiovascular effects (all ages) — — PM ISA 2 Strokes and cerebrovascular disease (age 50-79) — — PM ISA

2 Other cardiovascular effects (e.g., other ages) — — PM ISA 3Other respiratory effects (e.g., pulmonary function, nonas t hma ER visits, non-bronchitis chronic diseases, other ages and populations) — — PM ISA 3
Reproductive and developmental effects (e.g., low birth

we i ght, pre-term births, etc) — — PM ISA 3,4 Cancer, mutagenicity, and genotoxicity effects — — PM ISA 3,4
Reduced incidence of

mo r tality from exposure to ozone Premature mortality based on short-term study estimates (all

ages)   Ozone ISA Premature mortality based on long-term study estimates (a g e 30–99) — — Ozone ISA 2

Reduced incidence of

mo r bidity from exposure to ozone Hospital admissions—respiratory causes (age > 65)   Ozone ISA Hospital admissions—respiratory causes (age <2)   Ozone ISA Emergency department visits for asthma (all ages)   Ozone ISA Minor restricted-activity days (age 18–65)   Ozone ISA School absence days (age 5–17)   Ozone ISA Decreased outdoor worker productivity (age 18–65) — — Ozone ISA 2 Other respiratory effects (e.g., premature aging of lungs) — — Ozone ISA 3 Cardiovascular and nervous system effects — — Ozone ISA 3 Reproductive and developmental effects — — Ozone ISA 3,4

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-18 T ab le 1-5. Continued

Reduced incidence of morbidity from exposure to NO 2 Asthma hospital admissions (all ages) — — NO 2 ISA 2

Chronic lung disease hospital admissions (age > 65)

— — NO 2 ISA 2 Respiratory emergency department visits (all ages)

— — NO 2 ISA 2 Asthma exacerbation (asthmatics age 4–18)

— — NO 2 ISA 2 Acute respiratory symptoms (age 7–14)

— — NO 2 ISA 2 Premature mortality

— — NO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness

a nd i nflammation, lung function, other ages and populations) — — NO 2 ISA 3,4

Reduced incidence of

m o r bidity from exposure to SO 2 Respiratory hospital admissions (age > 65) — — SO 2 ISA 2

Asthma emergency department visits (all ages)

— — SO 2 ISA 2 Asthma exacerbation (asthmatics age 4–12)

— — SO 2 ISA 2 Acute respiratory symptoms (age 7–14) — — SO 2 ISA 2 Premature mortality — — SO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness and i nflammation, lung function, other ages and populations) — — SO 2 ISA 2,3

Reduced incidence of

mo r bidity from exposure to methylmercury Neurologic effects—IQ loss — — IRIS; NRC, 2000 2

Other neurologic effects (e.g., developmental delays,

me m ory, behavior) — — IRIS; NRC, 2000 3
Cardiovascular effects — — IRIS; NRC, 2000 3,4 Genotoxic, immunologic, and other toxic effects — — IRIS; NRC, 2000 3,4 Improved Environment (co-benefits) Reduced visibility im pa irment Visibility in Class 1 areas — — PM ISA 2 Visibility in residential areas — — PM ISA

2 Reduced effects on

ma t erials Household soiling — — PM ISA 2,3 Materials damage (e.g., corrosion, increased wear) — — PM ISA 3 Reduced PM depo s ition (metals and organics) Effects on individual organisms and ecosystems — — PM ISA 3

Reduced vegetation and e cosystem effects from exposure to

ozone Visible foliar injury on vegetation — — Ozone ISA 2 Reduced vegetation growth and reproduction — — Ozone ISA 2 Yield and quality of commercial forest products and crops — — Ozone ISA 2 Damage to urban ornamental plants — — Ozone ISA 3 Carbon sequestration in terrestrial ecosystems — — Ozone ISA 2 Recreational demand associated with forest aesthetics — — Ozone ISA 3 Other non-use effects O zone ISA 3 Ecosystem functions (e.g., water cycling, biogeochemical cy c les, net primary productivity, leaf-gas exchange, community composition) — — Ozone ISA 3

Reduced effects from

ac i d deposition Recreational fishing — — NO x SO x ISA 2

Tree mortality and decline — — NO x SO x ISA 3 Commercial fishing and forestry effects — — NO x SO x ISA 3 Recreational demand in terrestrial and aquatic ecosystems — — NO x S O x ISA 3 Other non-use effects N O x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles) — — NO x SO x ISA 3

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-19 T ab le 1-5. Continued

Reduced effects from nutrient enrichment Species composition and biodiversity in terrestrial and

estuarine ecosystems — — NO x SO x ISA 3 Coastal eutrophication

— — NO x SO x ISA 3 Recreational demand in terrestrial and estuarine ecosystems — — NO x S O x ISA 3 Other non-use effects N O x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles, fire

r e g ulation) — — NO x SO x ISA 3 Reduced vegetation

e f f ects from exposure to SO 2 and NO x Injury to vegetation from SO 2 exposure — — NO x SO x ISA 3

Injury to vegetation from NO x e x posure — — NO x SO x ISA 3

Reduced ecosystem

e f f ects from exposure to methylmercury Effects on fish, birds, and mammals (e.g., reproductive

effects) — — Mercury Study RTC 3 Commercial, subsistence and recreational fishing — — Mercury Study RTC 2

1 T h e global climate and related impacts of CO 2 emissions changes, such as sea level rise, are estimated within each integrated assessment model as part of the calculation of the SC-CO 2 . The resulting monetized damages, which are relevant for conducting the benefit-cost analysis, are used in this RIA to estimate the welfare effects of quantified changes in CO 2 emissions.

2 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, due to data and resource limitations for this analysis.

3 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, because we do not have sufficient confidence in available data or methods.

4 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, because current evidence is only suggestive of causality or there are other significant concerns over the strength of the association.



### 1.5.3.1 Estimating Global Climate Benefits
We estimate the global social benefits of CO 2 

### emission reductions expected from this rulemaking using the SC-CO 2 

### estimates presented in the current SC-CO 2 

### TSD. 16 

### We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 

### estimates” for the
remainder of this document. The SC-CO 2 

### is a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 

### emissions in a given year. It includes a wide range of anticipated climate impacts, such as net changes in agricultural productivity and human health, property damage from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. It is typically used to assess

16 A l so see Chapter 4 of the Clean Power Plan Final Rule RIA for more details on this assessment of climate
benefits.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-20 t h e avoided damages as a result of regulatory actions (i.e., benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 

### emissions).

The SC-CO 2 

### estimates used in this analysis have been developed over many years, using the best science available, and with input from the public. The EPA and other federal agencies have considered the extensive public comments on ways to improve SC-CO 2 

### estimation received via the notice and comment period that was part of numerous rulemakings. In addition, OMB’s Office of Information and Regulatory Affairs recently issued a response to the public comments it sought through a separate comment period on the approach used to develop the SC-CO 2 

### estimates. 17


### An interagency working group (IWG) that included the EPA and other executive branch entities used three integrated assessment models (IAMs) to develop SC-CO 2 

### estimates and recommended four global values for use in regulatory analyses. The SC-CO 2 

### estimates represent global measures because of the distinctive nature of the climate change problem. Emissions of greenhouse gases contribute to damages around the world, even when they are released in the United States, and the world’s economies are now highly interconnected. Therefore, the SC-CO 2 

### estimates incorporate the worldwide damages caused by carbon dioxide emissions in order to reflect the global nature of the problem, and we expect other governments to consider the global consequences of their greenhouse gas emissions when setting their own domestic policies. See Chapter 4 of the final Clean Power Plan Emission Guidelines RIA for more discussion.
The IWG first released the estimates in February 2010 and updated them in 2013 using
new versions of each IAM. The SC-CO 2 

### values was estimated using three integrated assessment models (DICE, FUND, and PAGE) 18 

### , which the IWG harmonized across three key inputs: the probability distribution for equilibrium climate sensitivity; five scenarios for economic, population, and emissions growth; and three constant discount rates. The 2010 SC-CO 2 

### Technical Support Document (2010 SC-CO 2 

### TSD) provides a complete discussion of the

17 S e e https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf

18 The full models names are as follows: Dynamic Integrated Climate and Economy (DICE); Climate Framework for Uncertainty, Negotiation, and Distribution (FUND); and Policy Analysis of the Greenhouse Gas Effect (PAGE).

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-21 m e thodology and the current SC-CO 2 

### TSD 19 

### presents and discusses the updated estimates. The
four SC-CO 2 

### estimates are as follows: $12, $40, $60, and $120 per short ton of CO 2 

### emissions in the year 2020 (2011$), and each estimate increases over time. 20 

### These SC-CO 2 

### estimates are associated with different discount rates. The first three estimates are the model average at 5 percent discount rate, 3 percent, and 2.5 percent, respectively, and the fourth estimate is the 95 th 

### percentile at 3 percent.

The 2010 SC-CO 2 

### TSD noted a number of limitations to the SC-CO 2 

### analysis, including the incomplete way in which the IAMs capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature because of a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. 21 

### In particular, the IPCC Fourth Assessment Report concluded that “It is very likely that [SC-CO 2 

### estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts.” Nonetheless, these estimates and the discussion of their limitations represent the best available information about
the social benefits of CO 2 

### emission reductions to inform the benefit-cost analysis.
In addition, after careful evaluation of the full range of comments submitted to OMB’s Office of Information and Regulatory Affairs, the IWG continues to recommend the use of these

19 T h e IWG published the updated TSD in 2013, then issued two minor corrections to it in July 2015.

20 The 2010 and 2013 TSDs present SC-CO 2 in 2007$ per metric ton. The estimates were adjusted to (1) short tons using the conversion factor of 0.90718474 metric tons in a short ton and (2) 2011$ using GDP Implicit Price Deflator, http://www.gpo.gov/fdsys/pkg/ECONI-2013-02/pdf/ECONI-2013-02-Pg3.pdf.

21 Climate change impacts and SCC modeling is an area of active research. For example, see: (1) Howard, Peter, “Omitted Damages: What’s Missing from the Social Cost of Carbon.” March 13, 2014, http://costofcarbon.org/files/Omitted_Damages_Whats_Missing_From_the_Social_Cost_of_Carbon.pdf; and (2) Electric Power Research Institute, “Understanding the Social Cost of Carbon: A Technical Assessment,” October 2014, www.epri.com.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-22 S C -CO 2 

### estimates in regulatory impact analysis. With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the National Academies of Sciences, Engineering, and Medicine (Academies) to ensure that the SC-CO 2 

### estimates continue to reflect the best available scientific and economic information on climate change. 22 

### The Academies’ process will be informed by the public comments received and focus on the technical merits and challenges of potential approaches to improving the SC-CO 2 

### estimates in future updates.
1.5.3.2 Estimating Air Quality Health Co-Benefits
The proposed federal plan and model trading rules would reduce emissions of precursor pollutants (e.g., SO 2 

### , NO X 

### , and directly emitted particles), which in turn would lower ambient
concentrations of PM 2.5 

### and ozone. This co-benefits analysis quantifies the monetized benefits associated with the reduced exposure to these two pollutants. 23 

### Unlike the global SC-CO 2 

### estimates, the air quality health co-benefits are only estimated for the contiguous U.S. The
estimates of monetized PM 2.5 

### co-benefits include avoided premature deaths (derived from effect coefficients in two cohort studies [Krewski et al. 2009 and Lepeule et al. 2012] for adults and one for infants [Woodruff et al. 1997]), as well as avoided morbidity effects for ten non-fatal endpoints ranging in severity from lower respiratory symptoms to heart attacks 24 

### (U.S. EPA, 2012). The estimates of monetized ozone co-benefits include avoided premature deaths (derived from the range of effect coefficients represented by two short-term epidemiology studies [Bell et al. (2004) and Levy et al. (2005)]), as well as avoided morbidity effects for five non-fatal endpoints ranging in severity from school absence days to hospital admissions (U.S. EPA, 2008, 2011).

22 S e e <https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions>.

23 We did not estimate the co-benefits associated with reducing direct exposure to SO 2 and NO X . For this RIA, we did not estimate changes in emissions of directly emitted particles. As a result, quantified PM 2.5 related benefits are underestimated by a relatively small amount. In the proposal RIA, the benefits from reductions in directly
emitted PM 2.5 were less than 10 percent of total monetized health co-benefits across all scenarios and years.

24 See Chapter 4 and Appendix 4A of the Clean Power Plan Final Rule for details on this assessment of health cobenefits.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-23 W e use a “benefit-per-ton” approach to estimate the PM 2.5 

### and ozone co-benefits in this RIA. Benefit-per-ton approaches apply an average benefit per ton derived from modeling of benefits of specific air quality scenarios to estimates of emissions reductions for scenarios where no air quality modeling is available. The benefit-per-ton approach we use in this RIA relies onestimates of human health responses to exposure to PM and ozone obtained from the peerreviewed scientific literature. These estimates are used in conjunction with population data, baseline health information, air quality data and economic valuation information to conduct health impact and economic benefits assessments.
Specifically, in this analysis, we multiplied the benefit-per-ton estimates by the corresponding emission reductions that were generated from air quality modeling of the proposed Clean Power Plan Emission Guidelines. Similar to the co-benefits analysis conducted for the final Clean Power Plan Emission Guidelines RIA, we generated regional benefit-per-ton estimates by aggregating the impacts in BenMAP 25 

### to the region (i.e., East, West, and California) rather than aggregating to the nation. The benefit-per-ton for SO 2 

### and NO x 

### emissions used in this proposed rule were calculated using air quality modeling of the base case and the proposed Clean Power Plan (Option 1 State) scenario for 2025 as described in Appendix 4A of the final Clean Power Plan Emission Guidelines RIA. The benefit-per-ton values for 2020 and 2030 are based on applying the air quality modeling from 2025 to population and health information from 2020
and 2030.
To calculate the co-benefits for this proposed rule, we then multiplied the regional benefit-per-ton estimates for the EGU sector by the corresponding emission reductions. All benefit-per-ton estimates reflect the geographic distribution of the modeled emissions, which may not exactly match the emission reductions in this rulemaking, and thus they may not reflect the local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location.

25 Be n MAP is a computer program developed by the EPA that calculates the number and economic value of air pollution-related deaths and illnesses. The software incorporates a database that includes many of the concentration-response relationships, population files, and health and economic data needed to quantify these impacts.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-24 O ur estimate of the monetized co-benefits is based on the EPA’s interpretation of the best available scientific literature (U.S. EPA, 2009) and methods and supported by the EPA’s Science Advisory Board and the NAS (NRC, 2002). Below are key assumptions underlying the estimates
for PM 2.5 

### -related premature mortality, which accounts for 98 percent of the monetized PM 2.5 

### health co-benefits.

1. We assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption,
because PM 2.5 

### varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The PM ISA concluded that “many constituents of PM 2.5 

### can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to specific outcomes” (U.S. EPA, 2009b).

2. We assume that the health impact function for fine particles is log-linear without a threshold in this analysis. Thus, the estimates include health co-benefits from reducing fine particles in areas with varied concentrations of PM 2.5 

### , including both areas that do not meet the National Ambient Air Quality Standard for fine particles and those areas that are in attainment, down to the lowest modeled concentrations.

3. We assume that there is a “cessation” lag between the change in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 

### exposures occur in a distributed fashion over the 20 years following exposure based on the advice of theSAB-H1 (U.S. EPA-SAB, 2004c), which affects the valuation of mortality cobenefits at different discount rates.
Every benefits analysis examining the potential effects of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. Despite these uncertainties, we believe this analysis provides a reasonable indication of the expected health co-benefits of the air quality emission reductions for the proposed rule under a set of reasonable assumptions. This analysis does not

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-25 i nc lude the type of detailed uncertainty assessment found in the 2012 PM 2.5 

### National Ambient Air Quality Standard (NAAQS) RIA (U.S. EPA, 2012) because we lack the necessary air quality input and monitoring data to conduct a complete benefits assessment. In addition, using a benefit-per-ton approach adds another important source of uncertainty to the benefits estimates.
1.5.3.3 Combined Benefits Estimates
The EPA has evaluated the range of potential impacts by combining all four SC-CO 2 

### values with health co-benefits values at the 3 percent and 7 percent discount rates. Different discount rates are applied to SC-CO 2 

### than to the health co-benefit estimates because CO 2 

### emissions are long-lived and subsequent damages occur over many years. Moreover, several discount rates are applied to SC-CO 2 

### because the literature shows that the estimate of SC-CO 2 

### is sensitive to assumptions about discount rate and because no consensus exists on the appropriaterate to use in an intergenerational context. The IWG centered its attention on the average SCCO 2 

### at a 3 percent discount rate but emphasized the importance of considering all four SC-CO 2 

### estimates. Table 1-6 (rate-based federal plan approach) and Table 1-7 (mass-based federal plan approach) provide the combined climate benefits and health co-benefits for the proposed federal plan model trading rules estimated for 2020, 2025, and 2030 for each discount rate combination.
All dollar estimates are in 2011 dollars.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-26 T ab le 1-6. Combined Estimates of Climate Benefits and Health Co-Benefits for Rate-Based

Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits Only Climate Benefits plus Health Co

- benefits

(Discount Rate Applied to Health Co-benefits) 3% 7 % In 2020 69 m illion short tons CO 2 5% $0. 80 $1.5 to $2.6 $1.4 to $2.5 3% $2. 8 $3.5 to $4.6 $3.5 to $4.5 2.5% $4.1 $4.9 to $6.0 $4.8 to $5.9 3% (95 th percentile) $8.2 $8.9 to $10 $8.9 to $9.9 In 2025 232 million short tons CO 2 5% $3. 1 $11 to $21 $9.9 to $19 3% $10 $18 to $28 $17 to $26 2.5% $15 $23 to $33 $22 to $31 3% (95 th percentile) $31 $38 to $49 $38 to $47 In 2030 415 million short tons CO 2 5% $6.4 $21 to $40 $19 to $37 3% $20 $34 to $54 $33 to $51 2.5% $29 $43 to $63 $42 to $60 3% (95 th percentile) $61 $75 to $95 $74 to $92 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 em i ssions. Co-benefits are based on regional benefit-per-ton estimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health co-benefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC-CO 2 estimate for the specified discount rate.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-27 T ab le 1-7. Combined Estimates of Climate Benefits and Health Co-benefits for Mass-Based

Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits Only Climate Benefits plus Health Co

- benefits

(Discount Rate Applied to Health Co-benefits) 3% 7 % In 2020 82 m illion short tons CO 2 5% $0. 94 $2.9 to $5.7 $2.8 to $5.3 3% $3. 3 $5.3 to $8.1 $5.1 to $7.7 2.5% $4.9 $6.9 to $9.7 $6.7 to $9.3 3% (95 th percentile) $9.7 $12 to $14 $11 to $14 In 2025 264 million short tons CO 2 5% $3. 6 $11 to $21 $10 to $19 3% $12 $19 to $29 $18 to $27 2.5% $17 $24 to $35 $24 to $33 3% (95 th percentile) $35 $42 to $52 $42 to $51 In 2030 413 million short tons CO 2 5% $6.4 $18 to $34 $17 to $32 3% $20 $32 to $48 $31 to $46 2.5% $29 $41 to $57 $40 to $55 3% (95 th percentile) $60 $72 to $89 $71 to $86 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 em i ssions. Co-benefits are based on regional benefit-per-ton estimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health co-benefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC-CO 2 estimate for the specified discount rate.


### 1.5.4 Net Benefits
Table 1-8 and 1-9 provide the estimates of the climate benefits, health co-benefits,compliance costs and net benefits of the proposed federal plan and model trading rules for ratebased and mass-based approaches, respectively. There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 

### emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing emissions of non-CO 2 

### greenhouse gases and co-benefits from reducing exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility impairment. Upon considering these limitations and uncertainties, it remains clear that the benefits of this proposed rule are substantial and far outweigh the costs.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-28 T ab le 1-8. Monetized Benefits, Compliance Costs, and Net Benefits Under the Rate-based

Federal Plan Approach (billions of 2011$) a Rate-Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0. 80 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8. 2 $31 $61
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $0.70 to $1.8 $0.64 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $2.5 $1. 0 $8.4 Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 a n d SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a A l l are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in this table, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co-benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation ofeffect estimates by particle type. Estimates in the table are presented for three analytical years with air quality cobenefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Final Rule RIA includes combined climate and health estimates based on additional discount rates.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-29 T ab le 1-9. Monetized Benefits, Compliance Costs, and Net Benefits under the Mass-based

Federal Plan Approach (billions of 2011$) a Mass-Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0. 94 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9. 7 $35 $60
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $2.0 to $4.8 $1.8 to $4.4 $7.1 to $17 $6.5 to $16 $12 to $28 $11 to $26 Compliance Costs d $1.4 $3. 0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 a n d SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Vi s ibility improvement

a A l l are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in this table, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co-benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation ofeffect estimates by particle type. Estimates in the table are presented for three analytical years with air quality cobenefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Final Rule RIA includes combined climate and health estimates based on additional discount rates.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-30 1. 5. 5 Economic Impacts The federal plan approaches analyzed in this RIA indicate that the proposed federal plan and model trading rules may have important energy market implications. Table 1-10 presents a variety of important energy market impacts for 2020, 2025, and 2030 for both the rate-based and mass-based federal plan approaches.
Table 1-10. Summary Table of Important Energy Market Impacts (Percent Change from

Base Case)
Rate-Based Mass-Based 2020 2025 2030 2020 2025 2030 Retail electricity prices 3% 1% 1% 3% 2% 0% Average electricity bills 3% -4% -7% 2% -3% -8% Price of coal at minemouth -1% -5% -4% -1% -5% -3% Coal production for power sector use -5% -14% -25% -7% -17% -24% Price of natural gas delivered to power sector 5% -8% 2% 4% -3% -2% Natural gas use for electricity generation 3% -1% -1% 5% 0% -4%



### En e rgy market impacts are discussed more extensively in Chapter 3 of the final Clean Power Plan Emission Guidelines RIA. As well as the above energy market impacts, Chapter 3 of the final Clean Power Plan Emission Guidelines RIA presents projections of power sector generation and capacity changes by fuel type.
Additionally, changes in supply or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the production process or that supply those sectors. Changes in cost of production may result in changes in price and/or quantity produced by these sectors and these market changes may affect the profitability of firms and the economic welfare of their consumers. Similarly, demand for new generation or energy efficiency, for example, can result in changes in production and profitability for firms that supply those goods and services. The EPA recognizes that states subject to the federal plan may choose to mitigate impacts to some markets outside the EGU sector, perhaps by implementing the guidelines through a state plan.
1.5.6 Employment Impacts Executive Order 13563 directs federal agencies to consider the effect of regulations on job creation and employment. According to the Executive Order, “our regulatory system must

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-31 pr ot ect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science” (Executive Order 13563, 2011). Although standard benefit-cost analyses have not typically included a separate analysis of regulation-induced employment impacts, we typically conduct employment analyses. 26 

### While the economy continues moving toward full-employment, employment impacts are of particular concern and questions may arise about their existence and magnitude.
Given the wide range of approaches that may be used to meet the requirements of the proposed federal plan and model trading rules, quantifying the associated employment impacts is difficult. The EPA’s illustrative employment analysis includes an estimate of projectedemployment impacts for the utility power sector, coal and natural gas production, and demandside energy efficiency activities. These projections are derived, in part, from the detailed model of the utility power sector used for this regulatory analysis, and U.S government data on employment and labor productivity.
In the electricity, coal, and natural gas sectors, the EPA uses the IPM estimates of the changes in generation and fuel use of the proposed rule to estimate there could be a net decrease of approximately 25,000 job-years 27 

### in 2025 for the proposed rule under the rate-based federal plan approach and approximately 26,000 job-years in 2025 under the mass-based approach. For 2030 the estimates of the net decrease in job-years is 30,900 under the rate-based plan, and 33,700 under the mass-based plan. The Agency is also offering an illustrative calculation of potential employment effects due to demand-side energy efficiency programs. Employment impacts from demand-side energy efficiency programs in 2030 could range from approximately 52,000 to 83,000 jobs under proposed federal plan and model trading rules. The IPM-derived job-year numbers for the electricity, coal and natural gas sectors should not be added to the

26 T h e employment analysis in this RIA is part of EPA’s ongoing effort to “conduct continuing evaluations of potential loss or shifts of employment which may result from the administration or enforcement of [the Act]” pursuant to CAA section 321(a).

27 Job-years are not individual jobs, but rather the amount of work performed by the equivalent of one full-time individual for one year. For example, 20 job-years in 2020 may represent 20 full-time jobs or 40 half-time jobs in that year.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-32 de m and-side efficiency job impacts, since the former are reported in full-time equivalent jobyears, whereas the latter do not distinguish between full- and part-time employment. More detail about these analyses can be found in Chapter 6 of the final Clean Power Plan Emission
Guidelines RIA.
1.5.6 Additional Analysis of Output-Based Allocation as a Means of Mitigating Leakage
The EPA is proposing a set-aside approach referred to as output-based allocation (OBA), which provides targeted allocations of a limited portion of allowances to existing NGCC units as a means of mitigating leakage. The EPA believes that this proposed set-aside would help ensure the environmental integrity of a mass-based plan by addressing incentives for generation to shift away from EGUs covered under mass-based plans to new unaffected EGUs. OBA provides an incentive for eligible EGUs in mass-based states to increase their generation in order to increase their allocation of allowances. This approach helps align the generation incentives for eligible EGUs in mass-based states with new EGUs within mass-based states that are not subject to the mass-based limits as well as analogous EGUs in other states covered by emission rate limits, mitigating the potential for emissions leakage.
While the mass-based scenario analyzed for this proposed rule included a representation of the set-aside for new renewable generation, it did not quantify the effects of the OBA as proposed in this rulemaking. Therefore, the EPA conducted additional analysis to approximate the potential emissions reductions if the OBA set-aside were included in that mass-based scenario. The EPA is inviting comment on OBA. If appropriate, the EPA will further explore OBA as a means to mitigate leakage in the analysis supporting the final federal plan and model trading rules.
The application of OBA will provide an incentive to increase generation at existing NGCC EGUs in place of generation at new NGCC EGUs and existing fossil steam EGUs. To approximate the effect of this incentive in the mass-based scenario, the EPA used IPM model plant results from the mass-based scenario to construct the dispatch order for model plants in each IPM region. Then, based on the allowance prices for the state in which each model plant resides, the EPA adjusted the dispatch order in the case where existing NGCC units were allocated allowances at a rate of 1,030 lbs/MWh for each MWh generated above a 50 percent capacity factor as proposed. In cases where an existing NGCC plant moved ahead of an existing

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-33 f o ssil steam plant in the dispatch order, the NGCC plant’s generation was increased while the existing fossil plant’s generation was reduced. The NGCC plant’s generation was increased to the maximum capacity factor assumed feasible within IPM while the amount of reduced generation at the fossil steam plant is determined by the amount that would keep the overallcovered sources’ emissions in the region constant, so as to respect compliance with the massbased standards represented in the modeling scenario. Since the existing NGCC plant has a lower emissions rate than the existing fossil steam plant, the increase in generation at the NGCC plant is greater than the reduction in generation (because more generation is now possible from both plants together at the same given level of emissions). This net increase in generation from existing EGUs is then subtracted from new NGCC generation in the region, consistent with the total generation needed to meet the load assumed in the IPM modeling of the mass-based
scenario.
When applying this algorithm to the results from the mass-based scenario analyzed in this RIA, it forecasts nationally in 2030 a 10 percent increase in generation at existing NGCC EGUs, a 4 percent reduction in generation at existing fossil steam EGUs, and a 29 percent decrease in generation at new NGCC EGUs compared to the modeling scenario results presented above. The result of this reduction in new NGCC EGU generation is a reduction in CO 2 

### emissions of 23 million short tons (an amount equal to 1.3 percent of 2030 forecast emissions in mass-based scenario). We do not quantify the effect of these changes in generation on SO 2 

### and NO x 

### emissions, although on net additional co-benefits would be expected.
The incentives portrayed in this analysis are consistent with the incentives that would be realized under the OBA set-aside, and the general direction and magnitude of the results are likely consistent with those that would be observed had the mass-based scenario been modeled with the OBA set-aside. However, the results should be viewed as approximate given that analysis does not consider important aspects of power markets included in IPM. For example, the analysis does not consider any potential changes in relative fuel and allowance prices as a result of the OBA set-aside. The application of the OBA set-aside will place upward pressure on the allowance prices and therefore further incentivize a shift away from existing fossil steam generation. The OBA set-aside may also place upward pressure on the price of natural gas which would reduce the effectiveness of the set-aside at encouraging increased utilization of existing NGCC EGUs. Furthermore, the analysis does not consider the fact that electricity is traded

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-34 a c ross many IPM regions. The application of OBA in one state may impact the generation at
EGUs in another state.
1.5.7 Uncertainty Analysis
The Office of Management and Budget’s circular Regulatory Analysis (Circular A-4) provides guidance on the preparation of regulatory analyses required under E.O. 12866, and requires an uncertainty analysis for rules with annual benefits or costs of $1 billion or more. 28 

### This proposed rulemaking potentially surpasses that threshold for both benefits and costs. Throughout this RIA and the referenced final Clean Power Plan Emission Guidelines RIA, we considered a number of sources of uncertainty, both quantitatively and qualitatively, on benefits and costs. We summarize three key elements of our analysis of uncertainty here:

• Assess uncertainty in the methods used to calculate the health co-benefits associated with
the reduction in PM 2.5 

### and ozone and the use of a benefits-per-ton approach in estimating
these co-benefits.

• Characterizing uncertainty in monetizing climate-related benefits.
Some of these elements are evaluated using probabilistic techniques, whereas for others the underlying likelihoods of certain outcomes are unknown and we use scenario analysis to evaluate their potential effect on the benefits and costs of this rulemaking.
1.5.7.1 Uncertainty in Costs
Our best estimates of the costs of these illustrative scenarios are reported within the cost analysis of the final Clean Power Plan Emission Guidelines and are included in the cost modeling in this RIA for both the proposed rate-based and mass-based approaches. A source of uncertainty under this regulation is the ultimate approach states will adopt in response to the guidelines, which will affect both the costs and benefits of this rule. For this reason we modeled two potential federal plan approaches: the rate-based plan approach and the mass-based plan approach.

28 O f fice of Management and Budget (OMB), 2003, Circular A-4
, http://www.whitehouse.gov/omb/circulars_a004_a-4 and OMB, 2011. Regulatory Impact Analysis: A Primer. http://www.whitehouse.gov/sites/default/files/omb/ inforeg/regpol/circular-a-4_regulatory-impact-analysis-aprimer.pdf

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-35 1. 5. 7.2 Uncertainty Associated with Estimating the Social Cost of Carbon

The 2010 SC-CO 2 

### TSD noted a number of limitations to the SC-CO 2 

### analysis, including the incomplete way in which the integrated assessment models (IAM) capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk
aversion. 29 

### Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature due to a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. These
individual limitations do not all work in the same direction in terms of their influence on the SCCO 2 

### estimates, though taken together they suggest that the SC-CO 2 

### estimates are likely conservative. In particular, the IPCC Fourth Assessment Report (2007) concluded that “It is very likely that [SC-CO 2 

### estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts” and the IPCC Fifth Assessment report observed that SC-CO 2 

### estimates continue to omit various impacts that would likely increase damages. The 95 th 

### percentile estimate was included in the recommended range for regulatory impact analysis, in part, to address these concerns.
The modeling underlying the development of the SC-CO 2 

### estimates addressed uncertainty in several ways. An ensemble of three IAMs were used to generate the SC-CO 2 

### estimates to capture differences in model structures that, in part, reflect uncertainty in the scientific literature about these relationships. Parametric uncertainty was explicitly addressed in each IAM, though to differing degrees, through Monte Carlo simulations in which explicit probability distributions for key parameters were specified, including the equilibrium climate

29 Te c hnical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order
12866 , Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February 2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf>.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-36 s e nsitivity, which represents the long-run responsiveness of the climate to increasing GHG concentrations. Furthermore, the analysis considered five different socioeconomic and emissions forecasts to capture the sensitivity of the SC-CO 2 

### estimates to key exogenous projections used in the modeling. Finally, the results were calculated for three discount rates, which were selected, in part, to reflect uncertainty about how interest rates may change over time and the possibility that climate damages are positively correlated with uncertain future economic activity. This analysis produced 45 different distributions of the SC-CO 2 

### estimates for each emissions year. To produce a range of plausible estimates that are manageable in regulatory analysis but still reflects the uncertainty in the results four point estimates were recommended. The use of this range of point estimates in this rulemaking helps to reflect the uncertainty in the SC-CO 2 

### estimates. Chapter 4 of the final Clean Power Plan Emission Guidelines RIA provides a comprehensive discussion about the methodology and application of the SC-CO 2 

### ; see both the 2010 TSD and current SCCO 2 

### TSD for a full description.
In addition, OMB’s Office of Information and Regulatory Affairs received comments regarding uncertainty and the SC-CO 2 

### estimates in response to a separate request for public comment on the approach used to develop the estimates. Commenters discussed the analyses and presentation of uncertainty in the TSD as well as the implications of uncertainty for use of the
SC-CO 2 

### estimates in regulatory impact analysis. In their response, the interagency working group (IWG) acknowledged uncertainty in the SC-CO 2 

### estimates but disagreed with commenters that suggested the uncertainty undermines use of the SC-CO 2 

### estimates in regulatory impact analysis. The IWG went on to note that the uncertainty in the SC-CO 2 

### estimates is fully acknowledged and comprehensively discussed in the TSDs and supporting academic literature, and that while all regulatory impact analysis involves uncertainty, these analyses can provide useful information to decision makers and the public. See the IWG Response to Comments for the complete response. 30


### 1.5.7.3 Uncertainty Associated with PM 2.5 

### and Ozone Health Co-Benefits Assessment
EPA provides information on the relative uncertainty in the benefits estimates based on
the 95 th 

### percentile confidence interval for avoided PM-related premature deaths and the

30 S e e https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-37 a s sociated economic valuation estimated in the benefits analysis for the recent PM NAAQS RIA (U.S. EPA, 2012).. In general, the 95th percentile confidence interval for monetized PM 2.5 

### benefits ranges from approximately -90 percent to +180 percent of the central estimates based on the two key PM mortality studies. To further explore uncertainty in the premature mortality benefits, EPA provides the PM-related results using concentration-response functions from two key epidemiology studies, as well as alternate concentration-response relationship provided by an expert elicitation and alternative ozone-related results using concentration-response relationships provided by alternative epidemiology studies. In addition, we include anassessment of the distribution of population exposure in the modeling underlying the benefit-perton estimates.
In addition to the uncertainties in the underlying concentration-response and valuation functions, all benefit-per-ton approaches have inherent limitations, including that the estimates reflect the geographic distribution of the modeled sector emissions, which may not match the emission reductions anticipated by this proposed rule, and they may not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other localfactors for any specific location. In addition, these estimates reflect the regional average benefitper-ton for each ambient PM 2.5 

### precursor emitted from EGUs, which assumes a linear atmospheric response to emission reductions. The regional benefit-per-ton estimates, although less subject to these types of uncertainties than national estimates, still should be interpreted withcaution. Even though we assume that all fine particles have equivalent health effects, the benefitper-ton estimates vary between precursors depending on the location and magnitude of their impact on PM 2.5 

### levels, which drive population exposure.

1.6 References
40 CFR Chapter I [EPA–HQ–OAR–2009–0171; FRL–9091–8] RIN 2060–ZA14, “Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act,” Federal Register / Vol. 74, No. 239 / Tuesday, December 15, 2009 / Rules and Regulations. 75 FR 49556. August 13, 2010. “EPA’s Denial of the Petitions to Reconsider the Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act.”

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-38 B e ll, M.L., A. McDermott, S.L. Zeger, J.M. Sarnet, and F. Dominici

. 2004. “Ozone and ShortTerm Mortality in 95 U.S. Urban Communities, 1987-2000.” Journal of the American Medical Association. 292(19):2372-8. Docket ID EPA-HQ-OAR-2009-0472-114577, Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/foragencies/Social-Cost-of-Carbon-for-RIA.pdf>. Accessed July 15, 2015. Docket ID EPA-HQ-OAR-2013-0602, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with Participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf>. Accessed July 15, 2015. Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. HEI Research Report, 140, Health Effects Institute, Boston, MA. Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury. Response to to Comments: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. July 2015. Available at:<https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-commentsfinal-july-2015.pdf.> Accessed July 15, 2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-39 I n tergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: Synthesis Report Contribution of Working Groups I, II and III to the Fourth Assessment Report of the IPCC . Available at: <http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synt hesis_report.htm>. Accessed June 6, 2015. Lepeule, J., F. Laden, D. Dockery, and J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow-Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspectives. 120(7):965-70. Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone Exposure and Mortality: An Empiric Bayes Metaregression Analysis.” Epidemiology. 16(4):458-68.
Melillo, J.M., T.C. Richmond, and G.W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program. Available at <http://nca2014.globalchange.gov>. Accessed June 4, 2015. National Research Council (NRC). 2000. Toxicological Effects of Methylmercury: Committee on the Toxicological Effects of Methylmercury .” Board on Environmental Studies and Toxicology. National Academies Press. Washington, DC. National Research Council (NRC). 2002. Estimating the Public Health Benefits of Proposed Air Pollution Regulations . National Academies Press. Washington, DC.

National Research Council. 2011. Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia . Washington, DC: The National Academies Press. U.S. Environmental Protection Agency (U.S. EPA). 2008a. Integrated Science Assessment for Sulfur Oxides—Health Criteria (Final Report) . National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. September. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impact Analysis . EPA-452/R-08-003. Office of Air Quality Planning and Standards Health and Environmental Impacts Division, Air Benefit and Cost Group Research Triangle Park, NC. March. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/6- ozoneriachapter6.pdf>. Accessed June 4, 2015. U.S. EPA. 2008c. Integrated Science Assessment for Oxides of Nitrogen: Health Criteria (Final Report). Research Triangle Park, NC: National Center for Environmental Assessment. July. Available at < http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-40 U

. S. Environmental Protection Agency (U.S. EPA). 2008c. Integrated Science Assessment for Oxides of Nitrogen - Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. July. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2009b. Integrated Science Assessment for Particulate Matter (Final Report) . EPA-600-R-08-139F. National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. December. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2010d. Section 3: Re

‐ 

### analysis of the Benefits of Attaining Alternative Ozone Standards to Incorporate Current Methods . Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/s3-supplemental_analysis-updated_benefits11- 5.09.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. EPA452/R-12-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013b. Integrated Science Assessment of Ozone and Related Photochemical Oxidants (Final Report). EPA/600/R-10/076F. National Center for Environmental Assessment – RTP Division, Research Triangle Park. Available at: <http://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247492#Download>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2015a. Regulatory Impact Analysis for the Clean Power Plan Final Rule. EPA-452/R-15-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: <[Placeholder] >. U.S. EPA. 2015b. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency. Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. “The relationship between selected causes of postneonatal infant mortality and particulate air pollution in the United States.” Environmental Health Perspectives. 105(6): 608-612

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-1 

## C H A PTER 

## 2: S TATUTORY AND 

## E XECUTIVE 

## O RDER 

## R EVIEWS



### 2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: I mproving Regulation and Regulatory Review
[Placeholder]
2.2 Paperwork Reduction Act
[Placeholder]
2.3 Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA; 5 U.S.C.§ 601 et seq.), as amended by the Small Business Regulatory Enforcement Fairness Act (Public Law No. 104-121), provides that whenever an agency is required to publish a general notice of proposed rulemaking, it must prepare and make available an initial regulatory flexibility analysis (IRFA), unless it certifies that the proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities (5 U.S.C. § 605[b]). Small entities include small businesses, small organizations, and small governmental jurisdictions. An IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the proposed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on small entities. Pursuant to section 603 of the RFA, the EPA prepared an initial regulatory flexibility analysis (IRFA) that examines the impact of the proposed rule on small entities along with regulatory alternatives that could minimize that impact.
2.3.1 Reasons why Action is Being Considered On &&&August 3, 2015, the EPA finalized the Clean Power Plan Emission Guidelines for existing fossil-fuel fired electricity generating units (EGUs) (40 CFR part 60, subpart UUUU) under authority of section 111 of the CAA (79 FR 34950). The Guidelines apply to existing fossil-fuel fired EGUs, i.e., those that were in operation or had commenced construction before January 8, 2014. States with existing EGUs subject to the guidelines are required to submit to the EPA by August 31, 2016, a state plan that implements the EGs. States may also make initial plan submittals in lieu of a complete state plan, in which case extensions can be granted (40 CFR

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-2 & & &). 31 

### Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 32 

### section 111 of the CAA and 40 CFR 60.27 require the EPA to develop, implement, and enforce a federal plan for existing EGUs located in that state.
The agency believes it is appropriate to propose the federal plan at this time for any states that may ultimately be found to have failed to submit a plan, or had their plan disapproved by the EPA. For some states in this situation, the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an approved plan in place. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves as two proposed model trading rules which states can adopt or tailor for adoption as their state plan.
2.3.2 Statement of Objectives and Legal Basis for Proposed Rules
The EPA is planning a notice of proposed rulemaking for a federal plan to implement greenhouse gas Emission Guidelines for existing fossil fuel-fired electric generating units (EGUs). The emission guidelines were proposed in June 2014 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (79 FR 34830; the Clean Power Plan). This plan is part of the President’s Climate Action Plan announced in June of 2013 to reduce carbon emissions from the power sector by 30 percent below 2005 levels. This federal plan serves to: 1) provide a model rule that states can tailor for implementation, and 2) set in place a plan that EPA can implement for states that do not develop an approvable state plan. The EPA sees this federal plan as an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until states assume their role as the preferred implementers of the emission guidelines.

31 S e e Section VII of this preamble for additional information on proposed changes to 40 CFR 60.27 to provide enhancements and flexibilities to the agency’s process for review and action on state plans and promulgation of federal plans.

32 If a state has submitted a complete plan, then the EPA will go through a public notice and comment process to fully or partially approve or disapprove the state plan.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-3 T h e final Clean Power Plan Emission Guidelines, due out this summer, are related to but separate from the proposed federal plan. The final Emission Guidelines s will detail the carbon dioxide (CO 2 

### ) reduction goals for sources by state. The purpose of the proposed federal plan is to lay out mechanisms to achieve reductions in CO 2 

### emissions from affected EGUs that are not covered by an EPA-approved state plan. The EPA is considering a range of options and approaches through which affected EGUs would meet a rate-based goal or a mass-based equivalent. The EPA intends to incorporate flexibility to the extent possible into the proposed federal plan so affected units can achieve these reductions in a cost-effective way.
2.3.3 Description and Estimate of Affected Small Entities
EPA conducted this regulatory flexibility analysis at the ultimate (i.e., highest) level of ownership, evaluating parent entities with the largest share of ownership in at least one potentially-affected EGU included in EPA’s Base Case using the Integrated Planning Model (IPM) v.5.15, used in the Regulatory Impact Analysis (RIA) for this proposed rule. 33 

### This analysis draws on the “parsed” unit-level estimates using IPM results for 2030, as well as ownership, employment, and financial information for the potentially affected small entities drawn from other resources described in more detail below. EPA chose to examine potential impacts in 2030 because that is when the emission performance goals are required to be fully achieved. Also, as presented in the RIA for this proposed rule, 2030 is the year where the estimated annual compliance costs for the contiguous U.S. are at their highest. 34


### It is important to briefly describe the cost analysis supporting this proposed rule. This action proposes a federal plan under section 111(d) of the CAA for the control of CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil-fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass- and rate-based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission

33 S e e 1.4.1 of the RIA for this proposed rule for more detail on the IPM base case used for this analysis. Detailed documentation for IPM v.5.15 is available at: http://www.epa.gov/powersectormodeling.

34 See Section 1.5.2 of the RIA for this proposed rule.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-4 pe r formance rates in the emission guidelines. The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.
However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. Because of this lack of information, for the RIA for this proposed rule, the EPA has chosen to examine a boundary scenario where all states of the contiguous U.S. will be regulated under a federal plan. Additionally, the proposal RIA examines two federal plan approach scenarios for implementation of federal plans. We use these scenarios
to inform this IRFA.
The first federal plan approach assumes all states in the contiguous U.S. are regulated under rate-based federal plans. The second federal plan approach assumes all contiguous states are regulated under mass-based federal plans. As with the RIA, the IRFA proceeds by examining potential costs to small entities under both the rate-based and mass-based approach, again underthe strong assumption that all affected EGUs are regulated under a federal plan. The parsed unitlevel estimates used in this IRFA are consistent with the analysis presented elsewhere in the RIA. These 2030 year IPM files can also be found in the docket for the rulemaking.
EPA identified the size of ultimate parent entities by using the Small Business Administration (SBA) size threshold guidelines. 35 

### The criteria for size determination vary by the organization/operation category of the ultimate parent entity, as follows:

• Privately-owned (non-government) entities (see Table 2-1)

o Privately-owned entities include investor-owned utilities, non-utility entities, and entities with a primary business other than electric power generation.

o For entities with electric power generation as a primary business, small entities are those with less than the threshold number of employees specified by SBA for each of the relevant North American Industry Classification System (NAICS) sectors (NAICS 2211).

35 U

. S. Small Business Administration (SBA). 2014. Small Business Size Standards. Effective as of July 14, 2014. See: http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-5 o F or entities with a primary business other than electric power generation, the relevant size criteria are based on revenue, assets, or number of employees by
NAICS sector. 36



### • Publicly-owned entities

o Publicly-owned entities include federal, state, municipal, and other political
subdivision entities.

o The federal and state governments were considered to be large. Municipalities and other political units with population fewer than 50,000 were considered to be
small.

• Rural Electric Cooperatives

o Small entities are those with fewer than the threshold level of employees or revenue specified by SBA for each of the relevant NAICS sectors.
EPA examined affected EGUs included in EPA’s 2030 projections and identified the associated power plants. Next, we determined power plant ownership information, including the name of associated owning entities, ownership shares, and each entity’s type of ownership. EPA primarily used data from SNL and Ventyx, supplemented by limited research using publicly
available data. 37 

### Majority owners of power plants with affected EGUs were categorized as one of the seven ownership types. 38 

### These ownership types are:

1. Investor-Owned Utility (IOU): Investor-owned assets (e.g., a marketer, independent power producer, financial entity) and electric companies owned by stockholders, etc.

36 Ce rt ain affected EGUs are owned by ultimate parent entities whose primary business is not electric power generation.

37 SNL Financial data covers the energy market and other industries. For more information, see: www.snl.com. The Ventyx database consists of detailed ownership and corporate affiliation information at the EGU level. For more information, see: www.ventyx.com.

38 Throughout this analysis, EPA refers to the owner with the largest ownership share as the “majority owner” even when the ownership share is less than 51 percent.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-6 2. C oop erative (Co-Op): Non-profit, customer-owned electric companies that generate and/or distribute electric power.
3. Municipal: A municipal utility, responsible for power supply and distribution in a small region, such as a city.
4. Sub-division: Political subdivision utility is a county, municipality, school district, hospital district, or any other political subdivision that is not classified as a municipality under state law. 5. Private: Similar to an investor-owned utility, however, ownership shares are not openly traded on the stock markets.

6. State: Utility owned by the state.

7. Federal: Utility owned by the federal government.
Required ownership information could not be determined for two committed units that are represented in the IPM base case modeling for this proposed rule, preventing their inclusion in this analysis. 39


### Next, EPA used the Hoover’s online database to identify the ultimate owners of power plant owners identified in the SNL and Ventyx databases. This was necessary, as many majority owners of power plants (listed in SNL or Ventyx) are themselves owned by other ultimate parent entities (listed in Hoover’s). 40 

### In these cases, the ultimate parent entity was identified via Hoover’s, whether domestically or internationally owned.
EPA followed SBA size standards to determine which non-government ultimate parent entities should be considered small entities in this analysis. These SBA size standards are specific to each industry, each having a threshold level of either employees, revenue, or assets below which an entity is considered small. SBA guidelines list all industries, along with their associated NAICS code and SBA size standard. Therefore, it was necessary to identify the specific NAICS code associated with each ultimate parent entity in order to understand the

39 T h e ORIS codes of these two units are 83609 and 83921. Without knowledge of entity type and size, it was not possible to accurately estimate revenue or costs impacts. An ORIS code is an identifying number assigned by the U.S. Energy Information Administration to power plants owned by utilities.

40 The Hoover’s Inc. online platform includes company records that can contain NAICS codes, number of employees, revenues, and assets. For more information, see: http://www.hoovers.com.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-7 a ppr opriate size standard to apply. Data from Hoover’s was used to identify the NAICS codes for most of the ultimate parent entities. 41 

### In many cases, an entity that is a majority owner of a power plant is itself owned by an ultimate parent entity with a primary business other than electric power generation. Therefore, it was necessary to consider SBA entity size guidelines for the range of NAICS codes listed in Table 2-1. This table represents the range of NAICS codes and areas of primary business of ultimate parent entities which are majority owners of potentially
affected EGUs in EPA’s IPM base case.

41 I n the case of two entities, NAICS codes could not be located in Hoover’s, so publicly available information was used to determine the primary area of business for the ultimate parent entities.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-8 T ab le 2-1. SBA Size Standards by NAICS Code

Notes: 1) Based on size standards effective at the time EPA conducted this analysis (SBA size standards, effective July 14, 2014) 2) Small business size standards are not established for the Public Administration industry (NAICS code 921110). It is assumed that a comparable NAICS private sector industry is Fossil Fuel Electric Power Generation (NAICS code 221112). Therefore, for this analysis, the NAICS code 921110 is assumed to have a size standard of 750 employees. Source: SBA, 2014 NAICS Code NAICS Description SBA Size Standard

211111 Crude Petroleum and Natural Gas Extraction 500 employees 211112 Natural Gas Liquid Extraction 500 employees 212111 Bituminous Coal and Lignite Surface Mining 500 employees 212221 Gold Ore Mining 500 employees 213112 Support Activities for Oil and Gas Operations $38.5 million in revenue 221111 Hydroelectric Power Generation 500 employees 221112 Fossil Fuel Electric Power Generation 750 employees 221113 Nuclear Electric Power Generation 750 employees 221118 Other Electric Power Generation 250 employees 221121 Electric Bulk Power Transmission and Control 500 employees 221122 Electric Power Distribution 1,000 employees 221210 Natural Gas Distribution 500 employees 238210 Electrical Contractors and Other Wiring Installation Contractors $15 million in revenue 238290 Other Building Equipment Contractors $15 million in revenue 324110 Petroleum Refineries 1,500 employees 325120 Industrial Gas Manufacturing 1,000 employees 325211 Plastics Material and Resin Manufacturing 750 employees 325320 Pesticide and Other Agricultural Chemical Manufacturing 500 employees 331110 Iron and Steel Mills and Ferroalloy Manufacturing 1,000 employees 331313 Alumina Refining and Primary Aluminum Production 1,000 employees 333613 Mechanical Power Transmission Equipment Manufacturing 500 employees 333999 All Other Miscellaneous General Purpose Machinery Manufacturing 500 employees 335312 Motor and Generator Manufacturing 1,000 employees 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing 500 employees
423610 Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers 100 employees
424720 Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals) 100 employees 454310 Fuel Dealers 50 employees 486210 Pipeline Transportation of Natural Gas $27.5 million in revenue 522110 Commercial Banking $550 million in assets 522220 Sales Financing $38.5 million in revenue 522320 Financial Transactions Processing, Reserve, and Clearinghouse Activities $38.5 million in revenue 523120 Securities Brokerage $38.5 million in revenue 523910 Miscellaneous Intermediation $38.5 million in revenue 523920 Portfolio Management $38.5 million in revenue 523930 Investment Advice $38.5 million in revenue 524113 Direct Life Insurance Carriers $38.5 million in revenue 524126 Direct Property and Casualty Insurance Carriers 1,500 employees 524210 Insurance Agencies and Brokerages $7.5 million in revenue 525110 Pension Funds $32.5 million in revenue 525120 Health and Welfare Funds $32.5 million in revenue 525990 Other Financial Vehicles $32.5 million in revenue 541611 Administrative Management and General Management Consulting Services $15 million in revenue 551112 Offices of Other Holding Companies $20.5 million in revenue 561110 Office Administrative Services $7.5 million in revenue 813910 Business Associations $7.5 million in revenue 921110 Public Administration 750 employees

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-9 E P A compared the relevant entity size criterion for each ultimate parent entity to the SBA threshold value noted in Table 2-1. We used the following data sources and methodology to estimate the relevant size criterion values for each ultimate parent entity:

1. Employment, Revenue, and Assets: EPA used the Hoover’s database as the primary source for information on ultimate parent entity employee numbers, revenue, and assets. 42 

### In parallel, EPA also considered estimated revenues from affected EGUs based on analysis of parsed-file estimates for 2030. 43 

### EPA assumed that the ultimate parent entity revenue was the larger of the two revenue estimates. In limited instances, supplemental research was also conducted to estimate an ultimate parent entity’s number of employees,
revenue, or assets.

2. Population: Municipal entities are defined as small if they serve populations of less than 50,000. EPA primarily relied on data from the Ventyx database and the U.S. Census Bureau to inform this determination. Supplemental research of individual municipalities
was also conducted in some instances.
Ultimate parent entities for which the relevant measure is less than the SBA size criterion were identified as small entities and carried forward in this analysis. In the case of six entities, data limitations prevented the comparison of entities against their appropriate SBA size standards. For the purposes of this analysis, EPA assumed that these six entities are small
entities. 44


### EPA identified 223 potentially affected EGUs owned by 74 small entities included in EPA’s 2030 projections. Fifty-nine of these potentially affected EGUs are projected to no longer

42 E s timates of sales were used in lieu of revenue estimates when revenue data was unavailable.

43 The methodology for the analysis of IPM results is detailed later in this IRFA.

44 Generation from potentially affected EGUs owned by these six entities represents less than two percent of total generation from potentially affected EGUs owned by small entities under EPA’s base case projections.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-10 b e operating by 2030. Twenty-four small entities are projected to have all of their potentially affected EGUs cease operation in the base case by 2030.

2.3.4 Compliance Cost Impact Estimates
2.3.4.1 Methodology for Estimating Impacts on Small Entities
This section presents the methodology for estimating the federal compliance costs of this proposed rule for small entities. EPA estimated net compliance costs for individual EGUs of the proposed rule using the following equation:



## C net compliance cost 

## = ∆ C operating + annualized capital 

## + ∆ C fuel 

## + ∆ C demand-side energy efficiency 

## + ∆ R

where C represents the components of cost as labeled, R represents revenue, and 

## ∆ indicates the calculation of difference between the base case and the federal plan approach under examination. The specific meaning of these variables is discussed below.
This approach to estimate net compliance costs is consistent with previous proposed power sector regulations that required IRFAs, such as the proposed Mercury and Air Toxics
Rule. 45 

### However, there is an additional component in the net compliance cost equation: thechange in the program costs of demand-side energy efficiency programs. Investment in demandside energy efficiency results in lower electricity demand, and consequently fewer emissions as production is reduced to meet the lower demand, an important emission-reduction strategy modelled in the rate-based and mass-based federal plan approaches.
Because this analysis evaluates the net compliance costs as a sum of the costs changes associated with compliance choices as well as changes in electricity revenues, it captures potential net compliance cost increases or decreases. For example, if under the proposed rule entities increase revenue more than costs, the net compliance costs will be negative. As a result,

45 U

. S. Environmental Protection Agency (U.S. EPA). 2011. Regulatory Impact Analysis of the Proposed Toxics Rule: Final Report . Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/ToxicsRuleRIA.pdf.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-11 t h e approach used here to estimate net compliance costs is well-equipped to evaluate the potential distributional consequences of the proposed regulation.
For this analysis, EPA used the parsed unit-level estimates mentioned before to estimate three of the four components of the net compliance cost equation above: the change in operating and annualized capital costs, the change in fuel costs, and the change in revenue, where all changes are estimated as the difference between the base case and federal plan scenario. These impacts were then summed for each small entity, adjusting for ownership share. 46 

### As described momentarily, additional analysis was performed to estimate the change in costs of demand-side energy efficiency that factors in IPM-projected outputs but is not directly an output of the model. These individual components of compliance cost were estimated as follows:

1. Operating and capital costs: Using the IPM parsed estimates for the base case and the rate-based and mass-based federal plan approaches, EPA evaluated changes in operating and capital costs at the EGU level. The equations for calculating operating and capital costs were adopted from technology assumptions used in EPA’s version of IPM version 5.15. The model calculates the capital cost (in $/MW); the fixed operation and maintenance (O&M) cost (in $/MW-year); and the variable O&M cost (in $/MWh).

2. Fuel costs: Using the IPM parsed estimates for the base case and the rate-based and mass-based federal plan approaches, EPA evaluated projected changes in fuel cost at the EGU level. These projected fuel costs are based on estimated EGU-level fuel input (in million British thermal units, MMBtu) and delivered fuel prices ($/MMBtu).

3. Demand-side energy efficiency program costs: Demand-side energy efficiency program costs are estimated and allocated to affected EGUs outside of IPM in thisanalysis. For this analysis, we assumed that IOUs, Co-Ops, Municipals, and SubDivisions are utilities that receive revenues on the basis of retail electricity rates. Retail electricity in this and related EPA analyses contain an energy efficiency surcharge. The surcharge reflects the standard mechanism by which utilities collect revenue from their customers to pay for energy efficiency programs. Such surcharges are approved for

46 U n it-level cost impacts are adjusted for ownership shares for individual small entities, so as not to overestimate burden on each entity.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-12 i nc lusion in rates by state utility commission for IOUs or the equivalent authority (e.g., municipal or cooperative utility board of directors) for other utility types. To be consistent, EPA assumes that these utilities will incur an energy efficiency surcharge as a cost in this analysis. The demand-side energy efficiency surcharge is state specific, being the estimated state demand-side energy efficiency program costs 47 

### divided by projected total state sales. The cost in this analysis is the surcharge multiplied by projected sales
from affected EGUs. 48 

### In contrast, entities of the type Private are not assessed demandside energy efficiency program costs in this analysis. 49 

### This distinction is made because EPA assumes that Private entities own non-utility EGUs that will earn wholesale electricity rates. Wholesale electricity rates do not include a demand-side energy efficiency surcharge in this or related EPA analyses.

4. Revenues: EPA estimated the value of electricity generated by multiplying the projected electricity generation from EPA’s IPM modeling results with the regional retail electricity price estimates ($/MWh), for all entities except those categorized as Private in Ventyx. For private entities, EPA used projected wholesale electricity price instead of retail electricity price estimates because most of the private entities are independent power producers (IPP). Since IPPs sell their electricity to wholesale purchasers and do not own transmission facilities, their revenue was estimated with wholesale electricity prices.

47 I n practice, the costs of demand-side energy efficiency programs include the costs to the utilities that are funding the programs (known as the program costs) and the additional cost to the end-user purchasing a more energy efficient technology (known as the participant costs). Based upon a literature review, the analysis supporting this proposed rule and the Clean Power Plan Final Rule, total costs are assumed to be divided evenly, 50 percent each, between program costs and participant costs. This IRFA includes only to the program costs expected to be incurred by utilities. For more detail on how the demand-side energy efficiency costs are estimated, see U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

48 For these entity types (i.e., IOUs, Co-Ops, Municipals, and Sub-Divisions), projected sales is estimated to be 7.5 percent less than generation. This 7.5 percent reduction is added to account for estimated transmission losses.

49 Note that in this context, “Private” is one of seven distinct ownership types introduced earlier in this chapter.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-13 2. 3. 4.2 Results
This section presents the estimated net compliance cost impacts of the proposed rule on small entities in 2030 based on the following endpoints:

• net compliance costs estimated for the proposed rule for potentially affected small entities, and

• the ratio of small entity compliance cost impacts to revenues from electricity generation
at affected EGUs
It is worth noting again that the results in this section are based on the assumption made for this analysis that all affected EGUs owned by small entities are subject to this proposed rule. EPA chose to examine this boundary scenario because, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan.
The number of affected small entities by ownership type and the potential impact of the federal plan approaches are summarized in Tables 2-2 through 2-5. These tables are specific to either the rate-based federal plan approach (i.e., rate-based), or mass-based federal plan approach (i.e., mass-based). All costs are presented in 2011 dollars.
EPA estimated the annualized net compliance cost to potentially affected small entities in 2030 to be approximately $364 million under the rate-based approach, and $404 million under the mass-based approach. Results for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost-of-service markets are likely able to recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being over-estimates for this set of
utilities.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-14 T ab le 2-2. Number of Affected Small Entities in the Base Case, and Projected Impact

under the Rate-Based Federal Plan Approach in 2030 EGU Ownership Type Number of

Potentially Affected Entities Number of Entities

Projected to Withdraw all Affected Units in Base Case Additional Entities Projected to Withdraw all Affected Units under Rate-Based Approach Co-Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub-Division 6 0 2 Grand Total 74 24 7 Notes: 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### Table 2-3. Projected Impact on Small Entities in 2030 under Rate-Based Federal Plan

Approach
EGU Ownership Type Total Net

Compliance Costs (2011$ millions) Number of Small Entities

with Net Compliance Costs > 1% of Generation Revenues Number of Small Entities

with Net Compliance Costs > 3% of Generation Revenues Co-Op 109 8 3 IOU 186 4 4 Municipal 17 7 5 Private 34 11 9 Sub-Division 18 6 2 Grand Total 364 36 23 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities expe r iencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional revenues some entities may earn from other sources. 3) Nine small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-15 T ab le 2-4. Number of Affected Small Entities in the Base Case, and Projected Impact

under the Mass-Based Federal Plan Approach in 2030

EGU Ownership Type Number of

Potentially Affected Entities Number of Entities

Projected to Withdraw all Affected Units in Base Case Additional Entities Projected to Withdraw all Affected Units under Mass-Based Approach Co-Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub-Division 6 0 0 Grand Total 74 24 5 Notes: 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source: U.S. EPA analysis, based on IPM modeling results.



### Table 2-5. Projected Impact on Small Entities in 2030 under Mass-Based Federal Plan

Approach
EGU Ownership Type Total Net

Compliance Costs (2011$ millions) Number of Small Entities

with Net Compliance Costs > 1% of Generation Revenues Number of Small Entities

with Net Compliance Costs > 3% of Generation Revenues Co-Op 133 10 4 IOU 179 3 3 Municipal 50 5 5 Private 36 8 7 Sub-Division 7 4 2 Grand Total 404 30 21 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities expe r iencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional revenues some entities may earn from other sources. 3) Eleven small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### As noted earlier, there are 74 small entities with potentially affected EGUs that are modeled in the IPM base case in 2030. Of these, 24 small entities are projected to withdraw all of their potentially affected EGUs from operation under base case conditions. This leaves 50 small entities with potentially affected EGUs that are projected to be generating electricity in 2030. Under the rate-based federal plan approach, 7 of these 50 small entities are projected to withdraw all of their potentially affected EGUs from operation by 2030. Under the mass-based federal plan

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-16 a ppr oach, 5 of these 50 small entities are projected withdraw all of their potentially affected EGUs from operation by 2030.
Under the rate-based federal plan approach, 23 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 11 entities are estimated to have net compliance cost savings greater than 3 percent of their generation revenues from affected EGUs. Under the mass-based federal plan approach, 21 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 9 entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from their
affected EGUs.
The separate components of the net compliance costs for small entities under the proposed rule are summarized in Table 2-6 and Table 2-7.
Table 2-6. Incremental Costs in 2030 under the Rate-based Federal Plan Approach

Summarized by Ownership Group and Cost Category in 2030 (2011$ millions)
EGU Ownership Type Capital +

Operating + Fuel Costs ($MM) Energy Efficiency

Program Costs ($MM) Change in

Electricity Revenue ($MM) Total Net

Compliance Costs A B C =A+B-C Co-Op (79) 87 (102) 109 IOU 78 93 (15) 186 Municipal (26) 25 (19) 17 Private (7) 0 (40) 34 Sub-Division (68) 16 (70) 18 Grand Total (102) 221 (246) 364 Note: Totals may not add due to rounding. So ur ce: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-17 T ab le 2-7. Incremental Costs in 2030 under the Mass-based Federal Plan Approach

Summarized by Ownership Group and Cost Category in 2030 (2011$ millions)
EGU Ownership Type Capital +

Operating + Fuel Costs ($MM) Energy Efficiency

Program Costs ($MM) Change in

Electricity Revenue ($MM) Total Net

Compliance Costs A B C =A+B-C Co-Op (178) 84 (228) 133 IOU (17) 91 (104) 179 Municipal (64) 23 (91) 50 Private (2) 0 (38) 36 Sub-Division (38) 18 (27) 7 Grand Total (299) 215 (488) 404 Note: Totals may not add due to rounding. So ur ce: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### The change in electricity revenue under the federal plan approaches take into account both the profit lost from units that do not operate and the difference in revenue for operating units. The cost of withdrawing a unit as uneconomic is estimated as the base case profit that is foregone by not operating under a federal plan approach.
There are uncertainties and limitations in this analysis that may result in estimates that diverge from what we might see in reality. Some of these have already been noted. Below is a listing of important considerations when interpreting this analysis.

• At the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. The rate-based and mass-based federal plan approaches analyzed in this IRFA are based on a boundary scenario where all states of the contiguous U.S. will be regulated under a federal plan.

• Results for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost-of-service markets are likely able to recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being
over-estimates for this set of utilities.

• Demand-side energy efficiency program costs are allocated proportionally in this analysis. To the extent that this differs in practice, associated costs incurred by small entities may be over- or under-estimated.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-18 • T o the extent that the EGU owner information used is not reflective of reality, the number of small entities may be over- or under-estimated.

• To the extent that the entity-level ownership information (i.e., NAICS code, number of employees, revenues, and assets) are not reflective of reality, the number of small entities may be over- or under-estimated.

2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements
[Placeholder]

2.3.6 Related Federal Rules
On September 20, 2013, EPA proposed carbon pollution standards for new fossil fuel fired EGUs. On June 2, 2014, the EPA, proposed carbon pollution standards for modified and reconstructed fossil fuel fired EGUs, in addition to the Clean Power Plan EGs, to cut carbon pollution from existing fossil fuel fired EGUs. These existing EGUs are, or will be, potentially impacted by several other recently finalized EPA rules. On February 16, 2012, the EPA issued the mercury and air toxics standards (MATS) rule (77 FR 9304) to reduce emissions of toxic air pollutants from new and existing coal- and oil-fired EGUs. On May 19, 2014, the EPA issued a final rule under section 316(b) of the Clean Water Act (33 U.S.C. 1326(b)). This rule establishes new standards to reduce injury and death of fish and other aquatic life caused by cooling water intake structures at existing power plants and manufacturing facilities. On June 18, 2014 (79 FR 34830), the EPA promulgated the stream electric effluent limitation guidelines (SE ELG) rule to strengthen the controls on discharges from certain steam electric power plants. On April 17, 2015 (80 FR 21302), the EPA promulgated the coal combustion residuals (CCR) rule, which establishes technical requirements for CCR landfills and surface impoundments under subtitle D of the Resource Conservation and Recovery Act (RCRA), the nation's primary law for regulating
solid waste.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-19 2. 3. 7 Regulatory Flexibility Alternatives

2.3.7.1 Panel Process
SERs commented on their perceptions of the adequacy of the SBREFA panel process for the section 111(d) federal plan. Under the statute, EPA provides “information on the potential impacts of the proposed rule on small entities and the type of small entities that might be affected.” § 609(b)(1). Then SERs are selected, and the Panel collects “advice and recommendations” from each SER. § 609(b)(4). The Panel reviews the SERs’ comments, and “any material the agency has prepared in connection with [the RFA],” and “report[s] on the comments of the [SERs] and its findings as to issues related to” preparation of an IRFA. § 609(b)(5). EPA solicited SERs comments during the course of, and after holding three outreach meetings. The Agency provided information to the SERs on two primary regulatory alternatives for the federal plan – a rate-based trading program and a mass-based trading program. The Agency identified specific areas under both of these alternatives where it was still in the decision making process and open to recommendations. This information forms the basis for consideration of issues and additional regulatory options important to these small entities.
Advocacy shares many of the concerns raised by the SERs (see attached letter from Acting Chief Counsel Claudia Rodgers to EPA Administrator Gina McCarthy). While Advocacy endorses the Panel recommendations, Advocacy agrees that the SERs did not have sufficient information to inform advice and recommendations about specific regulatory alternatives and flexibilities. In Advocacy’s view, this is reflected in Panel recommendations that advise EPA to consider issues raised by the SERs rather than to propose or consider regulatory alternatives. Advocacy regrets that the Panel is not able to make more specific recommendations for flexibilities to minimize the impacts on small entities.
While not all members of the Panel agree with all of these concerns, the concerns of the SERs regarding the Panel process have been noted. Nonetheless, EPA is committed to ensuring that it meets the requirements of the RFA and will, to the maximum extent practicable, fully consider the advice and recommendations of representatives of small entities in the development of the proposed rule. The EPA intends to continue working on issues regarding small businesses, and consider appropriate flexibilities, throughout this rulemaking process.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-20 2. 3. 7.2 Remaining Useful Life
SERs commented that EPA needed to account for remaining useful life of EGUs. Multiple comments addressed challenges that EPA must face in satisfying the statutory mandate that “in applying a standard of performance to any particular source under a plan submitted under this paragraph to take into consideration, among other factors, the remaining useful life of the existing sources to which such standard applies.” SERs are concerned that EPA will develop EGs under section 111(d) in a manner that either prohibits plans from providing this consideration or only providing for plans to “make these adjustments at the expense of other sources.” AEPCO comments that it has obligations under the Rural Electrification Act to operate under an 80-year mandate. SBA recommends EPA propose allowing for guaranteed amount of run-time for small entities to allow them to recoup investment. EPA believes “remaining useful life” is a concern directed toward plants with short remaining lives, but recognizes that there are concerns about economic viability of some marginal plants.
The Panel recommends that EPA clearly explain how it took into consideration remaining useful life and take comment on other ways of defining the remaining useful life consideration. The Panel also recommends proposing or considering economic incentives for compliance that could avoid early retirement or reduce the financial effects of early retirements. For instance, the EPA could propose continuing allocations for a set number of years to units that retire in order to alleviate the financial effects of the retirement. EPA should request comment on how long such allocations should continue. The EPA should also consider whether there are parallel mechanisms in a rate-based proposal that could provide similar regulatory relief or benefits for small entities, if appropriate.
2.3.7.3 Design of the Compliance System
The panel requested SER input on a number of aspects of the federal plan design, based on EPA’s presentation of federal plan options. SER comments ranged quite broadly. Comments included: 1) differing opinions within SERs on favor of rate- vs mass-based approaches, 2) emphasis on market liquidity in a program, 3) support for types of allocation methodologies (in a mass-based allowance system), 4) encouragement for early action crediting, 5) increased averaging and compliance times to help small entities, and 6) whether and how to consider the effects of credit/allowance banking, borrowing, and shelf-life on market liquidity. In some

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-21 i ns tances, no general consensus emerged. The Panel notes the following specific areas where it is making a recommendation.

Mass-based or rate-based trading
Various SERs favored one system over the other, and some suggested that each individual small entity should be able to choose the system under which they would comply. However, it is unclear to what extent SERs would favor such choice at the expense of a broader trading pool. The panel, however, notes that the idea of individual companies within a statechoosing which system to comply would significantly limit the opportunity for intra- or interstate trading and would therefore not be consistent with other recommendations. The Panel recommends that EPA take comment on which approach (mass or rate) is preferable. In the interests of maximizing liquidity across all federal plan states, the Panel recommends that EPA should propose to finalize a single approach for all federal plans.

Allocations and credit issuance/early action
SERs expressed a variety of views on the appropriate method of allocating allowances under a mass-based system or credits under a rate-based system. Some preferred allowing states to make these decisions. Some wanted allocations to account for early action and energy efficiency efforts. The Panel agrees that EPA should take comment on the use of allocations to minimize the impact of the federal plan on small entities. The Panel notes that the early incentive pool that is part of the EGs does provide credit for early action, but the SERs did not have an opportunity to respond to this flexibility. The panel recommends that in the federal plan the EPA allow credit for early action and energy efficiency efforts to the extent it is allowed under the guidelines.

Non-generating party participation and market liquidity
SERs generally supported developing a system that would ensure a sufficient supply of credits be available on the open market and available for free trade to ensure that they would not be disadvantaged by large utilities withholding excess credits generated by renewable energy in their portfolio. However, some SERs also expressed the need to be able to generate and use credits internally (particularly those with generation across multiple states) (i.e., a portfolio approach). Some SERs endorsed allowing non-generating parties to create and sell credits or

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-22 a l lowances. Other SERs warned that third parties should not be allowed to purchase credits or allowances for the purpose of retiring them without offsetting GHG emissions from electricity generation. The Panel recommends that the EPA ensure a liquid market in compliance instruments, through consideration, request or comment, or proposal of several of options, including: allocation methods or rules that could impact liquidity, mechanisms to place allowances or credits into the market relatively early, requirements for public transparency of information related to allowance or credit issuance, tracking, transfers, and holdings, and whether and to what extent oversight authority exists related to measures to ensure liquid
markets Additionally, the Panel recommends that EPA solicit comment on other approaches to ensure liquidity, including but not limited to the concept of an early incentive pool which would serve to incentivize early reductions and create a market of additional allowances.
2.3.7.4 Renewable Energy and Energy Efficiency
Generally SERs encouraged EPA to incorporate existing EE efforts into the program in a way that gives credit for the investment and to rely on “deemed” energy savings to earn compliance credits. SERs raised concerns about the accounting of investments in RE and EE efforts in their compliance with GHG emission standards.
SERs also expressed concern that they be able to generate and use credits across state lines. This is particularly important for the investment in renewables, for which the generating potential is highly dependent on geography and is unequally distributed among the states. Thus, the Panel recommends that EPA develop a credit or allowance compliance program that allows for interstate accounting and trading for states under the federal plan. Additionally, the Panel recommends that the program include opportunities for interstate trading between sources in states under the federal plan and states under compatible state plans.

The Panel recommends that EPA consider the treatment of RE and EE in rate-based and mass-based federal plan contexts. EPA should further consider how to implement preferred policy options in a way that incentivizes investment and does not create unintended barriers for small entities. The Panel also recommends that EPA allow crediting of RE across states under the federal plan while soliciting comment for allowing crediting for EE across states under the federal plan.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-23 2. 3. 7.5 Reliability
Multiple SERs expressed concerns that implementation of the EGs, either by states or through a federal plan, could have a negative impact on reliability because individual units could have operational obligations that conflict with the emissions requirements. In their comments, both the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA) recommend Dynamic Reliability Safety Valve. EPA noted that the use of a reliability mechanism in the EGs is provisioned on the concern that some forms of state plan may create inflexible requirements that could in some limited circumstances raise a reliability concern. However, EPA believes the design of the federal plan as a flexible trading program alleviates these concerns and therefore a reliability mechanism is not needed.
The Panel recognizes the connection between meeting the GHG reduction goals of the federal plan and maintaining the reliability of the electric grid. The Panel recommends that EPA fully explain in the proposal and take comment on methods to address reliability and EPA should take comment on establishing a reliability safety valve, particularly if small entities can be shown to need regulatory flexibility for reliability critical units beyond the flexibilities already built into the design of the federal plan.
2.3.7.6 Subcategorization/Applicability/Exemptions
SER comments on applicability reflect concerns related to the combined series of rulemakings affecting GHG emissions from electricity generating units: the NSPS, the EGs and the federal plan. SERs endorse excluding RICE and NGSC units from the combined rulemakings. One SER requests a subcategory that addresses the particular characteristics of lignite coal. Some SERs suggest special provisions for small units or utilities, including a small system exemption. The SBA suggested taking comment on an economic hardship exemption for small entities and that EPA propose a mechanism for additional compliance time when generation and transmission investments necessary for compliance have been delayed by government reviews. However, EPA noted that regulatory exemptions must be grounded in statute and supported by analysis, and EPA believes the design of the federal plan itself should maximize compliance options that are both consistent with the EGs and also should adequately
address these concerns.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-24 T h e Panel notes that EPA must be consistent with the EGs on issues of applicability, which should address the SERs’ concerns with regard to inclusion of RICE or NGSC units. The Panel also notes that EPA is proposing a design to the federal plan that utilizes emission trading and thus maximizes compliance options such that individual units can take into account their particular characteristics in designing a compliance strategy. This should further address concerns and make unnecessary the need for further sub-categorization or the use of unit-specific exemptions. Additionally, the Panel recommends that EPA solicit comment on an alternative allocation methodology under the mass-based proposed federal plan that may increaseallocations for small businesses, and consider whether there are parallel mechanisms in a ratebased proposal that could provide similar regulatory relief or benefits for small entities, if appropriate.
2.4 Unfunded Mandates Reform Act (UMRA)
[Placeholder]

2.5 Executive Order 13132: Federalism
[Placeholder]

2.6 Executive Order 13175: Consultation and Coordination with Indian Tribal
Governments
[Placeholder]

2.7 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks
[Placeholder]
2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use
[Placeholder]
2.9 National Technology Transfer and Advancement Act (NTTAA)
This proposed action does not involve technical standards.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-25 2. 10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations
[Placeholder]

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

Uni t ed States Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC Publication No. EPA-452/R-15-006 July 2015

### Attachment H.2

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment H.2.

### Attachment I.From: Vasu, Amy <Vasu.Amy@epa.gov> Sent: Wednesday, July 29, 2015 1:54 PM To: nfrey@omb.eop.gov Cc: Szabo, Aaron; Harvey, Reid; Tsirigotis, Peter; Culligan, Kevin; Jones, Toni Subject: For Federal Plan ‐‐ revised CEIP text


### Nathan,

I was asked to also send you the attached revised CEIP text for the Federal Plan proposal.

Sorry to create confusion. Toni Jones will continue to be the EPA contact on other Federal Plan materials.

Thank you.
Amy

~~~~~~~~~~~~~ ~~~~~~~~~~ Amy B. Vasu U.S. EPA / OAQPS Sector Policies and Programs Division email: vasu.amy@epa.gov phone: 919.541.0107

### Attachment I.1

### Clean Energy Incentive Program language for FP Preamble

Overview – in section III in FP preamble
The EPA outlined and initiated the Clean Energy Incentive
Program (CEIP) in the final emission guidelines (Clean Power
Plan EGs, section VIII.B.2). The program is designed to
incentivize investment in certain types of RE projects, as well
as demand-side EE projects that benefit low-income communities.
These projects must commence construction after the date of
submission of a complete state plan, or the effective date of a
federal plan, and will receive incentives for the MWh they
generate or the end-use energy demand reductions they achieve
during 2020 and 2021. The CEIP also provides an additional
incentive to drive investment in demand-side EE projects that
benefit low-income communities. The EPA proposes to apply the
CEIP in all states subject to either a rate-based or mass-based
federal plan. The EPA’s proposed approaches to implementing the
program in the rate-based and mass-based federal plans are
detailed in sections IV and V of this preamble, respectively.

### Rate-based approach - in section IV in FP preamble

For purposes of the proposed rate-based federal plan, the EPA
proposes to implement the Clean Energy Incentive Program (CEIP)
by issuing early action ERCs for eligible actions located in or
benefitting a state that are implemented following the effective
date of the federal plan for that state and that reduce or avoid

CO 2 

### emissions in 2020 and 2021. The EPA intends to implement the
program in a way that maintains the stringency of the rate-based
emission standards for affected EGUs in the compliance periods
established in this rule. The EPA is proposing to award early
action ERCs to two types of eligible projects located in or
benefitting a state subject to the federal plan, as listed
below. The rationale for including these projects is included in
section VIII.B.2 of the final emission guidelines.

• RE investments that generate metered MWh from wind or solar

resources; and

• Demand-side EE programs and measures that result in
quantified and verified avoided generation, and demonstrate

a direct benefit to low-income communities.
The EPA proposes the following framework to implement the
CEIP in the rate-based federal plan. First, the EPA proposes to
implement a mechanism for issuing early action ERCs for eligible

actions that reduce or avoid CO 2 

### emissions in 2020 and 2021. The
EPA proposes to design this mechanism in a manner that would

### have no impact on the aggregate emission performance of sources
required to meet rate-based emission standards during the
compliance periods. The EPA requests comment on the structure of
this mechanism, which could include adjusting the stringency of
the emission standards during the compliance periods to account
for the issuance of early action ERCs for MWh generated or
avoided in 2020 or 2021. For example, during the interim
performance period, a number of ERCs could be retired in an
amount equivalent to the number of early action ERCs that were
awarded for MWh generated or avoided in 2020 and 2021. As
another option, the EPA, or a state under the model trading
rule, could use modeling to project expected emissions and
generation for covered sources. New targets could then be
obtained by dividing the modeled level of emissions by the
modeled level of generation adding in the number of borrowed
ERCs. Alternatively, future targets could be adjusted by
assuming reference case generation and emissions over the 2022-
2029 period and allocating those to fossil steam and NGCC using
2012 shares, then adding in the number of early action ERCs. The
EPA requests comments on these ideas, as well as alternatives
for maintaining the stringency of a rate-based plan implementing
the CEIP so as to have no impact on the aggregate emission
performance of sources required to meet rate-based emission
standards during the compliance periods.

### Second, the agency proposes to create an account of “matching”
ERCs for each state participating in the CEIP – regardless of
whether a state is implementing a state plan or the agency is
implementing a federal plan on its behalf. This distribution

would reflect each state’s pro rata share of a federal pool of
additional ERCs, which would be limited to the equivalent of 300

million short tons of CO 2 

### emissions. The EPA proposes to
distribute matching ERCs to all participating states based upon

the amount of the reductions from 2012 levels each state must
achieve relative to that of the other participating states.

Thus, states under a federal plan whose EGUs face greater
reduction obligations would be eligible to secure a larger
proportion of the federal allocation upon demonstration of
quantified and verified MWh of RE generation or demand side-EE
savings realized in 2020 and 2021. The number of matching ERCs
distributed to participating states will determine the total
level of ERCs available for provision to eligible projects in
each state participating in the CEIP.
The EPA proposes to execute an initial distribution of
matching ERCs following receipt of 2016 state submittals, and a
final distribution following receipt of all complete state plans
in 2018, and at which time the EPA may have issued federal plans
for some states. Eligible projects may receive awards from these
matching accounts upon demonstration of quantified and verified

### MWh of generation or savings achieved by eligible projects in
2020 and 20201. The EPA requests comment on how the 300 million

short ton CO 2 

### emissions-equivalent pool may be converted into
ERCs for the purpose of populating the CEIP accounts of states
with rate-based plans.
Third, the EPA is proposing to award early action ERCs and
matching ERCs to eligible projects as follows, based upon the
quantified and verified MWh of generation or savings achieved by
the projects in 2020 and 2021:

• For RE projects that generate metered MWh from wind or
solar resources: for every two MWh generated, the project
will receive one early action ERC and one matching ERC from

the EPA.

• For EE projects that benefit low-income communities: for
every two MWh in end-use demand savings achieved, the
project will receive two early action ERCs and two matching

ERCs from the EPA.

ERCs awarded by the EPA pursuant to the CEIP may be used for
compliance by an affected EGU with its emission standards in any
compliance period and are fully transferrable prior to such use.
All matching ERCs that have not been issued by January 1, 2023
would be retired by the EPA.
The EPA requests comment on all aspects of implementing the
CEIP under a rate-based federal plan approach, including (1) the

### method for maintaining the stringency of rate-based emission
standards; (2) the criteria for eligible projects, including
criteria for awards to EE projects that benefit low-income
communities; (3) the mechanism for reviewing project submittals
and issuing early action ERCs; (4) evaluation, measurement and
verification (EM&V) requirements for eligible projects; (5)
measurement and verification (M&V) reports; and (6) verification
reports from an independent verifier. The EPA also requests
comment on not providing matching ERCs in the rate-based trading

federal plan.

Mass-based approach – in section V in FP preamble

For purposes of the proposed mass-based federal plan, the
EPA proposes to implement the Clean Energy Incentive Program
(CEIP) by issuing early action allowances for actions that

reduce or avoid CO 2 

### emissions in 2020 and 2021. These early

action allowances would be drawn from a third set-aside of
allowances from the general distribution methodology. The EPA

believes it is reasonable to establish the total amount of the
early action-set aside in an amount equal to the pool of
matching allowances. Thus, the EPA proposes that the total early
action set-aside would be of an amount equal to the pool of
matching allowances: no more than 300 million CO 2 

### allowances,
depending on how many states are subject to a federal plan.

### The EPA proposes to distribute the 300 million early action
set-aside allowances among the states based upon the amount of

the reductions from 2012 levels each state must achieve relative
to that of the other participating states. The EPA proposes to
calculate these values as each state’s proportional share of the

total difference between the 2012 baseline and the 2030 mass

goals. 1 

### See [Table &&& below] for the proposed set-asides for

each state under the mass-based federal plan. The agency
proposes to set aside 100 million early action allowances from
each of the three years in the first compliance period (2022,

2023, and 2024) for a total of 300 million allowances to be set
aside. While the table shows set-asides for every state, the EPA
proposes to implement this set aside, according to the amounts
listed in [Table &&&], only for those states for whom EPA is
implementing the mass-based federal plan. The EPA also requests
comment on other approaches to determining the size of this setaside in the mass-based federal plan.
In accordance with the final emission guidelines, the EPA
is proposing to award early action allowances to two types of

1 

### The 2012 baseline is from the CO 2 

### Emission Performance Rate and Goal Computation TSD for the CPP Final Rule. Where a state’s relative share of the reductions from 2012 levels would yield a set-aside of zero, the EPA proposes to assign such a state a set-aside equal to one percent of the state’s 2030 mass goal and adjust the remaining state set-asides accordingly.

### eligible projects located in or benefitting the state for which
the EPA is implementing a federal plan:

• RE investments that generate metered MWh from wind or solar

resources; and

• Demand-side EE programs and measures that result in
quantified and verified avoided generation, and demonstrate

a direct benefit to low-income communities.
The EPA proposes the following framework to implement the
CEIP in the mass-based federal plan. First, the EPA proposes to
create a set-aside of early action allowances for all federalplan states, as described above. Second, the agency proposes to
create an account of matching allowances for each state
participating in the CEIP – regardless of whether a state is
implementing a state plan or the agency is implementing a
federal plan on its behalf. This distribution would reflect each
state’s pro rata share of a federal pool of additional
allowances, which will be limited to the equivalent of 300

million short tons of CO 2 

### emissions. The matching allowances
would be distributed to all participating states based upon the

amount of the reductions from 2012 levels each state must
achieve relative to that of the other participating states.
Thus, states whose EGUs face greater reduction obligations would
be eligible to secure a larger proportion of the federal
allocation upon demonstration of quantified and verified MWh of

### RE generation or demand side-EE savings realized in 2020 and

2021. The EPA also seeks comment on whether the number of
matching allowances available to a state under the federal plan
should be limited to a number equal to the number of early
action allowances included in each federal plan state’s early

action allowance set-aside account.
The EPA proposes to execute an initial distribution of
matching allowances following receipt of 2016 state submittals,
and a final distribution following receipt of all complete state
plans in 2018, by which time the EPA may also have issued

federal plans for some states.
Third, for any state subject to a federal plan, the EPA
proposes to award early action allowances and matching
allowances to eligible projects as follows, based upon the
quantified and verified MWh of generation or savings achieved by
the projects in 2020 and 2021:

• For RE projects that generate metered MWh from wind or
solar resources: for every two MWh generated, the project
will receive a number of allowances equivalent to one MWh
from the state early action allowance set-aside, and a
number of matching allowances equivalent to one MWh from

the EPA.

• For EE projects that benefit low-income communities: for
every two MWh in end-use demand savings achieved, the

### project will receive a number of allowances equivalent to
two MWh from the state early action allowance set-aside,
and a number of matching allowances equivalent to two MWh

from the EPA.
The EPA will address implementation details, including the
appropriate factor for determining equivalence between
allowances and MWh, in a subsequent action. Allowances awarded
by the EPA pursuant to the CEIP may be used for compliance by an
affected EGU with its emission standards in any compliance
period and are fully transferrable prior to such use. All
matching allowances that have not been used by January 1, 2023
would be retired by the EPA. The EPA proposes to distribute any
remaining early action set-aside allowances in a state – after
distribution to all eligible projects in the state – to the
affected EGUs in the state on a pro-rata basis in proportion to

the initial allocations made to those EGUs under the mass-based

federal plan.
As discussed in section V.E below, the EPA proposes to
allow any state where a federal plan is being implemented to
take responsibility for distributing allowances to affected

sources. This will allow a state to tailor its allowancedistribution approach to the characteristics and preferences of
the state. The EPA proposes that for approval of a delegation or
a partial state plan to handle allocations, a state that chooses

### to replace the federal-plan allocations with a state-determined
approach must include a CEIP set-aside, as authorized in section

VIII.B.2 in the Clean Power Plan EGs. The EPA intends that such

a state would have the same flexibilities as a state
implementing a full state plan with respect to implementation of
the CEIP. That is, the state would not be required to implement
a set-aside of the same size as proposed in [Table &&&], but
rather could choose how many of its allowances to set-aside for

the CEIP.
The EPA requests comment on all aspects of implementing the
CEIP under a mass-based federal plan approach, including (1) the
size of the early action allowance set aside; (2) the approach
for distributing the early action allowance set-aside among
states; (3) the timing of distribution of set-aside and matching
allowances; (4) the amount of allowances awarded per eligible
MWh generated or avoided; (5) the criteria for eligible
projects, including criteria for awards to EE projects that
benefit low-income communities; (6) the mechanism for reviewing
project submittals and issuing early action allowances; and (7)
the evaluation, measurement and verification (EM&V) requirements
for eligible projects.

The EPA also requests comment on the proposed approach of
requiring states to implement this program as a condition of a
state choosing to determine its own allocation approach via a

### partial state plan or a delegation of the federal plan. In
addition, the EPA requests comment on not providing matching
allowances in the mass-based trading federal plan, or on only
providing matching allowances in federal plan states that choose
to determine their own allocation approach.

**Table &&&. Proposed Clean Energy Incentive Program Early Action Set-Aside in Mass-Based Federal Plan for Projects in 2020 and**  **2021 (Short Tons)**

**State Set-Aside 2022**  **through 2024**

Alabama 3,122,306 

### Arizona 1,719,618 

### Arkansas 2,187,230 

### California 218,846 

### Colorado 2,223,192 

### Connecticut 69,415 

### Delaware 138,392 

### Florida 3,230,248 

### Georgia 2,755,623 

### Idaho 14,929 

### Illinois 5,968,721 

### Indiana 5,754,076


### Iowa 2,191,183


### Kansas 2,115,630 

### Kentucky 4,952,862 

### Lands of the Fort Mojave Tribe 5,885 

### Lands of the Navajo Nation 1,623,066 

### Lands of the Uintah and Ouray Reservation 175,509 

### Louisiana 1,497,428 

### Maine 20,739 

### Maryland 972,775 

### Massachusetts 170,471 

### Michigan 3,727,861 

### Minnesota 2,002,903 

### Mississippi 357,307

### Missouri 3,771,322


### Montana 1,310,344 

### Nebraska 1,481,695 

### Nevada 336,288


### New Hampshire 107,798


### New Jersey 446,005


### New Mexico 823,049


### New York 557,771 

### North Carolina 2,674,590 

### North Dakota 2,150,635 

### Ohio 4,788,372 

### Oklahoma 2,067,006 

### Oregon 154,353 

### Pennsylvania 5,039,346 

### Rhode Island 35,674 

### South Carolina 1,652,802 

### South Dakota 264,207


### Tennessee 2,178,084


### Texas 10,400,192 

### Utah 1,401,189 

### Virginia 1,386,546 

### Washington 751,434


### West Virginia 3,506,890 

### Wisconsin 2,393,870 

### Wyoming 3,104,324

### Attachment J.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Wednesday, July 29, 2015 5:30 PM To: Jones, Toni Cc: Culligan, Kevin; Harvey, Reid; Tsirigotis, Peter; Eck, Janet; Cozzie, David; Szabo, Aaron; Grossman, Andrea Subject: Summary of Interagency Comments Under EO 12866 and 13563 ‐‐ CPP Federal Plan RIA

Attached please find a summary of interagency comments under EO 12866 and EO 13563 on the CPP Federal Plan RIA.

Thanks and please let me know if you have any questions.

Nathan

### Attachment J.1• In the Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units , EPA adopts the SBREFA panel report recommendations in lieu of preparing its own consideration of alternatives. Reviewer notes that EPA should have prepared its own alternatives sections, building on the panel recommendations, incorporating the information EPA did not share with the panel during its deliberations, including the analysis of net compliance costs. Reviewer is concerned that, g iven the additional analysis performed by EPA, how it could demonstrate which of the recommendations would “accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities. “

• EPA projects that 1⁄2 of the small entities remaining in the market in 2030 will experience costs of over 3% of generation revenue. This would indicate significant hardship. Revi e wer recommends including an explanation regarding w hat regulatory alterna tives considered by EPA are included in this analysis, which were rejected, and how the al ternatives affected these results.

• EPA projects that 1/3 of all small utilities will be closed without this rule by 2030. Reviewer recommends providing additional in formation to substantiate this result.

• Reviewer recommends including a discussion of how the costs of credits are incorporated into the analysis and describing how the costs/revenues from credit trading are included in the cost impacts.

• Reviewer recommend s that EPA provide a discussion of w ow sensitive the analysis of the results

are to the number of states tha t participate in a Federal plan. Reviewer notes that a sizeable portion of States implement their own plans without trading to FIPs and recommends that EPA include a discussion in the analysis of the impacts on these costs.

• EPA has discussed the role of regulated markets in cost

- recovery in past rulemakings. Reviewer recommends that EPA include a discussion of how this concept has been discussed in prior rulemakings.

### Attachment K.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Wednesday, July 29, 2015 8:01 PM To: Culligan, Kevin; Macpherson, Alex; Jones, Toni; Harvey, Reid Subject: Summary of Interagency Comments Under EO 12866 and 13563 ‐‐ CPP Federal Plan RIA

Attached please find a summary of interagency comments under EO 12866 and 13563 on the CPP Federal Plan NPRM RIA.

Thanks and please let me know if you have any questions.

Nathan

### Attachment K.1Ge neral Comments Reviewer notes that there are a number of features of the federal plan (FP) that are modeled incorrectly , or not modeled , in the IPM runs used for the FP RIA, since the FP RIA reuses the modeling from the CPP EG RIA. The reviewer recommends new IPM model runs to capture the unique characteristics of the FP for the final version of this RIA, but the reviewer recognizes that due to time constraints additional analysis cannot be done now. In particular, it is especially problematic that this RIA fails to model trading for a proposal which is expressly designed to enable broad trading. As an alternative, reviewer recommends EPA clarify how the approaches modeled in the FP RIA differ from what is allowed under the proposed FP and quantitatively explain how this would affect the results. Reviewer recommends that the FP RIA include explanations for the major differences between th e FP and the model runs being used in the FP RIA : 1. Trading 2. Output based set

- aside 3. Rate goal type 4. Energy Efficiency Below are suggested line edits to address these points. Reviewer also recommends taking comment on what additional analysis besides these fou r points would strengthen the modeling representation of the federal plan in the final.

1. Trading - The CPP EG RIA assumed “ that sources within each state comply with the applicable state goals without exchanging a compliance instrument (ERC or allowance) with sources in any other state. ” (Page 3

- 11 in the RLSO of the CPP EG RIA). The FP RIA states that trading is allowed, which should lower the compliance cost and the cost of allowances/ERCs. In the mass

based scenario , this would be expected to affect the time profile of emissions of CO 2 and other priority pollutants because lower

- cost allowances create a lower incentive to bank compliance instruments for the future. In the rate

- based scenario, trading w ould be expected to change the overall level of emi ssions. Suggested additional text : Page 3

- 11 RLSO: After, “ Similarly, an affected EGU in a state covered by the rate

- based federal plan must use ERCS for compliance (not allowances)”, add the following paragraph: EPA notes that in this analysis EGUs within each state comply with the applicable state goals without exchanging a compliance instrument with EGUs in other states. However, u nder the proposed FP if all states had a federal plan and the same type of goal ( as they do in this analysis ) , then tra ding among EGUs in different states would be allowed and would be expected to lower compliance costs. The EPA is inviting comment on this approach to the modeling and will seek to improve analysis supporting the final rule. ”

2. Output based set

- aside – Revie wer recommends moving forward (or reiterating) the first two paragraphs of the discussion on output based allocation (OBA) ( to p. 1

- 32) , in order to present it before the results so readers have a clear picture of what was modeled. Reviewer also recommend s the following edits to the second paragraph. Suggested edit:

“ While the mass

- based scenario analyzed for this proposed rule included a representation of the set- aside for new renewable generation, it did not quantify the effects of the OBA as proposed in this rulemaking. Therefore, in section X.X the EPA conducted additional analysis toap proximate the potential emissions reductions if the OBA set

- aside were included in that mass

based scenario. The EPA is inviting comment on OBA. If appropriate, the EPA is inviting comment on its approach to model ing OBA and will further explore OBA as a means to mitigate leakage in the analysis supporting the final federal plan and model trading rules. ”

3. Rate goal type – On page 1

- 9 to 1

- 10 EPA states that the CPP EG RIA (and therefore the FP RIA) apply the state blended rate

- based goal, but that the FP require the technology

- specific rate goals. Reviewer recommends including a discussion of the implications of this difference. Suggested edit:

“ Furthermore, the rate

- based illustrative plan in the Final Clean Power Plan Emission Guidelines RIA assumes that the plan applies a state’s blended rate

- based goal as a requirement for affected EGUs in that state to achieve

. Alternatively , t he proposed fed eral plan specifically establishes an emissions rate performance standard that is applied to affected steam

- fired EGUs and an emission rate performance standard that is applied to affected natural gas

- fired combined cycle EGUs. The technology

- specific rate goal will alter the incentives among affected sources and could lead to different generation mixes and emissions. The EPA is inviting comment on its approach to modeling the FP and will further explore technology

- specific standards to improve analysis supporting the final rule.”

4. Energy Efficiency

– Reviewer recommends updating the text on 1 -9 for clarity, as EE is currently not included in the Federal Plan

. Reviewer notes that in earlier comments, reviewer suggested that EE should be included in the Federal Plan. Suggested edit: “In the rate

- based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, avoided generation from demand

- side energy efficiency is counted towards meeting the emission performance rates at affected EGUs. However, this proposed FP rule takes comment on whether or not EPA should does not allow demand

- side energy efficiency to directly count toward the compliance rate of affected EGUs in a rate

- based compliance approach

. However, This RIA assumes that states will use demand

- side energy efficiency measures to reduce demand and thus reduce E GU compliance costs. 9 Because energy efficiency may not creat e E RCs that could be used to cost

- effectively comply , this RIA might understate the incremental compliance costs of the proposed federal plan and model trading rules. The EPA is inviting comment on this approach to the modeling, and EPA will seek to improve analysis supporting the final rule regarding demand

- side energy efficiency and the associated benefits and costs. ”Te chnical Comments 1) Page 1

- 1. Reviewer recommends the following change: “ Th is proposal presents two approaches to a federal plan (or model rule ) for states and other jurisdictions that either choose to adopt the model rule or do not adopt and submit to the EPA in a timely manner an approvable state plan: a rate

- based emission trading program and a mass

- based emission trading program. ” A version of this language is included on page 2

- 2.
2) Page 1

- 2. Reviewer recommends the following change to ensure consistency with the Federal Implementation Plan : “ Upon approval of the state plan by EPA, the federal plan will no longer apply to the affected EGUs covered by the approved state plan, starting at the initiation of the next compliance period with the limitations noted in the federal plan .”
3) Page 1

- 5: Reviewer recommends clarifying whether using the EPA

- administered tracking system enables trading among all participants or if trading would only occur between states with state plans or between states with the federal plan. If trading is allowed between all states using similar plan approaches, text should be edited to reflect this (Page 1

- 5) Suggested text: “The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs, or procure zero

- em issions megawatt hours (MWhs) from eligible resources, in any other state covered by a federal plan or state plan that uses the same approach. In the proposed mass

- based federal

- plan trading program, this would mean that affected EGUs in a state covered by the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by a federal plan or state plan with the same approach . Similarly, in the proposed rate

- based federal

- plan trading program approach, this would mea n that affected EGUs in a state covered by a federal plan could use, as a compliance instrument, an emission rate credit (ERC) issued in any other state covered by a federal plan or state plan with the same approach .”
4) Page 1

- 6: Reviewer recommends editin g the second full paragraph for clarity. When reading for the first time, the reviewer thought that four scenarios had been modeled.

“ Because of this lack of information, for this RIA, the EPA has chosen to examine a scenario where all states of the conti guous U.S. will be regulated under a federal plan. Furthermore, because of the lack of information as to which states will adopt the model rule, the EPA has chosen to examine a scenario where all states of the contiguous U.S. adopt the model trading rule. Additionally Furthermore , we examine two alternative federal plan approach scenarios, which will be described in more detail below, for implementation of federal plans. The first federal plan approach we examine in this RIA assumes all states in the contig uous U.S. are regulated under a rate

- based federal plan. The second federal plan approach we examine assumes all contiguous states are regulated under a mass

- based federal plan. The two approaches that are examined in this RIA are a re

- presentation of the modeling done for the Clean Power Plan Emission Guidelines RIA. ”
5) Page 1

- 9. Reviewer requests that EPA provide a description of the mass

- based assumptions parallel to those provided for the rate

- based assumptions.
6) Page 1

- 32. Reviewer recommends the following change : “Then, based on the allowance price s for the state in which each model plant resides , the EPA adjusted ...” Given that this RIA claimsto be modeling trading across states, there would be a single allowance price, not different allowance pr ices for each state.
7) Page 1

- 33. Reviewer recommends the following change: “The OBA set

- aside may also place upward pressure on the price of natural gas which would reduce the effectiveness of the set

aside at encouraging increased utilization of existin g NGCC EGUs , but the OBA set

- aside would be effective in increasing existing NGCC generation .”
8) Reviewer notes that costs are also over

- estimates for small business owners that operate affected EGUs in some competitive environments, particularly those where a steam EGU is on the margin and the affected EGUs of small businesses are NGCC EGUs inside the margin. Cost are really only increased for small business owners in the case of steam EGUs that are inframarginal when NGCC EGUs are on the margin. Reviewer recommends adding, for example, the following: " Similarly, entities owning NGCC EGUs operating i n competitive markets are likely to be able to recover compliance costs if steam EGUs are setting the marginal price ."

9) P age 2- 23 : "However, EPA believes the design of the federal plan as a flexible trading program alleviates these concerns and therefore a reliability mechanism is not needed." Comment: Reviewer recommends further explaining why emergency events that would otherwise trigger the reliability safety valve would not do so under a federal plan (noting that this depends on how the final CPP is cl arified on this issue). Further, reviewer recommends considering (and explaining) why, given the limited circumstances under which a reliability safety valve would be exercised, the opportunity to do so is foreclosed with compliance under a federal plan, e specially given that the federal plan structure (trading) cannot guarantee that a reliability safety valve

- qualifying emergency event would not occur.

Typographical Comments 1) Reviewer recommends using the word “modeled” throughout text of this document and other related documents, not “modelled.”

2) Page 1

- 1. Reviewer recommends the following change: “ The federal plan is an important measure to ensure that congressionally mandated emission standards under the authority of the congressionally mandated CAA a re implemented. ” This change could also be made on page 2- 2.
3) Page 1

- 5: “Similarly, an affected EGU in a state covered by the rate

- based trading federal plan must use ERC Ss for compliance (not allowances).”

4) Page 1

- 8, Footnote 7: “ Detailed documentation for IPM v.5.1 IPM v.5.1 5 is available at: available at: http://www.epa.gov/powersectormodeling .”
5) Page 1

- 20. Reviewer recommends checking the math on the SC

- CO2 presented. The 2020 costs on the EPA’s webpage ( http://www.epa.gov/climatechange/EPAactivities/economics/scc.html )are re ported in 2014$ in metric tons: 13, 47, 69, and 140. Using 0.907 metric ton per short ton and 0.954 2011$/2014$, reviewer calculates the four prices: 11, 41, 60, and 121. Reviewer also recommends referencing NIPA Table 1.1.9 Implicit Price Deflators and Gross Domestic Product instead of the outdated table currently referenced in footnote 20.

6) Page 1

- 33: “ We do not quantify the effect of these changes in generation on SO2 and NOx emissions, although on net additional co

- benefits would be expected .”

7) Page 2

- 2. Reviewer notes that the CPP EG will be out by the time this is published: “The final Clean Power Plan Emission Guidelines, released this summer , are related to but separate from the proposed federal plan.”
8) Page 2

- 19. Reviewer believes this change should be made five times throughout the paragraph:

“ Advocacy The EPA shares many of the concerns raised...” In the previous paragraph, reviewer recommends changing “The Agency” to “The EPA”
9) Page 2

- 19. Reviewer recommends clarifying what the acronym “SERs” stands for when first used at the top of this page.

### Attachment L.From: Jones, Toni <Jones.Toni@epa.gov> Sent: Wednesday, July 29, 2015 8:05 PM To: Frey, Nathan J. Cc: Culligan, Kevin; Macpherson, Alex; Harvey, Reid Subject: RE: Summary of Interagency Comments Under EO 12866 and 13563 ‐‐ CPP Federal Plan RIA

Thank you, Nathan. I’ll consolidate the two sets of comments we’ve received this evening into one document, and we’ll provide responses promptly. In that regard, please let me know, if possible, if we should expect additional comments tonight or tomorrow.

Kind regards, Toni

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

From: Frey, Nathan J. [mailto:Nathan_J._Frey@omb.eop.gov] Sent: Wednesday, July 29, 2015 8:02 PM To: Culligan, Kevin; Macpherson, Alex; Jones, Toni; Harvey, Reid Subject: Summary of Interagency Comments Under EO 12866 and 13563 ‐‐ CPP Federal Plan RIA

Attached please find a summary of interagency comments under EO 12866 and 13563 on the CPP Federal Plan NPRM RIA.

Thanks and please let me know if you have any questions.

Nathan

### Attachment M.From: Jones, Toni <Jones.Toni@epa.gov> Sent: Wednesday, July 29, 2015 10:36 PM To: Frey, Nathan J. Cc: Culligan, Kevin; Harvey, Reid; Tsirigotis, Peter; Eck, Janet; Cozzie, David Subject: RE: EO 12866 CPP Federal Plan ‐ response to comments

Hi Nathan, As promised, attached please find a redline version of the CPP Federal Plan preamble that reflects changes made to the package since responding to OMB comments on July 27. The revised rule text for the federal plan will be sent along in a separate email tomorrow morning. Please note, we will provide responses to the comments received this evening in a separate email, along with conforming edits to the RIA.

Please let know if you have any questions. Kind regards, Toni

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

### Attachment M.1RI N 2060

- AS47 Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units

Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations

Reliability
1) Page 64. “Therefore, a reliability safety valve for the federal plan is not needed. EPA invites comments on this aspect of the proposed federal plan.” Comment: Reviewer recommends further explaining why emergency events (on Pg. 64) that would otherwise trigger the reliability sa fety valve would not do so under a federal plan, especially with respect to any short

- term modifications to a federal plan that may be needed (noting that this depends on how the final CPP is clarified on this issue). Further, reviewer recommends consider ing (and explaining) why, given the limited circumstances under which a reliability safety valve would be exercised, the opportunity to do so is foreclosed with compliance under a federal plan, especially given that the federal plan structure (trading) can not guarantee that a reliability safety valve

- qualifying emergency event would not occur.
Response: Emergency events can happen regardless of the plan. An inflexible plan that places requirements on individual EGUs may make it difficult to respond to s o me types of emergencies. The f ederal plan is not that type of plan. The kind of remedy that the reliability safety valve offers is not useful in the case of th e federal plan. Rather in the federal plan , EGUs can make of use of ERC or allowances to make u p any additional emissions reductions needed. Further we have propose d two more appropriate ways to address an emergency if in fact those ERCs or allowances are not available.
2) Reviewer recommends that, in the event that the RSV is triggered, all excess e missions should be made up to maintain the stringency of the program on page 1163.

Response: This comment refers to the E missions Guidelines , not to the federal p lan.
EPA indicates that a reliability safety valve is not needed for the federal plan (page 64). This is based on the assumption that affected EGUs can obtain allowances or credits as and when needed. However, the availability of allowances and credits would de pend on the number of states that come under a federal plan or under a state plan that is “presumptively approvable.” Moreover, based on market fluctuations and operational anomalies, credits and allowances may not be available at a critical time when a system is faced with a serious reliability risk, or may be available but only at prohibitive prices. Accordingly, reviewers suggest that EPA set out certain limiting criteria for a safety valve in the federal plan instead of not including a safety valve at a ll. In addition, reviewer suggests that EPA allow the creation of ERCs and allowances before the compliance period begins in 2022. This would result in early emission reductions and environmental benefits and would also allow states and EGUs to create a bank of ERCs or allowances in advance of the compliance period to reduce the possible dependence on a safety valve in the early years of the initial compliance period.

Response: Although EPA believes it is unlikely that allowances or ERC s would not be ava ilable if needed to meet an emergency situation, EPA has requested comment on two o ptions to deal with this problem. One of those options is a very similar option to what the reviewer is recommending in the federal plan.Pa ge 259. Reviewer recommends a dding to the list of completeness criteria discussed on Pg. 259 the 111(d) plan requirement regarding demonstrating that the state has consulted with the planning authority/reliability coordinator.

Respon se: This comment refers to the E missions Guidelines , not to the federal p lan

.
New Source Review
The preamble states in several places (see e.g. pages 80

- 81) that the “situations will be very few” in which NSR applicability is triggered because of undertaking a physical change or change in the method of operation. EPA needs to substantiate this conclusion through an analysis to show why it believes that measure taken under BB 1 and BB2 would trigger NSR only in a “few situations.” This conclusion that NSR would be triggered in only a “few situations” appe ars inconsistent with EPA’s policies on implementation of NSR. While this is an NSR issue, it has bearing on this rulemaking because widespread triggering of NSR for the BSER measures under this rule may have an impact on the ability to meet the compliance schedule under this rule. The preamble cites UARG v. EPA for the proposition that greenhouse gas emissions alone cannot trigger NSR requirements. However, this case would not necessarily help sources avoid NSR with respect to the implementation of the Cle an Power Plan because BSER measures under BB1 and BB2 could result in an increase in emissions of GHG and criteria pollutants (SO2, NOx, PM, etc.), resulting in those sources being considered “anyway” sources.

Response: The EPA will invite comment on potential scenarios in which affected EGUs, particularly small entities, could be subject to the requirements of the NSR program as a result of taking compliance measures under the federal plan, and any ideas for harmonizing or streamlining the permitting process for such sources that are consistent with judicial precedent. However, the EPA is not proposing any changes to the NSR program in this action, and the agency is not reopening or reconsidering any prior actions or determinations related to NSR in this action. Any comments related solely to the NSR program will be considered out of scope of this proposed rule.

Additional comments received 28 July 2015

• P.150 redline: “... This means that fractional GS

- ERCs are generated for every NGCC MWh and when the interconnect region collectively reaches the level that would be generated if all NGCCs in the region operated at a 75 percent capacity factor there will be an amount of GS

- ERCs that correlates to the emission reductions anticipated under BB2 of the BSER. NGCC units are expected to be incentivized to reach this level of generation in part due to market demand for GS

- ERCs. Thus, GS

- ERCs have the potential to play an important role in the sector meeting compliance obligations . Conversely, th e extent to which cumulative NGCC generation will achieve the 75% capacity factor is ultimately related to relative market forces in future years (e.g., cost of natural gas, cost of RE), and the extent to which NGCC generation may fall short of the 75% lev el represents a potential discount on the benefit of a unit GS

- ERC to actually achieve a zero CO2 emission MWh. For instance, if relative generation prices (with GS

- ERCs and ERCs accounted for) in future years militate toward no or low increase in covered NGCCge neration from the 2012 baseline, then a large fraction of the GS

- ERCs will have been issued without any reduction in CO2 emissions, rising proportionally to fully reaching the unit zero emission MWh benefit as the NGCC generation more closely appro aches 75%. The additional ERCs required by fossil steam EGUs in situations below 75% NGCC generation would be made up by increased conventional ERC generation and purchase, but not the GS

- ERCs already issued.”

Response: EPA suggests the following: “The E PA notes that in this situation that if NGCC generation is below the 2012 baseline that the GS

- ERCs generated do not represent any reductions in emissions.”

• P.161

- 162 Redline: “While having a baseline threshold for EGU generation to credit GS

ERCs against closely resembles the EPA’s BSER determination, it enables a system in which GS

- ERCs can be generated by replacing NGCC generation from one unit with NGCC generation from another. In this situation there is not necessarily any additional NGCC generation as a subcategory, but a shift in which NGCC units are generating electricity and to what degree. This allows for a situation in which GS

- ERCs can be generated without achieving the anticipated reductions in CO2 emissions. An alternative under such an incremental GS

- ERC system would be to require that system operators that manage more than one covered NGCC EGU to reach a cumulative average dispatch rate for all o f their covered NGCC units that is greater than the baseline (2012 or state/regional average), prior to being able to generate GS

- ERCs on any of their NGCC units.”

Response: The language proposed by the reviewer may obligate the system operators and make them subject to the rule. EPA suggests the following replacement language, “The EPA solicits comment on an alternative that in order to generate GS

- ERCs, a system of NGCC units managed by the same system operator must generate greater than the collective b aseline prior to being able to generate GS

- ERCs on any of the encompassed NGCC units.”

1. Endangered Species language. This section militates great care to not create adverse sound bites, and some of the current text could be adjusted to be more explicit, sentence by sentence, on what is being conveyed. Comments inserted (redline 423 onward) and below:

• P. 423

- 424 Redline: “The EPA reached this conclusion after evaluating issues relating to potential improvements from the fuel efficiency rule relevant to b oth temperature and oceanographic pH outputs. The EPA's ultimate finding was that “any potential for a specific impact [of the specific Federal action] on listed species in their habitats associated with these very small changes in average global temperatu re and ocean pH is too remote to trigger the threshold for ESA section 7(a)(2).” Id. The EPA believes the same conclusion applies to the present rule. See, e.g., Ground Zero Center for Non

Violent Action v. U.S. Dept. of Navy, 383 F. 3d 1082, 1091

- 92 (9th Cir. 2004). EPA similarly determines that the likelihood of jeopardy to a species from the CPP is extremely remote , and ESA does not require consultation). The EPA’s proposed conclusion is entirely consistent with DOI’s analysis regarding ESA requirements in the context of federal actions involving GHG emissions.”Re spon se: Edits have been made consistent with this suggestion, however, we refer to the “proposed action” which is the federal plan, rather than the CPP in this instance.

General Comments received July 29 2015 (page numbers refer to the RLSO version)

1. Reviewer recommends proposing (rather than taking comment on) that all non

- BSER technologies and measures that are acceptable to generate ERCs in the emission guidelines (EGs) be proposed as approved to generate ERCs under a rate

- based federal plan. Reviewer notes that renewable and nuclear are included as defaults but energy efficiency is missing.

Response: The feasibility of federal implementation is a key concern, and thus the EPA is prop osing to only include non

- distributed RE and new or up

- rated generation due to requirements and rigor needed to ensure the quality of data and emission reductions achieved through the other described ERC generating resources.

2. Reviewer recommends that the allowances that are set

- aside in the mass

- based approach for low - or zero

- emission activities be distributed using a technology

- neutral methodology and not reserved exclusively for RE. For example, on RLSO page 163, reviewer recommends that new nuclear uni ts and capacity uprates at existing nuclear units should be eligible to receive set

- aside allowances to provide equal treatment under the rate

- based and mass

- based plans. Reviewer also recommends renaming this group of allowances as the Clean Energy Set

- As ide to avoid confusion with the set

- aside for existing NGCC.

Response: T he EPA disagrees with the approach for recognizing all emission reductions measures eligible under the final emission guidelines for set

- aside eligibility . In the context of the fede ral plan, the feasibility of federal implementation is a key concern, and thus we propose technologies that are widely demonstrated and provide the simplest path for EM&V implementation under a federal plan. We seek comment on how to implement the EM&V req uirements for various technologies proposed in the federal plan, and how that could be implemented in the context of the final rule. We also seek comment on a process by which technologies can be determined to be eligible.

Incremental nuclear power and nuclear up

- rates are not recognized under the set

- aside because they do not face the same economic circumstances as RE capacity, and are not effectively addressed by the incentive provided by a set

- aside. The EPA notes that if states under a federal plan wish to have the ability to recognize other eligible technologies, including nuclear, as part of a set

- aside, they have the opportunity to submit state allowance distribution methodology as part of a partial state plan , and they can determine the allocation method, including set

- aside structure, under the federal plan. The states also have the opportunity to submit an approvable state plan that has its own set

- aside structure.

Technical Comments

Page 43 RLSO. Reviewer requests clarifying the meaning and intent of this: “all of the language and provisions in the regulatory text relevant to these other ERC resources is relevant only to the proposed model trading rule and not to the federal plan as such. “Re sponse: This l anguage is noting that all the options for ERC generation are available for states that adopt the model rule , but ERC generating resources are limited in states subject to the federal plan. The sentence has been given a qualifier for clarity: “Thus, all of the language and provisions in the regulatory text relevant to these other ERC resources is relevant only to the proposed model trading rule and not to the federal plan as such ( i.e. , those ERC resources discussed in section VI.C.3 of this preamble are applicable to the model rule and only metered RE and applicable nuclear are applicable to the federal plan).”

Page 139 RLSO. Reviewer suggests clarifying changing “certain nuclear” to “new and uprated nuclear”.

Response: The text has been edited to say “ nuclear generation (from new capacity and incremental capacity uprates)”

p.144 – “(3) new nuclear units and capacity uprates at existing nuclear units, and RE providers that develop metered projects and programs whose results, in MWh, are quantified and verified according to EM&V criteria as described below in section &&& IV.D.6 of this preamble.” Reviewer supports the revised language that includes reference to “metered” RE projects and programs. However, given that the requirement now exists for the pr ojects to be metered, reviewer recommends allowing all renewable energy technologies – including offshore wind and distributed solar – to generate ERCs, provided they are metered and adhere to EM&V criteria. While all renewable energy technologies may not be “expected to be able to deploy on an economic basis during the compliance period” (p.164), if they aren’t economic, states are very unlikely to deploy them. This should result in no additional costs or administrative challenges.

Response: The EPA di sagrees with the comment. We are proposing the inclusion of certain types of technologies that can be metered , are widely demonstrated, and are expected to be able to deploy on an economic basis during the compliance period. We are requesting comment on th e inclusion of other RE technologies and whether they meet these criteria.
Page 148 RLSO. Reviewer suggests rewording the following sentence: “This means that most NGCC units are being called to increase annual generation from 2012 baseline emissions.” R eviewer is concerned this could be seen as a requirement for the implementation of part of BSER, which language above reiterates is not the case. Suggested rewording: “This level of generation, for most NGCC units, would represent an increase in annual generation from a 2012 baseline.”

Response: Suggested language has been incorporated
Page 149 RLSO. Reviewer recommends clarifying that (addition in red) “All affected NGCC generation will be credited, with ERCs, by a factor that represents the described emission reductions from incremental generation; ERCs credited in this way will be designated as Gas Shift ERCs (GS

- ERCs) for clarity.” Reviewer also notes that this seems to conflict with the language describing only marginal generation beyond a certain average capacity factor will be credited, as described on pages 316

- 317.
Response: The term “affected” has been incorporated. The discussion of the average capacity factor pertains to the proposed mass based trading program while ERCs pertain to the proposed rate

- based trading program.Pa ge 227

- 244 RLSO. Reviewer notes that pages 227

- 244 appear to be language from earlier versions of draft EM&V guidance documents, and suggests clarifying if the inclusion of the language in this document means that a separate guidance document on EM&V is no longer intended to be provided, or if this is meant to complement the separate guidance.

Response: There will be a separate guidance document pertaining to EM&V released with the model rule and federal plan

. p.229 – “ These categories include project

- based measurement and verification (M&V), deemed savings, and comparison group approaches such as randomized control trials (RCT). Regardless of the approach selected, the EPA is proposing that annual savings values must be quantified using these EM&V methods at specified time intervals (in years) on a recurring basis over the effective useful life of the EE project or measure in order to ensure accurate and reliable savings values. To be considered presumptively approvab le, EE providers must conduct apply the above methods at a minimum of four year intervals for building energy codes and product standards; every one, two or three years for publicly or rate

- payer funded EE programs, depending on the program type, magnitude of savings, and experience with the program; and annually for large individual commercial and industrial projects, unless the EE provider can credibly demonstrate why this is not possible and how the accuracy and reliability of savings values will be main tained.”

Reviewer finds the inclusion of deemed savings in this paragraph confusing. Reviewer believes that EPA means that states should update their deemed savings estimates every three years, per the language on subsequent pages, which makes sense. In this parag raph, however, it appears that EPA would require states to repeatedly calculate savings from the same project using deemed savings.

Response: The EPA’s final emission guidelines require that all EE providers demonstrate that they will quantify and verif y MWh savings using best

- practice EM&V approaches. One way to make this demonstration is to use the presumptively approvable EM&V approaches in the proposed Federal Plan, which specify that deemed savings values must be updated at least every three years (in addition to other quality control provisions around the use of deemed values). A separate presumptively approvable EM&V provision is that all MWh savings values must be quantified using allowable EM&V methods, which may include updated deemed savings values, at specified time intervals based on the program or project under consideration.

Page 319

- 320 RLSO: Reviewer notes the references to 111(b) seems to be outdated and should updated: “ Specifically, an additional MWh of eligible generation would earn the affected EGU allowances equal to the level of emissions permitted per MWh of net generation under the 111(b) new source standard, which is 1,030 lb/MWh

- net.”

Response: The EPA updated the references.

Typographical Comments

p. 18. Given EPA’s intent to finalize a single approach, commenter recommends the following change should delete “if we opt to finalize a single approach” at the end of that paragraph. “We invite comment on which approach, i.e., either mass

- based or rate

- based trading, should be selected if when

we opt to finalize a single approach.”Res ponse: The edit has been made.

Page 22. Reviewer requests clarification on how “vulnerable” communities are defined.

R esponse : The agency gave extensive consideration to impacts on vulnerable communities, particularly low

- income communities, communities of color, and indigenous communities. The EPA defines vulnerable communities to include low

- income communities, communities of color, and indigenous communities. At this time no additional edits will be made.

Page 68. Reviewer notes that language is missing here: “The final guidelines specify the concern of leakage...”.

Response: The edit has been made.

Page 85. Reviewer requests clarification on how the federal plan can propose a two year compliance period after 2030 when this is finalized in the EG.

Response: The EPA is taking comment on the length of the affected EGU compliance periods for the emission standards. In the Final EG , the EPA allows states the flexibility to have compliance periods that are shorter than the interim step and final reporting periods.
Page 90. "The EPA will work with the ISO/RTO Council to convene a face

- to

- face meeting for planning authorit ies with the EPA during the comment period to discuss any concerns or other feedback on the federal plan from those entities." Comment: Reviewer still recommends expanding use of the ISO/RTO Council to reliability coordinators and planning authorities beca use the IRC does not encompass all areas of the country. The EPA response refers to text on Pg. 88 in a different context.

Response: Language has been changed. The intention was to say that the IRC could help us organize such a meeting, not that it woul d be limited to their participation.

Page 144. Reviewer recommends clarifying that “RE providers that develop metered projects and programs...” become the fourth category and not be included in the third category to simplify composition.

Response: Text has been edited.

Page 148

- 149. Reviewer recommends noting that NGCC will receive “a partial credit” or otherwise clarifying that NGCC will not receive an entire emission reduction credit for every hour of electricity it produces.

Response: Text has been edited

Page 158. Reviewer believes that the steam generating unit emissions standard should be 1305 lbs CO2/MWh, as shown on page 142 (Table 4). That change would also change some of the equations on the page.Res ponse: The example in question states th at this calculation is occurring in the second interim compliance period. The table of standards shows this to be 1,500 as used in the equation.

Page 163. Reviewer notes that the following sentence is incomplete and requests clarification about what is being proposed: “Further, the EPA is proposing that new nuclear units and capacity uprates at existing nuclear units that meet the requirements for eligible resources in the emission guidelines (as specified in the final emission guidelines Sec.VIII.K.) and all other requirements related to ERC issuance in the emission guidelines and this proposal.”

Response: Sentence has been modified to end with “... proposal are eligible to generate ERCs .”

p.221

– Reviewer notes a possible typo “ The EPA requests comment o n all metering, measurement, verification, and other requirements included in this subsection, including the appropriateness of their use for each type of renewable nuclear energy resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Clean Power Plan compliance.”

Response: Text has been changed.

p. 222 - "Prorated MWh = (1 - incremental CHP emission rate/applicable affected EGU emission limit rate) * CHP MWh output, where the ratio is limited to values between 0 and 1." Reviewer believes the word “limit” is a mistake in the sentence above, and that it should be struck to be more consistent with the sentence later on that same page: "The incremental rate would be relative to the applicab le CO2 emission rate for affected EGUs in the state and would be limited to values between 0 and 1."
Response: The term “limit” was in the correct place (changed to “standard”), but the sentence below should have had the term as well. “...to the applicab le CO2 emission rate standard for affected EGUs...”
Page 398. Reviewer recommends considering whether the list of completeness criteria discussed on Pg. 398 should include the 111(d) plan requirement regarding demonstrating that the state has consulted with the planning authority/reliability coordinator. (Also applies to the reg text, Pg.3.)

Response: The requirement that the state demonstrate that it has consulted with planning authorities is one of the approvability criteria for a state plan. Here in sec tion VII. A. of the Federal Plan . The EPA is also proposing a number of changes to the framework 111(d) regulations of Subpart B of 40 CFR Part 60. This updates completeness criteria for all regulations under section 111(2) of the Clean Air Act not just the CPP , and so the EPA is not making the change suggested above.
Page 90. Reviewer recommends further explaining why emergency events (on Pg. 90) that would otherwise trigger the reliability safety valve (emissions would not be counted against a state plan) would not do so under a federal plan, especially with respect to any short

- term modifications to a federal plan that may be needed (noting that this depends on how the final CPP is clarified on this issue).

Response: This comment is responde d to above.

### Attachment M.2

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment M.2.

### Attachment N.From: Szabo, Aaron <Aaron_L_Szabo@omb.eop.gov> Sent: Thursday, July 30, 2015 6:30 PM To: Jones, Toni; Culligan, Kevin; Harvey, Reid Cc: Frey, Nathan J.; Grossman, Andrea Subject: TSDs for Federal Plan

Toni,

Based on interagency comments, reviewers have requested the TSDs listed below. If EPA is no longer planning to develop the TSD, the reference should be removed from the Federal Plan preamble. 1. Affected EGU TSD 2. GS

‐ ERC TSD 3. Allowance Allocation Proposed Rule TSD 4. EGs Baseline TSD

Thank you and let me know if you have any questions.

Aaron L. Szabo Policy Analyst Office of Management and Budget 202

‐ 395

‐ 3621 Aaron_L_Szabo@omb.eop.gov

### Attachment O.From: Jones, Toni <Jones.Toni@epa.gov> Sent: Thursday, July 30, 2015 7:19 PM To: Frey, Nathan J. Cc: Culligan, Kevin; Harvey, Reid; Tsirigotis, Peter; Eck, Janet Subject: RE: EO 12866 CPP Federal Plan and RIA ‐ response to comments

Hi Nathan, Attached please find responses to the comments received yesterday regarding the RIA, along with responses to several outstanding comments received earlier in the week. Additionally, attached please find a redline of the rule text that reflects edits made since the last version submitted to OMB for review.

Also note, Kevin is working to send a small section on the retirement approach for your review. As always, let me know if there are any questions. Kind regards, Toni

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

### Attachment O.1Comments on Chapter 1 and 2 , received 7/29/15

General Comments Reviewer notes that RIA fails to model trading for a proposal which is expressly designed to enable broad trading. As an alternative, reviewer recommends EPA clarify how the approaches modeled in the FP RIA differ from what is allowed under the proposed FP and quantitatively explain how this would affect the results. Reviewer recommends that the FP RIA include explana tions for the major differences between the FP and the model runs being used in the FP RIA : 1. Trading 2. Output based set

- aside 3. Rate goal type 4. Energy Efficiency Below are suggested line edits to address these points. Reviewer also recommends taking comment on what additional analysis besides these four points would strengthen the modeling representation of the federal plan in the final.

1. Trading - The CPP EG RIA assumed “ that sources within each state comply with the applicable state goals without exchanging a compliance instrument (ERC or allowance) with sources in any other state.” (Page 3

- 11 in the RLSO of the CPP EG RIA). The FP RIA states that trading is allowed, which should lower the compliance cost and the cost of allowances/ERCs. In the mass

- based sc enario , this would be expected to affect the time profile of emissions of CO 2 and other priority pollutants because lower

- cost allowances create a lower incentive to bank compliance instruments for the future. In the rate

based scenario, trading w ould be expected to change the overall level of emissions. Suggested additional text : Page 3

- 11 RLSO: After, “Similarly, an affected EGU in a state covered by the rate

- based federal plan must use ERCS for compliance (not allowances)”, add the following p aragraph: Response: EPA notes that in this analysis EGUs within each state comply with the applicable state goals without exchanging a compliance instrument with EGUs in other states. However, under the proposed FP if all states had a federal plan and the same type of goal (as they do in this analysis), then trading among EGUs in different states would be allowed and would be expected to lower compliance costs. The EPA is inviting comment on this approach to the modeling and will seek to improve analysis supporting the final rule .”

2. Output based set

- aside – Reviewer recommends moving forward (or reiterating) the first two paragraphs of the discussion on output based allocation (OBA) ( to p. 1

- 32), in order to present it before the results so readers have a clear picture of what was modeled. Reviewer also recommends the following edits to the second paragraph. Suggested edit: “While the mass

- based scenario analyzed for this proposed rule included a representation of the set

- aside for new renewable gene ration, it did not quantify the Commented [A1]: EPA response: we adopted the suggested language
Commented [A2]: EPA response: we moved the suggested paragraphs and we revised the text to state we are taking comment on our approach to approximate the impact of OBA on the results of the analysis.effects of the OBA as proposed in this rulemaking. Therefore, in section X.X the EPA conducted additional analysis to approximate the potential emissions reductions if the OBA set

- aside were included in that mass

- based scenario. The EPA is inviting comment on OBA. If appropriate, the EPA is inviting comment on its approach to model ing OBA and will further explore OBA as a means to mitigate leakage in the analysis supporting the final federal plan and model trading rules.”

3. Ra te goal type – On page 1

- 9 to 1

- 10 EPA states that the CPP EG RIA (and therefore the FP RIA) apply the state blended rate

- based goal, but that the FP require the technology

specific rate goals. Reviewer recommends including a discussion of the implicati ons of this difference. Suggested edit: “Furthermore, the rate

- based illustrative plan in the Final Clean Power Plan Emission Guidelines RIA assumes that the plan applies a state’s blended rate

- based goal as a requirement for affected EGUs in that state to achieve. Alternatively , the proposed federal plan specifically establishes an emissions rate performance standard that is applied to affected steam

- fired EGUs and an emission rate performance standard that is applied to affected natural gas

- fired combined cycle EGUs. Response: The technology

- specific rate goal will alter the incentives among affected sources and could lead to different generation mixes and emissions. The EPA is inviting co mment on its approach to modeling the FP and will further explore technology

- specific standards to improve analysis supporting the final rule.”

4. Energy Efficiency

– Reviewer recommends updating the text on 1

- 9 for clarity, as EE is currently not included in the Federal Plan. Reviewer notes that in earlier comments, reviewer suggested that EE should be included in the Federal Plan. Suggested edit: “In the rate

- based approach modeled in the RIA for the final Clean Power Plan Emission Guidelin es, avoided generation from demand

- side energy efficiency is counted towards meeting the emission performance rates at affected EGUs. However, this proposed FP rule takes comment on whether or not EPA should does not allow demand

- side energy efficiency to directly count toward the compliance rate of affected EGUs in a rate

- based compliance approach. However, This RIA assumes that states will use demand

- side energy efficiency measures to reduce demand and thus reduce EGU compliance costs. 9 Because energy eff iciency may not creat e E RCs that could be used to cost

- effectively comply , this RIA might understate the incremental compliance costs of the proposed federal plan and model trading rules. The EPA is inviting comment on this approach to the modeling, and EPA will seek to improve analysis supporting the final rule regarding demand

- side energy efficiency and the associated benefits and costs. ” Commented [A3]: EPA response: we added language along the lines of the reviewer’ suggestions.

Commented [A4]: EPA respo nse: we adopted the majority of these suggesti ons.Technical Comments 1) Page 1

- 1. Reviewer recommends the following change: “ This proposal presents two approaches to a federal plan (or model rule) for states and other jurisdictions that either choose to adopt the model rule or do not adopt and submit to the EPA in a timely manner an approvable state plan: a rate

- based emission trading program and a mass

based emission trading program.” A version of this language is included on page 2

- 2.
2) Page 1

- 2. Reviewer recommends the following change to ensure consistency with the Federal Implementation Plan : “ Upon approval of the state plan by EPA, the federal plan will no longer apply to the affected EGUs covered by the approved state plan, starting at the initiation of the next compliance period with the limitations noted in the federal plan .”

3) Page 1

- 5: Revi ewer recommends clarifying whether using the EPA

- administered tracking system enables trading among all participants or if trading would only occur between states with state plans or between states with the federal plan. If trading is allowed between al l states using similar plan approaches, text should be edited to reflect this (Page 1

- 5) Suggested text: “The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs, or procure zero

- emi ssions megawatt hours (MWhs) from eligible resources, in any other state covered by a federal plan or state plan that uses the same approach. In the proposed mass

- based federal

- plan trading program, this would mean that affected EGUs in a state covered by the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by a federal plan or state plan with the same approach . Similarly, in the proposed rate

- based federal

- plan trading program approach, this would mean that affected EGUs in a state covered by a federal plan could use, as a compliance instrument, an emission rate credit (ERC) issued in any other state covered by a federal plan or state plan with the same approach .”

4) Page 1 -6 : Reviewer recommends editing the second full paragraph for clarity. When reading for the first time, the reviewer thought that four scenarios had been modeled. “Because of this lack of information, for this RIA, the EPA has chosen to examine a scenario where all states of the contiguous U.S. will be regulated under a federal plan. Furthermore, because of the lack of information as to which states will adopt the model rule, the EPA has chosen to examine a scenario where all states of the contiguous U.S. adopt the model trading rule. Additionally Furthermore , we examine two alternative federal plan approach scenarios, which will be described in more detail below, for implementation of federal plans. The first federal plan approach we examine in this RIA assumes all states in the contiguous U.S. are regulated under a rate

- based federal plan. The second federal plan approach we examine assumes all contiguous states are regulated under a mass

- based federal plan. The two approaches that are examined in Commented [A5]: EPA response: adopted edit

Commented [A6]: EPA response: adopted edit

Commented [A7]: EPA Response : The EPA has made edits to the preamble. Instead of the suggested terms of “or state plans” and “state plan with the same approach” the EPA has incorporated the term “...or state meeting the conditions for linkage to the federal plan.”

Commented [A8]: EPA response: we revised the paragraph along the lines of the reviewers suggestions to prevent misunderstanding.this RIA are a re

- presentation of the modeling done for the Clean Power Plan Emission Guidelines RIA. ”

5) Page 1

- 9. Reviewer requests that EPA provide a description of the mass

- based assumptions parallel to those provided for the rate

- based assumptions.
6) Page 1

- 32. Reviewer recommends t he following change: “Then, based on the allowance price s for the state in which each model plant resides , the EPA adjusted ...” Given that this RIA claims to be modeling trading across states, there would be a single allowance price, not different allowance prices for each state.

7) Page 1

- 33 . Reviewer recommends the following change: “The OBA set

- aside may also place upwar d pressure on the price of natural gas which would reduce the effectiveness of the set

- aside at encouraging increased utilization of existing NGCC EGUs , but the OBA set

- aside would be effective in increasing existing NGCC generation .”

8) Reviewer notes that costs are also over

- estimates for small business owners that operate affected EGUs in some competitive environments, particularly those where a steam EGU is on the margin and the affected EGUs of small businesses are NGCC EGUs inside the margin. Cost are really only increased for small business owners in the case of steam EGUs that are inframarginal when NGCC EGUs are on the margin. Reviewer recommends adding, for example, the following: " Similarly, entities owning NGCC EGUs operating in competitive m arkets are likely to be able to recover compliance costs if steam EGUs are setting the marginal price ."

9) P age 2- 23: "However, EPA believes the design of the federal plan as a flexible trading program alleviates these concerns and therefore a reliability mechanism is not needed." Comment: Reviewer recommends further explaining why emergency events that would otherwise trigger the reliability safety valve would not do so under a federal plan (noting that this depends on how the final CPP is clarified on this issue). Further, reviewe r recommends considering (and explaining) why, given the limited circumstances under which a reliability safety valve would be exercised, the opportunity to do so is foreclosed with compliance under a federal plan, especially given that the federal plan st ructure (trading) cannot guarantee that a reliability safety valve

- qualifying emergency event would not occur.

Typographical Comments 1) Reviewer recommends using the word “modeled” throughout text of this document and other related documents, not “mod elled.” Commented [A9]: EPA response: we added a parallel paragraph for the mass scenario

Commented [A10]: EPA respo nse: It is correct as it was written. As a previous comment in this document noted, we are not modeling trading of allowances across states. Therefore, the shadow values on the state emissions constraints are different. Commented [A11]: EPA response: we adopted the sugges tion

Commented [A12]: EPA response: We added the following to to p2

- 17: “ S imilarly, entities owning NGCC EGUs operating in

c ompetitive markets may be able to recover compliance costs if steam EGUs are setting the marginal price .”

Commented [A13]: EPA response : Emergency events can happen regardless of the plan. An inflexible plan that places requirements on individual EGUs may make it difficult to respond to some types of emergencies. The federal plan is not that type of plan and for that reason the kind of remedy that the reliability

s afety valve offers is not useful or appropriate in the case of the federal plan. Rather in the federal plan, EGUs can make of use of ERCs or allowances to make up any additional emissions reductions needed. Further we have proposed and asked for comment on two more appropriate ways to address an emergency if, unexpectedly, those ERCs or allowances are not available. Those include either use of a set aside of ERCs or allowances for emergencies or a limited period during which an affected EGU or EGUs could be relieved of the requirement to hold ERCs or allowances.

Commented [A14]: EPA response: changed to “modeled”2) Page 1 -1 . Reviewer recommends the following change: “ The federal plan is an important measure to ensure that congressionally mandated emission standards under the authority of the congressionally mandated CAA are implemented.” This change could also be made on page 2

- 2.
3) Page 1

- 5: “Similarly, an affected EGU in a state covered by the rate

- based trading federal plan must use ER C Ss for compliance (not allowances).”

4) Page 1

- 8, Footnote 7: “ Detailed documentation for IPM v.5.1 IPM v.5.1 5 is available at: available at: http://www.epa.gov/powersectormodeling .”

5) Page 1

- 20. Reviewer recommends checking the math on the SC

- CO2 presented. The 2020 costs on the EPA’s webpage ( http://www.epa.gov/climatechange/EPAactivities/economics/scc.html ) are reported in 2014$ in metric tons: 13, 47, 69, and 140. Using 0.907 metric ton per short ton and 0.954 2011$/2014$, reviewer calculates the four prices: 11, 41, 60, and 121. Reviewer also recommends referencing NIPA Table 1.1.9 Implicit Price Deflators and Gross Domestic Product instead of the outdated table currently referenced in footnote 20

. 6) Page 1

- 33: “We do not quantify the effect of these changes in generation on SO2 and NOx emissions, although on net additional co

- benefits would be expected.”

7) Page 2

- 2. Reviewer notes that the CPP EG will be out by the time this is published: “The fina l Clean Power Plan Emission Guidelines, released this summer , are related to but separate from the proposed federal plan.”

8) Page 2

- 19. Reviewer believes this change should be made five times throughout the paragraph: “ Advocacy The EPA shares many of the concerns raised...” In the previous paragraph, reviewer recommends changing “The Agency” to “The EPA”

9) Page 2

- 19. Reviewer recommends clarifying what the acronym “ SER s” stands for when first used at the top of this page.

Comment s on RIA Chapter 2, received 7/29/15

• In the Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units, EPA adopts the SBREFA panel report recommendations in lieu of preparing its own consideration of alternatives. Reviewer notes that EPA should have prepared its own alternatives sections, building on the panel recommendations, in corporating the information EPA did not share with the panel during its deliberations, including the analysis of net compliance costs. Reviewer is concerned that, given the additional Commented [A15]: EPA response: EPA thinks sentence correct

as

- is.

Commented [A16]: EPA response: thanks

Commented [A17]: EPA response: sorry but not sure what the suggested change is

Commented [A18]: EPA response: Thank you, EPA’s math is correct. Reviewer gets slightly different numbers because s/he is starting with the rounded numbers (2 sig digits) from the website. EPA starts with 2007$/metric ton from the TSD (all to nearest dollar, which is 2

- 3 sig digits, depending o n the estimate), adjusts 2011$/2007$ (1.061374), adjusts to short using 0.90718474, which gives 11.55435, 40.44023, 59.69748, and 118.4321. Round those to 2 significant digits gives 12, 40, 60, 120. Added further clarification to the footnote and updated the link for the GDP deflator. Commented [A19]: EPA response: thanks. Commented [A20]: EPA response: thanks. We deleted the reference to the timing of the EGs as they are discussed earlier

Commented [A21]: EPA Response: The text is correct as written.
Commented [A22]: EPA response: the acronym will be defined

Commented [A23]: EPA response: the federal plan and model trading rule proposal includes two complete regulatory alternatives (both a rate based and mass

- based alternative) as well as a number of variations on those alternatives. We also are taking comments on numerous issues in the proposal.analysis performed by EPA, how it could demonstrate which of the recomm endations would “accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities.“

• EPA projects that 1⁄2 of the small entities remaining in the market in 2030 will experi ence costs of over 3% of generation revenue. This would indicate significant hardship. Reviewer recommends including an explanation regarding what regulatory alternatives considered by EPA are included in this analysis, which were rejected, and how the alternatives affected these results.

• EPA projects that 1/3 of all small utilities will be closed without this rule by 2030. Reviewer recommends providing additional information to substantiate this result.

• Reviewer recommends including a discussion of how the costs of credits are incorporated into the analysis and describing how the costs/revenues from credit trading are included in the cost impacts.

• Reviewer recommends that EPA provide a discussion of wow sensitive the analysis of the results are to the number of states that participate in a Federal plan. Reviewer notes that a sizeable portion of States implement their own plans without trading to FIPs and recommends that EPA include a discussion in the analysis of the impacts on these costs.

• EPA has discussed the role of regulated markets in cost

- recovery in past rulemakings. Reviewer recommends that EPA include a discussion of how this concept has been discussed in prior rulemakings.

Additional comments on the CPP Federal Plan, included r esponses to the RLSO comment bubbles received 7/30/15
Page 69 RLSO. Reviewer supports language clarifying restriction on trading to only between other states with subcategory rates, and suggests referencing that this is consistent with the final EGs rules on rate

- based trading, as described on pages 1526

- 27 (of 7/25 redlined version of the preamble).

Page 92 RLSO . Reviewer requests clarifying why a “similar mechanism [to an allowance set

aside] in a rate

- based approach to address reliability issues in the federal plan” is not needed.

Page 168 RLSO. Reviewer recommends the following language (as highlighted) to allow for the possibility that EPA may in the future find that some biogenic feedstock is carbon neutral: “The revised Framework, and the EPA’s Science Advisory Board (SAB) peer review of the 2011 Draft Framework, finds that it is not scientifically valid to assume that all biogenic feedstocks are “carbon neutral” and that the net biogenic CO2 atmospheric cont ribution of different Commented [A24]: EPA response : EPA provided an analysis of both rate - and mass

- based alternatives. We also added language in the RIA highlighting that one of the primary drivers of the cost impact s is the reduced revenue due to decreased electricity sales rela ted to implementation of demand

- sid e measures. EPA takes comment on: 1) whether it is likely that small entities would consider demand

- side strategies as they responded to a federal plan, 2) the appropriate ness of considering the demand

- side strategies in the analysis, and 3) if demand

- side energy efficiency measures are considered in the final analysis, whether it is appropriate to consider them as a cost for a municipality or city

owned utility, as this re duced revenue will translate to direct cost savings for members of the community served by the affected units.

Commented [A25]: EPA response: we provided clearer pointer to IPM documentation so readers can obtain more information

Commented [A26]: EPA response : we added language in t he limitation/important concerns section of Chapter 2: EPA has not factored in consideration of allowances that would be distributed to affected entities nor revenue that could be generated from the sale of ERCs in its analysis. EPA takes comment on how these factors should be co nsidered in the final analysis.

Commented [A27]: EPA Response: These results assume the participation of all states in a Federal Plan, which is estimated by this RIA. To the extent that any number of states develop state implementation plans, a nd thus do not adopt the Federal Plan, these results might differ. Without knowing the particular implementation plan for each state, the EPA believes the estimates provided in this RIA are a reasonable approximation.

Commented [A28]: EPA response: The discussion of this here is similar to other recent RIAs. We added a footnote to the end of section 2.3.4 pointing to MATS.

Commented [A29]: EPA Response: Response: Language has been clarified.

Commented [A30]: EPA Response: Emergency events can happen regardless of the plan. An inflexible plan that places requirements on individual EGUs may make it difficult to respond to some types of emergencies. The federal plan is not that type of plan and for that reason the kind of remedy that the reliability safety valve offers is not useful or appropriate i n the case of the federal plan. Rather in the federal plan, EGUs can make of use of ERCs or allowances to make up any additional emissions reductions needed. Further we have proposed and asked for comment on two more appropriate ways to address an emerge ncy if, unexpectedly, those ERCs or allowances are not available. Those include either use of a set aside of ERCs or allowances for emergencies or a limited period during which an affected EGU or EGUs could be relieved of the requirement to hold ERCs or a llowances.

Commented [A31]: EPA Response: Response: This language is being revised.biogenic feedstocks generally depends on various factors related to feedstock characteristics, production, processing and combustion practices, and, in some cases, what would happen to that feedstock and the related biogenic emissions if not used for energy production. A given feedstock may be found to be carbon neutral after appropriate EPA assessment .”

Allocations to units that retire . They interagency reviewers asked a question but didn’t request an edit, this is on p. 315. The question is “We would like to understand better the value of an allocation structure that creates different retirement incentives based on the year of retireme nt.”

Monitoring for environmental integrity. The interagency reviewers asked a question but didn’t request an edit, this is on p. 343. The question is “A section was deleted here on measures that could monitor the environmental integrity of a federal plan. Can EPA say why this was removed?”

“The Incremental Generation Factor is calculated by taking the number of MWh beyond the 2012 baseline needed for the corresponding region to reach 75 percent NGCC generation capacity and dividing it by the the MWh that is 75 percent NGCC generation capacity, giving a factor. This factor can be summarized by the following expression:” Shouldn’t this be the average CF reached by NGCC over the compliance period in the region where the steam rate comes from (since ther e is a ramp in NGCC CF)?

“The EPA also requests comment on whether a distinct type of ERC that comes with the proposed restrictions (i.e., GS

- ERCs) is necessary to maintain the integrity of the rate

- based trading proposal. “ Commented [A32]: EPA Response: The proposed approach reflects the multi

- year compliance periods and that we believe it’s important not to “take back” allocations once they are recorded as that would in crease complexity and uncertainty. The proposed approach results in some difference in the length of time during which a retired unit would still get allocations but in any case it’s only a few years. The preamble requests comment on other approaches.

Commented [A33]: EP A Response: It was removed because similar language was added to the final EGs, specifying an analysis that EPA will do for all states. Language on an emission performance analysis was included in the final EGs in response to an OMB comment. The language i s in section VIII.J.2.b in the EGs.

Commented [A34]: EPA Response: This is inconsistent with the calculation methodology proposed; note EPA is soliciting comments on the topic.

Commented [A35]: EPA Response: clarification requested

### Attachment O.2

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment O.2.

### Attachment P.From: Szabo, Aaron <Aaron_L_Szabo@omb.eop.gov> Sent: Friday, July 31, 2015 8:48 AM To: Jones, Toni; Culligan, Kevin; Harvey, Reid Cc: Frey, Nathan J.; Grossman, Andrea Subject: Summary Of Interagency Comments under EO12866 and 13563 ‐‐ Federal Plan

Attached please find a summary of interagency comments under EO 12866 and 13563 on the EPA NPRM entitled, Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations

.
Thank you and please let me know if you have any questions.

Aaron L. Szabo Policy Analyst Office of Management and Budget 202

‐ 395

‐ 3621 Aaron_L_Szabo@omb.eop.gov

### Attachment P.1

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment P.1.

### Attachment Q.From: Culligan, Kevin <Culligan.Kevin@epa.gov> Sent: Friday, July 31, 2015 5:42 PM To: Frey, Nathan J.; Szabo, Aaron Cc: Jones, Toni; Boswell, Colin Subject: Federal plan

Hi Nathan, Attached please find the CPP federal plan preamble and rule text. These versions should be considered final and reflect edits made based on the comments received from OMB. Note, redline strike out versions of both the rule and preamble are also attached, indicated by “RLSO” in the file name. Additionally, please see below for responses to the comments received today: Comment: Please clarify whether this would require emission neutrality EPA Response: The highlighted paragraph has been revised and is reflected below. Also to note the commenter’s point regarding “net neutrality,” this should be addressed in the paragraph below by the

assurances that the overall state goal is met. The EPA is also taking comment on an alternative compliance pathway that could be available to units under a mass based approach. The ways that the approach could be implemented are further outlined in the Alternative Compliance Pathway for Units that Agree to Retire Before a Certain Date TSD. Under this approach, two basic requirements would need to be met. The first is that the unit would have to take a commitment that it would retire on a date on or before December 31, 2029. The second is that the unit would have to demonstrate that it will take an enforceable emission limitation that would assure that the overall state emission goal is met. The TSD explores ways that this approach could be implemented, including ways that the enforceable emission limitation could be calculated and implemented. The EPA requests comment on whether this approach should be available for all units or limited to small units (e.g. less than 100 MW nameplate capacity). EPA is also taking comment on whether and how such an approach could be included under a rate

‐ based approach. Comment: Tracked changes edit regarding “reduce net CO2 emissions” EPA Response: We do not agree with this recommended edit. While the EPA believes it is reasonable to consider generation from these fuels and technologies to be forms of RE generation, the fact that they

can produce stack emissions containing CO2 means that a section 111(d) plan seeking to permit use of such generation to serve as the basis for issuance of ERCs must include appropriate consideration of feedstock characteristics and climate benefits. Specifically, the use of some kinds of biomass has the potential to offer a wide range of environmental benefits, including carbon benefits. However these benefits can only be realized if biomass feedstocks are sourced responsibly and attributes of the carbon cycle related to the biomass feedstock are taken into account.

### Attachment Q.1

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment Q.1.

### Attachment Q.2

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment Q.2.

### Attachment Q.3

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment Q.3.

### Attachment Q.4

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment Q.4.

### Attachment R.From: Culligan, Kevin <Culligan.Kevin@epa.gov> Sent: Friday, July 31, 2015 8:08 PM To: Frey, Nathan J.; Szabo, Aaron Cc: Jones, Toni Subject: Federal PLan RIA material

### Attachment R.1

### EO12866_CPP Federal Plan 2060 AS47 RIA Final_20150731



# Re gu latory Impact Analysis

for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework

Regulations

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ii [ This page intentionally left blank]

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ii i EPA-452/R-15-006 July 2015



## Regulatory Impact Analysis for the for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or

Before January 8, 2014; Model Trading Rule

U.S. Environmental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Research Triangle Park, NC 27711

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

iv C ONTACT INFORMATION

This document has been prepared by staff from the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy of the U.S. Environmental Protection Agency. Questions related to this document should be addressed to Alexander Macpherson, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, North Carolina 27711 (email: macpherson.alex@epa.gov).

ACKNOWLEDGEMENTS
Thank you to the many staff who worked on this document from EPA Offices including the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy. Contributions to this report were also made by ICF International.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

v 

## Tab l e of Contents

L I ST OF 

### T A B LES 

### ........................................................................................................................vii

C HAPTER 

### 1: S UMMARY OF 

### P OTENTIAL 

### R EGULATORY 

### I MPACTS 

### ............................................ 1-1

1.1 Introduction ........................................................................................................... 1-1 1.2 Legal, Scientific and Economic Basis for this Rulemaking ..................................... 1-2 1.2.1 Statutory Requirement ................................................................................ 1-2 1.2.2 Health and Welfare Impacts from Climate Change ...................................... 1-2 1.2.3 Market Failure ............................................................................................ 1-3 1.3 Background for the Proposed Federal plan and model trading rules........................ 1-4 1.3.1 Definition of Affected Sources .................................................................... 1-4 1.3.2 Trade in Compliance Instruments across States ........................................... 1-4 1.3.3 Model Trading Rule .................................................................................... 1-5 1.4 Summary of Regulatory Analysis........................................................................... 1-5 1.4.1 Base Case and Years of Analysis ................................................................ 1-7 1.4.2 Federal Plan Approaches Examined in RIA ................................................ 1-8 1.5 Summary of Regulatory Analysis..........................................................................1-11 1.5.1 Emissions Reductions ................................................................................1-11 1.5.2 Costs ..........................................................................................................1-14 1.5.3 Monetized Climate Benefits and Health Co-benefits ..................................1-16 1.5.4 Net Benefits ...............................................................................................1-27 1.5.5 Economic Impacts......................................................................................1-30 1.5.6 Employment Impacts .................................................................................1-30 1.5.7 Additional Analysis of Output-Based Allocation as a Means of Mitigating Leakage ................................................................................................................1-32 1.5.8 Uncertainty Analysis ..................................................................................1-33 1.6 References ............................................................................................................1-37

C HAPTER 

### 2: S TATUTORY AND 

### E XECUTIVE 

### O RDER 

### R EVIEWS 

### ................................................. 2-1

2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review .................................................. 2-1 2.2 Paperwork Reduction Act ...................................................................................... 2-4 2.3 Initial Regulatory Flexibility Analysis.................................................................... 2-6 2.3.1 Reasons why Action is Being Considered ................................................... 2-6 2.3.2 Statement of Objectives and Legal Basis for Proposed Rules ...................... 2-7 2.3.3 Description and Estimate of Affected Small Entities ................................... 2-8 2.3.4 Compliance Cost Impact Estimates ............................................................2-14 2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements 2-22 2.3.6 Related Federal Rules ................................................................................2-23 2.3.7 Regulatory Flexibility Alternatives ............................................................2-23 2.4 Unfunded Mandates Reform Act (UMRA) ............................................................2-29 2.5 Executive Order 13132: Federalism ......................................................................2-29 2.6 Executive Order 13175: Consultation and Coordination with Indian Tribal Governments ...............................................................................................................2-30

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vi 2. 7 E xecutive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks ..........................................................................................................2-32 2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use .....................................................................................................2-32 2.9 National Technology Transfer and Advancement Act (NTTAA) ...........................2-32 2.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations .....................................................2-32

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vii 

## L I ST OF 

## T ABLES



### T a bl e 1-1. Climate and Air Pollutant Emission Reductions for the Rate-Based Federal Plan Approach 1 

### ...........................................................................................................1-11

Table 1-2. Climate and Air Pollutant Emission Reductions for the Mass-Based Federal Plan Appproach 1 

### .........................................................................................................1-13

Table 1-3. Projected CO 2 

### Emission Reductions, Relative to 2005 ...................................1-14

Table 1-4. Compliance Costs for the Federal Rate-Based and Mass-Based Plan Approaches.................................................................................................................1-15

Table 1-5 Quantified and Unquantified Benefits ............................................................1-17

Table 1-6. Combined Estimates of Climate Benefits and Health Co-Benefits for RateBased Approach (billions of 2011$)* ..........................................................................1-26

Table 1-7. Combined Estimates of Climate Benefits and Health Co-benefits for MassBased Approach (billions of 2011$)* ..........................................................................1-27

Table 1-8. Monetized Benefits, Compliance Costs, and Net Benefits Under the Ratebased Federal Plan Approach (billions of 2011$) a 

### ......................................................1-28

Table 1-9. Monetized Benefits, Compliance Costs, and Net Benefits under the Massbased Federal Plan Approach (billions of 2011$) a 

### ......................................................1-29

Table 1-10. Summary Table of Important Energy Market Impacts (Percent Change from Base Case) ..................................................................................................................1-30

Table 2-1. SBA Size Standards by NAICS Code .............................................................2-12

Table 2-2. Number of Affected Small Entities in the Base Case, and Projected Impact under the Rate-Based Federal Plan Approach in 2030 .................................................2-18

Table 2-3. Projected Impact on Small Entities in 2030 under Rate-Based Federal Plan Approach ....................................................................................................................2-18

Table 2-4. Number of Affected Small Entities in the Base Case, and Projected Impact under the Mass-Based Federal Plan Approach in 2030 ................................................2-19

Table 2-5. Projected Impact on Small Entities in 2030 under Mass-Based Federal Plan Approach ....................................................................................................................2-19

Table 2-6. Incremental Costs in 2030 under the Rate-based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .........2-20

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vii i Table 2-7. Incremental Costs in 2030 under the Mass-based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .........2-21

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-1 

## C H A PTER 

## 1: S UMMARY OF 

## P OTENTIAL 

## R EGULATORY 

## I MPACTS



### 1.1 Introduction

T hi s Regulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of for the “Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations” (herein also referred to as “proposed federal plan and model trading rules” 1 

### ). In this action, the Environmental Protection Agency (EPA) is proposing a federal plan to implement the emission guidelines for existing fossil fuel-fired EGUs under the Clean Air Act (CAA). The emission guidelines were proposed in June 2014 and finalized on August 3, 2015 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (also referred to as the Clean Power Plan or Emission Guidelines). The EPA is taking comment on many of the elements of this proposal.
This proposal presents two approaches to a federal plan (or model rule) for states and other jurisdictions that either chose to adopt a model rule or do not adopt and submit to the EPAin a timely manner an approvable state plan: a rate-based emission trading program and a massbased emission trading program. The federal plan is an important measure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented. The agency is also proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these affected EGUs.
The proposed federal plan is related to but separate from the final emission guidelines. The final emission guidelines establish the best system of emission reduction (BSER) for applicable fossil fuel-fired EGUs in the form of a carbon dioxide (CO 2 

### ) emission performance
rate for steam-fired EGUs and a CO 2 

### emission performance rate for natural gas-fired combined cycle units, and provide guidance and criteria for the development of approvable state plans. The purpose of the proposed federal plan is to establish requirements directly applicable to a state’s affected EGUs that meet the emission performance levels in order to achieve reductions in

1 T h e proposed amendments to the framework regulations for section 111(d) are limited to enhancements in the procedure and timing of the EPA’s action on state plans. See Section VII of the preamble. They do not modify requirements or obligations in the CPP or other substantive rules, or directly regulate any third parties. Therefore, the EPA has not included these changes in its analysis in this RIA and proposes to certify that these changes will not have a significant impact on a significant number of small entities pursuant to the Regulatory Flexibility Act (RFA).

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-2 c a rbon dioxide (CO 2 

### ) emissions in the case where a state or other jurisdiction does not submit an approvable plan. The stringency of the emission performance levels established in the final emission guidelines will be the same whether implemented through a state plan or a federal plan.
1.2 Legal, Scientific and Economic Basis for this Rulemaking
1.2.1 Statutory Requirement
Section 111(d)(2) of the Clean Air Act (CAA), 42 U.S.C. 7411(d)(2) provides the EPA the same authority to prescribe a plan for a state in cases where the state fails to submit a satisfactory plan as the Agency would have under CAA section 110(c) in the case of failure to submit a National Ambient Air Quality Standard implementation plan. In addition, the EPA has authority under CAA section 111(d)(1) to prescribe regulations that establish procedures similar to CAA section 110 with respect to the submission of state plans, and the EPA also has general rulemaking authority as necessary to implement the CAA under section 301. A federal Plan under CAA section 111(d) applies, implements and enforces standards of performance for affected EGUs. Under the Clean Power Plan Emission Guidelines, state plans will be due on September 6, 2016. States are also allowed to seek a two year extension for a final plan submittal, upon submitting a satisfactory initial submittal by the same deadline. If a state fails to submit a final state plan or initial submittal, or if either a final state plan or an initial submittal does not meet the requirements of the final emission guidelines, the Agency will take the appropriate steps to finalize and implement a federal plan.
States will remain free, and indeed are strongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jurisdictions. Upon approval of the state plan by EPA, the federal plan will no longer apply to the affected EGUs covered by the approved state plan, starting at the initiation of the next compliance period with the limitations noted in the federal plan.
1.2.2 Health and Welfare Impacts from Climate Change
According to the National Research Council, “Emissions of CO 2 

### from the burning of fossil fuels have ushered in a new epoch where human activities will largely determine the
evolution of Earth’s climate. Because CO 2 

### in the atmosphere is long lived, it can effectively lock Earth and future generations into a range of impacts, some of which could become very severe.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-3 T h erefore, emission reduction choices made today matter in determining impacts experienced not just over the next few decades, but in the coming centuries and millennia.” 2


### In 2009, based on a large body of robust and compelling scientific evidence, the EPA Administrator issued the Endangerment Finding under CAA section 202(a)(1). 3 

### In the Endangerment Finding, the Administrator found that the current, elevated concentrations of GHGs in the atmosphere—already at levels unprecedented in human history—may reasonably be anticipated to endanger public health and welfare of current and future generations in the
United States.
Since the administrative record concerning the Endangerment Finding closed following the EPA’s 2010 Reconsideration Denial, the climate has continued to change, with new records being set for a number of climate indicators such as global average surface temperatures, Arctic sea ice retreat, CO 2 

### concentrations, and sea level rise. Additionally, a number of major scientific assessments have been released that improve understanding of the climate system and strengthen the case that GHGs endanger public health and welfare both for current and future generations. These assessments are from the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Change Research Program (USGCRP), and the National Research Council (NRC). These
and other assessments are discussed in more detail in the Final Clean Power Plan Emission Guidelines preamble and in Chapter 4 of the Clean Power Plan Final Rule Regulatory Impact Analysis (RIA). 4



### 1.2.3 Market Failure
Many regulations are promulgated to correct market failures, which otherwise lead to a suboptimal allocation of resources within the free market. Air quality and pollution control regulations address “negative externalities” whereby the market does not internalize the full opportunity cost of production borne by society as public goods such as air quality are unpriced.

2 Na t ional Research Council, Climate Stabilization Targets, p.3.

3 “Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act,” 74 Fed. Reg. 66,496 (Dec. 15, 2009) (“Endangerment Finding”).

4 U.S. Environmental Protection Agency (U.S. EPA). 2015a. Regulatory Impact Analysis for the Clean Power Plan Final Rule. EPA-452/R-15-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-4 G H G emissions impose costs on society, such as negative health and welfare impacts, that are not reflected in the market price of the goods produced through the polluting process. For this regulatory action the good produced is electricity. If a fossil fuel-fired electricity producer pollutes the atmosphere when it generates electricity, this cost will be borne not by the polluting firm but by society as a whole, thus imposing a negative externality. The equilibrium market price of electricity may fail to incorporate the full opportunity cost to society of generating electricity. All else equal, given this externality, the composition of EGUs used to generate electricity in a free market will not be socially optimal, and the quantity of electricity generated may not be at the socially optimal level. Fossil fuel-fired EGUs may produce more electricity than would occur if they had to account for the cost associated with this negative externality. Consequently, absent a regulation on emissions, the composition of the fleet of EGUs used to generate electricity may not be socially optimal, and the marginal social cost of the last unit of electricity produced may exceed its marginal social benefit. In the instances where the agency finalizes and implements a federal plan for a state’s affected EGUs, this proposed regulation will work towards addressing this market failure by causing affected EGUs to begin to internalize the negative externality associated with CO 2 

### emissions.
1.3 Background for the Proposed Federal plan and model trading rules
1.3.1 Definition of Affected Sources
Existing fossil fuel-fired electric generating units subject to the final Clean Power Plan Emission Guidelines that are located in a state that does not have an EPA-approved state plan are potentially subject to this proposed action. Existing fossil fuel-fired EGUs are those that were in operation or had commenced construction on or before January 8, 2014. 5


### 1.3.2 Trade in Compliance Instruments across States
The EPA intends to set up and administer a program to track trading programs – both rate-based and mass-based – that will be available for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments

5 A n affected EGU is any fossil fuel-fired EGU that was in operation or had commenced construction as of January 8, 2014, and is therefore an ‘‘existing source’’ for purposes of CAA section 111, and that in all other respects would meet the applicability criteria for coverage under the proposed GHG standards for new fossil fuel-fired EGUs (79 FR 1430; January 8, 2014).

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-5 w i th affected EGUs in any other state covered by a federal plan or a state plan meeting the conditions for linkage to the federal plan. In the proposed mass-based federal-plan trading program, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. Similarly, in the proposed rate-based federal-plan trading program approach, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a compliance instrument, an ERC issued in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. EPA is proposing that an affected EGU in a state covered by the mass-based trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a state covered by the rate-based trading federal plan must use ERCS for compliance (not allowances).
1.3.3 Model Trading Rule
A state program that adheres to the model trading rule provisions specified in this rulemaking would be presumptively approvable. States may submit means of meeting the emission guidelines requirements that differ from the model trading rule provisions, so long as the state demonstrates to the EPA’s satisfaction in the state plan submittal that such alternative means of addressing requirements are at least as stringent as the presumptively approvable approach described here. Additionally, there are stand-alone portions of the model trading rules, such as the evaluation, measurement, and verification (EM&V) procedures that would be approvable even if a state adopted an approach that differs from the federal plan. The model trading rules serve as a mechanism to facilitate larger trading markets since consistency with the federal plan allows trading across both the state and federal programs. The EPA expects a larger trading region is likely to result in lower overall costs.
1.4 Summary of Regulatory Analysis
In accordance with Executive Order 12866, Executive Order 13563, OMB Circular A-4, and the EPA’s “Guidelines for Preparing Economic Analyses,” the EPA prepared this RIA for this “significant regulatory action.” This action is an economically significant regulatory action because it may have an annual effect on the economy of $100 million or more or adversely affect

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-6 i n a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities. 6


### This action proposes a federal plan under section 111(d) of the CAA for the control of
CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil-fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass- and rate-based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission performance rates in the emission guidelines. The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.
However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or adopt a model rule. Because of this lack of information, for this RIA, the EPA has chosen to examine two federal plan approach scenarios where all states of the contiguous U.S. will be regulated under a federal plan or a model rule. The first federal plan approach we examine in this RIA assumes all states in the contiguous U.S. are regulated under a rate-based federal plan or model rule. The second federal plan approach we examine assumes all contiguous states are regulated under a mass-based federal plan or model rule. These two approaches are a re-presentation of the modeling done for the Clean Power Plan
Emission Guidelines RIA.
This approach is consistent with the analysis presented in the RIA for the final Clean Power Plan Emission Guidelines (U.S. EPA 2015). As a result, this RIA for the proposed federal plan and model trading rules re-presents the key results from the final Clean Power Plan Emission Guidelines RIA. These key results encompass the potential costs, emission reductions, and benefits of the proposed federal plan and model trading rules, as well as the potential impacts on electricity markets, employment, and markets outside the electricity sector.
The RIA also presents a discussion of limitations of the analysis and solicitations for public comments that will contribute to the analysis supporting the promulgation of final federal

6 T h e analysis in this proposal RIA constitutes the economic assessment required by CAA section 317. In the EPA’s judgment, the assessment is as extensive as practicable taking into account the EPA’s time, resources, and other duties and authorities.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-7 p l ans (as needed) and model trading rules. In evaluating the impacts of the proposed federal plan and model trading rules, we address a number of uncertainties.
It is important to note that the potential regulatory impacts presented in the Clean Power Plan Final Rule RIA and the RIA for this proposed rule are not additive. Both RIAs present estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan emissions guidelines. In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading rules, the same performance rates are accomplished but are assumed to be accomplished under the federal plan or model trading rules.
This RIA also presents in Chapter 2 the statutory and executive order analyses that accompany the proposal for this action, including the Initial Flexibility Regulatory Analysis (IRFA). The IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the proposed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on small entities. This IRFA has been prepared following EPA’s guidance document for preparing initial and final regulatory flexibility analyses. 7


### 1.4.1 Base Case and Years of Analysis
The base case for this analysis, which uses the Integrated Planning Model (IPM), includes state rules that have been finalized and/or approved by a state’s legislature or environmental agencies, as well as final federal rules. The IPM Base Case v.5.15 includes the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Rule (MATS), the proposed Carbon Pollution Standards for New Power Plants, the Cooling Water Intakes (316(b)) Rule, the Combustion Residuals from Electric Utilities (CCR), and other state and Federal regulations to the extent that they contain measures, permits, or other air-related limitations or

7 Se e “EPA’s Action Development Process : Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act.” OPEI Regulatory Development Series. November 2006. Available at: <http://www.epa.gov/sbrefa/documents/Guidance-RegFlexAct.pdf>. Accessed July 21, 2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-8 r e quirements. Additional legally binding and enforceable commitments for GHG reductions
considered in the base case are discussed in the documentation for IPM. 8


### To present a complete picture of the potential costs and benefits of the proposed federal plan and model trading rules, this RIA presents results for the analysis years 2020, 2025, and 2030. While 2020 is before the first year of the interim compliance period (2022), the EPA expects states and affected EGUs to perform voluntary activities that will facilitate compliance with interim and final goals. These pre-compliance period activities might include investments in renewable energy or demand-side energy efficiency projects, for example, that produce emissions reductions in the compliance period. Activities might also include preparatory investments in transmission capacity or monitoring, reporting, and recordkeeping systems. As a result, there are likely to be benefits and costs in 2020, so these are reported in this RIA. Meanwhile, cost and benefits are estimated in this RIA for 2025, which is intended to represent a central period of the interim compliance time-frame as states are on glide paths toward fully meeting the final CO 2 

### emission performance goals. Lastly, the RIA presents costs and benefits for 2030, when the emission performance goals are fully achieved.
1.4.2 Federal Plan Approaches Examined in RIA
In the Final Clean Power Plan Emission Guidelines, the EPA translated the source category-specific CO 2 

### emission performance rates into equivalent state-level rate-based and
mass-based CO 2 

### goals in order to maximize the range of choices that states will have in developing their plans. 9 

### As noted above, like the RIA for the Final Clean Power Plan Emission Guidelines, this RIA presents two scenarios designed to achieve these goals, which we term the rate-based federal plan approach and the mass-based federal plan approach.
It is very important to note that the differences between the analytical results for the ratebased and mass-based federal plan approaches presented in this RIA may not be indicative of likely differences between the approaches. In other words, if one approach performs differently

8 D e tailed documentation for IPM v.5.1 5 is available at: http://www.epa.gov/powersectormodeling.

9 See the preamble of the final Clean Power Plan Emissions Guidelines for these state-level rate-based and massbased CO 2 goals.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-9 t h an the other on a given metric during a given time period, this does not imply this will apply in all instances in all time periods in all places.
In the rate-based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, avoided generation from demand-side energy efficiency is counted towards meeting the emission performance rates at affected EGUs. However, this federal plan and model trading rule proposal takes comment on whether EPA should allow demand-side energy efficiency to directly count toward the compliance rate of affected EGUs in a rate-based compliance approach. Because energy efficiency is not proposed to be eligible to generate ERCs that could be used to comply in the proposed rate-based federal plan, this RIA might be forecasting a different a generation mix and emissions levels than might occur from the proposed federal plan. 10 

### Compliance strategies under either approach to the federal plan (mass or rate) may be anticipated to rely on different abatement measures than those modeled for this RIA. The climate benefits and health co-benefits arising from these alternative strategies may be different those presented here. We will update this analysis as necessary to support the final rule.
Even without explicit incentives for energy efficiency under a rate-based federal plan, we believe that the increased focus that the Clean Power Plan Emission Guidelines will bring to
considerations of CO 2 

### emissions from EGUs will encourage states to consider more aggressive demand-side energy policies. Furthermore, the EPA anticipates that many states will submit fully-approvable plans, and that demand side energy efficiency is likely to be either an explicit component of, or a complimentary policy to, many of those plans. The resulting lower electricity demand in states not subject to a federal plan surrounding a state that is subject to a federal plan will likely have an impact on fossil generation and thus the cost of reducing CO 2 

### emissions. The EPA takes comment on the appropriate way to factor such costs into the analysis of the final federal plan and model trading rules.
In the rate-based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, affected EGUs may not procure emission reductions from (e.g., by averaging their emissions with) affected EGUs located in other states (which may also have different emission

10 H ow ever, as with states subject to the mass-based approach, energy efficiency activities may be adopted by states subject to the rate-based approach to lower demand, which in turn may reduce the compliance cost of achieving the performance rates.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-10 s t andards) in order to demonstrate compliance. As described in Section 1.3.2, in the proposedrate-based federal plan affected EGUs may procure ERCs from affected EGUs in other ratebased states subject to the federal plan. Furthermore, the rate-based illustrative plan in the FinalClean Power Plan Emission Guidelines RIA assumes that the plan applies a state’s blended ratebased goal as a requirement for affected EGUs in that state to achieve. 11 

### Alternatively, the proposed federal plan specifically establishes an emissions rate performance standard that is applied to affected steam-fired EGUs and an emission rate performance standard that is applied to affected natural gas-fired combined cycle EGUs. Applying the subcategory-specific rate goal may alter the incentives among affected EGUs and could lead to a different generation mix and emission levels. The EPA will further explore the impacts of subcategory-specific rate goals in the analysis supporting the final rule.
The mass-based plan approach requires affected sources in each state to limit their aggregate emissions not to exceed the mass goal for that state. The mass-based scenario presented in this chapter includes a 5 percent set-aside of allowances that would be allocated to recognize deployment of new renewable capacity, which is represented by lowering the capital cost of new renewable capacity in a compliance period by the estimated value of the allowances in the set-aside in that period.
The EPA is also proposing a set-aside approach referred to as output-based allocation (OBA), which provides targeted allocations of a limited portion of allowances to existing NGCC units as a means of mitigating leakage. The EPA believes that this proposed set-aside would address incentives for generation to shift away from EGUs covered under mass-based plans to new unaffected EGUs. OBA provides an incentive for eligible EGUs in mass-based states to increase their generation in order to increase their allocation of allowances. This approach helps align the generation incentives for eligible EGUs in mass-based states with new EGUs that are not subject to the mass-based limits, mitigating the potential for emissions leakage.

11 I n the rate-based scenario in the RIA for the final Clean Power Plan Emission Guidelines, the generation-weighted average emission rate from affected EGUs, in which generation is inclusive of their procurement of zero-emitting generation or demand-side EE savings, in a state must be less than or equal to the state goal. One way for a state to achieve this outcome would be to assign in its plan emission rate performance standards to affected EGUs that equal the state emission rate goal, the incentives of which would be consistent with the analysis and results reported in the RIA for the final Clean Power Plan Emission Guidelines.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-11 W hi le the mass-based scenario analyzed for this proposed rule included a representation of the set-aside for new renewable generation, it did not quantify the effects of the OBA as proposed in this rulemaking. Therefore, in Section 1.5.6, the EPA conducted additional analysis to approximate the potential emissions reductions if the OBA set-aside were included in that mass-based scenario. The EPA is inviting comment on its approach to approximating the impact of OBA. If appropriate, the EPA will further explore OBA as a means to mitigate leakage in the analysis supporting the final federal plan and model trading rules.
The EPA notes that, in this analysis, EGUs within each state comply with the applicable state goals without exchanging a compliance instrument with EGUs in other states. However, under the proposed federal plan and model trading rules if all states had a federal plan and the same type of goal (as they do in this analysis), then trading among EGUs in different states would be allowed and would lead to differences in the generation mix and emissions. The EPA is inviting comment on this approach to the modeling that will contribute to analysis supporting the
final rule.
1.5 Summary of Regulatory Analysis

1.5.1 Emissions Reductions

Table 1-1 shows the emission reductions associated with the modeled rate-based federal plan approach.

Table 1-1. Climate and Air Pollutant Emission Reductions for the Rate-Based Federal Plan

Approach 1
CO 2

(million short tons) SO 2 (thousand short tons) Annual NO X (thou s and short tons) 2020 Rate-Based Approach Base Case 2,155 1, 311 1,333 Federal Plan Approach 2,085 1,297 1,282 Emissions Change -69 -14 -50 2025 Rate-Based Approach Base Case 2,165 1, 275 1,302 Federal Plan Approach 1,933 1,097 1,138 Emissions Change -232 -178 -165 2030 Rate-Based Approach Base Case 2,227 1, 314 1,293 Federal Plan Approach 1,812 996 1,011 Emission Change -415 -318 -282 Source: Integrated Planning M o del, 2015. Emissions change may not sum due to rounding.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-12 1 CO 2 e m ission reductions are used to estimate the climate benefits of the proposed rule. SO 2 , and NO X reductions are relevant for estimating air quality health co-benefits of the proposed rule. The proposed rule is also expected to achieve reductions in directly emitted PM 2. 5 , which we were not able to estimate for this RIA.



### I n 2020, the EPA estimates that CO 2 

### emissions will be reduced by 69 million short tons under the rate-based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 232 million short tons under the rate-based approach compared to
base case levels. CO 2 

### emission reductions increase to 415 million short tons annually in 2030 when compared to the base case emissions. Table 1-1 also shows emission reductions for criteria air pollutants.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-13 T a ble 1-2 shows the emission reductions associated with the modeled mass-based federal plan approach.

Table 1-2. Climate and Air Pollutant Emission Reductions for the Mass-Based Federal Plan

Appproach 1
CO 2

(million short tons) SO 2 (thousand short tons) Annual NO X (th ou s and short tons) 2020 Mass-Based Approach Base Case 2, 155 1, 311 1,333 Federal Plan Approach 2,073 1,257 1,272 Emissions Change -81 -54 -60 2025 Mass-Based Approach Base Case 2,165 1, 275 1,302 Federal Plan Approach 1,901 1,090 1,100 Emissions Change -265 -185 -203 2030 Mass-Based Approach Base Case 2,227 1, 314 1,293 Federal Plan Approach 1,814 1,034 1,015 Emission Change -413 -280 -278 Source: Integrated Planning M o del, 2015. Emissions change may not sum due to rounding.
1 CO 2 e m ission reductions are used to estimate the climate benefits of the proposed rule. SO 2 , and NO X reductions are relevant for estimating air quality health co-benefits of the proposed rule. The proposed rule is also expected to achieve reductions in directly emitted PM 2. 5 , which we were not able to estimate for this RIA.



### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 81 million short tons under the mass-based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 265 million short tons under the mass-based approach compared to
base case levels. CO 2 

### emission reductions increase to 413 million short tons annually in 2030 when compared to the base case emissions. Table 1-2 also shows emission reductions for criteria air pollutants.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-14 T a ble 1-3 presents CO 2 

### emission reductions relative to 2005 for the two federal plan approaches.
Table 1-3. Projected CO 2 

### Emission Reductions, Relative to 2005

CO 2 Emissions (million short tons) CO 2 Emissions: Change from 2005 (million short tons) CO 2 Emissions Reductions: Percent Change from 2005

2005 2020 2025 2030 2020 2025 2030 Base Case 2,683 -528 -518 -456 -20% -19% -17% Rate-based - -598 -750 -871 -22% -28% -32% Mass-based

- -610 -782 -869 -23% -29% -32% Source: Integrated Planning M o del, 2015.


### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 598 million short tons (22 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that
CO 2 

### emissions will be reduced by 750 million short tons (28 percent) under the rate-based approach compared to 2005 levels. Under the rate-based approach, CO 2 

### emission reductions increase to 871 million short tons (32 percent) in 2030 when compared to 2005 levels.
Under the mass-based approach in 2020, the EPA estimates that CO 2 

### emissions will be reduced by 610 million short tons (23 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 782 million short tons (29 percent) under the mass-based approach compared to 2005 levels. Under the mass-based approach, CO 2 

### emission reductions increase to 869 million short tons (32 percent) in 2030 when compared to 2005 levels.

1.5.2 Costs
The compliance cost estimates in this analysis are the change in electric power generation costs between the base case and federal plan approach policy cases, including the cost of demand-side energy efficiency measures and costs associated with monitoring, reporting, and recordkeeping requirements (MR&R). 12 

### In the rate-based approach, energy efficiency activities are modeled as being used by EGUs as a low-cost method of demonstrating compliance with their rate-based emissions standards. In the mass-based approach, energy efficiency activities are assumed to be adopted by states to lower demand, which in turn reduces the cost of achieving the

12 S e e Chapter 3 of the Clean Power Plan Final Rule RIA for a detailed discussion of the compliance cost estimates.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-15 m a ss limitations. The level of energy efficiency measures is determined outside of IPM and is assumed to be the same in the two federal plan approaches. 13 

### The compliance assumptions, and therefore the projected “compliance costs” set forth in this analysis, are illustrative in nature.
The annual compliance cost is the projected additional cost of complying with the rule in the year analyzed and reflects the net difference in the sum of the annualized cost of capital investment in new generating sources and heat rate improvements at coal steam facilities, the change in the ongoing costs of operating pollution controls, shifts between or amongst various fuels, demand-side energy efficiency measures, and other actions associated with compliance. The costs for both federal plan approaches are reflected in Table 1-4 below. All dollar estimates
are in 2011 dollars.
The EPA estimates the annual incremental compliance cost for the rate-based approach for the proposed federal plan and model trading rules to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 2030. The EPA estimates the annual incremental compliance cost for the mass-based approach for the federal plan and model trading rules to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030.
Table 1-4. Compliance Costs for the Federal Rate-Based and Mass-Based Plan Approaches Incremental Cost from Base Case (billions of 2011$) Rate -b ased Approach Mass-based Approach 2020 $2.5 $1. 4 2025 $1.0 $3. 0 2030 $8.4 $5.1 Source: Integrated Planning Model, 2015, with post-processing to account for exogenous demand-side management

en e rgy efficiency costs and monitoring, reporting, and recordkeeping costs. See Chapter 3 of the Clean Power Plan Final Rule RIA for a more complete explanation.



### The costs reported in Table 1-4 represent the estimated incremental electric utility generating costs changes from the base case plus the estimates of demand-side energy efficiency program costs (which are paid by electric utilities), demand-side energy efficiency participant costs (which are paid by electricity consumers), and MR&R costs. For example, in 2030, under the rate-based approach, the incremental electric utility generating costs decline by about $18.0

13 F o r more detailed information on demand-side energy efficiency, see U.S. EPA. 2015b. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-16 bi l lion from the base case. MR&R requirements in 2030 are estimated at $16.0 million, and demand-side energy efficiency costs in 2030 are estimated to be $26.3 billion, split equally between program and participants using a 3 percent discount rate (see Chapter 3 of this RIA for more details on these estimates). These cost estimates sum to the $8.4 billion shown in Table 1-4 and represent the total costs of the rate-based federal plan approach in 2030. The same approach applies in each year of analysis for the rate-based and the mass-based federal plan approaches.
The compliance costs reported in Table 1-4 are not social costs. These costs represent the estimated expenditures incurred by EGUs, the costs to participants in demand-side energy efficiency programs, and states to comply with the BSER goals for the Final Clean Power Plan Emission Guidelines. These compliance cost estimates are compared to estimates of social benefits to derive net benefits of the proposed federal plan and model trading rules, which are presented later in this Chapter.
1.5.3 Monetized Climate Benefits and Health Co-benefits
The climate benefits estimates have been calculated using the estimated values of marginal climate impacts presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866 (May 2013, Revised July 2015) , henceforth denoted as the current SC-CO 2 

### TSD. 14 

### Additionally, this analysis takes into account the social benefits of changes in emissions of non-CO 2 

### pollutants from the electricity sector. The range of combined benefits reflects different concentration-response functions for the air quality health co-benefits, but it does not capture the full range of uncertainty inherent in the health co-benefits estimates. Furthermore, we were unable to quantify
or monetize all of the climate benefits and health and environmental co-benefits associated with the proposed federal plan and model trading rules, including reductions in directly emitted PM 2.5 

### , reduced exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility improvement. The omission of these endpoints from the

14 T e chnical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf> Accessed 7/11/2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-17 m o netized results should not imply that the impacts are small or unimportant. Table 1-5 provides the list of the quantified and unquantified health and environmental benefits in this analysis.
Table 1-5 Quantified and Unquantified Benefits

Benefits Category Specific Effect Effect Has Been Quantified Effect Has

B e e n Monetized More Information

Improved E nv i ronment

Reduced climate

e f f ects Global climate impacts from CO 2

— 1  SC-CO 2 TSD

Climate impacts from ozone and black carbon (directly

e m i tted PM) — — Ozone ISA, PM ISA 2 Other climate impacts (e.g., other GHGs such as methane, aerosols, other impacts) — — IPCC 2 Improved Human Health (co-benefits) Reduced incidence of pre m ature mortality from exposure to PM 2.5 Adult premature mortality based on cohort study estimates

and expert elicitation estimates (age >25 or age >30)   PM ISA
Infant mortality (age <1)   PM ISA

Reduced incidence of

mo r bidity from exposure to PM 2.5 Non-fatal heart attacks (age > 18)   PM ISA Hospital admissions—respiratory (all ages)   PM ISA Hospital admissions—cardiovascular (age >20)   PM ISA Emergency room visits for asthma (all ages)   PM ISA Acute bronchitis (age 8-12)   PM ISA Lower respiratory symptoms (age 7-14)   PM ISA Upper respiratory symptoms (asthmatics age 9-11)   PM ISA Asthma exacerbation (asthmatics age 6-18)   PM ISA Lost work days (age 18-65)   PM ISA Minor restricted-activity days (age 18-65)   PM ISA Chronic Bronchitis (age >26) — — PM ISA

2 Emergency room visits for cardiovascular effects (all ages) — — PM ISA 2 Strokes and cerebrovascular disease (age 50-79) — — PM ISA

2 Other cardiovascular effects (e.g., other ages) — — PM ISA 3Other respiratory effects (e.g., pulmonary function, nonas t hma ER visits, non-bronchitis chronic diseases, other ages and populations) — — PM ISA 3
Reproductive and developmental effects (e.g., low birth

we i ght, pre-term births, etc) — — PM ISA 3,4 Cancer, mutagenicity, and genotoxicity effects — — PM ISA 3,4
Reduced incidence of

mo r tality from exposure to ozone Premature mortality based on short-term study estimates (all

ages)   Ozone ISA Premature mortality based on long-term study estimates (a g e 30–99) — — Ozone ISA 2

Reduced incidence of

mo r bidity from exposure to ozone Hospital admissions—respiratory causes (age > 65)   Ozone ISA

Hospital admissions—respiratory causes (age <2)   Ozone ISA Emergency department visits for asthma (all ages)   Ozone ISA Minor restricted-activity days (age 18–65)   Ozone ISA School absence days (age 5–17)   Ozone ISA Decreased outdoor worker productivity (age 18–65) — — Ozone ISA 2 Other respiratory effects (e.g., premature aging of lungs) — — Ozone ISA 3 Cardiovascular and nervous system effects — — Ozone ISA 3 Reproductive and developmental effects — — Ozone ISA 3,4

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-18 T ab le 1-5. Continued

Reduced incidence of morbidity from exposure to NO 2 Asthma hospital admissions (all ages) — — NO 2 ISA 2

Chronic lung disease hospital admissions (age > 65)

— — NO 2 ISA 2 Respiratory emergency department visits (all ages)

— — NO 2 ISA 2 Asthma exacerbation (asthmatics age 4–18)

— — NO 2 ISA 2 Acute respiratory symptoms (age 7–14)

— — NO 2 ISA 2 Premature mortality

— — NO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness

a nd i nflammation, lung function, other ages and populations) — — NO 2 ISA 3,4

Reduced incidence of

m o r bidity from exposure to SO 2 Respiratory hospital admissions (age > 65) — — SO 2 ISA 2

Asthma emergency department visits (all ages)

— — SO 2 ISA 2 Asthma exacerbation (asthmatics age 4–12)

— — SO 2 ISA 2 Acute respiratory symptoms (age 7–14) — — SO 2 ISA 2 Premature mortality — — SO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness and i nflammation, lung function, other ages and populations) — — SO 2 ISA 2,3

Reduced incidence of

mo r bidity from exposure to methylmercury Neurologic effects—IQ loss — — IRIS; NRC, 2000 2

Other neurologic effects (e.g., developmental delays,

me m ory, behavior) — — IRIS; NRC, 2000 3
Cardiovascular effects — — IRIS; NRC, 2000 3,4 Genotoxic, immunologic, and other toxic effects — — IRIS; NRC, 2000 3,4 Improved Environment (co-benefits) Reduced visibility im pa irment Visibility in Class 1 areas — — PM ISA 2 Visibility in residential areas — — PM ISA

2 Reduced effects on

ma t erials Household soiling — — PM ISA 2,3 Materials damage (e.g., corrosion, increased wear) — — PM ISA 3 Reduced PM depo s ition (metals and organics) Effects on individual organisms and ecosystems — — PM ISA 3

Reduced vegetation and e cosystem effects from exposure to

ozone Visible foliar injury on vegetation — — Ozone ISA 2 Reduced vegetation growth and reproduction — — Ozone ISA 2 Yield and quality of commercial forest products and crops — — Ozone ISA 2 Damage to urban ornamental plants — — Ozone ISA 3 Carbon sequestration in terrestrial ecosystems — — Ozone ISA 2 Recreational demand associated with forest aesthetics — — Ozone ISA 3 Other non-use effects O zone ISA 3 Ecosystem functions (e.g., water cycling, biogeochemical cy c les, net primary productivity, leaf-gas exchange, community composition) — — Ozone ISA 3

Reduced effects from

ac i d deposition Recreational fishing — — NO x SO x ISA 2

Tree mortality and decline — — NO x SO x ISA 3 Commercial fishing and forestry effects — — NO x SO x ISA 3 Recreational demand in terrestrial and aquatic ecosystems — — NO x S O x ISA 3 Other non-use effects N O x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles) — — NO x SO x ISA 3

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-19 T ab le 1-5. Continued

Reduced effects from nutrient enrichment Species composition and biodiversity in terrestrial and

estuarine ecosystems — — NO x SO x ISA 3 Coastal eutrophication

— — NO x SO x ISA 3 Recreational demand in terrestrial and estuarine ecosystems — — NO x S O x ISA 3 Other non-use effects N O x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles, fire

r e g ulation) — — NO x SO x ISA 3 Reduced vegetation

e f f ects from exposure to SO 2 and NO x Injury to vegetation from SO 2 exposure — — NO x SO x ISA 3

Injury to vegetation from NO x e x posure — — NO x SO x ISA 3

Reduced ecosystem

e f f ects from exposure to methylmercury Effects on fish, birds, and mammals (e.g., reproductive

effects) — — Mercury Study RTC 3 Commercial, subsistence and recreational fishing — — Mercury Study RTC 2

1 T h e global climate and related impacts of CO 2 emissions changes, such as sea level rise, are estimated within each integrated assessment model as part of the calculation of the SC-CO 2 . The resulting monetized damages, which are relevant for conducting the benefit-cost analysis, are used in this RIA to estimate the welfare effects of quantified changes in CO 2 emissions.

2 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, due to data and resource limitations for this analysis.

3 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, because we do not have sufficient confidence in available data or methods.

4 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, because current evidence is only suggestive of causality or there are other significant concerns over the strength of the association.



### 1.5.3.1 Estimating Global Climate Benefits
We estimate the global social benefits of CO 2 

### emission reductions expected from this rulemaking using the SC-CO 2 

### estimates presented in the current SC-CO 2 

### TSD. 15 

### We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 

### estimates” for the
remainder of this document. The SC-CO 2 

### is a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 

### emissions in a given year. It includes a wide range of anticipated climate impacts, such as net changes in agricultural productivity and human health, property damage from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. It is typically used to assess

15 A l so see Chapter 4 of the Clean Power Plan Final Rule RIA for more details on this assessment of climate benefits.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-20 t h e avoided damages as a result of regulatory actions (i.e., benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 

### emissions).

The SC-CO 2 

### estimates used in this analysis have been developed over many years, using the best science available, and with input from the public. The EPA and other federal agencies have considered the extensive public comments on ways to improve SC-CO 2 

### estimation received via the notice and comment period that was part of numerous rulemakings. In addition, OMB’s Office of Information and Regulatory Affairs recently issued a response to the public comments it sought through a separate comment period on the approach used to develop the SC-CO 2 

### estimates. 16


### An interagency working group (IWG) that included the EPA and other executive branch entities used three integrated assessment models (IAMs) to develop SC-CO 2 

### estimates and recommended four global values for use in regulatory analyses. The SC-CO 2 

### estimates represent global measures because of the distinctive nature of the climate change problem. Emissions of greenhouse gases contribute to damages around the world, even when they are released in the United States, and the world’s economies are now highly interconnected. Therefore, the SC-CO 2 

### estimates incorporate the worldwide damages caused by carbon dioxide emissions in order to reflect the global nature of the problem, and we expect other governments to consider the global consequences of their greenhouse gas emissions when setting their own domestic policies. See Chapter 4 of the final Clean Power Plan Emission Guidelines RIA for more discussion.
The IWG first released the estimates in February 2010 and updated them in 2013 using
new versions of each IAM. The SC-CO 2 

### values was estimated using three integrated assessment models (DICE, FUND, and PAGE) 17 

### , which the IWG harmonized across three key inputs: the probability distribution for equilibrium climate sensitivity; five scenarios for economic, population, and emissions growth; and three constant discount rates. The 2010 SC-CO 2 

### Technical Support Document (2010 SC-CO 2 

### TSD) provides a complete discussion of the methodology and the current SC-CO 2 

### TSD 18 

### presents and discusses the updated estimates. The

16 S e e https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf

17 The full models names are as follows: Dynamic Integrated Climate and Economy (DICE); Climate Framework for Uncertainty, Negotiation, and Distribution (FUND); and Policy Analysis of the Greenhouse Gas Effect (PAGE).

18 The IWG published the updated TSD in 2013, then issued two minor corrections to it in July 2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-21 f o ur SC-CO 2 

### estimates are as follows: $12, $40, $60, and $120 per short ton of CO 2 

### emissions in the year 2020 (2011$), and each estimate increases over time. 19 

### These SC-CO 2 

### estimates are associated with different discount rates. The first three estimates are the model average at 5 percent discount rate, 3 percent, and 2.5 percent, respectively, and the fourth estimate is the 95 th 

### percentile at 3 percent.

The 2010 SC-CO 2 

### TSD noted a number of limitations to the SC-CO 2 

### analysis, including the incomplete way in which the IAMs capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature because of a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. 20 

### In particular, the IPCC Fourth Assessment Report concluded that “It is very likely that [SC-CO 2 

### estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts.” Nonetheless, these estimates and the discussion of their limitations represent the best available information about
the social benefits of CO 2 

### emission reductions to inform the benefit-cost analysis.
In addition, after careful evaluation of the full range of comments submitted to OMB’s Office of Information and Regulatory Affairs, the IWG continues to recommend the use of these
SC-CO 2 

### estimates in regulatory impact analysis. With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the National Academies of Sciences, Engineering, and Medicine (Academies) to ensure that the SC-CO 2 

### estimates continue to reflect the best available scientific and economic information on climate change. 21 

### The

19 T h e 2010 and 2013 TSDs present SC-CO 2 in 2007$ per metric ton. The unrounded estimates from the current TSD were adjusted to (1) 2011$ using GDP Implicit Price Deflator (1.061374), http://www.bea.gov/iTable/index_nipa.cfm and (2) short tons using the conversion factor of 0.90718474 metric tons in a short ton. These estimates were rounded to two significant digits.

20 Climate change impacts and SCC modeling is an area of active research. For example, see: (1) Howard, Peter, “Omitted Damages: What’s Missing from the Social Cost of Carbon.” March 13, 2014, http://costofcarbon.org/files/Omitted_Damages_Whats_Missing_From_the_Social_Cost_of_Carbon.pdf; and (2) Electric Power Research Institute, “Understanding the Social Cost of Carbon: A Technical Assessment,” October 2014, www.epri.com.

21 See <https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions>.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-22 A c ademies’ process will be informed by the public comments received and focus on the technical merits and challenges of potential approaches to improving the SC-CO 2 

### estimates in future updates.
1.5.3.2 Estimating Air Quality Health Co-Benefits
The proposed federal plan and model trading rules would reduce emissions of precursor pollutants (e.g., SO 2 

### , NO X 

### , and directly emitted particles), which in turn would lower ambient
concentrations of PM 2.5 

### and ozone. This co-benefits analysis quantifies the monetized benefits associated with the reduced exposure to these two pollutants. 22 

### Unlike the global SC-CO 2 

### estimates, the air quality health co-benefits are only estimated for the contiguous U.S. The
estimates of monetized PM 2.5 

### co-benefits include avoided premature deaths (derived from effect coefficients in two cohort studies [Krewski et al. 2009 and Lepeule et al. 2012] for adults and one for infants [Woodruff et al. 1997]), as well as avoided morbidity effects for ten non-fatal endpoints ranging in severity from lower respiratory symptoms to heart attacks 23 

### (U.S. EPA, 2012). The estimates of monetized ozone co-benefits include avoided premature deaths (derived from the range of effect coefficients represented by two short-term epidemiology studies [Bell et al. (2004) and Levy et al. (2005)]), as well as avoided morbidity effects for five non-fatal endpoints ranging in severity from school absence days to hospital admissions (U.S. EPA, 2008, 2011).
We use a “benefit-per-ton” approach to estimate the PM 2.5 

### and ozone co-benefits in this RIA. Benefit-per-ton approaches apply an average benefit per ton derived from modeling of benefits of specific air quality scenarios to estimates of emissions reductions for scenarios where no air quality modeling is available. The benefit-per-ton approach we use in this RIA relies onestimates of human health responses to exposure to PM and ozone obtained from the peerreviewed scientific literature. These estimates are used in conjunction with population data,

22 We did not estimate the co-benefits associated with reducing direct exposure to SO 2 and NO X . For this RIA, we did not estimate changes in emissions of directly emitted particles. As a result, quantified PM 2.5 related benefits are underestimated by a relatively small amount. In the proposal RIA, the benefits from reductions in directly emitted PM 2.5 were less than 10 percent of total monetized health co-benefits across all scenarios and years.

23 See Chapter 4 and Appendix 4A of the Clean Power Plan Final Rule for details on this assessment of health cobenefits.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-23 b a seline health information, air quality data and economic valuation information to conduct health impact and economic benefits assessments.
Specifically, in this analysis, we multiplied the benefit-per-ton estimates by the corresponding emission reductions that were generated from air quality modeling of the proposed Clean Power Plan Emission Guidelines. Similar to the co-benefits analysis conducted for the final Clean Power Plan Emission Guidelines RIA, we generated regional benefit-per-ton estimates by aggregating the impacts in BenMAP 24 

### to the region (i.e., East, West, and California) rather than aggregating to the nation. The benefit-per-ton for SO 2 

### and NO x 

### emissions used in this proposed rule were calculated using air quality modeling of the base case and the proposed Clean Power Plan (Option 1 State) scenario for 2025 as described in Appendix 4A of the final Clean Power Plan Emission Guidelines RIA. The benefit-per-ton values for 2020 and 2030 are based on applying the air quality modeling from 2025 to population and health information from 2020
and 2030.
To calculate the co-benefits for this proposed rule, we then multiplied the regional benefit-per-ton estimates for the EGU sector by the corresponding emission reductions. All benefit-per-ton estimates reflect the geographic distribution of the modeled emissions, which may not exactly match the emission reductions in this rulemaking, and thus they may not reflect the local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location.
Our estimate of the monetized co-benefits is based on the EPA’s interpretation of the best available scientific literature (U.S. EPA, 2009) and methods and supported by the EPA’s Science Advisory Board and the NAS (NRC, 2002). Below are key assumptions underlying the estimates
for PM 2.5 

### -related premature mortality, which accounts for 98 percent of the monetized PM 2.5 

### health co-benefits.

1. We assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption,

24 Be n MAP is a computer program developed by the EPA that calculates the number and economic value of air pollution-related deaths and illnesses. The software incorporates a database that includes many of the concentration-response relationships, population files, and health and economic data needed to quantify these impacts.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-24 b e cause PM 2.5 

### varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The PM ISA concluded that “many constituents of PM 2.5 

### can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to specific outcomes” (U.S. EPA, 2009b).

2. We assume that the health impact function for fine particles is log-linear without a threshold in this analysis. Thus, the estimates include health co-benefits from reducing fine particles in areas with varied concentrations of PM 2.5 

### , including both areas that do not meet the National Ambient Air Quality Standard for fine particles and those areas that are in attainment, down to the lowest modeled concentrations.

3. We assume that there is a “cessation” lag between the change in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 

### exposures occur in a distributed fashion over the 20 years following exposure based on the advice of theSAB-H1 (U.S. EPA-SAB, 2004c), which affects the valuation of mortality cobenefits at different discount rates.
Every benefits analysis examining the potential effects of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. Despite these uncertainties, we believe this analysis provides a reasonable indication of the expected health co-benefits of the air quality emission reductions for the proposed rule under a set of reasonable assumptions. This analysis does not include the type of detailed uncertainty assessment found in the 2012 PM 2.5 

### National Ambient Air Quality Standard (NAAQS) RIA (U.S. EPA, 2012) because we lack the necessary air quality input and monitoring data to conduct a complete benefits assessment. In addition, using a benefit-per-ton approach adds another important source of uncertainty to the benefits estimates.
1.5.3.3 Combined Benefits Estimates
The EPA has evaluated the range of potential impacts by combining all four SC-CO 2 

### values with health co-benefits values at the 3 percent and 7 percent discount rates. Different

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-25 d i scount rates are applied to SC-CO 2 

### than to the health co-benefit estimates because CO 2 

### emissions are long-lived and subsequent damages occur over many years. Moreover, several discount rates are applied to SC-CO 2 

### because the literature shows that the estimate of SC-CO 2 

### is sensitive to assumptions about discount rate and because no consensus exists on the appropriaterate to use in an intergenerational context. The IWG centered its attention on the average SCCO 2 

### at a 3 percent discount rate but emphasized the importance of considering all four SC-CO 2 

### estimates. Table 1-6 (rate-based federal plan approach) and Table 1-7 (mass-based federal plan approach) provide the combined climate benefits and health co-benefits for the proposed federal plan model trading rules estimated for 2020, 2025, and 2030 for each discount rate combination.
All dollar estimates are in 2011 dollars.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-26 T ab le 1-6. Combined Estimates of Climate Benefits and Health Co-Benefits for Rate-Based

Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits Only Climate Benefits plus Health Co

- benefits

(Discount Rate Applied to Health Co-benefits) 3% 7 % In 2020 69 m illion short tons CO 2 5% $0. 80 $1.5 to $2.6 $1.4 to $2.5 3% $2. 8 $3.5 to $4.6 $3.5 to $4.5 2.5% $4.1 $4.9 to $6.0 $4.8 to $5.9 3% (95 th percentile) $8.2 $8.9 to $10 $8.9 to $9.9 In 2025 232 million short tons CO 2 5% $3. 1 $11 to $21 $9.9 to $19 3% $10 $18 to $28 $17 to $26 2.5% $15 $23 to $33 $22 to $31 3% (95 th percentile) $31 $38 to $49 $38 to $47 In 2030 415 million short tons CO 2 5% $6.4 $21 to $40 $19 to $37 3% $20 $34 to $54 $33 to $51 2.5% $29 $43 to $63 $42 to $60 3% (95 th percentile) $61 $75 to $95 $74 to $92 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 em i ssions. Co-benefits are based on regional benefit-per-ton estimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health co-benefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC-CO 2 estimate for the specified discount rate.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-27 T ab le 1-7. Combined Estimates of Climate Benefits and Health Co-benefits for Mass-Based

Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits Only Climate Benefits plus Health Co

- benefits

(Discount Rate Applied to Health Co-benefits) 3% 7 % In 2020 82 m illion short tons CO 2 5% $0. 94 $2.9 to $5.7 $2.8 to $5.3 3% $3. 3 $5.3 to $8.1 $5.1 to $7.7 2.5% $4.9 $6.9 to $9.7 $6.7 to $9.3 3% (95 th percentile) $9.7 $12 to $14 $11 to $14 In 2025 264 million short tons CO 2 5% $3. 6 $11 to $21 $10 to $19 3% $12 $19 to $29 $18 to $27 2.5% $17 $24 to $35 $24 to $33 3% (95 th percentile) $35 $42 to $52 $42 to $51 In 2030 413 million short tons CO 2 5% $6.4 $18 to $34 $17 to $32 3% $20 $32 to $48 $31 to $46 2.5% $29 $41 to $57 $40 to $55 3% (95 th percentile) $60 $72 to $89 $71 to $86 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 em i ssions. Co-benefits are based on regional benefit-per-ton estimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health co-benefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC-CO 2 estimate for the specified discount rate.


### 1.5.4 Net Benefits
Table 1-8 and 1-9 provide the estimates of the climate benefits, health co-benefits,compliance costs and net benefits of the proposed federal plan and model trading rules for ratebased and mass-based approaches, respectively. There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 

### emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing emissions of non-CO 2 

### greenhouse gases and co-benefits from reducing exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility impairment. Upon considering these limitations and uncertainties, it remains clear that the benefits of this proposed rule are substantial and far outweigh the costs.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-28 T ab le 1-8. Monetized Benefits, Compliance Costs, and Net Benefits Under the Rate-based

Federal Plan Approach (billions of 2011$) a Rate-Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0. 80 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8. 2 $31 $61
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $0.70 to $1.8 $0.64 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $2.5 $1. 0 $8.4 Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 a n d SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a A l l are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in this table, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co-benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation ofeffect estimates by particle type. Estimates in the table are presented for three analytical years with air quality cobenefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Final Rule RIA includes combined climate and health estimates based on additional discount rates.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-29 T ab le 1-9. Monetized Benefits, Compliance Costs, and Net Benefits under the Mass-based

Federal Plan Approach (billions of 2011$) a Mass-Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0. 94 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9. 7 $35 $60
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $2.0 to $4.8 $1.8 to $4.4 $7.1 to $17 $6.5 to $16 $12 to $28 $11 to $26 Compliance Costs d $1.4 $3. 0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 a n d SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Vi s ibility improvement

a A l l are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in this table, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co-benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation ofeffect estimates by particle type. Estimates in the table are presented for three analytical years with air quality cobenefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Final Rule RIA includes combined climate and health estimates based on additional discount rates.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-30 1. 5. 5 Economic Impacts The federal plan approaches analyzed in this RIA indicate that the proposed federal plan and model trading rules may have important energy market implications. Table 1-10 presents a variety of important energy market impacts for 2020, 2025, and 2030 for both the rate-based and mass-based federal plan approaches.
Table 1-10. Summary Table of Important Energy Market Impacts (Percent Change from

Base Case)
Rate-Based Mass-Based 2020 2025 2030 2020 2025 2030 Retail electricity prices 3% 1% 1% 3% 2% 0% Average electricity bills 3% -4% -7% 2% -3% -8% Price of coal at minemouth -1% -5% -4% -1% -5% -3% Coal production for power sector use -5% -14% -25% -7% -17% -24% Price of natural gas delivered to power sector 5% -8% 2% 4% -3% -2% Natural gas use for electricity generation 3% -1% -1% 5% 0% -4%



### En e rgy market impacts are discussed more extensively in Chapter 3 of the final Clean Power Plan Emission Guidelines RIA. As well as the above energy market impacts, Chapter 3 of the final Clean Power Plan Emission Guidelines RIA presents projections of power sector generation and capacity changes by fuel type.
Additionally, changes in supply or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the production process or that supply those sectors. Changes in cost of production may result in changes in price and/or quantity produced by these sectors and these market changes may affect the profitability of firms and the economic welfare of their consumers. Similarly, demand for new generation or energy efficiency, for example, can result in changes in production and profitability for firms that supply those goods and services. The EPA recognizes that states subject to the federal plan may choose to mitigate impacts to some markets outside the EGU sector, perhaps by implementing the guidelines through a state plan.
1.5.6 Employment Impacts Executive Order 13563 directs federal agencies to consider the effect of regulations on job creation and employment. According to the Executive Order, “our regulatory system must

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-31 pr ot ect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science” (Executive Order 13563, 2011). Although standard benefit-cost analyses have not typically included a separate analysis of regulation-induced employment impacts, we typically conduct employment analyses. 25 

### While the economy continues moving toward full-employment, employment impacts are of particular concern and questions may arise about their existence and magnitude.
Given the wide range of approaches that may be used to meet the requirements of the proposed federal plan and model trading rules, quantifying the associated employment impacts is difficult. The EPA’s illustrative employment analysis includes an estimate of projectedemployment impacts for the utility power sector, coal and natural gas production, and demandside energy efficiency activities. These projections are derived, in part, from the detailed model of the utility power sector used for this regulatory analysis, and U.S government data on employment and labor productivity.
In the electricity, coal, and natural gas sectors, the EPA uses the IPM estimates of the changes in generation and fuel use of the proposed rule to estimate there could be a net decrease of approximately 25,000 job-years 26 

### in 2025 for the proposed rule under the rate-based federal plan approach and approximately 26,000 job-years in 2025 under the mass-based approach. For 2030 the estimates of the net decrease in job-years is 30,900 under the rate-based plan, and 33,700 under the mass-based plan. The Agency is also offering an illustrative calculation of potential employment effects due to demand-side energy efficiency programs. Employment impacts from demand-side energy efficiency programs in 2030 could range from approximately52,000 to 83,000 jobs created under proposed federal plan and model trading rules. The IPMderived job-year numbers for the electricity, coal and natural gas sectors should not be added tothe demand-side efficiency job impacts, since the former are reported in full-time equivalent jobye a rs, whereas the latter do not distinguish between full- and part-time employment. More detail

25 T h e employment analysis in this RIA is part of EPA’s ongoing effort to “conduct continuing evaluations of potential loss or shifts of employment which may result from the administration or enforcement of [the Act]” pursuant to CAA section 321(a). 26 Job-years are not individual jobs, but rather the amount of work performed by the equivalent of one full-time individual for one year. For example, 20 job-years in 2020 may represent 20 full-time jobs or 40 half-time jobs in that year.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-32 a b out these analyses can be found in Chapter 6 of the final Clean Power Plan Emission
Guidelines RIA.
1.5.7 Additional Analysis of Output-Based Allocation as a Means of Mitigating Leakage
The application of OBA will provide an incentive to increase generation at existing NGCC EGUs in place of generation at new NGCC EGUs and existing fossil steam EGUs. To approximate the effect of this incentive in the mass-based scenario, the EPA used IPM model plant results from the mass-based scenario to construct the average dispatch order for model plants in each IPM region. Then, based on the allowance prices for the state in which each model plant resides, the EPA adjusted the dispatch order in the case where existing NGCC units were allocated allowances at a rate of 1,030 lbs/MWh for each MWh generated above a 50 percent capacity factor as proposed. In cases where an existing NGCC plant moved ahead of an existing fossil steam plant in the dispatch order, the NGCC plant’s generation was increased while the existing fossil plant’s generation was reduced. The NGCC plant’s generation was increased to the maximum capacity factor assumed feasible within IPM while the amount of reduced generation at the fossil steam plant is determined by the amount that would keep the overallcovered sources’ emissions in the region constant, so as to respect compliance with the massbased standards represented in the modeling scenario. Since the existing NGCC plant has a lower emissions rate than the existing fossil steam plant, the increase in generation at the NGCC plant is greater than the reduction in generation (because more generation is now possible from both plants together at the same given level of emissions). This net increase in generation from existing EGUs is then subtracted from new NGCC generation in the region, consistent with the total generation needed to meet the load assumed in the IPM modeling of the mass-based
scenario.
When applying this algorithm to the results from the mass-based scenario analyzed in this RIA, it forecasts nationally in 2030 a 10 percent increase in generation at existing NGCC EGUs, a 4 percent reduction in generation at existing fossil steam EGUs, and a 29 percent decrease in generation at new NGCC EGUs compared to the modeling scenario results presented above. The result of this reduction in new NGCC EGU generation is a reduction in CO 2 

### emissions of 23 million short tons (an amount equal to 1.3 percent of 2030 forecast emissions in mass-based

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-33 s c enario). We do not quantify the effect of these changes in generation on SO 2 

### and NO x 

### emissions, although on net additional co-benefits are expected.
The incentives portrayed in this analysis are consistent with the incentives that would be realized under the OBA set-aside, and the general direction and magnitude of the results are likely consistent with those that would be observed had the mass-based scenario been modeled with the OBA set-aside. However, the results should be viewed as approximate given that analysis does not consider important aspects of power markets included in IPM. For example, the analysis does not consider any potential changes in relative fuel and allowance prices as a result of the OBA set-aside. The application of the OBA set-aside will place upward pressure on the allowance prices and therefore further incentivize a shift away from existing fossil steam generation. The OBA set-aside may also place upward pressure on the price of natural gas which would reduce the effectiveness of the set-aside at encouraging increased utilization of existing NGCC EGUs, but the OBA set-aside would be effective in increasing existing NGCC generation, the analysis does not consider the fact that electricity is traded across many IPM regions. The application of OBA in one state may impact the generation at EGUs in another

state.
1.5.8 Uncertainty Analysis
The Office of Management and Budget’s circular Regulatory Analysis (Circular A-4) provides guidance on the preparation of regulatory analyses required under E.O. 12866, and requires an uncertainty analysis for rules with annual benefits or costs of $1 billion or more. 27 

### This proposed rulemaking potentially surpasses that threshold for both benefits and costs. Throughout this RIA and the referenced final Clean Power Plan Emission Guidelines RIA, we considered a number of sources of uncertainty, both quantitatively and qualitatively, on benefits and costs. We summarize three key elements of our analysis of uncertainty here:

27 O f fice of Management and Budget (OMB), 2003, Circular A-4
, http://www.whitehouse.gov/omb/circulars_a004_a-4 and OMB, 2011. Regulatory Impact Analysis: A Primer. http://www.whitehouse.gov/sites/default/files/omb/ inforeg/regpol/circular-a-4_regulatory-impact-analysis-aprimer.pdf

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-34 • A ssess uncertainty in the methods used to calculate the health co-benefits associated with
the reduction in PM 2.5 

### and ozone and the use of a benefits-per-ton approach in estimating
these co-benefits.

• Characterizing uncertainty in monetizing climate-related benefits.
Some of these elements are evaluated using probabilistic techniques, whereas for others the underlying likelihoods of certain outcomes are unknown and we use scenario analysis to evaluate their potential effect on the benefits and costs of this rulemaking.
1.5.8.1 Uncertainty in Costs
Our best estimates of the costs of these illustrative scenarios are reported within the cost analysis of the final Clean Power Plan Emission Guidelines and are included in the cost modeling in this RIA for both the proposed rate-based and mass-based approaches. A source of uncertainty under this regulation is the ultimate approach states that are not subject to the federal plan or adopt the model rule will adopt in response to the guidelines, which will affect both the costs and benefits of this rule. For this reason we modeled the two proposed federal plan approaches assuming they applied to all of the states.
1.5.8.2 Uncertainty Associated with Estimating the Social Cost of Carbon

The 2010 SC-CO 2 

### TSD noted a number of limitations to the SC-CO 2 

### analysis, including the incomplete way in which the integrated assessment models (IAM) capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk
aversion. 28 

### Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature due to a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. These
individual limitations do not all work in the same direction in terms of their influence on the SC-

28 Te c hnical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February 2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf>.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-35 C O 2 

### estimates, though taken together they suggest that the SC-CO 2 

### estimates are likely conservative. In particular, the IPCC Fourth Assessment Report (2007) concluded that “It is very likely that [SC-CO 2 

### estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts” and the IPCC Fifth Assessment report observed that SC-CO 2 

### estimates continue to omit various impacts that would likely increase damages. The 95 th 

### percentile estimate was included in the recommended range for regulatory impact analysis, in part, to address these concerns.
The modeling underlying the development of the SC-CO 2 

### estimates addressed uncertainty in several ways. An ensemble of three IAMs were used to generate the SC-CO 2 

### estimates to capture differences in model structures that, in part, reflect uncertainty in the scientific literature about these relationships. Parametric uncertainty was explicitly addressed in each IAM, though to differing degrees, through Monte Carlo simulations in which explicit probability distributions for key parameters were specified, including the equilibrium climate sensitivity, which represents the long-run responsiveness of the climate to increasing GHG concentrations. Furthermore, the analysis considered five different socioeconomic and emissions forecasts to capture the sensitivity of the SC-CO 2 

### estimates to key exogenous projections used in the modeling. Finally, the results were calculated for three discount rates, which were selected, in part, to reflect uncertainty about how interest rates may change over time and the possibility that climate damages are positively correlated with uncertain future economic activity. This analysis produced 45 different distributions of the SC-CO 2 

### estimates for each emissions year. To produce a range of plausible estimates that are manageable in regulatory analysis but still reflects the uncertainty in the results four point estimates were recommended. The use of this range of point estimates in this rulemaking helps to reflect the uncertainty in the SC-CO 2 

### estimates. Chapter 4 of the final Clean Power Plan Emission Guidelines RIA provides a comprehensive discussion about the methodology and application of the SC-CO 2 

### ; see both the 2010 TSD and current SCCO 2 

### TSD for a full description.
In addition, OMB’s Office of Information and Regulatory Affairs received comments regarding uncertainty and the SC-CO 2 

### estimates in response to a separate request for public comment on the approach used to develop the estimates. Commenters discussed the analyses and presentation of uncertainty in the TSD as well as the implications of uncertainty for use of the
SC-CO 2 

### estimates in regulatory impact analysis. In their response, the interagency working

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-36 gr o up (IWG) acknowledged uncertainty in the SC-CO 2 

### estimates but disagreed with commenters that suggested the uncertainty undermines use of the SC-CO 2 

### estimates in regulatory impact analysis. The IWG went on to note that the uncertainty in the SC-CO 2 

### estimates is fully acknowledged and comprehensively discussed in the TSDs and supporting academic literature, and that while all regulatory impact analysis involves uncertainty, these analyses can provide useful information to decision makers and the public. See the IWG Response to Comments for the complete response. 29


### 1.5.8.3 Uncertainty Associated with PM 2.5 

### and Ozone Health Co-Benefits Assessment
EPA provides information on the relative uncertainty in the benefits estimates based on
the 95 th 

### percentile confidence interval for avoided PM-related premature deaths and the associated economic valuation estimated in the benefits analysis for the recent PM NAAQS RIA (U.S. EPA, 2012).. In general, the 95th percentile confidence interval for monetized PM 2.5 

### benefits ranges from approximately -90 percent to +180 percent of the central estimates based on the two key PM mortality studies. To further explore uncertainty in the premature mortality benefits, EPA provides the PM-related results using concentration-response functions from two key epidemiology studies, as well as alternate concentration-response relationship provided by an expert elicitation and alternative ozone-related results using concentration-response relationships provided by alternative epidemiology studies. In addition, we include anassessment of the distribution of population exposure in the modeling underlying the benefit-perton estimates.
In addition to the uncertainties in the underlying concentration-response and valuation functions, all benefit-per-ton approaches have inherent limitations, including that the estimates reflect the geographic distribution of the modeled sector emissions, which may not match the emission reductions anticipated by this proposed rule, and they may not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other localfactors for any specific location. In addition, these estimates reflect the regional average benefitper-ton for each ambient PM 2.5 

### precursor emitted from EGUs, which assumes a linear atmospheric response to emission reductions. The regional benefit-per-ton estimates, although

29 S e e https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-37 l e ss subject to these types of uncertainties than national estimates, still should be interpreted withcaution. Even though we assume that all fine particles have equivalent health effects, the benefitper-ton estimates vary between precursors depending on the location and magnitude of their impact on PM 2.5 

### levels, which drive population exposure.

1.6 References 40 CFR Chapter I [EPA–HQ–OAR–2009–0171; FRL–9091–8] RIN 2060–ZA14, “Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act,” Federal Register / Vol. 74, No. 239 / Tuesday, December 15, 2009 / Rules and Regulations. 75 FR 49556. August 13, 2010. “EPA’s Denial of the Petitions to Reconsider the Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act.” Bell, M.L., A. McDermott, S.L. Zeger, J.M. Sarnet, and F. Dominici

. 2004. “Ozone and ShortTerm Mortality in 95 U.S. Urban Communities, 1987-2000.” Journal of the American Medical Association. 292(19):2372-8. Docket ID EPA-HQ-OAR-2009-0472-114577, Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/foragencies/Social-Cost-of-Carbon-for-RIA.pdf>. Accessed July 15, 2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-38 D o cket ID EPA-HQ-OAR-2013-0602, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with Participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf>. Accessed July 15, 2015. Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. HEI Research Report, 140, Health Effects Institute, Boston, MA. Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury. Response to to Comments: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. July 2015. Available at:<https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-commentsfinal-july-2015.pdf.> Accessed July 15, 2015. Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: Synthesis Report Contribution of Working Groups I, II and III to the Fourth Assessment Report of the IPCC . Available at: <http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synt hesis_report.htm>. Accessed June 6, 2015. Lepeule, J., F. Laden, D. Dockery, and J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow-Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspectives. 120(7):965-70. Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone Exposure and Mortality: An Empiric Bayes Metaregression Analysis.” Epidemiology. 16(4):458-68.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-39 M e lillo, J.M., T.C. Richmond, and G.W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program. Available at <http://nca2014.globalchange.gov>. Accessed June 4, 2015. National Research Council (NRC). 2000. Toxicological Effects of Methylmercury: Committee on the Toxicological Effects of Methylmercury .” Board on Environmental Studies and Toxicology. National Academies Press. Washington, DC. National Research Council (NRC). 2002. Estimating the Public Health Benefits of Proposed Air Pollution Regulations . National Academies Press. Washington, DC.

National Research Council. 2011. Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia . Washington, DC: The National Academies Press. U.S. Environmental Protection Agency (U.S. EPA). 2008a. Integrated Science Assessment for Sulfur Oxides—Health Criteria (Final Report) . National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. September. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impact Analysis . EPA-452/R-08-003. Office of Air Quality Planning and Standards Health and Environmental Impacts Division, Air Benefit and Cost Group Research Triangle Park, NC. March. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/6- ozoneriachapter6.pdf>. Accessed June 4, 2015. U.S. EPA. 2008c. Integrated Science Assessment for Oxides of Nitrogen: Health Criteria (Final Report). Research Triangle Park, NC: National Center for Environmental Assessment. July. Available at < http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. U.S. Environmental Protection Agency (U.S. EPA). 2008c. Integrated Science Assessment for Oxides of Nitrogen - Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. July. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2009b. Integrated Science Assessment for Particulate Matter (Final Report) . EPA-600-R-08-139F. National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. December. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546>. Accessed June 4, 2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-40 U

. S. Environmental Protection Agency (U.S. EPA). 2010d. Section 3: Re

‐ 

### analysis of the Benefits of Attaining Alternative Ozone Standards to Incorporate Current Methods . Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/s3-supplemental_analysis-updated_benefits11- 5.09.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. EPA452/R-12-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013b. Integrated Science Assessment of Ozone and Related Photochemical Oxidants (Final Report). EPA/600/R-10/076F. National Center for Environmental Assessment – RTP Division, Research Triangle Park. Available at: <http://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247492#Download>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2015a. Regulatory Impact Analysis for the Clean Power Plan Final Rule. EPA-452/R-15-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park. U.S. EPA. 2015b. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency. Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. “The relationship between selected causes of postneonatal infant mortality and particulate air pollution in the United States.” Environmental Health Perspectives. 105(6): 608-612.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-1 

## C H A PTER 

## 2: S TATUTORY AND 

## E XECUTIVE 

## O RDER 

## R EVIEWS



### 2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: I mproving Regulation and Regulatory Review This proposed action is an economically significant regulatory action that was submitted to the OMB for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA prepared an analysis of the potential costs and benefits associated with this action. This analysis, which is presented in this RIA, is also available in the docket and is briefly summarized in section VIII of the preamble.
Consistent with Executive Order 12866 and Executive Order 13563, the EPA estimated the costs and benefits for two alternative federal plan approaches to implementing the proposed federal plan and model trading rules. The proposed action will achieve the same levels of emissions performance as required of state plans under the CAA section 111(d) EGs for the
control of CO 2 

### . Actions taken to comply with the guidelines will also reduce the emissions of directly-emitted PM 2.5 

### , SO 2 

### and NO X 

### . The benefits associated with these PM 2.5 

### , SO 2 

### and NO X 

### reductions are referred to as co-benefits, as these reductions are not the primary objective of this
rule.
The RIA for this proposal analyzed two implementation scenarios, which we term the “rate-based federal plan approach” and the “mass-based federal plan approach”. It is veryimportant to note that the differences between the analytical results for the rate-based and massbased federal plan approaches presented in this RIA may not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the proposed rule. In other words, if one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instances.
It is important to note that the potential regulatory impacts presented in the Clean Power Plan Final Rule RIA and this RIA are not additive. Both RIAs present estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan EGs. In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-2 r u les, the same performance rates are accomplished but are assumed to be achieved under the federal plan or model trading rules.
The EPA has used the social cost of carbon estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis
Under Executive Order 12866 (May 2013, Revised July 2015) (“current TSD”) to analyze CO 2 

### climate impacts of this rulemaking. We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 

### estimates.” The SC-CO 2 

### is an estimate of the monetary value of impacts associated with a marginal change in CO 2 

### emissions in a given year. The four SC-CO 2 

### estimates are associated with different discount rates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th 

### percentile at 3 percent), and each increases over time. In this summary, the EPA provides the estimate of climate benefits associated with the SC-CO 2 

### value deemed to be central in the current TSD: the model average at 3 percent discount rate.
The EPA estimates that, in 2020, the proposal will yield monetized climate benefits (in2011$) of approximately $2.8 billion for the rate-based approach and $3.3 billion for the massbased approach (3 percent model average). For the rate-based approach, the air pollution health co-benefits in 2020 are estimated to be $0.7 billion to $1.8 billion (2011$) for a 3 percent discount rate and $0.64 billion to $1.7 billion (2011$) for a 7 percent discount rate. For the massbased approach, the air pollution health co-benefits in 2020 are estimated to be $2.0 billion to $4.8 billion (2011$) for a 3 percent discount rate and $1.8 billion to $4.4 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR costs in 2020, are approximately $2.5 billion for the rate-based approach and $1.4 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2020 are estimated to range from $1.0 billion to $2.1 billion (2011$) for the rate-based approach and from $3.9 billion to 6.7 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).
The EPA estimates that, in 2025, the proposal will yield monetized climate benefits (in2011$) of approximately $10 billion for the rate-based approach and $12 billion for the massbased approach (3 percent model average). For the rate-based approach, the air pollution health co-benefits in 2025 are estimated to be $7.4 billion to $18 billion (2011$) for a 3 percent

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-3 d i scount rate and $6.7 billion to $16 billion (2011$) for a 7 percent discount rate. For the massbased approach, the air pollution health co-benefits in 2025 are estimated to be $7.1 billion to $17 billion (2011$) for a 3 percent discount rate and $6.5 billion to $16 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR costs in 2025, are approximately $1.0 billion for the rate-based approach and $3.0 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2025 are estimated to range from $17 billion to $27 billion (2011$) for the rate-based approach and $16 billion to $26 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).
The EPA estimates that, in 2030, the proposal will yield monetized climate benefits (in2011$) of approximately $20 billion for the rate-based approach and $20 billion for the massbased approach (3 percent model average). For the rate-based approach, the air pollution health co-benefits in 2030 are estimated to be $14 billion to $34 billion (2011$) for a 3 percent discount rate and $13 billion to $31 billion (2011$) for a 7 percent discount rate. For the mass-based approach, the air pollution health co-benefits in 2030 are estimated to be $12 billion to $28 billion (2011$) for a 3 percent discount rate and $11 billion to $26 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR costs in 2030, are approximately $8.4 billion for the rate-based approach and $5.1 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2030 are estimated to range from $26 billion to $45 billion (2011$) for the rate-based approach and from $26 billion to $43 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).Table 1-8 and Table 1-9 of this RIA provides the estimates of the climate benefits, health cobenefits, compliance costs and net benefits of the proposal for rate-based and mass-based federal plan approaches, respectively.
There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 

### emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing
emissions of non-CO 2 

### GHGs ( e.g ., nitrous oxide and methane) and co-benefits from reducing

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-4 d i rect exposure to SO 2 

### , NO X 

### , and HAP ( e.g ., mercury), as well as from reducing ecosystem effects and visibility impairment. Based upon the foregoing discussion, it remains clear that the benefits of this proposed action are substantial, and far exceed the costs. Additional details on benefits, costs, and net benefits estimates are provided in this RIA.
2.2 Paperwork Reduction Act
The information collection requirements in this rule have been submitted for approval to OMB under the PRA. The Information Collection Request (ICR) document prepared by the EPA has been assigned EPA ICR number 2526.01 . You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until approved by OMB.
This rule does not directly impose specific requirements on state and U.S. territory governments with affected EGUs. The rule also does not impose specific requirements on tribal governments that have affected EGUs located in their area of Indian country. This rule does impose specific requirements on EGUs located in states, U.S. territories or areas of Indian country.
The information collection activities in this proposed rule are consistent with those activities defined under the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units finalized on August 3, 2015. The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The ICR document prepared by the EPA has been assigned EPA ICR number 2526.01. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here.
Aside from reading and understanding the rule, this proposed action would impose minimal new information collection burden on affected EGUs beyond what those affected EGUs would already be subject to under the authorities of CAA parts 75 and 98. OMB has previously approved the information collection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060–0626 and 2060– 0629, respectively. Apart from certain reporting costs based on requirements in the NSPS General Provisions (40 CFR part 60, subpart A), which are mandatory for all owners/operators

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-5 s ubj ect to CAA section 111 national emission standards, there are no new information collection costs, as the information required by this proposed rule is already collected and reported by other regulatory programs. The recordkeeping and reporting requirements are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confidentiality is made is safeguarded according to agency policies set forth in 40 CFR part 2, subpart B.
Although EPA cannot determine at this time how many affected EGU respondents will submit information under the federal plan, EPA has estimated an “upper bound” burden estimate for this ICR that estimates burden should every affected EGU read and understand the rule. This is the only potential respondent activity that would be required under the 3-year period following publication of the final federal plan, so there are no obligations to respond in this period. The results of this “upper bound” estimate of federal plan burden are presented below:
Respondents/affected entities: 1,028
Respondents’ obligation to respond: Not applicable, no responses are required during the period covered by the ICR.

Es t imated number of respondents: Unknown at this time, but have assumed all affected entities are respondents for an upper bound estimate.
Frequency of response: None, no responses are required during the period covered by the
ICR.
Total estimated burden: 17,133 hours (per year). Burden is defined at 5 CFR 1320.3(b). Total estimated cost: $1,706,501 (per year)
An agency may not conduct or sponsor, and a person is not required to respond to, a

co l lection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA’s regulations in 40 CFR are listed in 40 CFR part 9.
Submit your comments on the agency’s need for this information, the accuracy of the provided burden estimates and any suggested methods for minimizing respondent burden to theEPA using the docket identified at the beginning of this rule. You may also send your ICRrelated comments to OMB’s Office of Information and Regulatory Affairs via email to oria_submissions@omb.eop.gov , Attention: Desk Officer for the EPA. Since OMB is required to

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-6 m a ke a decision concerning the ICR between 30 and 60 days after receipt, OMB must receive comments no later than 30 days after the date of publication in the Federal Register. The EPA will respond to any ICR-related comments in the final rule.
2.3 Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA; 5 U.S.C.§ 601 et seq.), as amended by the Small Business Regulatory Enforcement Fairness Act (Public Law No. 104-121), provides that whenever an agency is required to publish a general notice of proposed rulemaking, it must prepare and make available an initial regulatory flexibility analysis (IRFA), unless it certifies that the proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities (5 U.S.C. § 605[b]). Small entities include small businesses, small organizations, and small governmental jurisdictions. An IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the proposed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on small entities. Pursuant to section 603 of the RFA, the EPA prepared an initial regulatory flexibility analysis (IRFA) that examines the impact of the proposed rule on small entities along with regulatory alternatives that could minimize that impact.
2.3.1 Reasons why Action is Being Considered On August 3, 2015, the EPA finalized the Clean Power Plan EGs for existing fossil-fuel fired EGUs (40 CFR part 60, subpart UUUU) under authority of section 111 of the CAA. The Guidelines apply to existing fossil-fuel fired EGUs, i.e., those that were in operation or had commenced construction before January 8, 2014. States with existing EGUs subject to the guidelines are required to submit to the EPA by September 6, 2016, a state plan that implements the EGs. States may also make initial plan submittals in lieu of a complete state plan, in which case extensions will be granted until September 6, 2018 (40 CFR &&&). 30 

### As discussed in section VI.D of the preamble, Indian Tribes may, but are not required to, submit tribal plans. Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 31 

### section

30 S e e Section VII of the preamble for additional information on proposed changes to 40 CFR 60.27 to provide enhancements and flexibilities to the agency’s process for review and action on state plans and promulgation of federal plans.

31 If a state has submitted a complete plan, then the EPA will go through a public notice and comment process to fully or partially approve or disapprove the state plan.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-7 111 o f the CAA and 40 CFR 60.27 require the EPA to develop, implement, and enforce a federal plan for existing EGUs located in that state. In addition, CAA section 301(d)(2) authorizes the Administrator to treat an Indian Tribe in the same manner as a state for this EGU requirement.
See 40 CFR 49.3; see also “Indian Tribes: Air Quality Planning and Management,” hereafter “Tribal Authority Rule,” (63 FR 7254, February 12, 1998). As discussed in section VI.D of the preamble, the agency in this action is proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these
affected EGUs.
The agency believes it is appropriate to propose the federal plan at this time for any states that may ultimately be found to have failed to submit a plan, or had their plan disapproved by the EPA. For some states in this situation, the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an approved plan in place. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves as two proposed model trading rules which states can adopt or tailor for adoption as their state plan.
2.3.2 Statement of Objectives and Legal Basis for Proposed Rules
The EPA is proposing this rulemaking for a federal plan to implement greenhouse gas Emission Guidelines for existing fossil fuel-fired electric generating units (EGUs). The emission guidelines were proposed in June 2014 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (79 FR 34830; the Clean Power Plan). This plan is part of the President’s Climate Action Plan announced in June of 2013 to reduce carbon emissions from the power sector by 30 percent below 2005 levels. This federal plan serves to: 1) provide a model rule that states can tailor for implementation, and 2) set in place a plan that EPA can implement for states that do not develop an approvable state plan. The EPA sees this federal plan as an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until states assume their role as the preferred implementers of the emission guidelines.
The final Clean Power Plan Emission Guidelines are related to but separate from the proposed federal plan. The final Emission Guidelines will detail the carbon dioxide (CO 2 

### )

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-8 r e duction goals for sources by state. The purpose of the proposed federal plan is to lay out
mechanisms to achieve reductions in CO 2 

### emissions from affected EGUs that are not covered by an EPA-approved state plan. The EPA is considering a range of options and approaches through which affected EGUs would meet a rate-based goal or a mass-based equivalent. The EPA intends to incorporate flexibility to the extent possible into the proposed federal plan so affected units can achieve these reductions in a cost-effective way.
2.3.3 Description and Estimate of Affected Small Entities
EPA conducted this regulatory flexibility analysis at the ultimate (i.e., highest) level of ownership, evaluating parent entities with the largest share of ownership in at least one potentially-affected EGU included in EPA’s Base Case using the Integrated Planning Model (IPM) v.5.15, used in this RIA. 32 

### This analysis draws on the “parsed” unit-level estimates using IPM results for 2030, as well as ownership, employment, and financial information for the potentially affected small entities drawn from other resources described in more detail below. EPA chose to examine potential impacts in 2030 because that is when the emission performance goals are required to be fully achieved. Also, as presented in this RIA, 2030 is the year where the estimated annual compliance costs for the contiguous U.S. are at their highest. 33


### This action proposes a federal plan under section 111(d) of the CAA for the control of
CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil-fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass- and rate-based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission performance rates in the emission guidelines. The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.
However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or adopt a model rule. Because of this lack of information, for this RIA, the EPA has chosen to examine two federal plan approach scenarios where all

32 S e e 1.4.1 of this RIA for more detail on the IPM base case used for this analysis. Detailed documentation for IPM v.5.15 is available at: http://www.epa.gov/powersectormodeling.

33 See Section 1.5.2 of this RIA.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-9 s t ates of the contiguous U.S. will be regulated under a federal plan or a model rule. The first federal plan approach we examine in this RIA assumes all states in the contiguous U.S. are regulated under a rate-based federal plan or model rule. The second federal plan approach we examine assumes all contiguous states are regulated under a mass-based federal plan or model
rule. We use these scenarios to inform this IRFA.
As with the analysis in this RIA, the IRFA proceeds by examining potential costs to small entities under both the rate-based and mass-based approach, again under the strong assumption that all affected EGUs are regulated under a federal plan. The parsed unit-level estimates used in this IRFA are consistent with the analysis presented elsewhere in this RIA. These 2030 year IPM files can also be found in the docket for the rulemaking.
EPA identified the size of ultimate parent entities by using the Small Business Administration (SBA) size threshold guidelines. 34 

### The criteria for size determination vary by the organization/operation category of the ultimate parent entity, as follows:

• Privately-owned (non-government) entities (see Table 2-1)

o Privately-owned entities include investor-owned utilities, non-utility entities, and entities with a primary business other than electric power generation.

o For entities with electric power generation as a primary business, small entities are those with less than the threshold number of employees specified by SBA for each of the relevant North American Industry Classification System (NAICS) sectors (NAICS 2211).

o For entities with a primary business other than electric power generation, the relevant size criteria are based on revenue, assets, or number of employees by
NAICS sector. 35



### • Publicly-owned entities

34 U

. S. Small Business Administration (SBA). 2014. Small Business Size Standards. Effective as of July 14, 2014. See: http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.

35 Certain affected EGUs are owned by ultimate parent entities whose primary business is not electric power generation.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-10 o P ublicly-owned entities include federal, state, municipal, and other political
subdivision entities.

o The federal and state governments were considered to be large. Municipalities and other political units with population fewer than 50,000 were considered to be
small.

• Rural Electric Cooperatives

o Small entities are those with fewer than the threshold level of employees or revenue specified by SBA for each of the relevant NAICS sectors.
EPA examined affected EGUs included in EPA’s 2030 projections and identified the associated power plants. Next, we determined power plant ownership information, including the name of associated owning entities, ownership shares, and each entity’s type of ownership. EPA primarily used data from SNL and Ventyx, supplemented by limited research using publicly
available data. 36 

### Majority owners of power plants with affected EGUs were categorized as one of the seven ownership types. 37 

### These ownership types are:

1. Investor-Owned Utility (IOU): Investor-owned assets (e.g., a marketer, independent power producer, financial entity) and electric companies owned by stockholders, etc.

2. Cooperative (Co-Op): Non-profit, customer-owned electric companies that generate and/or distribute electric power.
3. Municipal: A municipal utility, responsible for power supply and distribution in a small region, such as a city.
4. Sub-division: Political subdivision utility is a county, municipality, school district, hospital district, or any other political subdivision that is not classified as a municipality under state law. 5. Private: Similar to an investor-owned utility, however, ownership shares are not openly traded on the stock markets.

6. State: Utility owned by the state.

36 S N L Financial data covers the energy market and other industries. For more information, see: www.snl.com. The Ventyx database consists of detailed ownership and corporate affiliation information at the EGU level. For more information, see: www.ventyx.com.

37 Throughout this analysis, EPA refers to the owner with the largest ownership share as the “majority owner” even when the ownership share is less than 51 percent.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-11 7. F e deral: Utility owned by the federal government.
Required ownership information could not be determined for two committed units that are represented in the IPM base case modeling for this proposed rule, preventing their inclusion in this analysis. 38


### Next, EPA used the Hoover’s online database to identify the ultimate owners of power plant owners identified in the SNL and Ventyx databases. This was necessary, as many majority owners of power plants (listed in SNL or Ventyx) are themselves owned by other ultimate parent entities (listed in Hoover’s). 39 

### In these cases, the ultimate parent entity was identified via Hoover’s, whether domestically or internationally owned.
EPA followed SBA size standards to determine which non-government ultimate parent entities should be considered small entities in this analysis. These SBA size standards are specific to each industry, each having a threshold level of either employees, revenue, or assets below which an entity is considered small. SBA guidelines list all industries, along with their associated NAICS code and SBA size standard. Therefore, it was necessary to identify the specific NAICS code associated with each ultimate parent entity in order to understand the appropriate size standard to apply. Data from Hoover’s was used to identify the NAICS codes for most of the ultimate parent entities. 40 

### In many cases, an entity that is a majority owner of a power plant is itself owned by an ultimate parent entity with a primary business other than electric power generation. Therefore, it was necessary to consider SBA entity size guidelines for the range of NAICS codes listed in Table 2-1. This table represents the range of NAICS codes and areas of primary business of ultimate parent entities which are majority owners of potentially
affected EGUs in EPA’s IPM base case.

38 T h e ORIS codes of these two units are 83609 and 83921. Without knowledge of entity type and size, it was not possible to accurately estimate revenue or costs impacts. An ORIS code is an identifying number assigned by the U.S. Energy Information Administration to power plants owned by utilities.

39 The Hoover’s Inc. online platform includes company records that can contain NAICS codes, number of employees, revenues, and assets. For more information, see: http://www.hoovers.com.

40 In the case of two entities, NAICS codes could not be located in Hoover’s, so publicly available information was used to determine the primary area of business for the ultimate parent entities.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-12 T ab le 2-1. SBA Size Standards by NAICS Code

Notes: 1) Based on size standards effective at the time EPA conducted this analysis (SBA size standards, effective July 14, 2014) 2) Small business size standards are not established for the Public Administration industry (NAICS code 921110). It is assumed that a comparable NAICS private sector industry is Fossil Fuel Electric Power Generation (NAICS code 221112). Therefore, for this analysis, the NAICS code 921110 is assumed to have a size standard of 750 employees. Source: SBA, 2014 NAICS Code NAICS Description SBA Size Standard

211111 Crude Petroleum and Natural Gas Extraction 500 employees 211112 Natural Gas Liquid Extraction 500 employees 212111 Bituminous Coal and Lignite Surface Mining 500 employees 212221 Gold Ore Mining 500 employees 213112 Support Activities for Oil and Gas Operations $38.5 million in revenue 221111 Hydroelectric Power Generation 500 employees 221112 Fossil Fuel Electric Power Generation 750 employees 221113 Nuclear Electric Power Generation 750 employees 221118 Other Electric Power Generation 250 employees 221121 Electric Bulk Power Transmission and Control 500 employees 221122 Electric Power Distribution 1,000 employees 221210 Natural Gas Distribution 500 employees 238210 Electrical Contractors and Other Wiring Installation Contractors $15 million in revenue 238290 Other Building Equipment Contractors $15 million in revenue 324110 Petroleum Refineries 1,500 employees 325120 Industrial Gas Manufacturing 1,000 employees 325211 Plastics Material and Resin Manufacturing 750 employees 325320 Pesticide and Other Agricultural Chemical Manufacturing 500 employees 331110 Iron and Steel Mills and Ferroalloy Manufacturing 1,000 employees 331313 Alumina Refining and Primary Aluminum Production 1,000 employees 333613 Mechanical Power Transmission Equipment Manufacturing 500 employees 333999 All Other Miscellaneous General Purpose Machinery Manufacturing 500 employees 335312 Motor and Generator Manufacturing 1,000 employees 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing 500 employees
423610 Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers 100 employees
424720 Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals) 100 employees 454310 Fuel Dealers 50 employees 486210 Pipeline Transportation of Natural Gas $27.5 million in revenue 522110 Commercial Banking $550 million in assets 522220 Sales Financing $38.5 million in revenue 522320 Financial Transactions Processing, Reserve, and Clearinghouse Activities $38.5 million in revenue 523120 Securities Brokerage $38.5 million in revenue 523910 Miscellaneous Intermediation $38.5 million in revenue 523920 Portfolio Management $38.5 million in revenue 523930 Investment Advice $38.5 million in revenue 524113 Direct Life Insurance Carriers $38.5 million in revenue 524126 Direct Property and Casualty Insurance Carriers 1,500 employees 524210 Insurance Agencies and Brokerages $7.5 million in revenue 525110 Pension Funds $32.5 million in revenue 525120 Health and Welfare Funds $32.5 million in revenue 525990 Other Financial Vehicles $32.5 million in revenue 541611 Administrative Management and General Management Consulting Services $15 million in revenue 551112 Offices of Other Holding Companies $20.5 million in revenue 561110 Office Administrative Services $7.5 million in revenue 813910 Business Associations $7.5 million in revenue 921110 Public Administration 750 employees

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-13 E P A compared the relevant entity size criterion for each ultimate parent entity to the SBA threshold value noted in Table 2-1. We used the following data sources and methodology to estimate the relevant size criterion values for each ultimate parent entity:

1. Employment, Revenue, and Assets: EPA used the Hoover’s database as the primary source for information on ultimate parent entity employee numbers, revenue, and assets. 41 

### In parallel, EPA also considered estimated revenues from affected EGUs based on analysis of parsed-file estimates for 2030. 42 

### EPA assumed that the ultimate parent entity revenue was the larger of the two revenue estimates. In limited instances, supplemental research was also conducted to estimate an ultimate parent entity’s number of employees,
revenue, or assets.

2. Population: Municipal entities are defined as small if they serve populations of less than 50,000. EPA primarily relied on data from the Ventyx database and the U.S. Census Bureau to inform this determination. Supplemental research of individual municipalities
was also conducted in some instances.
Ultimate parent entities for which the relevant measure is less than the SBA size criterion were identified as small entities and carried forward in this analysis. In the case of six entities, data limitations prevented the comparison of entities against their appropriate SBA size standards. For the purposes of this analysis, EPA assumed that these six entities are small
entities. 43


### EPA identified 223 potentially affected EGUs owned by 74 small entities included in EPA’s 2030 projections. Fifty-nine of these potentially affected EGUs are projected to no longer be operating by 2030 in the Base Case of EPA’s version of IPM v.5.15. 44 

### Twenty-four small

41 E s timates of sales were used in lieu of revenue estimates when revenue data was unavailable.

42 The methodology for the analysis of IPM results is detailed later in this IRFA.

43 Generation from potentially affected EGUs owned by these six entities represents less than two percent of total generation from potentially affected EGUs owned by small entities under EPA’s base case projections.

44 Detailed documentation for IPM v.5.15 is available at: http://www.epa.gov/powersectormodeling.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-14 e n tities are projected to have all of their potentially affected EGUs cease operation by 2030 in
this Base Case.
2.3.4 Compliance Cost Impact Estimates
2.3.4.1 Methodology for Estimating Impacts on Small Entities
This section presents the methodology used in this analysis for estimating the compliance costs of this proposed rule for small entities. For the purposes of this IRFA, EPA estimated net compliance costs for individual EGUs of the proposed rule using the following equation:



## C net compliance cost 

## = ∆ C operating + annualized capital 

## + ∆ C fuel 

## + ∆ C demand-side energy efficiency 

## + ∆ R

where C represents the components of cost as labeled, R represents revenue, and 

## ∆ indicates the calculation of difference between the base case and the federal plan approach under examination. The specific meaning of these variables is discussed below.
This approach to estimate net compliance costs is consistent with previous proposed power sector regulations that required IRFAs, such as the proposed Mercury and Air Toxics
Rule. 45 

### However, there is an additional component in the net compliance cost equation: thechange in the program costs of demand-side energy efficiency programs. Investment in demandside energy efficiency results in lower electricity demand, and consequently fewer emissions as production is reduced to meet the lower demand, an important emission-reduction strategy modelled in the rate-based and mass-based federal plan approaches.
Because this analysis evaluates the net compliance costs as a sum of the costs changes associated with compliance choices as well as changes in electricity revenues, it captures potential net compliance cost increases or decreases. For example, if under the proposed rule entities increase revenue more than costs, the net compliance costs will be negative. As a result, the approach used here to estimate net compliance costs is well-equipped to evaluate the potential distributional consequences of the proposed regulation.
For this analysis, EPA used the parsed unit-level estimates mentioned before to estimate three of the four components of the net compliance cost equation above: the change in operating

45 U

. S. Environmental Protection Agency (U.S. EPA). 2011. Regulatory Impact Analysis of the Proposed Toxics Rule: Final Report . Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/ToxicsRuleRIA.pdf.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-15 a n d annualized capital costs, the change in fuel costs, and the change in revenue, where all changes are estimated as the difference between the base case and federal plan scenario. These impacts were then summed for each small entity, adjusting for ownership share. 46 

### As described momentarily, additional analysis was performed to estimate the change in costs of demand-side energy efficiency that factors in IPM-projected outputs but is not directly an output of the model. These individual components of compliance cost were estimated as follows:

1. Operating and capital costs: Using the IPM parsed estimates for the base case and the rate-based and mass-based federal plan approaches, EPA evaluated changes in operating and capital costs at the EGU level. The equations for calculating operating and capital costs were adopted from technology assumptions used in EPA’s version of IPM version 5.15. The model calculates the capital cost (in $/MW); the fixed operation and maintenance (O&M) cost (in $/MW-year); and the variable O&M cost (in $/MWh).

2. Fuel costs: Using the IPM parsed estimates for the base case and the rate-based and mass-based federal plan approaches, EPA evaluated projected changes in fuel cost at the EGU level. These projected fuel costs are based on estimated EGU-level fuel input (in million British thermal units, MMBtu) and delivered fuel prices ($/MMBtu).

3. Demand-side energy efficiency program costs: Demand-side energy efficiency program costs are estimated and allocated to affected EGUs outside of IPM in thisanalysis. For this analysis, we assumed that IOUs, Co-Ops, Municipals, and SubDivisions are utilities that receive revenues on the basis of retail electricity rates. Retail electricity in this and related EPA analyses contain an energy efficiency surcharge. The surcharge reflects the standard mechanism by which utilities collect revenue from their customers to pay for energy efficiency programs. Such surcharges are approved for inclusion in rates by state utility commission for IOUs or the equivalent authority (e.g., municipal or cooperative utility board of directors) for other utility types. To be consistent, EPA assumes that these utilities will incur an energy efficiency surcharge as a cost in this analysis. The demand-side energy efficiency surcharge is state specific, being

46 U n it-level cost impacts are adjusted for ownership shares for individual small entities, so as not to overestimate burden on each entity.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-16 t h e estimated state demand-side energy efficiency program costs 47 

### divided by projected total state sales. The cost in this analysis is the surcharge multiplied by projected sales
from affected EGUs. 48 

### In contrast, entities of the type Private are not assessed demandside energy efficiency program costs in this analysis. 49 

### This distinction is made because EPA assumes that Private entities own non-utility EGUs that will earn wholesale electricity rates. Wholesale electricity rates do not include a demand-side energy efficiency surcharge in this or related EPA analyses.

4. Revenues: EPA estimated the value of electricity generated by multiplying the projected electricity generation from EPA’s IPM modeling results with the regional retail electricity price estimates ($/MWh), for all entities except those categorized as Private in Ventyx. For private entities, EPA used projected wholesale electricity price instead of retail electricity price estimates because most of the private entities are independent power producers (IPP). Since IPPs sell their electricity to wholesale purchasers and do not own transmission facilities, their revenue was estimated with wholesale electricity prices.

2.3.4.2 Results
This section presents the estimated net compliance cost impacts of the proposed rule on small entities in 2030 based on the following endpoints:

• net compliance costs estimated for the proposed rule for potentially affected small entities, and

47 I n practice, the costs of demand-side energy efficiency programs include the costs to the utilities that are funding the programs (known as the program costs) and the additional cost to the end-user purchasing a more energy efficient technology (known as the participant costs). Based upon a literature review, the analysis supporting this proposed rule and the Clean Power Plan Final Rule, total costs are assumed to be divided evenly, 50 percent each, between program costs and participant costs. This IRFA includes only the program costs expected to be incurred by utilities. For more detail on how the demand-side energy efficiency costs are estimated, see U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

48 For these entity types (i.e., IOUs, Co-Ops, Municipals, and Sub-Divisions), projected sales is estimated to be 7.5 percent less than generation. This 7.5 percent reduction is added to account for estimated transmission losses.

49 Note that in this context, “Private” is one of seven distinct ownership types introduced earlier in this chapter.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-17 • t he ratio of small entity compliance cost impacts to revenues from electricity generation
at affected EGUs
It is worth noting again that the results in this section are based on the assumption made for this analysis that all affected EGUs owned by small entities are subject to this proposed rule. EPA chose to examine this scenario because, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan.
The number of affected small entities by ownership type and the potential impact of the federal plan approaches are summarized in Tables 2-2 through 2-5. These tables are specific to either the rate-based federal plan approach (i.e., rate-based), or mass-based federal plan approach (i.e., mass-based). All costs are presented in 2011 dollars.
EPA estimated the annualized net compliance cost to potentially affected small entities in 2030 to be approximately $364 million under the rate-based approach, and $404 million under the mass-based approach. Results for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost-of-service markets are likely able to recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being over-estimates for this set of
utilities. 50

50 Th i s is similarly discussed in previous EPA analyses. For example, see section 7.4.5.2 within the Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/matsriafinal.pdf.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-18 T ab le 2-2. Number of Affected Small Entities in the Base Case, and Projected Impact

under the Rate-Based Federal Plan Approach in 2030 EGU Ownership Type Number of

Potentially Affected Entities Number of Entities

Projected to Withdraw all Affected Units in Base Case Additional Entities Projected to Withdraw all Affected Units under Rate-Based Approach Co-Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub-Division 6 0 2 Grand Total 74 24 7 Notes: 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### Table 2-3. Projected Impact on Small Entities in 2030 under Rate-Based Federal Plan

Approach
EGU Ownership Type Total Net

Compliance Costs (2011$ millions) Number of Small Entities

with Net Compliance Costs > 1% of Generation Revenues Number of Small Entities

with Net Compliance Costs > 3% of Generation Revenues Co-Op 109 8 3 IOU 186 4 4 Municipal 17 7 5 Private 34 11 9 Sub-Division 18 6 2 Grand Total 364 36 23 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities expe r iencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional revenues some entities may earn from other sources. 3) Nine small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-19 T ab le 2-4. Number of Affected Small Entities in the Base Case, and Projected Impact

under the Mass-Based Federal Plan Approach in 2030

EGU Ownership Type Number of

Potentially Affected Entities Number of Entities

Projected to Withdraw all Affected Units in Base Case Additional Entities Projected to Withdraw all Affected Units under Mass-Based Approach Co-Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub-Division 6 0 0 Grand Total 74 24 5 Notes: 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source: U.S. EPA analysis, based on IPM modeling results.



### Table 2-5. Projected Impact on Small Entities in 2030 under Mass-Based Federal Plan

Approach
EGU Ownership Type Total Net

Compliance Costs (2011$ millions) Number of Small Entities

with Net Compliance Costs > 1% of Generation Revenues Number of Small Entities

with Net Compliance Costs > 3% of Generation Revenues Co-Op 133 10 4 IOU 179 3 3 Municipal 50 5 5 Private 36 8 7 Sub-Division 7 4 2 Grand Total 404 30 21 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities expe r iencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional revenues some entities may earn from other sources. 3) Eleven small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### As noted earlier, there are 74 small entities with potentially affected EGUs that are modeled in the IPM base case in 2030. Of these, 24 small entities are projected to withdraw all of their potentially affected EGUs from operation under base case conditions. This leaves 50 small entities with potentially affected EGUs that are projected to be generating electricity in 2030. Under the rate-based federal plan approach, 7 of these 50 small entities are projected to withdraw all of their potentially affected EGUs from operation by 2030. Under the mass-based federal plan

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-20 a ppr oach, 5 of these 50 small entities are projected withdraw all of their potentially affected EGUs from operation by 2030.
Under the rate-based federal plan approach, 23 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 9 entities are estimated to have net compliance cost savings greater than 3 percent of their generation revenues from affected EGUs. Under the mass-based federal plan approach, 21 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 11 entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from their
affected EGUs.
The separate components of the net compliance costs for small entities under the proposed rule are summarized in Table 2-6 and Table 2-7.
Table 2-6. Incremental Costs in 2030 under the Rate-based Federal Plan Approach

Summarized by Ownership Group and Cost Category in 2030 (2011$ millions)
EGU Ownership Type Capital +

Operating + Fuel Costs ($MM) Energy Efficiency

Program Costs ($MM) Change in

Electricity Revenue ($MM) Total Net

Compliance Costs A B C =A+B-C Co-Op (79) 87 (102) 109 IOU 78 93 (15) 186 Municipal (26) 25 (19) 17 Private (7) 0 (40) 34 Sub-Division (68) 16 (70) 18 Grand Total (102) 221 (246) 364 Note: Totals may not add due to rounding. So ur ce: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-21 T ab le 2-7. Incremental Costs in 2030 under the Mass-based Federal Plan Approach

Summarized by Ownership Group and Cost Category in 2030 (2011$ millions)
EGU Ownership Type Capital +

Operating + Fuel Costs ($MM) Energy Efficiency

Program Costs ($MM) Change in

Electricity Revenue ($MM) Total Net

Compliance Costs A B C =A+B-C Co-Op (178) 84 (228) 133 IOU (17) 91 (104) 179 Municipal (64) 23 (91) 50 Private (2) 0 (38) 36 Sub-Division (38) 18 (27) 7 Grand Total (299) 215 (488) 404 Note: Totals may not add due to rounding. So ur ce: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### The change in electricity revenue under the federal plan approaches take into account both the profit lost from units that do not operate and the difference in revenue for operating units. The cost of withdrawing a unit as uneconomic is estimated as the base case profit that is foregone by not operating under a federal plan approach. One of the primary drivers of the cost impacts is the reduced revenue due to decreased electricity sales related to the modeled implementation of demand-side energy efficiency measures. The EPA solicits comment on: 1) whether it is likely that small entities would consider demand-side strategies as they responded to a federal plan, 2) the appropriateness of considering the demand-side strategies in the analysis, and 3) if demand-side energy efficiency measures are considered in the final analysis, whether it is appropriate to consider them as a cost for a municipality or city-owned utility, as this reduced revenue will translate to direct cost savings for members of the community served by the
affected units.
There are uncertainties and limitations in this analysis that may result in estimates that diverge from what we might see in reality. Some of these have already been noted. Below is a listing of important considerations when interpreting this analysis.

• At the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. The rate-based and mass-based federal plan approaches analyzed in this IRFA are based on a scenario where all states of the contiguous U.S. will be regulated under a federal plan.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-22 • R esults for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost-of-service markets are likely able to recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being
over-estimates for this set of utilities.

• Small entities owning NGCC EGUs operating in competitive markets may be able to recover compliance costs if steam EGUs are setting the marginal price.

• EPA has not factored in consideration of allowances that would be distributed to affected entities nor revenue that could be generated from the sale of ERCs in its analysis. EPA takes comment on how these factors should be considered in the final analysis.

• In this analysis, estimated state demand-side energy efficiency program costs areallocated to utility EGUs owned by IOUs, Co-Ops, Municipals, and SubDivisions based on the share of forecasted total state electricity sales that they are projected to provide. To the extent that this differs in practice, associated costs incurred by small entities may be over- or under-estimated.

• To the extent that the EGU owner information used is not reflective of reality, the number of small entities may be over- or under-estimated.

• To the extent that the entity-level ownership information (i.e., NAICS code, number of employees, revenues, and assets) are not reflective of reality, the number of small entities may be over- or under-estimated.

2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements
The reporting, recordkeeping and other compliance requirements are most likely covered under Part 75 and Part 98 programs for affected EGUs. Therefore, only a marginal additional cost is expected for the monitoring, reporting and recordkeeping requirements of the proposed federal plan for affected EGUs.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-23 2. 3. 6 Related Federal Rules
On September 20, 2013, EPA proposed carbon pollution standards for new fossil fuel fired EGUs. On June 2, 2014, the EPA, proposed carbon pollution standards for modified and reconstructed fossil fuel fired EGUs, in addition to the Clean Power Plan EGs, to cut carbon pollution from existing fossil fuel fired EGUs. These existing EGUs are, or will be, potentially impacted by several other recently finalized EPA rules. On February 16, 2012, the EPA issued the mercury and air toxics standards (MATS) rule (77 FR 9304) to reduce emissions of toxic air pollutants from new and existing coal- and oil-fired EGUs. On May 19, 2014, the EPA issued a final rule under section 316(b) of the Clean Water Act (33 U.S.C. 1326(b)). This rule establishes new standards to reduce injury and death of fish and other aquatic life caused by cooling water intake structures at existing power plants and manufacturing facilities. On June 18, 2014 (79 FR 34830), the EPA promulgated the stream electric effluent limitation guidelines (SE ELG) rule to strengthen the controls on discharges from certain steam electric power plants. On April 17, 2015 (80 FR 21302), the EPA promulgated the coal combustion residuals (CCR) rule, which establishes technical requirements for CCR landfills and surface impoundments under subtitle D of the Resource Conservation and Recovery Act (RCRA), the nation's primary law for regulating
solid waste.
2.3.7 Regulatory Flexibility Alternatives

2.3.7.1 Panel Process
Small Entity Representatives (SERs) commented on their perceptions of the adequacy of the SBREFA panel process for the section 111(d) federal plan. Under the statute, EPA provides “information on the potential impacts of the proposed rule on small entities and the type of small entities that might be affected.” § 609(b)(1). Then SERs are selected, and the Panel collects “advice and recommendations” from each SER. § 609(b)(4). The Panel reviews the SERs’ comments, and “any material the agency has prepared in connection with [the RFA],” and “report[s] on the comments of the [SERs] and its findings as to issues related to” preparation of an IRFA. § 609(b)(5). EPA solicited SERs comments during the course of, and after holding three outreach meetings. The Agency provided information to the SERs on two primary regulatory alternatives for the federal plan – a rate-based trading program and a mass-based trading program. The Agency identified specific areas under both of these alternatives where it

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-24 w a s still in the decision making process and open to recommendations. This information forms the basis for consideration of issues and additional regulatory options important to these small
entities.
Advocacy shares many of the concerns raised by the SERs (see attached letter from Acting Chief Counsel Claudia Rodgers to EPA Administrator Gina McCarthy). While Advocacy endorses the Panel recommendations, Advocacy agrees that the SERs did not have sufficient information to inform advice and recommendations about specific regulatory alternatives and flexibilities. In Advocacy’s view, this is reflected in Panel recommendations that advise EPA to consider issues raised by the SERs rather than to propose or consider regulatory alternatives. Advocacy regrets that the Panel is not able to make more specific recommendations for flexibilities to minimize the impacts on small entities.
While not all members of the Panel agree with all of these concerns, the concerns of the SERs regarding the Panel process have been noted. Nonetheless, EPA is committed to ensuring that it meets the requirements of the RFA and will, to the maximum extent practicable, fully consider the advice and recommendations of representatives of small entities in the development of the proposed rule. The EPA intends to continue working on issues regarding small businesses, and consider appropriate flexibilities, throughout this rulemaking process.
2.3.7.2 Remaining Useful Life
SERs commented that EPA needed to account for remaining useful life of EGUs. Multiple comments addressed challenges that EPA must face in satisfying the statutory mandate that “in applying a standard of performance to any particular source under a plan submitted under this paragraph to take into consideration, among other factors, the remaining useful life of the existing sources to which such standard applies.” SERs are concerned that EPA will develop EGs under section 111(d) in a manner that either prohibits plans from providing this consideration or only providing for plans to “make these adjustments at the expense of other sources.” AEPCO comments that it has obligations under the Rural Electrification Act to operate under an 80-year mandate. SBA recommends EPA propose allowing for guaranteed amount of run-time for small entities to allow them to recoup investment. EPA believes “remaining useful life” is a concern directed toward plants with short remaining lives, but recognizes that there are concerns about economic viability of some marginal plants.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-25 T h e Panel recommends that EPA clearly explain how it took into consideration remaining useful life and take comment on other ways of defining the remaining useful life consideration. The Panel also recommends proposing or considering economic incentives for compliance that could avoid early retirement or reduce the financial effects of early retirements. For instance, the EPA could propose continuing allocations for a set number of years to units that retire in order to alleviate the financial effects of the retirement. EPA should request comment on how long such allocations should continue. The EPA should also consider whether there are parallel mechanisms in a rate-based proposal that could provide similar regulatory relief or benefits for small entities, if appropriate.
2.3.7.3 Design of the Compliance System
The panel requested SER input on a number of aspects of the federal plan design, based on EPA’s presentation of federal plan options. SER comments ranged quite broadly. Comments included: 1) differing opinions within SERs on favor of rate- vs mass-based approaches, 2) emphasis on market liquidity in a program, 3) support for types of allocation methodologies (in a mass-based allowance system), 4) encouragement for early action crediting, 5) increased averaging and compliance times to help small entities, and 6) whether and how to consider the effects of credit/allowance banking, borrowing, and shelf-life on market liquidity. In some instances, no general consensus emerged. The Panel notes the following specific areas where it is making a recommendation.

Mass-based or rate-based trading
Various SERs favored one system over the other, and some suggested that each individual small entity should be able to choose the system under which they would comply. However, it is unclear to what extent SERs would favor such choice at the expense of a broader trading pool. The panel, however, notes that the idea of individual companies within a statechoosing which system to comply would significantly limit the opportunity for intra- or interstate trading and would therefore not be consistent with other recommendations. The Panel recommends that EPA take comment on which approach (mass or rate) is preferable. In the interests of maximizing liquidity across all federal plan states, the Panel recommends that EPA should propose to finalize a single approach for all federal plans.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-26 A l locations and credit issuance/early action
SERs expressed a variety of views on the appropriate method of allocating allowances under a mass-based system or credits under a rate-based system. Some preferred allowing states to make these decisions. Some wanted allocations to account for early action and energy efficiency efforts. The Panel agrees that EPA should take comment on the use of allocations to minimize the impact of the federal plan on small entities. The Panel notes that the early incentive pool that is part of the EGs does provide credit for early action, but the SERs did not have an opportunity to respond to this flexibility. The panel recommends that in the federal plan the EPA allow credit for early action and energy efficiency efforts to the extent it is allowed under the guidelines.

Non-generating party participation and market liquidity
SERs generally supported developing a system that would ensure a sufficient supply of credits be available on the open market and available for free trade to ensure that they would not be disadvantaged by large utilities withholding excess credits generated by renewable energy in their portfolio. However, some SERs also expressed the need to be able to generate and use credits internally (particularly those with generation across multiple states) (i.e., a portfolio approach). Some SERs endorsed allowing non-generating parties to create and sell credits or allowances. Other SERs warned that third parties should not be allowed to purchase credits or allowances for the purpose of retiring them without offsetting GHG emissions from electricity generation. The Panel recommends that the EPA ensure a liquid market in compliance instruments, through consideration, request or comment, or proposal of several of options, including: allocation methods or rules that could impact liquidity, mechanisms to place allowances or credits into the market relatively early, requirements for public transparency of information related to allowance or credit issuance, tracking, transfers, and holdings, and whether and to what extent oversight authority exists related to measures to ensure liquid
markets Additionally, the Panel recommends that EPA solicit comment on other approaches to ensure liquidity, including but not limited to the concept of an early incentive pool which would serve to incentivize early reductions and create a market of additional allowances.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-27 2. 3. 7.4 Renewable Energy and Energy Efficiency
Generally SERs encouraged EPA to incorporate existing EE efforts into the program in a way that gives credit for the investment and to rely on “deemed” energy savings to earn compliance credits. SERs raised concerns about the accounting of investments in RE and EE efforts in their compliance with GHG emission standards.
SERs also expressed concern that they be able to generate and use credits across state lines. This is particularly important for the investment in renewables, for which the generating potential is highly dependent on geography and is unequally distributed among the states. Thus, the Panel recommends that EPA develop a credit or allowance compliance program that allows for interstate accounting and trading for states under the federal plan. Additionally, the Panel recommends that the program include opportunities for interstate trading between sources in states under the federal plan and states under compatible state plans.

The Panel recommends that EPA consider the treatment of RE and EE in rate-based and mass-based federal plan contexts. EPA should further consider how to implement preferred policy options in a way that incentivizes investment and does not create unintended barriers for small entities. The Panel also recommends that EPA allow crediting of RE across states under the federal plan while soliciting comment for allowing crediting for EE across states under the federal plan.
2.3.7.5 Reliability
Multiple SERs expressed concerns that implementation of the EGs, either by states or through a federal plan, could have a negative impact on reliability because individual units could have operational obligations that conflict with the emissions requirements. In their comments, both the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA) recommend Dynamic Reliability Safety Valve. EPA noted that the use of a reliability mechanism in the EGs is provisioned on the concern that some forms of state plan may create inflexible requirements that could in some limited circumstances raise a reliability concern. However, EPA believes the design of the federal plan as a flexible trading program alleviates these concerns and therefore a reliability mechanism is not needed.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-28 T h e Panel recognizes the connection between meeting the GHG reduction goals of the federal plan and maintaining the reliability of the electric grid. The Panel recommends that EPA fully explain in the proposal and take comment on methods to address reliability and EPA should take comment on establishing a reliability safety valve, and whether there is a need for regulatory flexibility for reliability critical units beyond the flexibilities already built into the design of the federal plan.
2.3.7.6 Subcategorization/Applicability/Exemptions
SER comments on applicability reflect concerns related to the combined series of rulemakings affecting GHG emissions from electricity generating units: the NSPS, the EGs and the federal plan. SERs endorse excluding RICE and NGSC units from the combined rulemakings. One SER requests a subcategory that addresses the particular characteristics of lignite coal. Some SERs suggest special provisions for small units or utilities, including a small system exemption. The SBA suggested taking comment on an economic hardship exemption for small entities and that EPA propose a mechanism for additional compliance time when generation and transmission investments necessary for compliance have been delayed by government reviews. However, EPA noted that regulatory exemptions must be grounded in statute and supported by analysis, and EPA believes the design of the federal plan itself should maximize compliance options that are both consistent with the EGs and also should adequately
address these concerns.
The Panel notes that EPA must be consistent with the EGs on issues of applicability, which should address the SERs’ concerns with regard to inclusion of RICE or NGSC units. The Panel also notes that EPA is proposing a design to the federal plan that utilizes emission trading and thus maximizes compliance options such that individual units can take into account their particular characteristics in designing a compliance strategy. In EPA’s view, this makes it less likely that there is a need for further sub-categorization or the use of unit-specific exemptions. Additionally, the Panel recommends that EPA solicit comment on an alternative allocation methodology under the mass-based proposed federal plan that may increase allocations for small businesses, and consider whether there are parallel mechanisms in a rate-based proposal that could provide similar regulatory relief or benefits for small entities, if appropriate.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-29 2. 4 Unfunded Mandates Reform Act (UMRA)
This action contains a federal mandate under UMRA, 2 U.S.C. 1531-1538, that could potentially result in expenditures of $100 million or more for state, local, and tribal governments, in the aggregate, or the private sector in any one year. This federal plan will apply only to those EGUs located in states that do not submit approvable state plans, which is a subset of the EGUs considered in the RIA for the final emission guidelines (EGs). Because it is impossible to determine at this time which states might be ultimately subject to a federal plan, EPA cannot determine whether this final rule will be subject to UMRA. However, as noted below, the Agency has done substantial outreach to government entities as part of both the federal plan and the related 111(d) rulemaking. Further, regardless of whether EPA does determine that this action ultimately meets the UMRA threshold, the agency intends to do additional outreach with government entities between now and the final rule. Additionally, the EPA has determined that this action is not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments.
Nevertheless, the EPA is aware that there is substantial interest in this rule among small entities (e.g., municipal and rural electric cooperatives). In light of this interest, prior to this action, the EPA sought early input from representatives of small entities while formulating the provisions of the proposed regulation. Such outreach is also consistent with the President’s January 18, 2011 Memorandum on Regulatory Flexibility, Small Business, and Job Creation, which emphasizes the important role small businesses play in the American economy. This outreach process has enabled the EPA to hear directly from these representatives, as EPA developed the rule about how the EPA should approach the complex question of how to apply section 111 of the CAA to the regulation of GHGs from these source categories. We invite comments on all aspects of this proposal and its impacts, including potential adverse impacts, on
small entities.

2.5 Executive Order 13132: Federalism
The EPA believes that this proposed rule may be of significant interest to state and local governments due to its relationship with the Clean Power Plan EGs. Therefore, the EPA has determined that consultations with state and local governments conducted during the Clean Power Plan EGs development process are also relevant to this proposed rule. Consistent with the

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-30 E P A’s policy to promote communications between the EPA and state and local governments, the EPA consulted with state and local officials early in the process of developing the Clean Power Plan EGs to permit them to have meaningful and timely input into its development. As described in the Federalism discussion in the preamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501; January 8, 2014), the EPA consulted with state and local officials in the process of developing the proposed standards for newly constructed EGUs. A detailed Federalism Summary Impact Statement (FSIS) describing the most pressing issues raised in pre-proposal and post-proposal comments will be forthcoming with the final Clean Power Plan EGs, as required by section 6(b) of Executive Order 13132. In the spirit of Executive Order 13132, and consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA specifically solicits comment on this proposed
action from state and local officials.

2.6 Executive Order 13175: Consultation and Coordination with Indian Tribal
Governments
This proposed action has tribal implications. However, it will neither impose substantial direct compliance costs on federally recognized tribal governments, nor preempt tribal law. The EGU potentially impacted by this proposed rulemaking located on Indian reservations are primarily owned by private entities, and in one case, partially owned by an agency of the U.S. government. As a result, the tribes on whose areas of Indian country those units are located will not be directly impacted by any costs of complying with this proposed rulemaking incurred by the owners/operators of those units. There would only be tribal implications in regards to compliance costs associated with this proposed rulemaking in the case where a tribal government has an ownership interest in a potentially affected EGU. A tribal government could also incur costs in the event that it seeks and is given delegated authority to enforce the federal plan proposed in this rulemaking. The EPA has, nevertheless, offered consultation to the tribes on whose areas of Indian country the units are located. As part of its general outreach to tribes regarding this proposed rulemaking, the EPA received feedback from a number of tribes regarding the potential overall economic impact that both the proposed Clean Power Plan and a proposed federal plan rulemaking may have on them. In these instances, the EPA has reached out to these tribes and as part of the consultation on the Clean Power Plan engaged with them on their concerns regarding a potential federal plan.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-31 T h e EPA has conducted consultation with tribes on the Clean Power Plan and the Supplemental Proposal for the Clean Power Plan and will offer all tribes consultation on this proposed action. The EPA held consultations with tribes on the Clean Power Plan in the fall of 2014 before the agency issued its Supplemental Proposal for Indian Country and U.S. Territories. Additionally, the EPA held consultations for tribes shortly following the release of the supplemental proposal. The agency also held a public hearing on the supplemental proposal on November 19, 2014, in Phoenix, Arizona. At the public hearing the agency received oral comments from community members representing a number of tribes and a number of tribal officials. The agency also conducted consultation with tribes in the spring and summer of 2015. An overview of the consultations provided as part of the Clean Power Plan is available in section
XII.F of the final EGs.
Additionally, the EPA engaged in meaningful dialogue with tribal stakeholders to obtain their feedback in the pre-proposal stages of this rulemaking. We provided an update on this proposed rulemaking on the May 28, 2015, National Tribal Air Association and the EPA Air Policy call. Additionally, staff attended the National Tribal Forum conference on May 20, 2015 and provided an overview of the Clean Power Plan and explained that the agency would be proposing a federal plan.
Consistent with previous rulemakings impacting the power sector, there is significant tribal interest in these rulemakings because of the potential indirect impacts that rules such as the Clean Power Plan and this proposed federal plan may have on tribes. The EPA specifically solicits additional feedback from tribal officials on all aspects of this proposed rulemaking, including whether tribes whose areas of Indian country contain affected EGU(s) are interested in developing their own plan implementing the final EGs. Additionally, tribal stakeholders will be included in the outreach that the agency will be conducting with those communities already overburdened by pollution, which are often low-income communities, communities of color, and indigenous communities. The actions that the agency will be taking are outlined in section IX of the preamble.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-32 2. 7 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks
The EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying to those regulatory actions that concern health or safety risks, such that the analysis required under section 5–501 of the Order has the potential to influence the regulation. This action is not subject to EO 13045 because it does not involve decisions on environmental health or safety risks that may disproportionately affect children. The EPA believes that the CO2 emission reductions resulting from implementation of the proposed guidelines, as well as substantial ozone and PM2.5 emission reductions as a cobenefit, would further improve children’s health.
2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use
This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepared a Statement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction in coal-fired electricity generation as a result of this rule. The EPA projects that utility power sector delivered natural gas prices will increase by up to 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal in Chapter 1 of this RIA.
2.9 National Technology Transfer and Advancement Act (NTTAA)
This proposed action does not involve technical standards.

2.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations Executive Order 12898 (59 FR 7629; February 16, 1994) establishes federal executive policy on EJ. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make EJ part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the U.S. The EPA defines EJ as the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-33 e nf orcement of environmental laws, regulations, and policies. The EPA has this goal for all communities and persons across this Nation. It will be achieved when everyone enjoys the samedegree of protection from environmental and health hazards and equal access to the decisionmaking process to have a healthy environment in which to live, learn, and work.
Leading up to this rulemaking the EPA summarized the public health and welfare effects of GHG emissions in its 2009 Endangerment Finding. As part of the Endangerment Finding, the Administrator considered climate change risks to minority populations and low-income populations, finding that certain parts of the population may be especially vulnerable based on their characteristics or circumstances. Populations that were found to be particularly vulnerable to climate change risks include the poor, the elderly, the very young, those already in poor health, the disabled, those living alone, and/or indigenous populations dependent on one or a few resources. See sections X.F and X.G of the preamble where the EPA discusses Consultation and Coordination with Tribal Governments and Protection of Children. The Administrator placed weight on the fact that certain groups, including children, the elderly, and the poor, are most
vulnerable to climate-related health effects.
The record for the 2009 Endangerment Finding summarizes the strong scientific evidence in the major assessment reports by the U.S. Global Change Research Program, the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council of the National Academies that the potential impacts of climate change raise EJ issues. These reports concluded that poor communities can be especially vulnerable to climate change impacts because they tend to have more limited adaptive capacities and are more dependent on climate-sensitive resources such as local water and food supplies. In addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those impacted by degradation of
natural and cultural resources within established reservation boundaries and threats to traditional subsistence lifestyles. Tribal communities whose health, economic well-being, and cultural traditions that depend upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated with climate change. The 2009 Endangerment Finding record also specifically noted that Southwest native cultures are especially vulnerable to water quality and availability impacts. Native Alaskan communities are already experiencing disruptive impacts, including coastal erosion and shifts in the range or abundance of wild species crucial to their livelihoods and well-being.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-34 T h e most recent assessments continue to strengthen scientific understanding of climate change risks to minority populations and low-income populations in the U.S. 51 

### The new assessment literature provides more detailed findings regarding these populations’ vulnerabilities and projected impacts they may experience. In addition, the most recent assessment reports provide new information on how some communities of color may be uniquely vulnerable to climate change health impacts in the U.S. These reports find that certain climate change related impacts—including heat waves, degraded air quality, and extreme weather events—have disproportionate effects on low-income populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location), raising EJ concerns. Existing health disparities and other inequities in these communities increase their vulnerability to the health effects of climate change. In addition, assessment reports also find that climate change poses particular threats to health, well-being, and ways of life of indigenous peoples in the U.S.
As the scientific literature presented above and as the 2009 Endangerment Finding illustrates, low income populations and some communities of color are especially vulnerable to the health and other adverse impacts of climate change. The EPA believes that communities will benefit from this proposed federal plan because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 

### emission standards for existing affected fossil fuel-fired EGUs.
In addition to reducing CO 2 

### emissions, the guidelines finalized in this rulemaking would reduce other emissions from affected EGUs that reduce generation due to higher adoption of EE

51 M e lillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program, 841 pp. IPCC, 2014: Clim ate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 1132 pp. IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects

. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Barros, V.R., C.B. Field, D.J. Dokken, M.D. Mastrandrea, K.J. Mach, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 688 pp.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-35 a n d RE. These emission reductions will include SO 2 

### and NO x 

### , which form ambient PM 2.5 

### and ozone in the atmosphere, and HAP, such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 

### NAAQS, 52 

### the EPA identified low-income populations as being avulnerable population for experiencing adverse health effects related to PM exposures. Lowincome populations have been generally found to have a higher prevalence of pre-existing diseases, limited access to medical treatment, and increased nutritional deficiencies, which can increase this population’s susceptibility to PM-related effects. 53 

### In areas where this rulemaking reduces exposure to PM 2.5 

### , ozone, and methylmercury, low-income populations will also benefit from such emissions reductions. Chapter 1 of this RIA provides additional information regarding the health and ecosystem effects associated with these emission reductions.
Additionally, as outlined in the community and EJ considerations section IX of the preamble, the EPA has taken a number of actions to help ensure that this action will not have potential disproportionately high and adverse human health or environmental effects on vulnerable communities. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when determining what
actions to take. 54 

### As described in the community and EJ considerations section of the preamble the EPA also conducted a proximity analysis, which is available in the docket of this rulemaking and is discussed in section IX of the preamble. Additionally, as outlined in sections I and IX of the preamble the EPA has engaged meaningfully with communities throughout the development of the CPP and has devised a robust outreach strategy for continual engagement throughout this rulemaking.

52 “ N ational Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013).

53 U.S. Environmental Protection Agency (U.S. EPA). 2009. Integrated Science Assessment for Particulate Matter (Final Report) . EPA-600-R-08-139F. National Center for Environmental Assessment – RTP Division. December. Available on the Internet at http://www.cfpub.epa.gov/si/si_public_record_Report.cfm?dirEntryId=216546

. 54 Guidance on Considering Environmental Justice During the Development of Regulatory Actions. http://www.epa.gov/environmentaljustice/resources/policy/considering-ej-in-rulemaking-guide-final.pdf. May 2015.

### ***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

Uni t ed States Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC Publication No. EPA-452/R-15-006 July 2015

### Attachment R.2

# Regulatory Impact Analysis for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rule s; Amendments to Framework Regulations

### [T his page intentionally left blank]

### EPA

- 452/R-15-006 July 2015



## Regulatory Impact Analysis for the for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rule

U.S. Environmental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Research Triangle Park, NC 27711

### CONT ACT INFORMATION

This document has been prepared by staff from the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy of the U.S. Environmental Protection Agency. Questions related to this document should be addressed to Alexander Macpherson, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, North Carolina 27711 (email: macpherson.alex @epa.gov ).

ACKNOWLEDGEMENTS
Thank you to the many staff who worked on this document from EPA Offices including the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Pol icy. Contributions to this report were also made by ICF International . and RTI International.

## Contents

L IST OF 

### T ABLES 

### ............................................................................................................................ vii

C HAPTER 

### 1: S UMMARY OF 

### P OTENTIAL 

### R EGULATORY 

### I MPACTS 

### ..................................................1

1.1 Introduction ....................................................................................................................1 1.2 Legal, Scientific and Economic Basis for this Rulemaking ..........................................2 1.2.1 Statutory Requirement ........................................................................................2 1.2.2 Health and Welfare Impacts from Climate Change ............................................3 1.2.3 Market Failure ....................................................................................................4 1.3 Background for the Proposed Federal plan and model trading rules .............................5 1.3.1 Definition of Affected Sources ...........................................................................5 1.3.2 Trade in Compliance Instruments across State s .................................................5 1.3.3 Model Trading Rule............................................................................................6 1.4 Summary of Regulatory Analysis ..................................................................................7 1.4.1 Base Case and Years of Analysis .......................................................................9 1.4.2 Federal Plan Approaches Examined in RIA .....................................................10 1.5 Summary of Regulatory Analysis ................................................................................14 1.5.1 Emissions Reductions .......................................................................................14 1.5.2 Costs .................................................................................................................16 1.5.3 Monetized Climate Benefits and Health Co

- benefits .......................................18 1.5.4 Net Benefits ......................................................................................................30 1.5.5 Econ omic Impacts ............................................................................................33 1.5.6 Employment Impacts ........................................................................................33 1.5.6 Additional Analysis of Output- Based Allocation as a Means of Mitigating

Leakage ........................................................................................................................35 1.5.7 Uncertainty Analysis ........................................................................................36 1.6 References ....................................................................................................................40

C HAPTER 

### 2: S TATUTORY AND 

### E XECUTIVE 

### O RDER 

### R EVIEWS 

### .......................................................1

2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review ........................................................1 2.2 Paperwork Reduction Act ..............................................................................................4 2.3 Initial Regulatory Flexibility Analysis ...........................................................................6 2.3.1 Reasons why Action is Being Considered ..........................................................6 2.3.2 Statement of Objectives and Legal Basis for Proposed Rules ............................8 2.3.3 Description and Estimate of Affected Small Entities .........................................9 2.3.4 Compliance Cost Impact Estim ates ..................................................................16 2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements ...24 2.3.6 Related Federal Rules .......................................................................................25 2.3.7 Regulatory Flexibility Alternatives ..................................................................25 2.4 Unfunded Mandates Reform Act (UMRA) .................................................................32 2.5 Executive Order 13132: Federalism ............................................................................33 2.6 Executive Order 13175: Consultation and Coordination with Indian Tribal Governments .......................................................................................................................33

### 2.7 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks ..................................................................................................................35 2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use .............................................................................................................35 2.9 National Technology Transfer and Advancement Act (NTTAA) ...............................36 2.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations ..........................................................36

## L IST OF 

## T ABLES



### Table 1 -1. Climate and Air Pollutant Emission Reductions for the Rate

- Based Federal Plan Approach 1 

### ..................................................................................................................14

Table 1 -2. Climate and Air Pollutant Emission Reductions for the Mass

- Based Federal Plan Appproach 1 

### ................................................................................................................15

Table 1 -3. Projected CO 2 

### Emission Reductions, Relative to 2005 ........................................16

Table 1 -4. Compliance Costs for the Federal Rate

- Based and Mass

- Based Plan Approaches ........................................................................................................................18

Table 1 -5 Quantified and Unquantified Benefits ..................................................................20

Table 1 -6. Combined Estimates of Climate Benefits and Health Co

- Benefits for Rate

Based Approach (billions of 2011$)* ................................................................................29

Table 1 -7. Combined Estimates of Climate Benefits and Health Co

- benefits for Mass

Based Approach (billions of 2011$)* ................................................................................30

Table 1 -8. Monetized Benefits, Compliance Costs, and Net Benefits Under the Ratebased Federal Plan Approach (billions of 2011$) a 

### ...........................................................31

Table 1 -9. Monetized Benefits, Compliance Costs, and Net Benefits under the Massbased Federal Plan Approach (billions of 2011$) a 

### ...........................................................32

Table 1 -10. Summary Table of Important Energy Market Impacts (Percent Change from Base Case) ..........................................................................................................................33

Table 2 -1. SBA Size Standards by NAICS Code ..................................................................13

Table 2 -2. Number of Affected Small Entities in the Base Case, and Projected Impact under the Rate-Based Federal Plan Approach in 2030 ......................................................19

Table 2 -3. Projected Impact on Smal l Entities in 2030 under Rate- Based Federal Plan Approach ............................................................................................................................19

Table 2 -4. Number of Affected Small Entities in the Base Case, and Projected Impact under the Mass-Based Federal Plan Approach in 2030 .....................................................20

Table 2 -5. Projected Impact on Small Entities in 2030 under Mass- Based Federal Plan Approach ............................................................................................................................20

Table 2 -6. Incremental Costs in 2030 under the Rate- based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .............21

### Tab le 2 -7. Incremental Costs in 2030 under the Mass- based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .............22

## C HAPTER 

## 1: S UMMARY OF 

## P OTENTIAL 

## R EGULATORY 

## I MPACTS



### 1.1 Introduction
This Regulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of for the “Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Mod el Trading
Rule s; Amendments to Framework Regulations ” (herein also referred to as “proposed federal plan and model trading rules” 1 

### ). In this action, the Environmental Protection Agency (EPA) is proposing a federal plan to implement the emission guidelines for existing fossil fuel -f ired E GU s under the Clean Air Act (CAA). The emission guidelines were proposed in June 2014 and
finalized on August 3, 2015[ &&& ] as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units ( also referred to as the Clean Power Plan
Clean Power Plan or Emission Guidelines). The EPA is taking comment on many of the elements
of this proposal.
This proposal presents two approaches to a federal plan (or model rule) for states and
other jurisdictions that either chose to adopt a model rule or do not adopt and and submit to the EPA in a timely manner an approvable state plan: a rate -based emission trading program and a

mass -based emission trading program. The federal plan is an important me asure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented. The agency is also proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the f ederal plan for these affected EGUs. Th is proposal
also constitute s two proposed model trading rules that states can adopt or tai lor for implementation of the emission guideline s. The proposed federal plan is related to but separate from the final Final Cl ean Power Plan Emission Guidelinesemission guidelines . The final emission guidelines establish the best system of emission reduction (BSER) for applicable fossil fuel-fired EGUs in the form of a standard of
&&& for to subcategorizeda carbon dioxide (CO 2 

### ) emission performance rate s for steam

- fired

1 The proposed amendments to the framework regulations for section 111(d) are limited to enhancements in the procedure and timing of the EPA’s action on state plans. See Section VII of the preamble. They do not modify requirements or obligations in the CPP or other substantive rules, or directly regulate any third parties. Therefore, the EPA has not included these changes in its analysis in this RIA and proposes to certify that these changes will not have a significant impact on a significant number of small entities pursuant to the Regulatory Flexibility Act (RFA).

### EGUs and a CO 2 

### emission performance rate a standard of &&& for natural gas

- fired combined cycle units EGUs
, and provide guidance and criteria for the development of approvable state plansand provide equivalent mass - and rate

- based state goals as well as guidance and criteria for the development of approvable state plans . The purpose of the proposed federal plan is to establish requirements
, directly applicable to a state’s affected EGUs that meet the emission

pe rformance levels in order to achieve reductions in carbon dioxide ( CO 2 

### ) emissions in the case where a state or other jurisdiction does not submit an approvable plandetermined by application of the BSER in order to achieve reductions in carbon dioxide (CO 2 

### ) emissions in the case where a state or other jurisdiction does not submit an approvable plan . The stringency of the emission performance levels established in the final emission EG sguidelines will be the same whether implemented through a state plan or a federal plan.

1.2 Legal, Scientific and Economic Basis for this Rulemaking
1.2.1 Statutory Requirement
Section 111(d)(2) of the C lean Air Act (C AA ), 42 U.S.C. 7411 (d)(2) provides the EPA the same authority to prescribe a plan for a state in cases where t he state fails to submit a satisfactory plan as the Agency would have under CAA section 110(c) in the case of failure to
submit a National Ambient Air Quality Standard implementation plan. In addition, the EPA has authority under CAA section 111(d)(1) to p rescribe regulations that establish procedures similar

to CAA section 110 with respect to the submission of state plans, and the EPA also has general rulemaking authority as necessary to implement the CAA under section 301. A federal Plan
under CAA section 111(d) applies, implements and enforces standards of performance for
affected EGUs . Under the Clean Power Plan Emission Guidelines , state plans will be due on [August 31 September 6 , 2016 ] . States are also allowed to seek a two year extension for a final plan submittal, upon submitting a satisfactory initial submittal by the same deadline. If a state fails to submit a final state plan or initial submittal, or if either a final state plan or an initial
submi ttal does not meet the requirements of the final emission guidelines, the A gency will take the appropriate steps to finalize and implement a federal plan.
States will remain free, and indeed are strongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jurisdictions. Upon approval of the state

### plan by EPA, the federal plan will no longer apply to the affected EGUs covered by the approved state plan , starting at the initiation of the next compliance period with the limitations noted in the federal plan

. 1.2.2 Health and Welfare Impacts from Climate Change
According to the National Research Council, “Emissions of CO 2 

### from the burning of fossil fuels have ushered in a new epoch where human activities will la rgely determine the
evolution of Earth’s climate. Because CO 2 

### in the atmosphere is long lived, it can effectively lock Earth and future generations into a range of impacts, some of which could become very severe. Therefore, emission reduction choices made today matter in determining impacts experienced not just over the next few decades, but in the coming centuries and millennia.” 2


### In 2009, based on a large body of robust and compelling scientific evidence, the EPA Administrator issued the Endangerment Finding under CAA section 202(a)(1). 3 

### In the Endangerment Finding, the Administrator found that the current, elevated concentrations of GHGs in the atmosphere—already at levels unprecedented in human history— may reasonably be anticipated to endanger public health and welfare of current and future generations in the
United States.
Since the administrative record concerning the Endangerment Finding closed following the EPA’s 2010 Reconsideration Denial, the climate has continued to change, with new records being set for a number of climate indicators such as global average surface temperatures, Arctic sea ice retreat, CO 2 

### concentrations, and sea level rise. Additionally, a number of major scientific assessments have been released that improve understanding of th e climate system and strengthen the case that GHGs endanger public health and welfare both for current and future generations.
These assessments are from the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Change Research Program (USGCRP) , and the National Research Council (NRC). These
and other assessments are discussed in more detail in the Final Clean Power Plan Emission

2 National Research Council, Climate Stabilization Targets, p.3.

3 “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under under Section 202(a) of the Clean

Air Act,” 74 Fed. Reg. 66,496 (Dec. 15, 2009) (“Endangerment Finding”).

### Gui delines p reamble and in Chapter 4 of the Clean Power Plan Final Rule Regulatory Impact Analysis (RIA). 4



### 1.2.3 Market Failure
Many regulations are promulgated to correct market failures, which otherwise lead to a suboptimal allocation of resources within the free market. Air quality and pollution control regulations address “negative externalities” whereby the mark et does not internalize the full opportunity cost of production borne by society as public goods such as air quality are unpriced.
GHG emissions impose costs on society, such as negative health and welfare impacts, that are not reflected in the market pri ce of the goods produced through the polluting process. For this regulatory action the good produced is electricity. If a fossil fuel- fired electricity producer pollutes the atmosphere when it generates electricity, this cost will be borne not by the pollu ting firm but by society as a whole, thus imposing a negative externality. The equilibrium market price of electricity may fail to incorporate the full opportunity cost to society of generating electricity. All else equal, given this externality, the compo sition of EGUs used to generate electricity in a free market will not be socially optimal, and the quantity of electricity generated may not be at the socially optimal level. Fossil fuel -fired EGUs may produce more electricity than would occur if they had to account for the cost associated with this negative externality. Consequently, absent a regulation on emissions, the composition of the fleet of EGUs used to generate electricity may not be socially optimal, and the marginal social cost of
the last unit of electricity produced may exceed its marginal social benefit. In t he instances where the agency finalize s and implement s a federal plan for a state’s affected EGUs , this proposed regulation will work towards addressing this market failure by causing affe cted EGUs to begin to internalize the negative externality associated with CO 2 

### emissions.

4 U.S. Environmental Pro tection Agency (U.S. EPA). 2015a

. Regulatory Impact Analysis for the Clean Power Plan

Final Rule. EPA

- 452/R

- 15

- 003. Office of Air Q uality Planning and Standards, Health and Environmental Impacts Division, Rese arch Triangle Park, NC

.

### 1.3 Ba ckground for the Proposed Federal plan and model trading rules

1.3.1 Definition of Affected Sources
Existing fossil fuel

- fired electric generating units subject to the final Clean Power Plan Emission Guidelines that are located in a state that does not have an EPA-approved state plan are potentially subject to this proposed action. Existing fossil fuel- fired EGUs are those that were in operation or had commenced construction on or before January 8, 2014. 5


### 1.3.2 Trade in Compliance Instruments across States in the Federal Plan
The EPA intends to set up and administer a program to track trading programs – both

rate

- based and mass -based – that will be availab le for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs in any other state covered by a federal plan or a state plan meeting the conditions for linkage to the federal plan. In the proposed mass- based federal -plan trading program, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. Similarly, in the proposed rate- based federal -plan trading program approach, this would mean that affected EGUs i n a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a comp liance instrument, an ERC issued in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. EPA is proposing that an affected EGU in a state covered by the mass

- based trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a state covered by the rate

- based trading federal plan must use
ERCS for compliance (not allowances). The EPA intends to set up and administer a program to track trading programs – both rate- and mass -based – that will be available for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs, or procure zero- emissions megawatt hours (MWhs) from eligible resources, in any other state covered by a federal plan that uses the same

5 A n affected EGU is any fossil fuel

- fired EGU that was in operation or had commenced construction as of January

8, 2014, and is therefore an ‘‘existing source’’ for purposes of CAA section 111, and that in all other respects would meet the applicability criteria for coverage under the proposed GHG standards for new fossil fuel

- fired EGUs (79 FR 1430; January 8, 2014)

.

### approach. In the proposed mass- based federal -plan trading program, this would mean that affected EGUs in a state covered by the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by a federal plan. Similarly, in the proposed

rate

- based federal -plan tradi ng program approach, this would mean that affected EGUs in a state covered by a federal plan could use, as a compliance instrument, an emission rate credit (ERC) issued in any other state covered by a federal plan. We propose that an affected EGU in a state covered by a mass -based trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a state covered by the rate

- based trading federal plan must use
ERC S for compliance (not allowances ).
1.3.3 Model Trading Rule
A state program that adheres to the model trading rule provisions specified in this rulemaking would be presumptively approvable. States may submit means of meeting the emission guidelines requirements that differ from the model trading rule provisions, so long as the state demonstrates to the EPA’s satisfaction in the state plan submitt al that such alternative means of addressing requirements are at least as stringent as the presumptively approvable approach described here. Additionally, there are stand-alone portions of the model trading rule s, such as the evaluation, measurement , and v erification ( EM&V ) procedures that would be approvable even if a state adopted an approach that differs from the federal plan. The model trading rule s serve as a mechanism to facilitate larger trading markets since consistency with the federal plan allows trading across both the state and federal programs. The EPA expects a larger trading region is likely to result in lower overall costs. A state program that adheres to the model trading rule provisions specified in this proposal would be presumptively approvable. Additionally, there are stand-alone portions of the model trading rules, such as the evaluation, measurement and verification (EM&V) procedures, that would be approvable even if a state adopted an approach that differs fr om the federal plan. The model trading rules serves as a mechanism to create larger trading markets since consistency of state plans with the federal plan allows trading across both the state and federal programs. The EPA expects that a larger trading regi on would likely result in lower overall costs of compliance to affected EGUs due to the increase in abatement options

.

### 1.4 S ummary of Regulatory Analysis
In accordance with Executive Order 12866, Executive Order 13563, OMB Circular A-4,
and the EPA’s “Gui delines for Preparing Economic Analyses,” the EPA prepared this RIA for this “significant regulatory action. ” T his action is an economically significant regulatory action
because it may have an annual effect on the economy of $100 million or more or advers ely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities. 6


### This action proposes a federal plan under section 111(d) of the CAA for the control of
CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil -fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass - and ra te -based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs . Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission performance rat es in the emission guidelines . The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.
However, at the time of this proposal, the EPA has no information on whether any or how many st ates will require a federal plan or adopt a model rule. Because of this lack of information, for this RIA, the EPA has chosen to examine two federal plan approach a scenario s where all states of the contiguous U.S. will be regulated under a federal plan or a model rule

. Furthermore, because of the lack of information as to which states will adopt the model rule, the EPA has chosen to examine a scenario where all states of the contiguous U.S. adopt the model trading rule . Additionally, we examine two alternative federal plan approach scenarios, which will be described in more detail below, for implementation of federal plans. The first federal plan approach we examine in this RIA assumes all states in the contiguous U.S. ar e regulated under a

rate

- based federal plan or model rule . The second federal plan approach we examine assumes all contiguous states are regulated under a mass- based federal plan or model rule

. These two

6 The analysis in this proposal RIA constitutes the economic assessment required by CAA section 317. In the EPA’s judgment, the assessment is as extensive as practicable taking into account the EPA’s time, resources, and other duties and authorities.

### approaches are a re -presentation of the modeling done for the Clean Power Plan Emission
Guidelines RIA.
This approach is consistent with the analysis presented in the RIA for the final Clean Power Plan Emission Guidelines (U.S. EPA 2015). As a result, this RIA for the proposed federal plan and model trading rules re -presents the key results from the final Clean Power Plan Emission Guidelines RIA. These key results encompass the potential costs, emission reductions, and benefits of the proposed federal plan and model trading rules, as well as the potential impacts on electricity markets, employment, and markets outside the electricity sector.
As mentioned earlier, the EPA is taking comment on many of the elements of th e federal plan and model trading rules proposal. The RIA also presents a discussion of limitations of the analysis and solicitations for public comments that may help improve will contribute to the analysis supporting the promulgation of final the federal plan s (as needed) and model trading
rules. In evaluating the impacts of the proposed federal plan and model trading rules, we address
a number of uncertainties

. It is important to note that the potential regulatory impacts presented in the Clean Power Plan Final Rule RIA and the RIA for this proposed rule are not additive. Both RIAs present
estima tes of the benefits and costs of achieving the emission performance rates of the Clean Power Plan emissions guidelines. In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading rules, the same performance rates are accomplished but are assumed to be accomplished under the federal plan or model trading rules.
This RIA also presents in Chapter 2 the statutory a nd executive order analyses that accompany the proposal for this action, including the Initial Flexibility Regulatory Analysis (IRFA). The IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the pro posed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on small entities. This IRFA has been prepared

### fo llowing EPA’s guidance document for preparing initial and final regulatory flexibility analyses. 7


### 1.4.1 Base Case and Years of Analysis
The base case for this analysis, which uses the Integrated Planning Model (IPM), includes state rules that have been finalized and/or approved by a state’s legislature or environmental agencies, as well as final federal r ules. The IPM Base Case v.5.15 includes the
Cross -State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Rule (MATS), the proposed Carbon Pollution Standards for New Power Plants, the Cooling Water Intakes (316(b)) Rule, the Combustion Residuals from Electric Utilities (CCR) , and other state and Federal regulations to the extent that they contain measures, permits, or other air- related limitations or requirements. Additional legally binding and enforceable commitments for GHG reductions
considered in the base case are discussed in the documentation for IPM. 8


### To present a complete picture of the potential costs and benefits of the proposed federal plan and model trading rules, this RIA presents results for the analysis years 2020, 2025, and 2030. While 2020 is before the first year of the interim compliance period (2022), the EPA expects states and affected EGUs to perform voluntary activities that will facilitate compliance with interim and final goals. These pre

- compliance period activities might incl ude investments in renewable energy or demand

- side energy efficiency projects, for example, that produce emissions reductions in the compliance period. Activities might also include preparatory investments in transmission capacity or monitoring, reporting, and recordkeeping systems. As a result, there are likely to be benefits and costs in 2020, so these are reported in this RIA. Meanwhile, cost and benefits are estimated in this RIA for 2025, which is intended to represent a central period of the interim compliance time

- frame as states are on glide paths toward fully meeting the final CO 2 

### emission performance goals. Lastly, the RIA presents costs and benefits for 2030, when the emission performance goals are fully achieved.

7 See “EPA’s Action Development Process : Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as

amended by the Small Business Regulatory Enforcement Fairness Act.” OPEI Regulatory Development Series. November 2006. Available at: < http://www.epa.gov/sbrefa/documents/Guidance

- RegFlexAct .pdf >. Accessed July 21, 2015.

8 Detailed documentation for IPM v .5.1 5 is available at: http://www.epa.gov/powersectormodeling

.

### 1.4.2 Fed eral Plan Approaches Examined in RIA
In the Final Clean Power Plan Emission Guidelines, the EPA translated the source category

- specific CO 2 

### emission performance rates into equivalent state

- level rate

- based and

mass

- based CO 2 

### goals in order to maximize the range of choices that states will have in developing their plans. 9 

### As noted above, like the RIA for the Final Clean Power Plan Emission Guidelines, t his RIA presents two scenarios d esigned to achieve these goals, which we term the

rate

- based federal plan approach and the mass -ba sed federal plan approach.
It is very important to note that the differences between the analytical results for the rate

based and mass

- based federal plan approaches presented in this RIA may not be indicative of likely differences between the approaches . In other words, if one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instances in all time periods in all places.

In the rate -based approach modeled in the RIA for th e final Clean Power Plan Emission Guidelines, avoided generation from demand- side energy efficiency is counted towards meeting the emission performance rates at affected EGUs. However , this proposed FP federal plan and model trading rule proposal rule takes comment on whether or not EPA should does not allow
demand

- side energy efficiency to directly count toward the compliance rate of affected EGUs in

a rate

- based compliance approach. Because energy efficien cy is not proposed to be eligible to generate ERCs that could be used to cost

- effectively comply in the proposed rate- based federal plan
, Therefore, the EPA estimates that this RIA might be forecasting a different a generat ione
mix and emissions levels understate the incremental compliance co sts than of might occur from the proposed federal pl an an and model trading rules

. 10 

### Compliance strategies under the federal planeither approach to the federal plan (mass or rate) may be anticipated to that do not rely on
demand

- side energy efficiency will likely rely o n different abatement measures than those
modeled for this RIA. The climate benefits and health co- benefits arising from these
altenativealternative strategies may be different those presented here. The EPA is inviting

9 See the preamble of the final Clean Power Plan Emissions Guidelines for these state

- level rate

- based and mass

based CO 2 goals

.
10 However , , as with in as with states subject to the mass

- based approach, energy efficiency activities may be

a dopted by states subject to the rate

- based approach to lower demand, which in turn may reduce s the compliance cost of achieving the performanc e rates.

### comment on the inclusion of demand- si de energy efficiency as a direct compliance measure
unde r a rate

- based approach in the federal plan

. We will update this analysis as necessary to support the final rule.

E ven without explicit incentives for energy efficiency under a rate

- based federal plan, we
believe that the increased focus that the Clean Power Plan Emission Guidelines will bring to
considerations of CO 2 

### emissions from EGUs will encourage states to consider more aggressive
demand

- side energy policies. Furthermore, the EPA ant icipate s tha t many states will submit fully -approvable plans, and that demand side energy efficiency is likely to be either an explicit component of, or a complimentary policy to, many of those plans. The resulting lower electric ity
demand in states not su bject to a federal plan surrounding a state that is subject to a federal plan will likely have an impact on fossil generation and thus the cost of reducing CO 2 

### emissions. The
EPA take s comment on the appropriate way to factor such costs into the analysis o f the final federal plan and model trading rules.

I n the rate -based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, affected EGUs may not procure emission reductions from (e.g., by averaging their emissions with) affected EGUs located in other states (which may also have different emission standards) in order to demonstrate compliance. As described in Section 1.3.2, in the proposed

rate

- based federal plan affected EGUs may procure ERCs from affected EGUs in other rate

based states subject to the federal plan. Furthermore, the rate- based illustrative plan in the Final
Clean Power Plan Emission Guidelines RIA assumes that the plan applies a state’s blended rate

based goal as a requirement for affected EGUs in that state to achieve

. 11 

### Alternatively, t T he proposed federal plan specifically establishes an emissions rate performance standard that is applied to affected steam -fired EGUs and an emission rate performance standard that is applied to affected natural gas

- fired combined cycle EGUs. Applying the subcategory- specific rate goal

may alter the incentives among affected sources EGUs and could lead to a different generation

11 In the rate

- based scenario in the RIA for the final Clean Power Plan Emission Guidelines, the generation

- weighted

average emission rate from affected EGUs, in which generation is inclusive of their procurement of zero

- emitting generation or dem and

- side EE savings, in a state must be less than or equal to the state goal. One way for a state to achieve this outcome would be to assign in its plan emission rate performance standards to affected EGUs that equal the state emission rate goal, the incen tives of which would be consistent with the analysis and results reported in the RIA for the f inal Clean Power Plan Emission Guidelines

.

### mix es and emissions levels . The EPA will further explore the impacts of subcateg ory- specific rate goals in the analysis supporting the final rule.

The mass

- based plan approach requires affected sources in each state to limit their aggregate emissions not to exceed the mass goal for that state. The mass

- based scenario presented in this chapter includes a 5 percent set -aside of allowances that would be allocated to recognize deployment of new renewable capacity, which is represented by lowering the capital cost of new renewable capacity in a compliance period by the estimated value of the allowances
in the set -aside in that period.

The EPA is also proposing a set-aside approach referred to as output- based allocation (OBA) , which provides targeted allocations of a limited portion of allowances to existing NGCC units as a means of mitigatin g leakage. The EPA believes that this proposed set-aside would help ensure the environmental integrity of a mass-based plan by address ing incentives for generation to shift away from EGUs covered under mass-based plans to new unaffected EGUs. OBA provides an incentive for eligible EGUs in mass- based states to increase their generation in order to increase their allocation of allowances. This approach helps align the generation incentives for eligible EGUs in mass

- based states with new EGUs within mass

- based states that are not subject
to the mass

- based limits as well as analogous EGUs in other states covered by emission rate limits, mitigating the potential for emissions leakage.

While the mass -based scenario analyzed for this proposed rule include d a representation
of the set -aside for new renewable generation, it did not quantify the effects of the OBA as proposed in this rulemaking. Therefore, in Section 1.5.6, the EPA conducted additional analysis to approximate the potential emissions reductio ns if the OBA set

- aside were included in that

mass -based scenario. The EPA is inviting comment on OBA. If appropriate, T t he EPA is inviting comment on its approach to approximating the impact of OBA. If appropriate, the EPA will further explore OBA as a me ans to mitigate leakage in the analysis supporting the final federal plan and model trading rules.

The EPA notes that, in this analysis
, EGUs within each state comply with the applicable state goals without exchanging a compliance instrument with EGUs in other state s. However, under the proposed federal plan and model trading rules if all states had a federal plan and the same type of goal (as they do in this analysis), then trading among EGUs in different states

### would be allowed and would lead to differences in the generation mix and emissions . The EPA is inviting comment on this approach to the modeling and will seek to improve that will contribute

to analysis supporting the final rule.

### 1.5 S ummary of Regulatory Analysis

1.5.1 Emissions Reductions

T able 1 -1 shows the emission reductions associated with the modelled modeled rate

- based federal plan approach

. Table 1 -1. Climate and Air Pollutant Emission Reductions for the Rate

- Based Federal Plan Approach 1
CO 2 (million short tons) SO 2 (thousand short tons) Annual NO X (thousand short tons) 2020 Rate

- Based Approach Base Case 2,155 1,311 1,333 Federal Plan Approach 2,085 1,297 1,282 Emissions Change

- 69

- 14

- 50 2025 Rate

- Based Approach Base Case 2,165 1,275 1,302 Federal Plan Approach 1,933 1,097 1,138 Emissions Change

- 232

- 178

- 165 2030 Rate

- Based Approach Base Case 2,227 1,314 1,293 Federal Plan Approach 1,812 996 1,011 Emission Change

- 415

- 318

- 282 Source: Integrated Planning Model, 2015. Emissions change may not sum due to rounding.
1 CO 2 emission reductions are used to estimate the cl imate benefits of the proposed rule . SO 2 , and NO X reductions are relevant for estimating air quality health co

- benefits of the proposed rule

. The proposed rule is also expected to achieve redu ctions in directly emitted PM 2.5 , which we were not able to estimate for this RIA.


### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 69 million short tons
under the rate

- based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 232 million short tons under the rate -based approach compared to
base case levels. CO 2 

### emission reductions increase to 415 million short tons annually in 2030 when compared to the base case emissions. Table 1 -1 also shows emission reductions for criteria air pollutants.

### T abl e 1 -2 shows the emission reductions associated with the modeled mass

- based federal plan approach.

Table 1 -2. Climate and Air Pollutant Emis sion Reductio ns for the Mass

- Based Federal Plan Appproach 1
CO 2 (million short tons) SO 2 (thousand short tons) Annual NO X (thousand short tons) 2020 Mass

- Based Approach Base Case 2,155 1,311 1,333 Federal Plan Approach 2,073 1,257 1,272 Emissions Change

- 81

- 54

- 60 2025 Mass

- Based Approach Base Case 2,165 1,275 1,302 Federal Plan Approach 1,901 1,090 1,100 Emissions Change

- 265

- 185

- 203 2030 Mass

- Based Approach Base Case 2,227 1,314 1,293 Federal Plan Approach 1,814 1,034 1,015 Emission Change

- 413

- 280

- 278 Source: Integrated Planning Model, 2015. Emissions change may not sum due to rounding.
1 CO 2 emission reductions are used to estimate the cl imate benefits of the proposed rule . SO 2 , and NO X reductions are relevant for estimating air quality health co

- benefits of the proposed rule

. The proposed rule is also expected to achieve reductions in directly emitted PM 2.5 , which we were not able to estimate for this RIA.


### In 2020, the EPA estimates th at CO 2 

### emissions will be reduced by 81 million short tons under
the mass

- based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 265 million short tons under the mass

- based approach compared to
base case levels. CO 2 

### emission reductions increase to 413 million short tons annually in 2030 when compared to the base case emissions. Table 1 -2 also shows emission reductions for criteria air pollutants.

### Table 1 -3 presents CO 2 

### emission reductions relative to 2005 for the two federal plan appoachesapproaches

. Table 1 -3. Projected CO 2 

### Emission Reductions , Relative to 2005

CO 2 Emissions (million short tons) CO 2 Emissions : Change from 2005 (million short tons ) CO 2 Emissions Reductions: Percent Change from 2005

2005 2020 2025 2030 2020 2025 2030 Base C ase 2, 683

- 528

- 518

- 456

- 20%

- 19%

- 17% Rate

- based - - 598

- 750

- 871

- 22%

- 28%

- 32% Mass

- based

-

- 610

- 782

- 869

- 23%

- 29%

- 32% Source: Integrated Planning Model, 2015.


### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 598 million short tons (22 percent) under the rate -based approach compared to 2005 levels. In 2025, the EPA estimates that
CO 2 

### emissions will be reduced by 750 million short tons (28 percent) under the rate

- based approach compared to 2005 levels. Under the rate -based approach, CO 2 

### emission reductions
increase to 871 million short tons (32 percent) in 2030 when compared to 2005 levels.

Under the mass

- based approach i n 2020, the EPA estimates that CO 2 

### emissions will be reduced by 610 million short tons (23 percent) under the rate -based approach compared to 2005 levels. In 2025, the EPA e stimates that CO 2 

### emissions will be reduced by 782 million short tons (29 percent) under the mass

- based approach compared to 2005 levels. Under the mass

- based approach, CO 2 

### emission reductions increase to 869 million short tons (32 percent) in 2030 when

co mpared to 2005 levels.

1.5.2 Costs
The compliance cost estimates in this analysis are the change in electric power generation costs between the base case and federal plan approach policy cases , including the cost
of demand- side energy efficiency measures and costs associated with monitoring, reporting, and recordkeeping requirements (MR&R)

. 12 

### In the rate

- based approach, energy efficiency activities are modeled as being used by EGUs as a low -cost method of demonstrating compliance with
their rate

- based emis sions standards. In the mass- based approach, energy efficiency activities are assumed to be adopted by states to lower demand, which in turn reduces the cost of achieving the

12 See Chapter 3 of the Clean Power Plan Final Rule RIA for a detailed discussion of the compliance cost estimates.

### mas s limitations. The level of energy efficiency measures is determined outside o f IPM and is assumed to be the same in the two federal plan approaches. 13 

### The compliance assumptions, and therefore the projected “compliance costs” set forth in this analysis, are illustrative in nature

. The annual compliance cost is the projected addition al cost of complying with the rule in the year analyzed and reflects the net difference in the sum of the annualized cost of capital investment in new generating sources and heat rate improvements at coal steam facilities
, The
annual incremental cost is the projected additional cost of complying with the proposed rule in the year analyzed and includes the net change in the annualized cost of capital investment in new generating sources and heat rate improvements at coal

- fired steam generating units
, the change in the ongoing costs of operating pollution controls, shifts between or amongst various fuels,
demand

- side energy efficiency measures, and other actions associated with compliance. The total compliance cost estimates presented here include the c osts associated with monitoring, reporting, and recordkeeping. 14 

### The costs for both federal plan approaches are reflected in Table 1-4 below.
All dollar estimates are in 2011 dollars.

T he EPA estimates the annual inc remental compliance cost for the rate

- based a pproach for the proposed federal plan and model trading rules to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 20 30 , including the costs associated with monitoring, reporting, and recordkeeping

. 15 

### T he EPA estimates the annual incremental compliance cost for the mass

- based approach for the federal plan and model trading rules to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030 , including the costs associated with monitoring, reporting, and recordkeeping

.

13 For more detailed information on demand

- side energy efficiency, see U.S. EPA. 2015 b. Technical Support

Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units . Demand

- Side Energy Eff iciency.

14 These costs are estimated outside of the IPM modelling modeling framework as IPM only models the contiguous

U.S. and does not incorporate monitoring, reporting, and recordkeeping requirements specific to the Clean Power Plan Final Rule.

15 The MR&R costs of the proposed federal plan and model trading rules are assumed to be the same as those

estimated for the Clean Power Plan Final Rule. These MR&R costs estimates are $65 million in 2020, $15 million in 2025 and $15 million in 2030 and are assumed to be the same for both rate

- based and mass

- based plan approaches. Note the MR&R costs in 2020 are related to facilities setting up net energy output monitoring and upgrading data acquisition systems.

### Ta ble 1-4. Compliance Costs for the Federal Rate -Based and Mass- Based Plan Approaches Incremental Cost from Base Case (billions of 2011$) Rate

- based Approach Mass

- based Approach 2020 $ 2.5 $ 1.4 2025 $ 1

. 0 $ 3.0 2030 $8.4 $ 5.1 Source: Integrated Planning Model, 2015, with post

- processing to account for exogenous demand

- side management energy efficiency costs and monitoring, reporting, and recordkeeping costs . See Chapter 3 of th e Clean Power Plan Final Rule RIA for a more complete explanation.



### The costs reported in Table 1-4 represent the estimated incremental electric utility generating costs changes from the base case plus the estimates of demand -side energy efficiency program costs (which are paid by electric utilities), demand -side energy efficiency participant costs (which are paid by electric ity consumers), and MR&R costs. For example, in 2030, under
the rate -based approach, the incremental electric utility generating costs decline by about $18.0 billion from the base case. MR&R requirements in 2030 are estimated at $16.0 million, and
demand -side energy efficiency costs in 2030 are estimated to be $ 26.3 billion , split equally between program and participants using a 3 percent discount rate (see Chapter 3 of this RIA for more details on these estimates). The se cost estimates sum to the $8.4 billion shown in Table 1-4 and represent the total costs of the rate -based federal plan approach in 2030. The same approach applies in each year of analysis for the rate -based and the mass- based federal plan approaches.

The compliance costs reported in Table 1-4 are not social costs. These costs represent the estimated expenditures incurred by EGUs, the costs to participants in demand- side energy efficiency programs, and states to comply with the BSER goals for the Final Cle an Power Plan
Emission Guidelines

. These compliance cost estimates are compared to estimates of social
benefits to derive net benefits of the proposed federal plan and model trading rules, which are presented later in this Chapter

.
1.5.3 Monetized Climate Benefits and Health Co- benefits
The climate benefits estimates have been calculated using the estimated values of marginal climate impacts presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866 (May 2013,

### Revi sed July 2015) , henceforth denoted as the current SC

- CO 2 

### TSD. 16 

### Additionally, this analysis takes into account the social benefits of changes in emissions of non- CO 2 

### pollutants from the electricity sector. T h e range of combined benefits reflects different concentration -response functions for the air quality health co -benefits, but it does not capture the full range of uncertainty inherent in the health co- benefits estimates. Furthermore, we were unable to quan tify
or monetize all of the climate benefits and health and environmental co

- benefits associated with
the proposed federal plan and model trading rules , including reductions in directly emitted PM 2.5 

### , reduc ed exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility improvement. The omission of these endpoints from the monetized results should not imply that the impacts are small or unimportant. Table 1-5 provides
the list of t he quantified and unquantified health and environmental benefits in this analysis.

16 Technical Support Document: Technical Update of the S ocial Cost of Carbon for Regulatory Impact Analysis

Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

- tsd

- final

- july

- 2015.pdf> Accessed 7/11/2015.

### Ta ble 1-5 Quantified and Unquantified Benefits

Benefits Category Specific Effect Effect Has Been Quantified Effect Has Been Monetized More Information

Improved Environment

Reduced climate effects Global climate impacts from CO 2

— 1  SC

- CO 2 TSD Climate impacts from ozone and black carbon (directly emitted PM) — — Ozone ISA, PM ISA 2 Other climate impacts (e.g., other GHGs such as methane, aerosols, other impacts) — — IPCC 2 Improved Human Health (co

- benefits) Reduced incidence of premature mortality from exposure to PM 2.5 Adult premature mortality based on cohort study estimates and expert elicitation estimates (age >25 or age >30)   PM ISA
Infant mortality (age <1)   PM ISA

Reduced incidence of morbidity from exposure to PM 2.5 Non

- fatal heart attacks (age > 18)   PM ISA Hospital admissions

— respiratory (all ages)   PM ISA Hospital admissions

— cardiovascular (age >20)   PM ISA Emergency room visits for asthma (all ages)   PM ISA Acute bronchitis (age 8

- 12)   PM ISA Lower respiratory symptoms (age 7

- 14)   PM ISA Upper respiratory symptoms (asthmatics age 9

- 11)   PM ISA Asthma exacerbation (asthmatics age 6

- 18)   PM ISA Lost work days (age 18

- 65)   PM ISA Minor restricted

- activity days (age 18

- 65)   PM ISA Chronic Bronchitis (age >26)

— — PM ISA 2 Emergency room visits for cardiovascular effects (all ages)

— — PM ISA 2 Strokes and cerebrovascular disease (age 50

- 79)

— — PM ISA 2 Other cardiovascular effects (e.g., other ages)

— — PM ISA 3 Other respiratory effects (e.g., pulmonary function, non

asthma ER visits, non

- bronchitis chronic diseases, other ages and populations) — — PM ISA 3
Reproductive and developmental effects (e.g., low birth weight, pre

- term births, etc) — — PM ISA 3,4 Cancer, mutagenicity, and genotoxicity effects

— — PM ISA 3,4
Reduced incidence of mortality from exposure to ozone Premature mortality based on short

- term study estimates (all ages)   Ozone ISA Premature mortality based on long

- term study estimates (age 30

– 99) — — Ozone ISA 2

Reduced incidence of morbidity from exposure to ozone Hospital admissions

— respiratory causes (age > 65)   Ozone ISA Hospital admissions

— respiratory causes (age <2)   Ozone ISA Emergency department visits for asthma (all ages)   Ozone ISA Minor restricted

- activity days (age 18

– 65)   Ozone ISA School absence days (age 5

– 17)   Ozone ISA Decreased outdoor worker productivity (age 18

– 65)

— — Ozone ISA 2 Other respiratory effects (e.g., premature aging of lungs)

— — Ozone ISA 3 Cardiovascular and nervous system effects

— — Ozone ISA 3 Reproductive and developmental effects

— — Ozone ISA 3,4

### Table 1

- 5 . Continued

Reduced incidence of morbidity from exposure to NO 2 Asthma hospital admissions (all ages)

— — NO 2 ISA 2 Chronic lung disease hospital admissions (age > 65)

— — NO 2 ISA 2 Respiratory emergency department visits (all ages)

— — NO 2 ISA 2 Asthma exacerbation (asthmatics age 4

– 18)

— — NO 2 ISA 2 Acute respiratory symptoms (age 7

– 14)

— — NO 2 ISA 2 Premature mortality

— — NO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness and inflammation, lung function, other ages and populations) — — NO 2 ISA 3,4

Reduced incidence of morbidity from exposure to SO 2 Respiratory hospital admissions (age > 65)

— — SO 2 ISA 2 Asthma emergency department visits (all ages)

— — SO 2 ISA 2 Asthma exacerbation (asthmatics age 4

– 12)

— — SO 2 ISA 2 Acute respiratory symptoms (age 7

– 14)

— — SO 2 ISA 2 Premature mortality

— — SO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness and inflammation, lung function, other ages and populations) — — SO 2 ISA 2,3

Reduced incidence of morbidity from exposure to methylmercury Neurologic effects

— IQ loss

— — IRIS; NRC, 2000 2 Other neurologic effects (e.g., developmental delays, memory, behavior) — — IRIS; NRC, 2000 3
Cardiovascular effects

— — IRIS; NRC, 2000 3,4 Genotoxic, immunologic, and other toxic effects

— — IRIS; NRC, 2000 3,4 Improved Environment (co

- benefits) Reduced visibility impairment Visibility in Class 1 areas

— — PM ISA 2 Visibility in residential areas

— — PM ISA 2 Reduced effects on materials Household soiling

— — PM ISA 2,3 Materials damage (e.g., corrosion, increased wear)

— — PM ISA 3 Reduced PM deposition (metals and organics) Effects on i ndividual organisms and ecosystems — — PM ISA 3

Reduced vegetation and ecosystem effects from exposure to

ozone Visible foliar injury on vegetation

— — Ozone ISA 2 Reduced vegetation growth and reproduction

— — Ozone ISA 2 Yield and quality of commercial forest products and crops

— — Ozone ISA 2 Damage to urban ornamental plants

— — Ozone ISA 3 Carbon sequestration in terrestrial ecosystems

— — Ozone ISA 2 Recreational demand associated with forest aesthetics

— — Ozone ISA 3 Other non

- use effects Ozone ISA 3 Ecosystem functions (e.g., water cycling, biogeochemical cycles, net primary productivity, leaf

- gas exchange, community composition) — — Ozone ISA 3

Reduced effects from acid deposition Recreational fishing

— — NO x SO x ISA 2 Tree mortality and decline

— — NO x SO x ISA 3 Commercial fishing and forestry effects

— — NO x SO x ISA 3 Recreational demand in terrestrial and aquatic ecosystems

— — NO x SO x ISA 3 Other non

- use effects NO x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles)

— — NO x SO x ISA 3

### Table 1

- 5 . Continued

Reduced effects from nutrient enrichment Species composition and biodiversity in terrestrial and estuarine ecosystems — — NO x SO x ISA 3 Coastal eutrophication

— — NO x SO x ISA 3 Recreational demand in terrestrial and estuarine ecosystems

— — NO x SO x ISA 3 Other non

- use effects NO x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles, fire regulation) — — NO x SO x ISA 3 Reduced vegetation effects from exposure to SO 2 and NO x Injury to vegetation from SO 2 exposure

— — NO x SO x ISA 3 Injury to vegetation from NO x exposure — — NO x SO x ISA 3

Reduced ecosystem effects from exposure to methylmercury Effects on fish, birds, and mammals (e.g., reproductive effects) — — Mercury Study RTC 3 Commercial, subsistence and recreational fishing — — Mercury Study RTC 2

1 The global climate and related impacts of CO 2 emissions changes, such as sea level rise, are estimated within each

integrated assessment model as part of the calculation of the SC

- CO 2 . The resulting monetized damages, which are relevant for conducting the benefit

- cost analysis, are used in this RIA to estimate the welfare effects of quantified changes in CO 2 emissions.

2 We assess these co

- benefits qualitatively , as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA
, due to data and resource limitations for this analysis.

3 We assess these co

- benefits qualitatively , as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA
, because we do not have sufficient confidence in available data or methods.

4 We assess these co

- benefits qualit atively , as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, because current evidence is only suggestive of causality or there are other significant concerns over the strength of the association.



### 1.5.3.1 Estimating Global Climate Benefits
We estimate the global social benefits of CO 2 

### emission reductions expected from this rulemaking using the SC- CO 2 

### estimates presented in the current SC

- CO 2 

### TSD. 17 

### We refer to these estimates, which were developed by the U.S. government, as “SC- CO 2 

### estimates ” for the
remainder of this document. The SC- CO 2 

### is a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 

### emissions in a given year. It includes a wide range of anticipated climate impacts, such as net changes in agr icultural productivity and human health, property damage from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. It is typically used to assess

17 Also see Chapter 4 of the Clean Power Plan Final Rule RIA for more details on this assessment of climate

benefits.

### th e avoided damages as a resu lt of regulatory actions (i.e., benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 

### emissions).

The SC

- CO 2 

### estimates used in this analysis have been developed over many years, using the best science available, and with i nput from the public. The EPA and other federal agencies have considered the extensive public comments on ways to improve SC- CO 2 

### estimation received via the notice and comment period that was part of numerous rulemakings. In addition, OMB’s
Office of Infor mation and Regulatory Affairs recently issued a response to the public comments
it sought through a separate comment period on the approach used to develop the SC- CO 2 

### estimates. 18


### An interagency working group (IWG) that included the EPA and other executive branch entities used three integrated assessment models (IAMs) to develop SC- CO 2 

### estimates and recommended four global values for use in regulatory analyses. The SC- CO 2 

### estimates represent global measures because of the distinctive nature of the climate ch ange problem. Emissions of greenhouse gases contribute to damages around the world, even when they are released in the United States, and the world’s economies are now highly interconnected. Therefore, the SC- CO 2 

### estimates incorporate the worldwide damages caused by carbon dioxide emissions in order to reflect the global nature of the problem, and we expect other governments to consider the global consequences of their greenhouse gas emissions when setting their own domestic policies. See Chapter 4 of the f inal Clean Power Plan Emission Guidelines RIA for more discussion.

The IWG first released the estimates in February 2010 and updated them in 2013 using
new versions of each IAM. The SC- CO 2 

### values was estimated using three integrated assessment models (DICE , FUND, and PAGE) 19 

### , which the IWG harmonized across three key inputs: the probabil ity distribution for equilibrium climate sensitivity; five scenarios for economic, population, and emission s growth ; and three constant discount rates. The 2010 SC- CO 2 

### Technical Support Document (2010 SC

- CO 2 

### TSD) provides a complete discussion of the methodology and the current SC

- CO 2 

### TSD 20 

### presents and discusses the updated estimates. The

18 See https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

- response

- to

- comments

- final

- july

- 2015.pdf

19 The full models names are as follows: Dynamic Integrated Climate and Economy (DICE); Climate Framework for

Uncertainty, Negotiation, and Distribution (FUND); and Policy Analysis of the Greenhouse Gas Effect (PAGE).

20 The IWG published the updated TSD in 2013, then issued two minor corrections to it in July 2015.

### fou r SC

- CO 2 

### estimates are as follows: $1 2, $40, $60, and $120 per short ton of CO 2 

### emissions in the year 2020 (2011$), and each estimate increases over time. 21 

### These SC

- CO 2 

### estimates are associated with different discount rates. The first three estimates are the model average at 5 percent discount rate, 3 percent, and 2.5 percent, respectively, and the fourth estimate is the 95 th 

### percentile at 3 percent.

The 2010 SC- CO 2 

### TSD noted a number of limitations to the SC- CO 2 

### analysis, including the incomplete way in which the IAMs capture catastrophic and non- catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Current ly integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature because of a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. 22 

### In particular, the IPCC Fourth Assessment Report concluded that “It is very likely that [SC- CO 2 

### estimates] underestimate t he damage costs because they cannot include many non- quantifiable impacts.” Nonetheless, these estimates and the discussion of their limitations represent the best available information about
the social benefits of CO 2 

### emission reductions to inform the ben efit

- cost analysis.
In addition, a fter careful evaluation of the full range of comments submitted to OMB ’s Office of Information and Regulatory Affairs , the IWG continues to recommend the use of the se SC

- CO 2 

### estimates in regulatory impact analysis. With the release of the response to comments,
the IWG announced plans to obtain expert independent advice from the National Academ ies of
Sciences , Engineering, and Medicine ( Academies ) to ensure that the SC- CO 2 

### estimates continue
to reflect the best availa ble scientific and economic information on climate change. 23 

### The

21 The 2010 and 2013 TSDs present SC -CO 2 in 2007$ per metric ton. The unrounded estimates from the current

TSD were adjusted to (1) short tons using the conversion factor of 0.90718474 metric tons in a short ton and ( 21 ) 2011$ using GDP Implicit Price Deflator (1.061374), http://www. bea .gov/ iTable/index_nipa.cfm
, . and (2 ) short tons using the conversion factor of 0.90718474 metric tons in a short ton

. These estimates were rounded to two significant digits.

22 Climate change impacts and SCC modeling is an area of active research. For example, see: (1) Howard, Peter,

“Omitted Damages: What’s Missing from the Social Cost of Carbon.” March 13, 2014, http://costofcarbon.org/files/Omitted_Damages_Whats_Missing_From_t he_Social_Cost_of_Carbon.pdf; and (2) Electric Power Research Institute, “Understanding the Social Cost of C arbon: A Technical Assessment,” October 2014, www.epri.com.

23 See < https://www.whitehouse.gov/blog/2015/07/02/estimating

- benefits

- carbon

- dioxide

- emi ssions

- reductions >.

### Acad emies’ process will be informed by the public comments received and focus on the technical merits and challenges of potential approaches to improving the SC- CO 2 

### estimates in future updates.

1.5.3.2 Estimating Air Quality Health Co- Benefits

The proposed federal plan and model trading rules would reduce emissions of precursor pollutants (e.g., SO 2 

### , NO X 

### , and directly emitted particles), which in turn would lower ambient
concentrations of PM 2. 5 

### and ozone. This co- benefits analysis quantifies the monetized benefits associated with the reduced exposure to these two pollutants. 24 

### Unlike the global SC

- CO 2 

### estimates, the air quality health co -benefits are only estimated for the contiguous U.S. The

es timates of monetized PM 2.5 

### co

- benefits include avoided premature deaths (derived from effect coefficients in two cohort studies [Krewski et al. 2009 and Lepeule et al. 2012] for adults and one for infants [Woodruff et al. 1997]), as well as avoided morbidity effects for ten non- fatal endpoints ranging in severity from lower respiratory symptoms to heart attacks 25 

### (U.S. EPA, 2012). The estimates of monetized ozone co-benefits include avoided premature deaths (derived from the range of effect coefficients represented by two short- term epidemiology studies [Bell et al. (2004) and Levy et al. (2005)] ), as well as a voided morbidity effects for five non- fatal endpoints ranging in severity from school absence days to hospital admissions (U.S. EPA, 2008, 2011).

We use a “benefit -per- ton” approach to estimate the PM 2.5 

### and ozone co- benefits in this
RIA. Benefit -per-ton approaches apply an average benefit per ton derived from modeling of benefits of specific air quality scenarios to estimates of emissions reductions for scenarios where no air quality modeling is availabl e. The benefit

- per -ton approach we use in this RIA relies onestimates of human health responses to exposure to PM and ozone obtained from the peerreviewed scientific literature. These estimates are used in conjunction with population data,

24 We did not estimate the co

- benefits associated with reducing direct exposure to SO 2 and NO X . For this RIA, we

did not estimate changes in emissions of directly emitted particles. As a result, quantified PM 2.5 related benefits are unde restimated by a relatively small amount. In the proposal RIA, the benefits from reductions in directly emitted PM 2.5 were less than 10 percent of total monetized health co

- benefits across all scenarios and years.

25 See Chapter 4 and Appendix 4A of the Clean Power Plan Final Rule for details on this assessment of health co

benefits.

### bas eline healt h information, air quality data and economic valuation information to conduct health impact and economic benefits assessments.
Specifically, in this analysis, we multiplied the benefit

- per

- ton estimates by the corresponding emission reductions that were generated from air quality modeling of the proposed Clean Power Plan Emission Guidelines. Similar to the co -benefits analysis conducted
for the final Clean Power Plan Emission Guidelines RIA , we generated regional benefit

- per -ton estimates by aggregating th e impacts in BenMAP 26 

### to the region (i.e., East, West, and California) rather than aggregating to the nation. The benefit

- per

- ton for SO 2 

### and NO x 

### emissions used in this proposed rule were calculated using air quality modeling of the base case and the proposed Clean Power Plan (Option 1 State) scenario for 2025 as described in Appendix 4A of the final Clean Power Plan Emission Guidelines RIA. The benefit-per-ton values for 2020 and 2030 are based on applying the air quality modeling from 2025 to population and health
information from 2020 and 2030.

To calculate the co

- benefits for this proposed rule , we then multiplied the regional
benefit -per-ton estimates for the EGU sector by the corresponding emission reductions. All
benefit -per- ton estimates reflect the geographic distribution of the modeled emissions, which may not exactly match the emission reductions in this rulemaking, and thus they may not reflect the local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location.

Our estimate of the monetized co -benefits is based on the EPA’s interpretation of the best available scientific literature (U.S. EPA, 2009) and methods and supported by the EPA’s Science Advisory Board and the NAS (NRC, 2002 ). Below are key assumptions underlying the estimates
for PM 2.5 

### -related premature mortality, which accounts for 98 percent of the monetized PM 2.5 

### health co

- benefits

.
1. We assume that all fine particles, regardless of their ch emical composition, are equally potent in causing premature mortality. This is an important assumption,

26 BenMAP is a computer program developed by the EPA that calculates the number and economic value of air

pollution

- related deaths and illnesses. The software incorporates a database that includes many of the concentration

- response relationships, population files, and health and economic data needed to quantify these impacts.

### becau se PM 2.5 

### varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The PM ISA concluded that “many constituents of PM 2.5 

### can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to sp ecific outcomes” (U.S. EPA, 2009b).

2. We assume that the health impact function for fine particles is log

- linear without a threshold in this analysis. Thus, the estimates include health co- benefits from reducing fine particles in areas with varied concentrat ions of PM 2.5 

### , including both
areas that do not meet the National Ambient Air Quality Standard for fine particle s and those areas that are in attainment, down to the lowest modeled concentrations.

3. We assume that there is a “cessation” lag between the chan ge in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 

### exposures occur in a distributed fashion over the 20 years following exposure based o n the advice of the
SAB -H1 (U.S. EPA-SAB, 2004c), which affects the valuation of mortality cobenefits at different discount rates.
Every benefits analysis examining the potential effects of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. Despite these uncertainties, we believe this analysis provides a reasonable indication of the expected health co

- benefits of the air quality emission reductions for the proposed rule under a set of reasonable assumptions. This analysis does not include the type of detailed uncertainty assessment found in the 2012 PM 2.5 

### National Ambient Air Quality Standard (NAAQS) RIA (U.S. EPA, 2012) because we lack the necessary air quality input and monitoring data to conduct a complete benefits assessment. In addition, using a
benefit -per-ton approach adds another important source of uncertainty to the benefits estimates.

1.5.3.3 Combined Benefits Estimates
The EPA has evaluated the range of potential impacts by combining all four SC

- CO 2 

### values with health co -benefits values at the 3 percent and 7 percent discount rates. Different

### di sco unt rates are applied to SC

- CO 2 

### than to the health co- benefit estimates because CO 2 

### emissions are long-lived and subsequent damages occur over many years. Moreover, several discount rates are applied to SC

- CO 2 

### because the literature shows that the estimate of SC

- CO 2 

### is sensitive to assumptions about discount rate and because no consensus exists on the appropriate rate to use in an intergenerational context. The IWG centered its attention on the average SC

CO 2 

### at a 3 percent discount rate but emphasized t he importance of considering all four SC- CO 2 

### estimates. Table 1-6 (rate

- based federal plan approach) and Table 1

- 7 (mass

- based federal plan approach) provide the combined climate benefits and health co -benefits for the proposed federal plan model trading rules estimated for 2020, 2025, and 2030 for each discount rate combination.
All dollar estimates are in 2011 dollars.

### Ta ble 1-6. Combined Estimates of Climate Benefits and Health Co

- Benefits for Rate

- Based Approach (billions of 2011$)*

SC

- CO 2 Discount R ate and Statistic** Climate Benefits

Only C limate Benefits plus Health Co

- b enefits (Disc ount Rate Applied to Health Co

- b enefits) 3% 7% In 2020 69 million short tons CO 2 5% $0.8 0 $1. 5 to $2. 6 $1.4 to $2. 5 3% $2. 8 $3.5 to $4.6 $3.5 to $4.5 2.5% $4.1 $4.9 to $6.0 $4.8 to $5.9 3% (95 th percentile) $8.2 $8.9 to $ 10 $8.9 to $9.9 In 2025 2 32 million short tons CO 2

5% $3.1 $11 to $21 $ 9.9 to $19 3% $10 $18 to $28 $17 to $26 2.5% $15 $23 to $33 $22 to $31 3% (95 th percentile) $31 $38 to $49 $38 to $47 In 2030 415 million short tons CO 2 5% $6.4 $21 to $40 $19 to $37 3% $20 $34 to $54 $33 to $51 2.5% $29 $43 to $63 $42 to $60 3% (95 th percentile) $61 $75 to $95 $74 to $92 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 emissions. Co

- benefits are based on regional benefit

- per

- ton estimates. Ozone co

- benefits occur in analysis year, so they are the same for all discount rates. The health co

- benefits reflect the sum of the PM 2.5 and ozone co

- benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). T he monetized health co

- benefits do not include reduced health eff ects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information r egarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC

- CO 2 estimate for the specified discount rate

.

### Ta ble 1-7. Combined Estimates of Climate Benefits and Health Co -b enefits for Mass

- Based Approach (bil lions of 2011$)*

SC

- CO 2 Discount Rate and Statistic** Climate Benefits

Only C limate Benefits plus Health Co

- b enefits (Disc ount Rate Applied to Health Co

- b enefits) 3% 7% In 2020 82 million short tons CO 2 5% $0.9 4 $2.9 to $5.7 $2.8 to $5.3 3% $3.3 $5.3 to $8.1 $5.1 to $7.7 2.5% $4.9 $6.9 to $ 9.7 $6.7 to $9 .3 3% (95 th percentile) $ 9.7 $12 to $14 $11 to $14 In 2025 2 64 million short tons CO 2

5% $3.6 $11 to $21 $10 to $19 3% $12 $19 to $29 $18 to $27 2.5% $17 $24 to $35 $24 to $33 3% (95 th percentile) $35 $42 to $52 $42 to $51 In 2030 413 million short tons CO 2 5% $6.4 $18 to $34 $17 to $32 3% $20 $32 to $48 $31 to $46 2.5% $29 $41 to $57 $40 to $55 3% (95 th percentile) $60 $72 to $89 $71 to $86 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 emissions. Co

- benefits are based on regional benefit

- per

- ton estimates. Ozone co

- benefits occur in analysis year, so they are the same for all discount rates. The health co

- benefit s reflect the sum of the PM 2.5 and ozone co

- benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). T he monetized health co

- benefits do not include reduced health eff ects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC

- CO 2 estimate for the specified discount rate

.



### 1.5.4 Net Benefits

Table 1-8 and 1-9 provide the estimates of the climate benefits, health co -benefits, compliance costs and net benefits of the proposed federal plan and model trading rules for rate

based and mass

- based approaches, respectively. There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 

### emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing emissions of non

- CO 2 

### greenhouse gases and co

- benefits from reducing exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility impairment. Up on considering these limitations and uncertainties, it remains clear that the benefits of this proposed rule are substantial and far outweigh the costs.

### Ta ble 1 -8. Monetized Benefits, Compli ance Costs, and Net Benefits Under the Rate

- based Federal Plan Approach (billions of 2011$) a
Rate

- Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0.8 0 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8 .2 $31 $6 1
Air Quality Co

- benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co

- benefits c $0.70 to $1.8 $0.64 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $ 2.5 $1. 0 $ 8.4 Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $1 7 to $ 27 $1 6 to $2 5 $2 6 to $45 $25 to $4 3

Non

- Monetized Benefits Non

- monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non

- CO 2 GHG emissions. Also, different discount rates are applied to SC

- CO 2 than to the other estimates because CO 2 emissions are long

- lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC

- CO 2 esti mated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC

- CO 2 values. As shown in this table , climate benefits are also estimated using the other three SC

- CO 2 estimates (model average at 2.5 perc ent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC

- CO 2 estimates are year

- specific and increase over time.

c The air quality health co

- benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co

- benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration

- response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co

- benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Estimates in the table are presented for three analytical years with air quality co

benefits calculated using two discount rates. The estimates of co

- benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2 .5 concentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordke eping, and reporting costs and demand

- side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC

- CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Fina l Rule RIA includes combined climate and health estimates based on additional discount rates.

### Ta ble 1 -9. Monetized Benefits, Compli ance Costs, and Net Benefits under the Mass

- based Federal Plan Approach (billions of 2011$) a
Mass

- Based Approach 2020 2025 2030 Climate Benefits b

5% discount rate $0.94 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9.7 $35 $60
Air Quality Co

- benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co

- benefits c $2.0 to $4.8 $1.8 to $4.4 $7 .1 to $17 $6.5 to $16 $12 to $28 $11 to $26 Compliance Costs d $1.4 $3.0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non

- Monetized Benefits Non

- monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non

- CO 2 GHG emissions. Also, different discount rates are applied to SC

- CO 2 than to the other estimates because CO 2 emissions are long

- lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC

- CO 2 esti mated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC

- CO 2 values. As shown in this table , climate benefits are also estimated using the other three SC

- CO 2 estimates (model average at 2.5 perc ent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC

- CO 2 estimates are year

- specific and increase over time.

c The air quality health co

- benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co

- benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration

- response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co

- benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Estimates in the table are presented for three analy tical years with air quality co

benefits calculated using two discount rates. The estimates of co

- benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 co ncentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordkeeping, and reporting costs and demand

- side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC

- CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Final Rul e RIA includes combined climate and health estimates based on additional discount rates.

### 1.5.5 Economic Impacts
The federal plan approaches analyzed in this RIA indicate that the proposed federal plan and model trading rules may have important energy mark et implications. Table 1 -10 presents a variety of important energy market impacts for 2020, 2025, and 2030 for both the rate- based and

mass

- based federal plan approaches.

Table 1 -10. Summary Table of Important Energy Market Impacts (Percent Change from Bas e Case)
Rate

- Based Mass

- Based 2020 2025 2030 2020 2025 2030 Retail electricity prices 3% 1% 1% 3% 2% 0% Average electricity bills 3%

- 4%

- 7% 2%

- 3%

- 8% Price of coal at minemouth

- 1%

- 5%

- 4%

- 1%

- 5%

- 3% Coal production for power sector use

- 5%

- 14%

- 25%

- 7%

- 17%

- 24% Price of natural gas delivered to power sector 5%

- 8% 2% 4%

- 3%

- 2% Natural gas use for electricity generation 3%

- 1%

- 1% 5% 0%

- 4%



### Energy market impacts are discussed more extensively in Chapter 3 of the final Clean Power
Plan Emission Guidelines RIA. As well as the above energy market impacts, Chapter 3 of the
final Clean Power Plan Emission Guidelines RIA presents projections of power sector generation and capacity changes by fuel type.
Additionally, changes in supp ly or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the production process or that supply those sectors. Changes in cost of production may result in changes in pr ice and/or quantity produced by these sectors and these market changes may affect the profitability of firms and the economic welfare of their consumers. Similarly, demand for new generation or energy efficiency, for example, can result in changes in produ ction and profitability for firms that supply those goods and services. The EPA recognizes that states subject to the federal plan may choose to mitigate impacts to some markets outside the EGU

sector , perhaps by implementing the guidelines through a state plan

. 1.5.6 Employment Impacts
Executive Order 13563 directs federal agencies to consider the effect of regulations on job creation and employment. According to the Executive Order, “our regulatory system must

### prot ect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science” (Executive Order 13563, 2011). Although standard benefit- cost analyses have not typically included a separate an alysis of regulation -induced employment impacts, we typically conduct employment analyses. 27 

### While the economy continues moving toward full -employment, employment impacts are of particular concern and questions may arise about their existence and magnitude.
Given the wide range of approaches that may be used to meet the requirements of the proposed federal plan and model trading rules , quantifying the associated employment impacts is
difficult. The EPA’s illustrative employment analysis includes an estimate of projected employment impacts for the utility power sector , coal and natural gas production, and demand

side energy efficiency activities. These projections are derived, in part, from the detailed model
of the utility power sector used for this regulatory analysis, and U.S government data on employment and labor productivity.
In the electricity, coal, and natural gas sectors, the EPA uses the IPM estimates of the changes in generation and fuel use of the proposed rule to estimate there could be a net decrease of approximately 25,000 job- years 28 

### in 2025 for the proposed rule under the rate

- based federal plan approach and approximately 26,000 job-years in 2025 under the mass- based approach

. For 2030 the estimates of the net decrease in job- years is 3 0,900 under the rate-based plan, and 33,700 under the mass-based plan. The Agency is also offering an illustrative calculation of potential employment effects due to demand

- side energy efficiency programs. Employment impacts from demand- side energy efficie ncy programs in 2030 could range from approximately 52,000 to 83,000 jobs created under proposed federal plan and model trading rules. The IPM

derived job- year numbers for the electricity, coal and natural gas sectors should not be added to
the demand -side efficiency job impacts , since the former are reported in full- time equivalent job

years , whereas the latter do not distinguish between full- and part- time employment. More detail

27 The employment analysis in this RIA is part of EPA’s ongoing effort to “conduct continuing evaluations of

potential loss or shifts of employment which may result from the administration or enforcement of [the Act]” pursuant to CAA section 321(a). 28 Job

- years are not individual jobs, but rather the amount of work performed by the equivalent of one full

- time individual for one year. For example, 20 job

- years in 2020 may represent 20 full

- time jobs or 40 half

- time jobs in that year

.

### abo ut these analyses can b e found in Chapter 6 of the final Clean Power Plan Emission
Guidelines RIA.
1.5.6 Additional Analysis of Output-Based Allocation as a Means of Mitigating Leakage The EPA is proposing a set-aside approach referred to as output-based allocation (OBA) , which provides targeted allocations of a limited portion of allowances to existing NGCC units as a means of mitigating leakage. The EPA believes that this proposed set-aside would help ensure the environmental integrity of a mass-based plan by addressing incentives for generation to shift away from EGUs covered under mass-based plans to new unaffected EGUs. OBA provides an incentive for eligible EGUs in mass-based states to increase their generation in order to increase their allocation of allowances. Thi s approach helps align the generation incentives for eligible EGUs in mass -based states with new EGUs within mass-based states that are not subject to the mass-based limits as well as analogous EGUs in other states covered by emission rate limits, mitigati ng the potential for emissions leakage.

While the mass -based scenario analyzed for this proposed rule included a representation
of the set -aside for new renewable generation, it did not quantify the effects of the OBA as proposed in this rulemaking. Therefore, the EPA conducted additional analys is to approximate the potential emissions reductions if the OBA set

- aside were included in that mass

- based
scenario. The EPA is inviting comment on OBA. If appropriate, the EPA will further explore OBA as a means to mitigate leakage in the analysis supporting the final federal plan and model trading rule The application of OBA will provide an incentive to increase generation at existing NGCC EGUs in place of generation at new NGCC EGUs and existing fossil steam EGUs. To approximate the effect of this incenti ve in the mass -based scenario, the EPA used IPM model plant results from the mass -based scenario to construct the average dispatch order for model plants in each IPM region. Then, based on the allowance prices for the state in which each model plant reside s, the EPA adjusted the dispatch order in the case where existing NGCC units were allocated allowances at a rate of 1,030 lbs/MWh for each MWh generated above a 50 percent capacity factor as proposed. In cases where an existing NGCC plant moved ahead of an existing fossil steam plant in the dispatch order, the NGCC plant’s generation was increased while the existing fossil plant’s generation was reduced. The NGCC plant’s generation was increased to the maximum capacity factor assumed feasible within IPM whi le the amount of reduced generation at the fossil steam plant is determined by the amount that would keep the overallcovered sources’ emissions in the region constant, so as to respect compliance with the massbased standards represented in the modeling scenario. Since the existing NGCC plant has a lower emissions rate than the existing fossil steam plant, the increase in generation at the NGCC plant

### is greater than the reduction in generation (because more generation is now possible from both plants together at the same given level of emissions). This net increase in generation from existing EGUs is then subtracted from new NGCC generation in the region, consistent with the total generation needed to meet the load assumed in the IPM modeling of the mass-ba sed
scenario.
When applying this algorithm to the results from the mass

- based scenario analyzed in this RIA, it forecasts nationally in 2030 a 10 percent increase in generation at existing NGCC EGUs, a 4 percent reduction in generation at existing fossil steam EGUs, and a 29 percent decrease in generation at new NGCC EGUs compared to the modeling scenario results presented above. The result of this reduction in new NGCC EGU generation is a reduction in CO 2 

### emissions of 23 million short tons (an amount equal to 1.3 percent of 2030 forecast emissions in mass- based scenario). We do not quantify the effect of these changes in generation on SO 2 

### and NO x 

### emissions, although on net additional co

- benefits are likely expected.
The incentives portrayed in this analysis are consistent with the incentives that would be
realized under the OBA set -aside, and the general direction and magnitude of the results are likely consistent with those that would be observed had the mass-based scenario been modeled
with the OBA set

- asi de. However, the results should be viewed as approximate given that analysis does not consider important aspects of power markets included in IPM. For example, the analysis does not consider any potential changes in relative fuel and allowance prices as a result
of the OBA set

- aside. The application of the OBA set

- aside will place upward pressure on the allowance prices and therefore further incentivize a shift away from existing fossil steam generation. The OBA set -aside may also place upward pressure on the price of natural gas which
would reduce the effectiveness of the set

- aside at encouraging increased utilization of existing
NGCC EGUs , but the OBA set- aside would be effective in increasing existing NGCC generation
, the analysis does not consider the fa ct that electricity is trad ed across many IPM regions. The application of OBA in one state may impact the generation at EGUs in another

state.
1.5.7 Uncertainty Analysis
The Office of Management and Budget’s circular Regulatory Analysis (Circular A

- 4) provides guidance on the preparation of regulatory analyses required under E.O. 12866, and

### re quires an uncertainty analysis for rules with annual benefits or costs of $1 billion or more. 29 

### This proposed rulemaking potentially surpasses that threshold for both benefits and costs. Throughout this RIA and the referenced final Clean Power Plan Emission Guidelines RIA, we considered a number of sources of uncertainty, both quantitatively and qualitatively, on benefits
and costs. We summarize three key elements of our analysis of uncertainty here:

• Assess uncertainty in the methods used to calculate the health co

- benefits associated with
the reduction in PM 2.5 

### and ozone and the use of a benefits-per-ton approach in estimating
these co

- benefits.

• Char acterizing uncertainty in monetizing climate

- related benefits.
Some of these elements are evaluated using probabilistic techniques, whereas for others the underlying likelihoods of certain outcomes are unknown and we use scenario analysis to
evaluate thei r potential effect on the benefits and costs of this rulemaking.
1.5.7.1 Uncertainty in Costs

Our best estimates of the costs of these illustrative scenarios are reported within the cost analysis of the final Clean Power Plan Emission Guidelines and are included in the cost modeling in this RIA for both the proposed rate-based and mass- based approaches. A source of uncertainty under this regulation is the ultimate approach states that are not subject to the federal plan or adopt the model rule will adopt i n response to the guidelines, which will affect both the
costs and benefits of this rule. For this reason we modeled the two potential proposed federal plan approaches assuming they applied to all of the states: the rate -based plan approach and the

mass -based plan approach

.

.1.5.7.2 Uncertainty Associated with Estimating the Social Cost of Carbon

The 2010 SC- CO 2 

### TSD noted a number of limitations to the SC

- CO 2 

### analysis, including the incomplete way in which the integrated assessment models (IAM) capture cat astrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change,

29 Office of Management and Budget (OMB), 2003, Circular A -4
,

http://www.whitehouse.gov/omb/circulars_a004_a

- 4 and OMB, 2011. Regul atory Impact Analysis: A Primer. http://www.whitehouse.gov/sites/default/files/omb/ inforeg /regpol/circular -a- 4_regulatory

- impact

- analysis -aprimer.pdf

### unce rtainty in the extrapolation of damages to high temperatures, and assumptions regarding risk
aversion. 30 

### Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature due to a lack of precise information on the nature of damages and b ecause the science incorporated into these models understandably lags behind the most recent research. These
individual limitations do not all work in the same direction in terms of their influence on the SCCO 2 

### estimates, though taken together they sugges t that the SC

- CO 2 

### estimates are likely conservative. In particular, the IPCC Fourth Assessment Report (2007) concluded that “It is very likely that [SC

- CO 2 

### estimates] underestimate the damage costs because they cannot include

many non- quantifiable impacts” and the IPCC Fifth Assessment report observed that SC- CO 2 

### estimates continue to omit various impacts that would likely increase damages. The 95 th 

### percentile estimate was included in the recommended range for regulatory impact analysis, in part, to address these concerns.
The modeling underlying the development of the SC- CO 2 

### estimates addressed uncertainty in several ways. An ensemble of three IAMs were used to generate the SC

- CO 2 

### estimates to capture differences in model structures that, in part, reflect u ncertainty in the scientific literature about these relationships. Parametric uncertainty was explicitly addressed in each IAM, though to differing degrees, through Monte Carlo simulations in which explicit probability distributions for key parameters were specified, including the equilibrium climate sensitivity, which represents the long-run responsiveness of the climate to increasing GHG concentrations. Furthermore, the analysis considered five different socioeconomic and emissions forecasts to capture th e sensitivity of the SC

- CO 2 

### estimates to key exogenous projections used in the modeling. Finally, the results were calculated for three discount rates, which were selected, in part, to reflect uncertainty about how interest rates may change over time and t he possibility that climate damages are positively correlated with uncertain future economic activity. This analysis produced 45 different distributions of the SC- CO 2 

### estimates for each emissions year. To produce

30 Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order

12866 , Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Envi ronmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February 2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/for

- agencies/Social

- Cost

- of

- Carbon

- for

- RIA.pdf>.

### a ran ge of plausible estimates that are man ageable in regulatory analysis but still reflects the uncertainty in the results four point estimates were recommended. The use of this range of point estimates in this rulemaking helps to reflect the uncertainty in the SC

- CO 2 

### estimates. Chapter 4
of the f inal Clean Power Plan Emission Guidelines RIA provides a comprehensive discussion about the methodology and application of the SC- CO 2 

### ; see both the 2010 TSD and current SCCO 2 

### TSD for a full description.
In addition, OMB’s Office of Information and Regula tory Affairs received comments regarding uncertainty and the SC

- CO 2 

### estimates in response to a separate request for public comment on the approach used to develop the estimates. Commenters discussed the analyses and presentation of uncertainty in the TSD as well as the implications of uncertainty for use of the
SC

- CO 2 

### estimates in regulatory impact analysis. In their response, the interagency working group (IWG) acknowledged uncertainty in the SC- CO 2 

### estimates but disagreed with commenters that suggested the uncertainty undermines use of the SC- CO 2 

### estimates in regulatory impact analysis. The IWG went on to note that the uncertainty in the SC- CO 2 

### estimates is fully acknowledged and comprehensively discussed in the TSDs and supporting academic literature,
and that while all regulatory impact analysis involves uncertainty, these analyses can provide useful information to decision makers and the public. See the IWG Response to Comments for the complete response. 31


### 1.5.7.3 Uncertainty Associated with PM 2.5 

### and Ozone Health Co- Benefits Assessment
EPA provides information on the relative uncertainty in the benefits estimates based on
the 95 th 

### percentile confidence interval for avoided PM

- related premature deaths and the
associated economic valuation estimated in th e benefits analysis for the recent PM NAAQS RIA (U.S. EPA, 2012).. In general, the 95th percentile confidence interval for monetized PM 2.5 

### benefits ranges from approximately

- 90 percent to +180 percent of the central estimates based on the two key PM mortality studies. To further explore uncertainty in the premature mortality benefits, EPA provides the PM- related results using concentration -response functions from two key epidemiology studies, as well as alternate concentration -response relationship provided by an expert elicitation and alternat ive ozone- related results using concentration -response

31 See https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

- response

- to

- comments

- final

- july

- 2015.pdf

### re lationships provided by alternative epidemiology studies. In addition, we include an assessment of the distribution of population exposure in the modeling underlying the benefit- per

ton estimates.
In addition to the uncertainties in the underlying concentration-response and valuation functions, a ll benefit

- per -ton approaches have inherent limitations, including that the estimates
reflect the geographic distribution of the modeled sector emissions, which may not match the
emission re ductions anticipated by this proposed rule , and they may not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location. In addition, these estimates reflect the regional average benefit

per -ton for each ambient PM 2.5 

### precursor emitted from EGUs, which assumes a linear atmospheric response to emission reductions. The region al benefit

- per -ton estimates, although less subject to these types of uncertainties than national estimates, still should be interpreted withcaution. Even though we assume that all fine particles have equivalent health effects, the benefitper

- ton estimat es vary between precursors depending on the location and magnitude of their impact on PM 2.5 

### levels, which drive population exposure.

1.6 References
40 CFR Chapter I [EPA– HQ

– OAR –2009–0171; FRL–9091–8] RIN 2060–ZA14, “Endangerment and Cause or Contribute Fi ndings for Greenhouse Gases under Section 202(a) of the Clean Air Act ,” Federal Register / Vol. 74, No. 239 / Tuesday, December 15, 2009 / Rules and Regulations. 75 FR 49556. August 13, 2010. “EPA’s Denial of the Petitions to Reconsider the Endangerment

an d Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act.” Bell, M.L., A. McDermott, S.L. Zeger, J.M. Sarnet, and F. Dominici

. 2004. “Ozone and ShortTerm Mortality in 95 U.S. Urban Communities, 1987-2000.” Journal of t he American Medical Association. 292(19):2372-8.

### Do cket ID EPA

- HQ

- OAR -2009-0472-114577, Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February 2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/for

agencies/Social -Cost-of-Carbon- fo r-RIA.pdf>. Accessed July 15, 2015.

Docket ID EPA

- HQ

- OAR -2013-0602, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with Participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). A vailable at:

< https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

- tsd

- final -july-2015.pdf >. Acce ssed July 15, 2015. Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. Shi, et al. 2009. Extended Follow- Up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. HEI Research Report, 140, Health Effects Institute, Boston, MA. Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Mana gement and Budget, Office of Science and Technology Policy, and Department of Treasury. Response to to Comments: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. July 2015. Available at: <https://www.whitehouse.gov/sites/de fault/files/omb/inforeg/scc -response- to

- comments

final -july-2015.pdf.> Accessed July 15, 2015.

### Int ergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: Synthesis Report Contribution of Working Groups I, II and III to the Fourth Assessment Report of the IPCC . Available at: <http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synt hesis_report.htm>. Accessed June 6, 2015. Lepeule, J., F. Laden, D. Dockery , and J. Schwartz. 2012. “Chronic Exposure to Fine Part icles and Mortality: An Extended Follow-Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspective s. 120(7):965-70. Levy, J.I. , S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone Exposure and Mortality: An Empiric Bayes Metaregre ssion Analysis.” Epidemiology. 16(4):458-68.
Melillo, J.M., T.C. Richm ond, and G.W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program. Available at <http://nca2014.glob alchange.gov >. Accessed June 4, 2015. National Research Council (NRC). 2000. Toxicological Effects of Methylmercury: Committee on the Toxicological Effects of Methylmercury .” Board on Environmental Studies and Toxicology. National Academies Press. Washington, DC. National Research Council (NRC). 2002. Estimating the Public Health Benefits of Proposed Air Pollution Regulations . National Academies Press. Washington, DC.

National Research Council. 2011. Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia . Washington, DC: Th e National Academies Press

. U.S. Environmental Protection Agency (U.S. EPA). 2008a. Integrated Science Assessment for Sulfur Oxides—Health Criteria (Final Report) . National Center for Environmental Assessment – RTP Division , Research Triangle Park, NC. September. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impac t Analysis

. EPA -452/R-08-003. Office of Air Quality Planning and Standards Health and Environmental Impacts Division, Air Benefit and Cost Group Research Triangle Park, NC. March. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/6

- ozoneriachapter6.pdf>. Accessed June 4, 2015. U.S. EPA. 2008c. Integrated Science Assessment for Oxides of Nitrogen: Health Criteria (Final Report). Research Triangle Park, NC: National Center for Environmental Assessment. July. Available at < http://cfpub.epa.gov/ncea/cfm /recordisplay.cfm?deid=194645>.

### U.S . Environmental Protection Agency (U.S. EPA). 2008c. Integrated Science Assessment for Oxides of Nitrogen - Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. July. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2009b. Integrated Science Assessment for Particulate Matter (Final Report) . EPA -600-R-08-139F. National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. December. Available at:

< http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546 >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2010d. Section 3: Re

‐ a nalysis of the Benefits of Attaining Alternative Ozone Standards to Incorporate Current Methods

. Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/s3

- supplemental_analysis -updated_benefits11- 5.09.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. EPA

452/R-12-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Divisi on, Research Triangle Park, NC. December. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013b. Integrated Science Assessment of Ozone and Related Photochemical Oxidants (Final Report). EPA/600/R-10/076F. National Center for Environmental Assessment – RTP Division, Research Triangle Park. Available at: <http://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247492#Download>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2015a. Regulatory Impact Analysis for the Clean Power Plan Final Rule. EPA -452/R-15-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Par k. U.S. EPA. 2015b. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units . Demand

- Side Energy Efficiency.
Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. “ The r elationship b etween s elected causes of postneonatal infant mortality and particulate air pollution in the United States.” Environmental Health Perspecti ves. 105 (6): 608 -612.

## C HAPTER 

## 2: S TATUTORY AND 

## E XECUTIVE 

## O RDER 

## R EVIEWS



### 2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

This proposed action is an economically significant regulatory action that was submitted to the OMB for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA prepared an analysis of the potential costs and benefits associated with this action. This analysis, which is presented in this RIA, is also contained in the “Regulatory Impact Analysis for the Proposed Federal Plan Requirements for Greenhouse Gas
Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations ” (EPA -452/R-15-006, July 2015), is available in th e docket and is briefly summarized in section VII I of th e is preamble.
Consistent with Executive Order 12866 and Executive Order 13563, the EPA estimated
the costs and benefits for two alternative federal plan approaches to implementing the proposed
federa l plan and model trading rules. The proposed action will achieve the same levels of emissions performance as required of state plans under the CAA section 111(d) EGs for the
control of CO 2


### . Actions taken to comply with the guidelines will also reduce the e missions of directly

- emitted PM 2.5 

### , SO 2 

### and NO X 

### . The benefits associated with these PM 2.5 

### , SO 2 

### and NO X 

### reductions are referred to as co -benefits, as these reductions are not the primary objective of this
rule.

T he Regulatory Impact Analysis ( RIA ) for this proposal analyzed two implementation
scenarios
, which we term the “rate

- based federal plan approach” and the “mass

- base d federal plan approach”. It is very important to note that the differences between the analytical results for
the rate

- based and mass -ba sed federal plan approaches presented in th is e RIA may not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the proposed rule. In other words, if one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all
instances.
It is important to note that the potential regulatory impacts presented in the Clean Power
Plan Final Rule RIA and th is e RIA for this proposed rule are not additive. Both RIAs present

### estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan EGs. In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading rules, the same performance rates are accomplished but are
assumed to be achieved under the federal plan or model trading rules.

The EPA has used the social cos t of carbon estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis
Under Executive Order 12866 (May 2013, Revised July 2015) (“current TSD”) to analyze CO 2 

### climate impacts of this rulemaking. We refer to these estimates, which were developed by the U.S. government, as “SC- CO 2 

### estimates.” The SC

- CO 2 

### is an estimate of the monetary value of impacts associated with a marginal change in CO 2 

### emissions in a given year. The four SC- CO 2 

### estimates are associated with different discount rates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th 

### percentile at 3 percent), and each increases over time. In this summary, the EPA provides the estimate of climate benefits associated with the SC

- CO 2 

### value deemed to be central in the current TSD: the model average at 3 percent discount rate.
The EPA estimates that, in 2020, the proposal will yield monetized climate benefits (in2011$) of approximately $2.8 billion for the rate-based approach and $3.3 billion for the massbased approach (3 percent model average). For the rate -based approach, the air pollution health

co -benefits in 2020 are estimated to be $0.7 billion to $1.8 billion (2011$) for a 3 percent discount rate and $0.64 billion to $1.7 billion (2011$) for a 7 percent discount rate. For the mass

based approach, the air pollution health co-benefits in 2020 are estimated to be $2.0 billion to $4.8 billion (2011$) for a 3 percent discount rate and $1.8 billion to $4.4 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2020, are approximately $2.5 billion for the

rate -based approach and $1.4 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2020 are estimated to range from $1.0 billion to $2.1 billion (2011$) for the rate-based approach and from $3.9 billion to 6.7 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).

### The EPA estimates that, in 2025, the proposal will yield monetized climate benefit s (in2011$) of approximately $10 billion for the rate-based approach and $12 billion for the massbased approach (3 percent model average). For the rate -based approach, the air pollution health

co -benefits in 2025 are estimated to be $7.4 billion to $18 billion (2011$) for a 3 percentdiscount rate and $6.7 billion to $16 billion (2011$) for a 7 percent discount rate. For the massbased approach, the air pollution health co-benefits in 2025 are estimated to be $7.1 billion to $17 billion (2011$) for a 3 percent discount rate and $6.5 billion to $16 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2025, are approximately $1.0 billion for the

rate -based approach and $3.0 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2025 are estimated to range from $17 billion to $ 27 billion (2011$) for the rate- based appr oach and $16 billion to $26 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).
The EPA estimates that, in 2030, the proposal will yield monetized climate benefits (in 2011$) of approximately $20 billion for the ra te -based approach and $20 billion for the massbased approach (3 percent model average). For the rate -based approach, the air pollution health

co -benefits in 2030 are estimated to be $14 billion to $34 billion (2011$) for a 3 percent discount rate and $13 billion to $31 billion (2011$) for a 7 percent discount rate. For the mass- based approach, the air pollution health co-benefits in 2030 are estimated to be $12 billion to $28 billion (2011$) for a 3 percent discount rate and $11 billion to $26 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2030, are approximately $8.4 billion for the rate- based approach and $5.1 billion for the mass- based appro ach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2030 are estimated to range from $ 26 billion to $ 45 billion (2011$) for the rate-based approach and from $26 billion to $43 billion (2011$) for the mass -based approach, using a 3 percent discount rate (model average).
Table 1-8 and Table 1-9 of this RIA provides the estimates of the climate benefits, health co

benefits, compliance costs and net benefits of the proposal for rate

- based and mass

- based f ederal plan approaches, respectively.

### Th ere are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 

### emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing
emissions of non- CO 2 

### GHGs ( e.g ., nitrous oxide and methane) and co

- benefits from reducing direct exposure to SO 2 

### , NO X 

### , and HAP ( e.g ., mercury), as well as from reducing ecosystem effects and visibility impairment. Based upon the foregoing discussion, it remains clear that the benefits of this proposed action are s ubstantial, and far exceed the costs. Additional details on benefits, costs, and net benefits estimates are provided in th e this RIA for this proposal.
[Placeholder]

2.2 Paperwork Reduction Act
[Placeholder] The information collection requirements in this rule have been submitted for approval to OMB under the PRA. The Information Collection Request (ICR) document prepared by the EPA has been assigned EPA ICR number 2526.01 . You can find a copy of the ICR in th e docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until approved by OMB.
This rule does not directly impose specific requirements on state and U.S. territory governments with affected EGUs. The rule also does not impose specific requirements on tribal governments that have affected EGUs located in their area of Indian country. This rule does impose specific requirements on EGUs located in states, U.S. territories or areas of Indian country. The information collection activities in this proposed rule are consistent with those activities defined under the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units finalized on August 3, 2015. The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The ICR document prepared by the EPA has been assigned EPA ICR n umber 2526.01. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here.

### Aside from reading and understanding the rule, this proposed action would impose minimal new information collection burden on affected EGUs beyon d what those affected EGUs would already be subject to under the authorities of CAA parts 75 and 98. OMB has previously approved the information collection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060–0626 and 2060– 0629, respectively. Apart from certain reporting costs based on requirements in the NSPS General Provisions (40 CFR part 60, subpart A), which are mandatory for all owners/operators subject to CAA section 111 national emission standards, there are no new information collection costs, as the information required by this proposed rule is already collected and reported by other regulatory programs. The recordkeeping and reporting requirements are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confident iality is made is safeguarded according to agency policies set forth in 40 CFR part 2, subpart B.
Although EPA cannot determine at this time how many affected EGU respondents will submit information under the federal plan, EPA has estimated an “upper bound ” burden estimate for this ICR that estimates burden should every affected EGU read and understand the rule. This is the only potential respondent activity that would be required under the 3-year period following publication of the final federal plan, so there are no obligations to respond in this period. The results of this “upper bound” estimate of federal plan burden are presented below:
Respondents/affected entities: 1,028
Respondents’ obligation to respond: Not applicable, no responses are required during the period covered by the ICR.
Estimated number of respondents: Unknown at this time, but have assumed all affected entities are respondents for an upper bound estimate.
Frequency of response: None, no responses are required during the period cover ed by the
ICR.
Total estimated burden: 17,133 hours (per year). Burden is defined at 5 CFR 1320.3(b). Total estimated cost: $1,706,501 (per year)

### An agency may not conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA’s regulations in 40 CFR are listed in 40 CFR part 9.
Submit your comments on the agency’s need for this information, the accuracy of the provided burden estimates and any suggested methods for minimizing respondent burden to theEPA using the docket identified at the beginning of this rule. You may also send your ICRrelated comments to OMB’s Office of Information and Regulatory Affairs via email to oria_submissions@omb.eop.gov , Attention: Desk Officer for the EPA. Since OMB is required to make a decision concerning the ICR between 30 and 60 days after receipt, OMB must receive
comments no later than 30 days after the date of publication in the Federal Register . T he EPA will respond to any ICR- related comments in the final rule.

2.3 Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA; 5 U.S.C.§ 601 et seq.), as amended by the Small Business Regulatory Enforcement Fairness Act (Public Law No. 104-121), provides that whenever an agency is required to publish a general notice of proposed rulemaking, it must prepare and make available an initial regulatory flexibility analysis (IRFA), unless it certifies that the proposed rule, if promulgated, wi ll not have a significant economic impact on a substantial number of small entities (5 U.S.C. § 605[b]). Small entities include small businesses, small organizations, and small governmental jurisdictions. An IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the proposed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on
small entities. Pursuant to section 603 of the RFA, the EPA prepared an initial regulatory flexibility analysis (IRFA) that examines the impact of the proposed rule on small entities along with regulatory alternatives that could minimize that impact

. 2.3.1 Reasons why Action is Being Considered

On August 3, 2015, the EPA finalized the Clean Power Plan EGs for existing fossil

- fuel fired EGUs (40 CFR part 60, subpart UUUU) under authority of section 111 of the CAA (79 FR 34950). The Guidelines apply to existing fossil- fuel fired EGUs, i.e., those that were in operation or had commenced construction before January 8, 2014. S tates with existing EGUs subject to the guidelines are required to submit to the EPA by September 6 , 2016, a state plan that implements

### the EGs . States may also make initial plan submittals in li eu of a complete state plan, in which
case extensions will be granted until September 6, 2018 (40 CFR &&&). 32 

### As discussed in

s ection VI.D of th e is preamble, Indian Tribes may, but are not required to, submit tribal plans.
Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 33 

### section
111 of the CAA and 40 CFR 60.27 require the EPA to develop, implement, and enforce a f ederal plan for existing EGUs located in that state. In addition, CAA section 301(d)(2) authorizes the Administrator to treat an Indian Tribe in the same manner as a state for this EGU requirement.
See 40 CFR 49.3; see also “Indian Tribes: Air Quality Planning and Management,” hereafter “Tribal Authority Rule,” (63 FR 7254, February 12, 1998). As discussed in section VI.D of the is preamble, the agency in this action is proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these
affected EGUs.
The agency believes it is appropriate to propose the federal plan at this time for any states that may ultimately be found to have failed to submit a plan, or had their plan disapproved by the
EPA. For some states in this situation, the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an approved plan in place. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves

as two proposed model trading rules which states can adopt or tailor for adoption as their state plan. On &&&August 3 , 2015
, the EPA finalized the Clean Power Plan E mission Guideline s for
exist ing fossil- fuel fired electricity generating units ( EGUs ) (40 CFR part 60, subpart UUUU) under authority of section 111 of the CAA (79 FR 34950). The Guidelines apply to existing
fossil

- fuel fired EGUs, i.e., those that were in operation or had commenced construction before January 8, 2014. S tates with existing EGUs subject to the guidelines are required to submit to the EPA by August 31, 2016, a state plan that implements the EGs . States may also make initial plan submittals in lieu of a complete state pla n, in which case extensions can be granted (40 CFR

32 See Section VII of th e is preamble for additional information on proposed changes to 40 CFR 60.27 to provide

enhancements and flexibilities to the agency’s process for review and action on state plans and promulgation of federal plans.

33 If a state has submitted a complete plan, then the EPA will go through a public notic e and comment process to

fully or partially approve or disapprove the state plan.

### &&&)

. 34 

### Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 35 

### section 111 of the CAA and 40 CFR 60.27 require the EPA to develop, implement, and
enforce a f ederal plan for existing EGUs located in that state.
The agency believes it is appropriate to propose the federal plan at this time for any states that may ultimately be found to have failed to submit a plan, or had their plan disapproved by the
EPA. For some states in this situation, the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an approved plan in place. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves

as two proposed model trading rules which states can adopt or tailor for adoption as their state plan.
2.3.2 Statement of Objectives and Legal Basis for Proposed Rules

The EPA is planning a notice of propo ss ing ed this rulemaking for a federal plan to implement greenhouse gas Emission Guidelines for existing fossil fuel- fired electric generating units (EGUs) . The emission guideline s were pro posed in June 2014 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (79 FR 34830; the Clean Power Plan). This plan is part of the President’s Climate Action Plan announced in June of 2013 to reduce carbon emissions from the power sector by 30 percent
below 2005 levels. This federal plan serves to: 1) provide a model rule that states can tailor for implementation, and 2) set in place a plan that EPA can implement for states that do not develop an approvable state plan

. The EPA sees this federal plan as an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until states assume their role as the preferred implementers of the emission guidelines.

The final Clean Power Plan Emission Guidelines , due out this summer, are related to but separate from the proposed federal plan. The final Emission Guidelines s will detail the carbon

34 See Section VII of this preamble for additional information on proposed changes to 40 CFR 60.27 to provide

enhancements and flexibilities to the agency’s process for review and action on state plans and promulgation of federal plans.

35 If a state has submitted a complete plan, then the EPA will go through a public notice and comment process to

fully or partially approve or disapprove the state plan.

### diox ide ( CO 2 

### ) reduction goals for sources by state. The purpose of the proposed federal plan is to lay out mechanisms to achieve reductions in CO 2 

### emissions from affected EGUs that are not covered by an EPA -approved state plan. The EPA is considering a range of options and approaches through which affected EGUs would meet a rate- based goal or a mass

- based equivalent. The EPA intends to incorporate flexibility to the extent possible into the proposed federal plan so affected units can achieve these reductions in a cost -e ffective way

.
2.3.3 Description and Estimate of Affected Small Entities
EPA conducted this regulatory flexibility analysis at the ultimate (i.e., highest) level of ownership, evaluating parent entities with the largest share of ownership in at least one potentially

- affected EGU included in EPA’s Base Case using the Integrated Planning Model (IPM) v.5.15, used in this the Regulatory Impact Analysis ( RIA ) for this proposed rule

. 36 

### This analysis draws on the “parsed” unit- level estimates using IPM results for 2030, as well as ownership, employment, and financial information for the potentially affected small entities drawn from other resources described in more detail below. EPA chose to examine potential impacts in 2030 because that is when the emission performance goals are required to be fully achieved. Also, as presented in this the RIA for this proposed rule , 2030 is the year where the estimated annual compliance costs for the contiguous U.S. are at their highest. 37


### It is important to briefly describe the cost analysis supporting this proposed rule. This action proposes a federal plan under section 111(d) of the CAA for the control of CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil-fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in
the form of mass - and rate

- based trading options that provide flexibility in implementing
emission standards for a state’s affected EGUs . Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission performance rates in the emission guidelines. The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.

36 See 1.4.1 of th is e RIA for this proposed rule for more detail on the IPM base case used for this analysis. Detailed

documentation for IPM v.5.1 5 is available at: http://www.epa.gov/powersectormodeling

.
37 See Section 1.5.2 of th is e RIA for this proposed rule

.

### However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or adopt a model rule. Because of this lack of information, for this RIA, the EPA has chosen to examine two federal plan approac h a scenario s where all states of the contiguous U.S. will be regulated under a federal plan or a model rule. Furthermore, because of the lack of information as to which states will adopt the model rule, the EPA has
chosen to examine a scenario where all s tates of the contiguous U.S. adopt the model trading rule . Additionally, we examine two alternative federal plan approach scenarios, which will be described in more detail below, for implementation of federal plans. The first federal plan approach we exam ine in this RIA assumes all states in the contiguous U.S. are regulated under a

rate

- based federal plan or model rule. The second federal plan approach we examine assumes all contiguous states are regulated under a mass-based federal plan or model rule. Ho wever, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. Because of this lack of information, for the RIA for this proposed rule, the EPA has chosen to examine a boundary scenario where all states of the contiguous U.S. will be regulated under a federal plan. Additionally, the proposal RIA examines two federal plan approach scenarios for implementation of federal plans. We use these scenarios to inform this
IRFA.
The first federal plan ap proach assumes all states in the contiguous U.S. are regulated under rate-based federal plans. The second federal plan approach assumes all contiguous states are regulated under mass

- based federal plans. As with the analysis in this RIA, the IRFA proceeds by examining potential costs to small entities under both the rate

- based and mass

- based approach, again under the strong assumption that all affected EGUs are regulated under a federal plan. The parsed unit- level estimates used in this IRFA are consistent with the analysis presented
elsewhere in th is e RIA. These 2030 year IPM files can also be found in the docket for the rulemaking.

E PA identified the size of ultimate parent entities by using the Small Business Administration (SBA) size threshold guidelines

. 38 

### The criteria for size determination vary by the organization/operation category of the ultimate parent entity, as follows:

38 U.S. Small Business Administration (SBA). 2014. Small Business Size Standards. Effective as of July 14, 2014.

See: http://www.sba.gov/sites/default/ files/Size_Standards_Table.pdf.

### • P rivately -owned (non- government) entities (se e Table 2-1)

o Privately -owned entities include investor-owned utilities, non- utility entities, and entities with a primary business other than electric power generation.

o For entities with electric power generation as a primary business, small entities are those with less than the threshold number of employees specified by SBA for each of the relevant North American Industry Classification System (NAICS) sectors (NAICS 2211).

o For entities with a primary business other than electric power generation, the
relevant size criteria are based on revenue , assets, or number of employees by
NAICS sect or. 39



### • Publicly- owned entities

o Publicly- owned entities include federal, state, municipal, and other political
subdivision entities.

o The federal and state governments were considered to be large. Municipalities and other political units with population fewer than 50,000 were considered to be
small.

• Rural Electric Cooperatives

o Small entities are those with fewer than the threshold level of employees or revenue specified by SBA for each of the relevant NAICS sectors.

EPA examined affected EGUs included in EPA’s 2030 projections and identified the associated power plants. Next, we determined power plant ownership information, including the name of associated owning entities , ownership shares, and each entity’s type of ownership. EPA primarily used data from SNL an d Ventyx , supplemented by limited research using publicly

39 Certain affected EGUs are owned by ultimate parent entities whose primary business is not electric power

generation.

### avai lable data. 40 

### Majority owners of power plants with affected EGUs were categorized as one of the seven ownership types. 41 

### The se ownership types are:

1. Investor- Owned Utility (IOU): Investor- owned ass ets (e.g., a marketer, independent power producer, financial entity) and electric companies owned by stockholders, etc.

2. Cooperative (Co

- Op ): Non -profit, customer- owned electric companies that generate and/or distribute electric power.
3. Municipal: A municipal utility, responsible for power supply and distribution in a small region, such as a city.
4. Sub

- division: Political subdivision utility is a county, municipality, school district, hospital district, or any other political subdivision that is not classified as a municipality under state law

. 5. Private: Similar to an investor -owned utility, however, ownership shares are not openly traded on the stock markets.

6. State: Utility owned by the state.

7. Federal: Utility owned by the federal government.
Required ownership information could not be determined for two committed units that are represented in the IPM base case modeling for this proposed rule, preventing their inclusion in this analysis. 42



### Next, EPA u sed the Hoover’s online database to identify the ultimate owners of power plant owners identified in the SNL and Ventyx dat abases. This was necessary, as many majority owners of power plants (listed in SNL or Ventyx) are themselves owned by other ultimate parent entities (listed in Hoover’s). 43 

### In these cases, the ultimate parent entity was identified via Hoover’s, whether dome stic ally or international ly owned.

40 SNL Financial data covers the energy market and other industries

. For more information, see: www.snl.com

. The

Ventyx database consists of detailed ownership and corpor ate affiliation information at the EGU level. For more information, see: www.ventyx.com.

41 Throughout this analysis, EPA refers to the o wner with the largest ownership share as the “majority owner” even

when the ownership share is less than 51 percent.

42 The ORIS codes of these two units are 83609 and 83921 . Without knowledge of entity type and size, it was not

possible to accurately estimate revenue or costs impacts. An ORIS c ode is a n identifying number assigned by the U.S. E nergy Information Administration to power plants owned by utilities

. 43 The Hoover’s Inc. online platform includes company records that can contain NAICS codes, number of

employees, revenues, and assets. For more information, see: http://www.hoovers.com

.

### EP A followed SBA size standards to determine which non-government ultimate parent entities should be considered small entities in this analysis. These SBA size standards are specific to each industry, each having a thres hold level of either employees, revenue, or assets below which an entity is considered small. SBA guidelines list all industries, along with their associated NAICS code and SBA size standard. Therefore, it was necessary to identify the specific NAICS code associated with each ultimate parent entity in order to understand the appropriate size standard to apply. Data from Hoover’s was used to identify the NAICS codes for most of the ultimate parent entities. 44 

### In many cases, an entity that is a majority owner of a power plant is itself owned by an ultimate parent entity with a primary business other than electric power generation. Therefore, it was necessary to consider SBA entity size guidelines for the range of NAICS codes listed in Table 2 -1. This table repr esents the range of NAICS codes and areas of primary business of ultimate parent entities which are majority owners of potentially
affected EGUs in EPA’s IPM base case.

44 In the case of two entities, NAICS codes could not be located in Hoover’s, so publicly available information was

used to determine the primary area of business for the ultimate parent entities.

### Ta ble 2 -1. SBA Size Standards by NAICS Code

Notes: 1) Based on size standards effective at the time EPA conducted this analysis (SBA size standards, effective July 14, 2014 ) 2) Small business size standards are not established for the Public Administration industry (NAICS code 921110). It is assumed that a comparable NAICS private sector industry is Fossil Fuel Electric Power Generation (NAICS code 221112). Therefore, for this analysis, the NAICS code 921110 is assumed to have a size standard of 750 employees. Source: SBA, 2014 NAICS

Code NAICS Description SBA Size Standard

211111 Crude Petroleum and Natural Gas Extraction 500 employees 211112 Natural Gas Liquid Extraction 500 employees 212111 Bituminous Coal and Lignite Surface Mining 500 employees 212221 Gold Ore Mining 500 employees 213112 Support Activities for Oil and Gas Operations $38.5 million in revenue 221111 Hydroelectric Power Generation 500 employees 221112 Fossil Fuel Electric Power Generation 750 employees 221113 Nuclear Electric Power Generation 750 employees 221118 Other Electric Power Generation 250 employees 221121 Electric Bulk Power Transmission and Control 500 employees 221122 Electric Power Distribution 1,000 employees 221210 Natural Gas Distribution 500 employees 238210 Electrical Contractors and Other Wiring Installation Contractors $15 million in revenue 238290 Other Building Equipment Contractors $15 million in revenue 324110 Petroleum Refineries 1,500 employees 325120 Industrial Gas Manufacturing 1,000 employees 325211 Plastics Material and Resin Manufacturing 750 employees 325320 Pesticide and Other Agricultural Chemical Manufacturing 500 employees 331110 Iron and Steel Mills and Ferroalloy Manufacturing 1,000 employees 331313 Alumina Refining and Primary Aluminum Production 1,000 employees 333613 Mechanical Power Transmission Equipment Manufacturing 500 employees 333999 All Other Miscellaneous General Purpose Machinery Manufacturing 500 employees 335312 Motor and Generator Manufacturing 1,000 employees 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing 500 employees
423610 Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers 100 employees

424720 Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals) 100 employees 454310 Fuel Dealers 50 employees 486210 Pipeline Transportation of Natural Gas $27.5 million in revenue 522110 Commercial Banking $550 million in assets 522220 Sales Financing $38.5 million in revenue 522320 Financial Transactions Processing, Reserve, and Clearinghouse Activities $38.5 million in revenue 523120 Securities Brokerage $38.5 million in revenue 523910 Miscellaneous Intermediation $38.5 million in revenue 523920 Portfolio Management $38.5 million in revenue 523930 Investment Advice $38.5 million in revenue 524113 Direct Life Insurance Carriers $38.5 million in revenue 524126 Direct Property and Casualty Insurance Carriers 1,500 employees 524210 Insurance Agencies and Brokerages $7.5 million in revenue 525110 Pension Funds $32.5 million in revenue 525120 Health and Welfare Funds $32.5 million in revenue 525990 Other Financial Vehicles $32.5 million in revenue 541611 Administrative Management and General Management Consulting Services $15 million in revenue 551112 Offices of Other Holding Companies $20.5 million in revenue 561110 Office Administrative Services $7.5 million in revenue 813910 Business Associations $7.5 million in revenue 921110 Public Administration 750 employees

### EP A compared the relevant entity size criterion for each ulti mate parent entity to the SBA threshold value noted in Table 2-1. We used the following data sources and methodology to estimate the relevant size criterion values for each ultimate parent entity:

1. Employment, Revenue, and Assets: EPA used the Hoover’s database as the primary source for information on ultimate parent entity employee numbers, revenue, and

assets. 45 

### In parallel, EPA also considered estimated revenues from affected EGUs based on analysis of parsed

- file estimates for 20 30. 46 

### EPA assumed that the ultimate parent entity revenue was the larger of the two revenue estimates. In limited instances, supplemental research was also conducted to estimate an ultimate parent entity’s number of employees, revenue, or assets.

2. Population: Municipal entities are defined as small if they serve populations of less than 50,000. EPA primarily relied on data from the Ventyx database and the U.S. Census Bureau to inform this determination. Supplemental research of individual municipalities

was a lso conducted in some instances.
Ultimate parent entities for which the relevant measure is less than the SBA size criterion were identified as small entities and carried forward in this analysis. In the case of six entities, data limitations prevented the comparison of entities against their appropriate SBA size standards. For the purposes of this analysis, EPA assumed that these six entities are small
entities. 47



### EPA identified 223 potentially affected EGUs owned by 74 small entities included in
EPA’s 2030 projections. Fifty -nine of these potentially affected EGUs are projected to no longer be operating by 2030 in the Base Case of EP A’ s version of IPM v.5.15

. 48 

### Twenty

- four small

45 Estimates of sales were used in lieu of revenue estimates when revenue data was unavailable.

46 The methodology for the analysis of IPM results is detailed later in this IRFA.

47 Generation from potentially affected EGUs owned by these six entities represents less than two percent of total

generation from potentiall y affected EGUs owned by small entities under EPA’s base case projections.

48 Detailed documentation for IPM v.5.15 is available at: http://www.epa.gov/powersectormodeling.

### entities are projected to have all of their potentially affected EGUs cease oper ation by 2030 in
this Base Case the base case by 2030

.

2.3.4 Compliance Cost Impact Estimates
2.3.4.1 Methodology for Estimating Impacts on Small Entities
This section presents the methodology used in this analysis for estimating the federal compliance costs of this proposed rule for small entities. For the purposes of this IRFA, EPA
estimated net compliance costs for individual EGUs of the proposed rule using the following equation:


## C net compliance cost 

## = Δ C operating + annualized capital 

## + Δ C fuel 

## + Δ C demand

- side energy efficiency 

## + Δ R

where C represents the components of cost as labeled
, R represents revenue, and 

## Δ indicates the
calculation of difference between the base case and the federal plan approach under examination. The specific me aning of these variables is discussed below.
This approach to estimate net compliance costs is consistent with previous proposed power sector regulations that required IRFAs, such as the proposed Mercury and Air Toxics
Rule. 49 

### However, there is an additional component in the net compliance cost equation: the change in the program costs of demand

- side energy efficiency programs. Investment in demand

side energy efficiency results in lower electricity demand, and consequently fewer emissions as production is reduced to meet the lower demand, an important emission-reduction strategy
modelled in the rate

- based and mass

- based federal plan approaches.
Because this analysis evaluates the net compliance costs as a sum of the costs changes associated with compliance choices as well as changes in electricity revenues, it captures potential net compliance cost increases or decreases

. For example , if under the proposed rule
entities i ncrease revenue more than costs , the net compliance costs will be negative

. As a result,

49 U.S. Environmental Protection Agency (U.S. EPA). 2011

. Regulatory Impact Analysi s of the Proposed Toxics

Rule: Final Report . Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Resear ch Triangle Park, NC. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/ToxicsRuleRIA.pdf

.

### th e approach used here to estimate net compliance costs is well -equipped to evaluate the potential distributional consequences of the proposed regulation.
For this analysis, EPA used the parsed unit- level estimates mentioned before to estimat e three of the four components of the net compliance cost equation above: the change in operating and annualized capital costs, the change in fuel costs, and the change in revenue, where all changes are estimated as the difference between the base case and federal plan scenario. These impacts were then summed for each small entity, adjusting for ownership share. 50 

### As described momentarily, additional analysis was performed to estimate the change in costs of demand- side energy efficiency that factors in IPM -projected outputs but is not directly an output of the model. These individual components of compliance cost were estimated as follows:

1. Operating and capital costs: Using the IPM parsed estimates for the base case and the

rate

- based and mass -ba sed federal plan approaches, EPA evaluated changes in operating and capital costs at the EGU level. The equations for calculating operating and capital costs were adopted from technology assumptions used in EP A’ s version of IPM version 5.15. The model calculates the capital cost (in $/MW); the fixed operation and maintenance (O&M) cost (in $/MW -year); and the variable O&M cost (in $/MWh).

2. Fuel costs: Using the IPM parsed estimates for the base case and the rate

- based and

mass -ba sed federal plan approaches, EPA evaluated projected changes in fuel cost at the
EGU level. These projected fuel costs are based on estimated EGU

- level fuel input (in million British thermal units, MMBtu) and delivered fuel prices ($/MMBtu).

3. Demand

- side energy efficiency program costs: Demand

- sid e energy efficiency program costs are estimated and allocated to affected EGUs outside of IPM in thisanalysis. For this analysis, we assumed that IOUs, Co-Ops, Municipals, and SubDivisions are utilities that receive revenues on the basis of retail electricity rates. Retail electricity in this and related EPA analyses contain an energy efficiency surcharge. The surcharge reflects the standard mechanism by which utilities collect revenue from their customers to pay for energy efficiency programs. Such surcharges are approved for inclusion in rates by state utility commission for IOUs or the equivalent authority (e.g.,

50 Unit

- level cost im pacts are adjusted for ownership shares for individual small entities, so as not to overestimate burden on each entity.

### muni cipal or cooperative utility board of directors) for other utility types. To be consistent, EPA assumes that these utilities will incur an energy efficiency surcharge as a cost in this analysis. The demand- side energy efficiency surcharge is state specific, being
the estimated state demand

- side energy efficiency program costs 51 

### divided by projected total state sales. The cost in this analysis is the surcharge multiplied by projected sales
from affected EGUs. 52 

### In contrast, entities of the type Private are not assessed demand

side energy efficiency program costs in this analysis. 53 

### This distinction is made because
EPA assumes that Private entitie s own non- utility EGUs that will earn wholesale electricity rates. Wholesale electricity rates do not include a demand

- side energy efficiency surcharge in this or related EPA analyses.

4. Revenues : EPA estimated the value of electricity generated by multiplying the projected electricity generation from EPA’s IPM modeling results with the regional retail electricity price estimates ($/MWh), for all entiti es except those categorized as Private in Venty x. For private entities, EPA used projected wholesale electricity price instead of retail electricity price estimates because most of the private entities are independent power producers (IPP). Since IPPs sell their electricity to wholesale purchasers and do
not own transmission facilities
, their revenue was estimated with wholesale electricity prices.

2.3.4.2 Results
This section presents the estimated net compliance cost impacts of the proposed rule on small entities in 2030 based on the following endpoin ts:

51 In practice, the costs of demand

- side energy efficiency programs include the costs to the utilities that are funding

the programs (kno wn as the program costs ) and the additional cost to the end

- user purchasing a more energy efficient technology (known as the participant costs). Based upon a literature review, the analysis supporting this proposed rule and the Clean Power Plan Fin a l Rule, t otal costs are assumed to be divided evenly, 50 percent each, between program costs and participant costs. This IRFA includes only to the program costs expected to be incurred by utilities. For more detail on how the demand

- side energy efficiency costs a re estimated, see U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand

- Side Energy Efficiency.

52 For these entity types (i.e., IOUs, Co -O ps, Municipals, and Sub

- Divisions), projected sales is estimated to be 7.5

percent less than generation. This 7.5 percent reduction is added to account for estimated transmission losses.

53 Note that in this context, “Private” is one of seven distinct owne rship types introduced earlier in this chapter.

### • n et compliance costs estimated for the proposed rule for potentially affected small
entities , and

• the ratio of small entity compliance cost impacts to revenues from electricity generation
at affected EGUs
It is worth noting again that the results in t his section are based on the assumption made for this analysis that all affected EGUs owned by small entities are subject to this proposed rule

. EPA chose to examine this boundary scenario because, at the time of this proposal, the EPA has
no information o n whether any or how many states will require a federal plan.
The number of affected small entities by ownership type and the potential impact of the federal plan approaches are summarized in Tables 2 -2 through 2-5 . These tables are specific to
either the rate

- based federal plan approach (i.e., rate

- based), or mass

- based federal plan approach (i.e., mass- based)

. All costs are presented in 2011 dollars.
EPA estimated the annualized net compliance cost to potentially affected small entities in 2030 to be ap proximately $ 364 million under the rate -based approach, and $404 million under
the mass -based approach. Results for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost-of- service markets are likely able to recover compliance costs through rate adjustments ; as a result these costs can be viewed as likely being over

- estimates for this set of
utilities. 54

54 This is similarly discussed dynamic is also expressed in previous EPA analyses. For example, see section 7.4.5.2

within the Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards . Availabl e at: http://www.epa.gov/ttnecas1/regdata/RIAs/matsriafinal.pdf.

### Ta ble 2 -2. Number of Affected Small Entities in the Base Case, and Projected Impact under the Rate -Based Federal Plan Approach in 2030 EGU Ownership Type Number of Potentially Affected Entities Number of Entities Projected to Withdraw all Affected Units in Base Case Additional Entities Proj ected to Withdraw all Affected Units

under Rate

- Based Approach Co

- Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub

- Division 6 0 2 Grand Total 74 24 7 Notes : 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source : U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### Table 2 -3. Projected Impact o n Small Entities in 2030 under Rate- Based Federal Plan Approach

EGU Ownership Type Total Net Compliance Costs

(2011$ millions) Number of Small Entities with Net Compliance Costs > 1% of Generation Revenues Number of Small Entities with Net Compliance Costs > 3% of Generation Revenues Co

- Op 109 8 3 IOU 186 4 4 Municipal 17 7 5 Private 34 11 9 Sub

- Division 18 6 2 Grand Total 364 36 23 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities experiencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional rev enues some entities may earn from other sources. 3) Nine small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling res ults.

### Ta ble 2 -4. Number of Affected Small Entities in the Base Case, and Projected Impact under the Mass -Based Federal Plan Approach in 2030

EGU Ownership Type Number of Potentially Affected Entities Number of Entities Projected to Withdraw all Affected Units in Base Case Additional Entities Projected to Withdraw all Affected Units under Mass

- Based Approach Co

- Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub

- Division 6 0 0 Grand Total 74 24 5 Notes : 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source : U.S. EPA analysis, based on IPM modeling results.



### Table 2 -5. Projected Impact o n Small Entities in 2030 under Mass- Based Federal Plan Approach

EGU Ownership Type Total Net Compliance Costs

(2011$ millions) Number of Small Entities with Net Compliance C osts > 1% of Generation Revenues Number of Small Entities with Net Compliance Costs > 3% of Generation Revenues Co

- Op 133 10 4 IOU 179 3 3 Municipal 50 5 5 Private 36 8 7 Sub

- Division 7 4 2 Grand Total 404 30 21 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities experiencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional revenues some entities may earn from other sources. 3) Eleven small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### As noted ea rlier, there are 74 small entities with potentially affected EGUs that are modeled in the IPM base case in 2030. Of these, 24 small entities are projected to withdraw all of their potentially affected EGUs from operation under base case conditions. This le aves 50 small entities with potentially affected EGUs that are projected to be generating electricity in 2030.
Under the rate

- based federal plan approach, 7 of these 50 small entities are projected to withdraw all of their potentially affected EGUs from op eration by 2030. Under the mass- based federal plan

### appr oach, 5 of these 50 small entities are projected withdraw all of their potentially affected EGUs from operation by 2030.

Under the rate

- based federal plan approach, 23 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 911 entities are estimated to have net compliance cost savings greater than 3 percent of their generation revenues from affected EGUs. Under the mass

- based federal plan approach, 21 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 119 entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from their
affected EGUs

. The separate components of the net compliance costs for small entities under the proposed rule are summarized in Table 2-6 and Table 2-7.

Table 2 -6. Incremental Costs in 2030 under the Rate- based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions)
EGU Ownership Type Capital + Operating + Fuel

Costs ($MM) Energy Efficiency Program Costs ($MM) Change in Electricity Revenue ($MM) Total Net Compliance Costs A B C =A+B

- C Co

- Op (79) 87 (102) 109 IOU 78 93 (15) 186 Municipal (26) 25 (19) 17 Private (7) 0 (40) 34 Sub

- Division (68) 16 (70) 18 Grand Total (102) 221 (246) 364
N ote : Totals may not add due to rounding. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.

### Ta ble 2 -7. Incremental Costs in 2030 under the Mass

- based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) EGU Ownership Type Capital + Operating + Fuel

Costs ($MM) Energy Efficiency Program Costs ($MM) Change in Electricity Revenue ($MM) Total Net Compliance Costs A B C =A+B

- C Co

- Op (178) 84 (228) 133 IOU (17) 91 (104) 179 Municipal (64) 23 (91) 50 Private (2) 0 (38) 36 Sub

- Division (38) 18 (27) 7 Grand Total (299) 215 (488) 404
N ote : Totals may not add due to rounding. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### The change in electricity revenue under the federal plan approaches take into account both the profit lost from units that do not operate and the difference in revenue for operating units. The cost of withdrawing a unit as uneconomic is estimated as the ba se case profit that is foregone by not operating under a federal plan approach. O ne of the primary drivers of the cost impacts is the reduced revenue due to decreased electricity sales related to the modeled implementation of demand

- side energy efficiency measures. The EPA solicits comment on: 1) whether it is likely that small entities would consider demand -side strategies as they responded to a federal plan, 2) the appropriateness of considering the demand- side strategies in the analysis
, and 3) if demand- side energy efficiency measures are considered in the final analysis, whether it is appropriate to consider them as a cost for a municipality or city -owned utility , as this reduced revenue will translate to direct cost savings for members of the community served by the
affected units.
There are uncertainties and limitations in this analysis that may result in estimates that diverge from what we might see in reality. Some of these have already been noted. Below is a listing of important considerations when interpreting this analysis.

• At the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. The rate

- based and mass

- based federal plan approaches analyzed in this IRFA are based on a boundary scenario where all states of the contiguous U.S. will be regulated under a federal plan.

### • Results for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost -of- service markets are likely able to recover compliance costs through rate adjustments ; as a result these costs can be viewed as likely being

over- estimates for this set of utilities.

• Small entities owning NGCC EGUs operating in competitive markets may be able to recover compliance costs if steam EGUs are setting the marginal price

.

• EPA has not factored in consideration of allowances that would be distributed to affected entities nor revenue that could be generated from the sale of ERCs in it s analysis. EPA takes comment on how these factors should be considered in the final analysis.

• In this analysis, estimated state dD emand

- side energy efficiency program costs
are allocated to utility EGUs owned by IOUs, Co-Ops, Municipals, and SubDivisions basbas ed on the share of forecasted total state electricity sales that they are projected to provide. proportional to electricity sales ly in this analysis

. To the extent that this differs in practice, associated costs incurred by small entities may
be over- or under- estimated.

• To the extent that the EGU owner information used is not reflective of reality, the number of small entities may be over - or under- es timated.

• To the extent that the entity -level ownership information (i.e., NAICS code, number of employees, revenues, and assets) are not reflective of reality, the number of small entities may be over - or under- estimated.

2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements
The reporting, recordkeeping and other compliance requirements are most likely covered under Part 75 and Part 98 programs for affected EGUs. Therefore, only a marginal additional cost is expected for the mo nitoring, reporting and recordkeeping requirements of the proposed federal plan for affected EGUs. [Placeholder]

### 2.3.6 Rel ated Federal Rules
On September 20, 2013, EPA proposed carbon pollution standards for new fossil fuel fired EGUs. On June 2, 2014, the EPA, proposed carbon pollution standards for modified and reconstructed fossil fuel fired EGUs, in addition to the Clean Power Plan EGs, to cut carbon pollution from existing fossil fuel fired EGUs. These existing EGUs are, or will be, potentially impact ed by several other recently finalized EPA rules. On February 16, 2012, the EPA issued the mercury and air toxics standards (MATS) rule (77 FR 9304) to reduce emissions of toxic air pollutants from new and existing coal- and oil-fired EGUs. On May 19, 2014, the EPA issued a final rule under section 316(b) of the Clean Water Act (33 U.S.C. 1326(b)). This rule establishes new standards to reduce injury and death of fish and other aquatic life caused by cooling water intake structures at existing power plants and manufacturing facilities. On June 18, 2014 (79 FR 34830), the EPA promulgated the stream electric effluent limitation guidelines (SE ELG) rule to strengthen the controls on discharges from certain steam electric power plants. On April 17, 2015 (80 FR 21302), the EPA promulgated the coal combustion residuals (CCR) rule, which establishes technical requirements for CCR landfills and surface impoundments under subtitle D of the Resource Conservation and Recovery Act (RCRA), the nation's primary law for reg ulating
solid waste.

2.3.7 Regulatory Flexibility Alternatives

2.3.7.1 Panel Process
Small Entity Representatives ( SERs ) commented on their perceptions of the adequacy of the SBREFA panel process for the section 111(d) federal plan. Under the statute, EPA provides “information on the potential impacts of the proposed rule on small entities and the type of small entities that might be affected.” § 609(b)(1). Then SERs are selected, and the Panel collects “advice and recommendations” from each SER. § 609(b) (4). The Panel reviews the SERs’ comments, and “any material the agency has prepared in connection with [the RFA],” and “report[s] on the comments of the [SERs] and its findings as to issues related to” preparation of an IRFA. § 609(b)(5). EPA solicited SERs comments during the course of, and after holdin g three outreach meetings. The Agency provided information to the SERs on two primary

### re gulatory alternatives for the federal plan – a rate

- based trading program and a mass

- based trading program. The A gency identified specific areas under both of these alternatives where it was still in the decision making process and open to recommendations. This information forms the basis for consideration of issues and additional regulatory options important to these sma ll
entities.
Advocacy shares many of the concerns raised by the SERs (see attached letter from Acting Chief Counsel Claudia Rodgers to EPA Administrator Gina McCarthy). While Advocacy endorses the Panel recommendations, Advocacy agrees that the SERs did not have sufficient information to inform advice and recommendations about specific regulatory alternatives and
flexibilities. In Advocacy’s view, this is reflected in Panel recommendations that advise EPA to consider issues raised by the SERs rather than t o propose or consider regulatory alternatives. Advocacy regrets that the Panel is not able to make more specific recommendations for flexibilities to minimize the impacts on small entities.
While not all members of the Panel agree with all of these concer ns, the concerns of the SERs regarding the Panel process have been noted. Nonetheless, EPA is committed to ensuring that it meets the requirements of the RFA and will, to the maximum extent practicable, fully consider the advice and recommendations of repr esentatives of small entities in the development of the proposed rule. The EPA intends to continue working on issues regarding small businesses, and consider appropriate flexibilities, throughout this rulemaking process.

2.3.7.2 Remaining Useful Life
SERs commented that EPA needed to account for remaining useful life of EGUs. Multiple comments addressed challenges that EPA must face in satisfying the statutory mandate that “in applying a standard of performance to any particular source under a plan sub mitted under this paragraph to take into consideration, among other factors, the remaining useful life of the existing sources to which such standard applies.” SERs are concerned that EPA will develop EGs under section 111(d) in a manner that either prohibits plans from providing this consideration or only providing for plans to “make these adjustments at the expense of other sources.” AEPCO comments that it has obligations under the Rural Electrification Act to operate
under an 80- year mandate. SBA recomme nds EPA propose allowing for guaranteed amount of

run

- time for small entities to allow them to recoup investment. EPA believes “remaining useful

### li fe” is a concern directed toward plants with short remaining lives, but recognizes that there are
concerns ab out economic viability of some marginal plants.
The Panel recommends that EPA clearly explain how it took into consideration remaining useful life and take comment on other ways of defining the remaining useful life consideration.
The Panel also recommend s proposing or considering economic incentives for compliance that could avoid early retirement or reduce the financial effects of early retirements. For instance, the EPA could propose continuing allocations for a set number of years to units that retire in order to alleviate the financial effects of the retirement. EPA should request comment on how long such allocations should continue. The EPA should also consider whether there are parallel
mechanisms in a rate -based proposal that could provide similar r egulatory relief or benefits for small entities, if appropriate.
2.3.7.3 Design of the Compliance System
The panel requested SER input on a number of aspects of the federal plan design, based on EPA’s presentation of federal plan options. SER comments ranged quite broadly. Comments
includ ed : 1) differing opinions within SERs on favor of rate- vs mass

- based approaches , 2) emphasis on market liquidity in a program, 3) support for types of allocation methodologies (in a

mass

- based allowance system), 4) encoura gement for early action crediting, 5) increased averaging and compliance times to help small entities, and 6) whether and how to consider the effects of credit/allowance banking, borrowing, and shelf- life on market liquidity. In some instances, no general consensus emerged. The Panel notes the following specific areas where it is making a recommendation.

Mass -based or rate-based trading
Various SERs favored one system over the other, and some suggested that each individual small entity should be able to choose the system under which they would comply. However, it is unclear to what extent SERs would favor such choice at the expense of a broader trading pool. The panel, however, notes that the idea of individual companies within a statechoosing which system to comply would significantly limit the opportunity for intra- or interstate trading and would therefore not be consistent with other recommendations. The Panel recommends that EPA take comment on which approach (mass or rate) is preferable. In the

### inte rests of maximizing liquidity across all federal plan states, the Panel recommends that EPA should propose to finalize a single approach for all federal plan s.
Allocations and credit issuance/early action
SERs expressed a variety of views on the appropriate method of allocating allowances
under a mass

- based system or credits under a rate

- based system. Some preferred allowing states to make these decisions. Some wanted allocations to account for early action and energy efficiency efforts. The Panel agrees that EPA should take comment on the use of allocations to minimize the impact of the federal plan on small entities. The Panel notes that the early incentive pool that is part of the EGs does provide credit for early action, but the SERs did not have an opportunity to respond to this flexibility. The panel recommends that in the federal plan the EPA allow credit for early action and energy efficiency efforts to the extent it is allowed under the guidelines.

Non -generating party participation and market liquidi ty SERs generally supported developing a system that would ensure a sufficient supply of credits be available on the open market and available for free trade to ensure that they would not be disadvantaged by large utilities withholding excess credits gener ated by renewable energy in their portfolio. However, some SERs also expressed the need to be able to generate and use credits internally (particularly those with generation across multiple states) (i.e., a portfolio approach). Some SERs endorsed allowing non- generating parties to create and sell credits or allowances. Other SERs warned that third parties should not be allowed to purchase credits or allowances for the purpose of retiring them without offsetting GHG emissions from electricity generation. The Panel recommends that the EPA ensure a liquid market in compliance instruments, through consideration, request or comment, or proposal of several of options, including: allocation methods or rules that could impact liquidity, mechanisms to place allowances or credits into the market relatively early, requirements for public transparency of
information related to allowance or credit issuance, tracking, transfers, and holdings, and whether and to what extent oversight authority exists related to measures to ensure liquid
markets Additionally, the Panel recommends that EPA solicit comment on other approaches to

### ens ure liquidity, including but not limited to the concept of an early incentive pool which would serve to incentivize early reductions and create a market of additional allowances.

2.3.7.4 Renewable Energy and Energy Efficiency
Generally SERs encouraged EPA to incorporate existing EE efforts into the program in a way that gives credit for the investment and to rely on “deemed” energy savings to earn compliance credits. SERs raised concerns about the accounting of investments in RE and EE efforts in their compliance with GHG emission s tandards.
SERs also expressed concern that they be able to generate and use credits across state lines. This is particularly important for the investment in renewables, for which the generating potential is highly dependent on geography and is unequally distributed among the states. Thus, the Panel recommends that EPA develop a credit or allowance compliance program that allows for interstate accounting and trading for states under the federal plan . Additionally, the Panel recommends that the program include opportunities for interstate trading between sources in states under the federal plan and states under compatible s tate plans.

The Panel recommends that EPA consider the treatment of RE and EE in rate

- based and

mass

- based federal plan contexts. EPA should further consider how to implement preferred policy options in a way that incentivizes investment and does not create unintended barriers for
small entities. The Panel also recommends that EPA a llow crediting of RE across states under the federal plan while soliciting comment for allowing crediting for EE across states under the federal plan

.
2.3.7.5 Reliability
Multiple SERs expressed concerns that implementation of the EGs, either by states or through a federal plan , could have a negative impact on reliability because individual units could have operational obligations that conflict with the emissions requirements. In their comments, both the American Public Power Association ( APPA ) and the Nat ional Rural Electric Cooperative Association ( NRECA ) recommend Dynamic Reliability Safety Valve. EPA noted that the use of a reliability mechanism in the EGs is provisioned on the concern that some forms of state plan may create inflexible requirements that could in some limited circumstances raise a

### reliability concern. However, EPA believes the design of the federal plan as a flexible trading program alleviates these concerns and therefore a reliability mechanism is not needed.
The Panel recognizes the co nnection between meeting the GHG reduction goals of the federal plan and maintaining the reliability of the electric grid. The Panel recommends that EPA fully explain in the proposal and take comment on methods to address reliability and EPA should
take co mment on establishing a reliability safety valve, particularly if small entities can be shown to need regulatory flexibility for reliability critical units beyond the flexibilities already built into the design of the federal plan

. Multiple SERs expressed concerns that implementation of the EGs, either by states or through a federal plan, could have a negative impact on reliability because individual units could have operational obligations that conflict with the emissions requirements. In their comments, b oth the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA) recommend Dynamic Reliability Safety Valve. EPA noted that the use of a reliability mechanism in the EGs is provisioned on the
concern that som e forms of state plan may create inflexible requirements that could in some limited circumstances raise a reliability concern. However, EPA believes the design of the federal plan as a flexible trading program alleviates these concerns and therefore a reli ability
mechanism is not needed.
The Panel recognizes the connection between meeting the GHG reduction goals of the federal plan and maintaining the reliability of the electric grid. The Panel recommends that EPA fully explain in the proposal and take comment on methods to address reliability and EPA should take comment on establishing a reliability safety valve, and whether there is a need for regulatory flexibility for reliability critical units beyond the flexibilities already built into the design of th e federal plan.
2.3.7.6 Subcategorization/Applicability/Exemptions
SER comments on applicability reflect concerns related to the combined series of rulemakings affecting GHG emissions from electricity generating units: the NSPS, the EGs and the federal pla n. SERs endorse excluding RICE and NGSC units from the combined rulemakings. One SER requests a subcategory that addresses the particular characteristics of lignite coal. Some SERs suggest special provisions for small units or utilities, including a small system exemption. The SBA suggested taking comment on an economic hardship exemption for

### small entities and that EPA propose a mechanism for additional compliance time when generation and transmission investments necessary for compliance have been delayed by government reviews. However, EPA noted that regulatory exemptions must be grounded in statute and supported by analysis, and EPA believes the design of the federal plan itself should maximize compliance options that are both consistent with the EGs and also should adequately
address these concerns.
The Panel notes that EPA must be consistent with the EGs on issues of applicability, which should address the SERs’ concerns with regard to inclusion of RICE or NGSC units. The Panel also notes that EPA is pro posing a design to the federal plan that utilizes emission trading and thus maximizes compliance options such that individual units can take into account their particular characteristics in designing a compliance strategy. This should further address

conce rns and make unnecessary the need for further sub-categorization or the use of unit- specific exemptions. Additionally, the Panel recommends that EPA solicit comment on an alternative allocation methodology under the mass-based proposed federal plan that ma y increase allocations for small businesses, and consider whether there are parallel mechanisms in a rate

based proposal that could provide similar regulatory relief or benefits for small entities, if appropriate. SER comments on applicability reflect conce rns related to the combined series of rulemakings affecting GHG emissions from electricity generating units: the NSPS, the EGs and the federal plan. SERs endorse excluding RICE and NGSC units from the combined rulemakings. One SER requests a subcategory th at addresses the particular characteristics of lignite coal. Some SERs suggest special provisions for small units or utilities, including a small system exemption. The SBA suggested taking comment on an economic hardship exemption for
small entities and th at EPA propose a mechanism for additional compliance time when generation and transmission investments necessary for compliance have been delayed by government reviews. However, EPA noted that regulatory exemptions must be grounded in statute and supported by analysis, and EPA believes the design of the federal plan itself should maximize compliance options that are both consistent with the EGs and also should adequately
address these concerns.
The Panel notes that EPA must be consistent with the EGs on issues of applicability, which should address the SERs’ concerns with regard to inclusion of RICE or NGSC units. The Panel also notes that EPA is proposing a design to the federal plan that utilizes emission trading

### and thus maximizes compliance options such that individual units can take into account their particular characteristics in designing a compliance strategy. In EPA’s view, this makes it less likely that there is a need for further sub-categorization or the use of unit- specific exemptions.
Additional ly, the Panel recommends that EPA solicit comment on an alternative allocation methodology under the mass-based proposed federal plan that may increase allocations for small businesses, and consider whether there are parallel mechanisms in a rate -based proposal that could provide similar regulatory relief or benefits for small entities, if appropriate.

2.4 Unfunded Mandates Reform Act (UMRA)
This action contains a federal mandate under UMRA, 2 U.S.C. 1531-1538, that could potentially result in expenditures of $100 million or more for state, local, and tribal governments, in the aggregate, or the private sector in any one year. This federal plan will apply only to those EGUs located in states that do not submit approvable state plans, which is a subset of the EGUs considered in the RIA for the final emission guidelines (EGs) (see RIA for further discussion of impacts). Because it is impossible to determine at this time which states might be ultimately subject to a federal plan, EPA cannot determine whether thi s final rule will be subject to UMRA. However, as noted below, the Agency has done substantial outreach to government entities as part of both the federal plan and the related 111(d) rulemaking. Further, regardless of whether EPA does determine that this action ultimately meets the UMRA threshold, the agency intends to do additional outreach with government entities between now and the final rule. Additionally, the EPA has determined that this action is not subject to the requirements of section 203 of
UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments.
Nevertheless, the EPA is aware that there is substantial interest in this rule among small entities (e.g., municipal and rural electric cooperati ves). In light of this interest, prior to this action, the EPA sought early input from representatives of small entities while formulating the provisions of the proposed regulation. Such outreach is also consistent with the President’s January 18, 2011 Memorandum on Regulatory Flexibility, Small Business, and Job Creation, which emphasizes the important role small businesses play in the American economy. This outreach process has enabled the EPA to hear directly from these representatives, as EPA developed the rule about how the EPA should approach the complex question of how to apply

### section 111 of the CAA to the regulation of GHGs from these source categories. We invite comments on all aspects of this proposal and its impacts, including potential adverse impacts, on
small entities. [Placeholder]

2.5 Executive Order 13132: Federalism
The EPA believes that this proposed rule may be of significant interest to state and local governments due to its relationship with the Clean Power Plan EGs. Therefore, the EPA has determined that consultations with state and local governments conducted during the Clean Power Plan EGs development process are also relevant to this proposed rule. Consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA consulted with state and local officials early in the process of developing the Clean Power Plan EGs to permit them to have meaningful and timely input into its development. As described in the Federalism discussion in the preamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501; January 8, 2014), the EPA consulted with state and local officials in the process of developing the proposed standards for newly constructed EGUs.
A detailed Federa lism Summary Impact Statement (FSIS) describing the most pressing issues raised in pre-proposal and post-proposal comments will be forthcoming with the final Clean Power Plan EGs, as required by section 6(b) of Executive Order 13132. In the spirit of Execu tive Order 13132, and consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA specifically solicits comment on this proposed
action from state and local officials. [Placeholder]

2.6 Executive Order 13175: Consultation and Coordination with Indian Tribal
Governments
This proposed action has tribal implications. However, it will neither impose substantial direct compliance costs on federally recognized tribal governments, nor preempt tribal law. The EGU potentially impacted by this proposed rulemaking located on Indian reservations are primarily owned by private entities, and in one case, partially owned by an agency of the U.S. government. As a result, the tribes on whose areas of Indian country thos e units are located will not be directly impacted by any costs of complying with this proposed rulemaking incurred by the owners/operators of those units. There would only be tribal implications in regards to compliance costs associated with this proposed rulemaking in the case where a tribal government

### has an ownership interest in a potentially affected EGU. A tribal government could also incur costs in the event that it seeks and is given delegated authority to enforce the federal plan proposed in this rulemaking. The EPA has, nevertheless, offered consultation to the tribes on whose areas of Indian country the units are located. As part of its general outreach to tribes regarding this proposed rulemaking, the EPA received feedback from a number of tribes regarding the potential overall economic impact that both the proposed Clean Power Plan and a proposed federal plan rulemaking may have on them. In these instances, the EPA has reached out to these tribes and as part of the consultation on the Clean Power Plan engaged with them on their concerns regarding a potential federal plan.

The EPA has conducted consultation with tribes on the Clean Power Plan and the Supplemental Proposal for the Clean Power Plan and will offer all tribes consultation on this proposed action. The EPA held consultations with tribes on the Clean Power Plan in the fall of 2014 before the agency issued its Supplemental Proposal for Indian Country and U.S. Territories. Additionally, the EPA held consultations for tribes shortly following the release of the supplemental proposal. The agency also held a public hearing on the supplemental proposal on November 19, 2014, in Phoenix, Arizon a. At the public hearing the agency received oral comments from community members representing a number of tribes and a number of tribal officials. The agency also conducted consultation with tribes in the spring and summer of 2015. An overview of the consultations provided as part of the Clean Power Plan is available in section
XII.F of the final EGs.
Additionally, the EPA engaged in meaningful dialogue with tribal stakeholders to obtain their feedback in the pre -proposal stages of this rulemaking. We provided an update on this proposed rulemaking on the May 28, 2015, National Tribal Air Association and the E PA Air Policy call. Additionally, staff attended the National Tribal Forum conference on May 20, 2015 and provided an overview of the Clean Power Plan and explained that the agency would be proposing a federal plan.
Consistent with previous rulemakings im pacting the power sector, there is significant tribal interest in these rulemakings because of the potential indirect impacts that rules such as the Clean Power Plan and this proposed federal plan may have on tribes. The EPA specifically
solicits additiona l feedback from tribal officials on all aspects of this proposed rulemaking,

### including whether tribes whose areas of Indian country contain affected EGU(s) are interested in developing their own plan implementing the final EGs. Additionally, tribal stakeho lders will be included in the outreach that the agency will be conducting with those communities already overburdened by pollution, which are often low- income communities, communities of color, and indigenous communities. The actions that the agency will be taking are outlined in section IX of
the this preamble. [Placeholder]

2.7 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks
The EPA interprets EO 1 3045 (62 FR 19885, April 23, 1997) as applying to those regulatory actions that concern health or safety risks, such that the analysis required under
section 5 –501 of the Order has the potential to influence the regulation. This action is not subject
to EO 13045 because it does not involve decisions on environmental health or safety risks that may disproportionately affect children. The EPA believes that the CO2 emission reductions resulting from implementation of the proposed guidelines, as well as substantial ozone and PM2.5 emission reductions as a cobenefit, would further improve children’s health. [Placeholder]
2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use
This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepared a Statement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction
in coal

- fired electricity generation as a result of this rule. The EPA projects that utility power sector delivered natural gas pric es will increase by up to 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal in Chapter 1 of this RIA. The analysis is available in the RIA, which is in the public
docke t. This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepared a Statement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction

### in coal

- fired electricity generation as a result of this rule. The EPA projects that utility power sector delivered natural gas p rices will increase by up to 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal. The analysis is available in the RIA, which is in the public docket.
[Placeholder]
2.9 National Technology Transfer and Advancement Act (NTTAA)
This proposed action does not involve technical standards.

2.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low- Income Populations
[Placeholde r] Executive Order 12898 (59 FR 7629; February 16, 1994) establishes federal executive policy on EJ. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make EJ part of their mission by identifying and ad dressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in
the U.S. The EPA defines EJ as the fair treatment and mean ingful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies. The EPA has this goal for all communities and persons across this Nation. It will be achieved when everyone enjoys the same degree of protection from environmental and health hazards and equal access to
the decision -making process to have a healthy environment in which to live, learn, and work.
Leading up to this rulemaking the EPA summarized the public health and welfare effects of GHG emissions in its 2009 Endangerment Finding. As part of the Endangerment Finding, the Administrator considered climate change risks to minority populations and low- income populations, finding that certain parts of the population may be especially vulnerable based on their characteristics or circumstances. Populations that were found to be particularly vulnerable to climate change risks include the poor, the elderly, the very young, those already in poor health, the disabled, those living alone, and/or indigenous populations dependent on one or a few
resources. See sections X.F and X.G of the this preamble, above, where the EPA discusses
Consultation and Coordination with Tribal Governments and Protection of Children. The

### Administrator placed weight on the fact that certain groups, including children, the elderly, and the poor, are most vulnerable to climate- related health effects.
The record for the 2009 Endangerment Finding summari zes the strong scientific evidence in the major assessment reports by the U.S. Global Change Research Program, the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council of the National Academies that the potential impacts of c limate change raise EJ issues. These reports concluded that poor communities can be especially vulnerable to climate change impacts because they tend to have more limited adaptive capacities and are more dependent on climate

- sensitive resources such as local water and food supplies. In addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those impacted by degradation of
natural and cultural resources within established reservation boundaries and threats to traditional subsistence lifestyles. Tribal communities whose health, economic well-being, and cultural traditions that depend upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated with climat e change. The 2009 Endangerment Finding record also specifically noted that Southwest native cultures are especially vulnerable to water quality and availability impacts. Native Alaskan communities are already experiencing disruptive impacts, including coastal erosion and shifts in the range or abundance of wild species
crucial to their livelihoods and well -being.
The most recent assessments continue to strengthen scientific understanding of climate change risks to minority populations and low-income populations in the U.S. 55 

### The new

55 Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, Eds., 2014: Climate Change Impacts in the United

States: The Third National Climate Assessment. U.S. Global Change Research Program, 841 pp.

IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects.

Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge Univer sity Press, 1132 pp.

IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects . Contribution

of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Barros, V.R., C.B. Field, D.J. Dokken, M.D. Mastrandrea, K.J. Mach, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 688 pp.

### assessment literature provides more detailed findings regarding these populations’ vulnerabilities and projected impacts they may experience. In addition, the most recent assessment reports provide new information on how some communities of color may be uniquely vulnerable to climate change health impacts in the U.S. These reports find that certain climate change related impacts —including heat waves, degraded air quality, and extreme weather events— have disproportionate effects on low-income populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location), raising EJ concerns. Existing health disparities and other inequities in these communities
increas e their vulnerability to the health effects of climate change. In addition, assessment reports also find that climate change poses particular threats to health, well -being, and ways of life of indigenous peoples in the U.S

. As the scientific literature pr esented above and as the 2009 Endangerment Finding illustrates, low income populations and some communities of color are especially vulnerable to the health and other adverse impacts of climate change. The EPA believes that communities will
benefit from th is proposed federal plan because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 

### emission standards for existing affected fossil fuel

- fired EGUs.
In addition to reducing CO 2 

### emissions , the guidelines finalized in this rulemaking would reduce other emissions from affected EGUs that reduce generation due to higher adoption of EE
and RE. These emission reductions will include SO 2 

### and NO x 

### , which form ambient PM 2.5 

### and ozone in the atmosphere, and HAP, such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 

### NAAQS, 56 

### the EPA identified low -income populations as being avulnerable population for experiencing adverse health effects related to PM exposures. Lowincome populations have been generally found to have a higher prevalence of pre- existing diseases, limited access to medical treatment, and increased nutritional deficiencies, which can increase this population’s susceptibility to PM- related effects. 57 

### In areas where this rulemaking reduces exposure to PM 2.5 

### , ozone, and methylmercury, low-income populations will also benefit

56 “National Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013).

57 U.S. Environmental Protection Agency (U.S. EPA). 2009. Integrated Science Assessment for Particulate Matter

(Final Report) . EPA

- 600 -R- 08

- 139F. National Center for Environmental Assessment – RTP Division. December. Available on the Internet at http://www.cfpub.epa.gov/si/si_public_record_Report.cfm?dirEntryId=216546

.

### from such emissions reductions. The Chpater Chapter 1 of this RIA for this rulemaking, included in the docket for this rulemaking, provides additional information regarding the health and ecosystem effects associated with these emission reductions.
Additionally, as outlined in the community and EJ considerations section IX of this the preamble, the EPA has taken a number of actions to help ensure that this action will not have potential disproportionately high and adverse human health or environment al effects on vulnerable communities. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when determining what
actions to take. 58 

### As described in the community and EJ considerations section of the is preamble the EPA also conducted a proximity analysis, which is available in the docket of this rulemaking
and is discussed in section IX of the is preamble. Additionally, as outlined in sections I and IX of
th e is preamble the EPA has engaged meaningfully with communities throughout the development of the CPP and has devised a robust outreach strategy for continual engagement throughout this rulemaking.

58 Guidance on Considering Environmental Justice During the D evelopment of Regulatory Actions.

http://www.epa.gov/environmentaljustice/resources/policy/considering

- ej

- in

- rulemaking

- guide

- final.pdf . May 2015.

### Un ited States Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC Publication No. EPA -452/R-15-006 July 2015

### Attachment R.3

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment R.3.

### Attachment S.From: Jones, Toni <Jones.Toni@epa.gov> Sent: Saturday, August 1, 2015 4:43 PM To: Frey, Nathan J.; Szabo, Aaron Cc: Harvey, Reid; Tsirigotis, Peter; Eck, Janet; Cozzie, David; Culligan, Kevin Subject: EO 12866 CPP Federal Plan

Hi Nathan and Aaron, Attached please find the final, clean versions of the CPP Federal Plan preamble and rule. Additionally, attached is a redline version of both files (indicated by “RLSO” in the file name) that reflect changes made to the package since the initial submittal to OMB. Also attached is the final RIA.

Please let know if you have any questions. It’s been a pleasure working with both of you!

Kind regards, Toni

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

### Attachment S.1

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment S.1.

### Attachment S.2

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment S.2.

### Attachment S.3

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment S.3.

### Attachment S.4

This file is available in the docket with title Clean Power Plan (CPP) Federal Plan

– Summary of EPA Interagency Communications

– Attachment S.4.

### Attachment S.5

# Re gu latory Impact Analysis for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework

Regulations

### ii [Thi s page intentionally left blank]

### iii EPA -452/R-15-006 August 2015



## Regulatory Impact Analysis for the for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or

Before January 8, 2014; Model Trading Rule

U.S. Environmental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Research Triangle Park, NC 27711

### iv CON TACT INFORMATION

This document has been prepared by staff from the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy of the U.S. Environmental Protection Agency. Questions related to this document should be addressed to Alexander Macpherson, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, North Carolina 27711 (email: macpherson.alex@epa.gov).

ACKNOWLEDGEMENTS
Thank you to the many staff who worked on this document from EPA Offices including the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy. Contributions to this report were also made by ICF International.

### v



## Tabl e of Contents

L I ST OF 

### T A B LES 

### ........................................................................................................................vii

C HAPTER 

### 1: S UMMARY OF 

### P OTENTIAL 

### R EGULATORY 

### I MPACTS 

### ............................................ 1-1

1.1 Introduction ........................................................................................................... 1-1 1.2 Legal, Scientific and Economic Basis for this Rulemaking ..................................... 1-2 1.2.1 Statutory Requirement ................................................................................ 1-2 1.2.2 Health and Welfare Impacts from Climate Change ...................................... 1-2 1.2.3 Market Failure ............................................................................................ 1-3 1.3 Background for the Proposed Federal plan and model trading rules........................ 1-4 1.3.1 Definition of Affected Sources .................................................................... 1-4 1.3.2 Trade in Compliance Instruments across States ........................................... 1-4 1.3.3 Model Trading Rule .................................................................................... 1-5 1.4 Summary of Regulatory Analysis........................................................................... 1-5 1.4.1 Base Case and Years of Analysis ................................................................ 1-7 1.4.2 Federal Plan Approaches Examined in RIA ................................................ 1-8 1.5 Summary of Regulatory Analysis..........................................................................1-11 1.5.1 Emissions Reductions ................................................................................1-11 1.5.2 Costs ..........................................................................................................1-14 1.5.3 Monetized Climate Benefits and Health Co-benefits ..................................1-16 1.5.4 Net Benefits ...............................................................................................1-27 1.5.5 Economic Impacts......................................................................................1-30 1.5.6 Employment Impacts .................................................................................1-30 1.5.7 Additional Analysis of Output-Based Allocation as a Means of Mitigating Leakage ................................................................................................................1-32 1.5.8 Uncertainty Analysis ..................................................................................1-33 1.6 References ............................................................................................................1-37

C HAPTER 

### 2: S TATUTORY AND 

### E XECUTIVE 

### O RDER 

### R EVIEWS 

### ................................................. 2-1

2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review .................................................. 2-1 2.2 Paperwork Reduction Act ...................................................................................... 2-4 2.3 Initial Regulatory Flexibility Analysis.................................................................... 2-6 2.3.1 Reasons why Action is Being Considered ................................................... 2-6 2.3.2 Statement of Objectives and Legal Basis for Proposed Rules ...................... 2-7 2.3.3 Description and Estimate of Affected Small Entities ................................... 2-8 2.3.4 Compliance Cost Impact Estimates ............................................................2-14 2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements 2-22 2.3.6 Related Federal Rules ................................................................................2-23 2.3.7 Regulatory Flexibility Alternatives ............................................................2-23 2.4 Unfunded Mandates Reform Act (UMRA) ............................................................2-29 2.5 Executive Order 13132: Federalism ......................................................................2-29 2.6 Executive Order 13175: Consultation and Coordination with Indian Tribal Governments ...............................................................................................................2-30

### vi

2.7 Ex ecutive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks ..........................................................................................................2-32 2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use .....................................................................................................2-32 2.9 National Technology Transfer and Advancement Act (NTTAA) ...........................2-32 2.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations .....................................................2-32

### vii



## L IST OF 

## T ABLES



### T a bl e 1-1. Climate and Air Pollutant Emission Reductions for the Rate-Based Federal Plan Approach ............................................................................................................1-12

Table 1-2. Climate and Air Pollutant Emission Reductions for the Mass-Based Federal Plan Appproach ..........................................................................................................1-13

Table 1-3. Projected CO 2 

### Emission Reductions, Relative to 2005 ...................................1-14

Table 1-4. Compliance Costs for the Federal Rate-Based and Mass-Based Plan Approaches.................................................................................................................1-15

Table 1-5. Quantified and Unquantified Benefits ............................................................1-17

Table 1-6. Combined Estimates of Climate Benefits and Health Co-Benefits for RateBased Approach (billions of 2011$) ............................................................................1-26

Table 1-7. Combined Estimates of Climate Benefits and Health Co-benefits for MassBased Approach (billions of 2011$) ............................................................................1-27

Table 1-8. Monetized Benefits, Compliance Costs, and Net Benefits Under the Ratebased Federal Plan Approach (billions of 2011$) ........................................................1-28

Table 1-9. Monetized Benefits, Compliance Costs, and Net Benefits under the Massbased Federal Plan Approach (billions of 2011$) ........................................................1-29

Table 1-10. Summary Table of Important Energy Market Impacts (Percent Change from Base Case) ..................................................................................................................1-30

Table 2-1. SBA Size Standards by NAICS Code .............................................................2-12

Table 2-2. Number of Affected Small Entities in the Base Case, and Projected Impact under the Rate-Based Federal Plan Approach in 2030 .................................................2-18

Table 2-3. Projected Impact on Small Entities in 2030 under Rate-Based Federal Plan Approach ....................................................................................................................2-18

Table 2-4. Number of Affected Small Entities in the Base Case, and Projected Impact under the Mass-Based Federal Plan Approach in 2030 ................................................2-19

Table 2-5. Projected Impact on Small Entities in 2030 under Mass-Based Federal Plan Approach ....................................................................................................................2-19

Table 2-6. Incremental Costs in 2030 under the Rate-based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .........2-20

### viii

Tabl e 2-7. Incremental Costs in 2030 under the Mass-based Federal Plan Approach Summarized by Ownership Group and Cost Category in 2030 (2011$ millions) .........2-21

### 1-1



## C H A PTER 

## 1: S UMMARY OF 

## P OTENTIAL 

## R EGULATORY 

## I MPACTS



### 1.1 Introduction

T hi s Regulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of for the “Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations” (herein also referred to as “proposed federal plan and model trading rules” 1 

### ). In this action, the Environmental Protection Agency (EPA) is proposing a federal plan to implement the emission guidelines for existing fossil fuel-fired EGUs under the Clean Air Act (CAA). The emission guidelines were proposed in June 2014 and finalized on August 3, 2015 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (also referred to as the Clean Power Plan or Emission Guidelines). The EPA is taking comment on many of the elements of this proposal.
This proposal presents two approaches to a federal plan (or model rule) for states and other jurisdictions that either chose to adopt a model rule or do not adopt and submit to the EPAin a timely manner an approvable state plan: a rate-based emission trading program and a massbased emission trading program. The federal plan is an important measure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented. The agency is also proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these affected EGUs.
The proposed federal plan is related to but separate from the final emission guidelines. The final emission guidelines establish the best system of emission reduction (BSER) for applicable fossil fuel-fired EGUs in the form of a carbon dioxide (CO 2 

### ) emission performance
rate for steam-fired EGUs and a CO 2 

### emission performance rate for natural gas-fired combined cycle units, and provide guidance and criteria for the development of approvable state plans. The purpose of the proposed federal plan is to establish requirements directly applicable to a state’s affected EGUs that meet the emission performance levels in order to achieve reductions in

1 T h e proposed amendments to the framework regulations for section 111(d) are limited to enhancements in the procedure and timing of the EPA’s action on state plans. See Section VII of the preamble. They do not modify requirements or obligations in the CPP or other substantive rules, or directly regulate any third parties. Therefore, the EPA has not included these changes in its analysis in this RIA and proposes to certify that these changes will not have a significant impact on a significant number of small entities pursuant to the Regulatory Flexibility Act (RFA).

### 1-2

c a rbon dioxide (CO 2 

### ) emissions in the case where a state or other jurisdiction does not submit an approvable plan. The stringency of the emission performance levels established in the final emission guidelines will be the same whether implemented through a state plan or a federal plan.
1.2 Legal, Scientific and Economic Basis for this Rulemaking
1.2.1 Statutory Requirement
Section 111(d)(2) of the Clean Air Act (CAA), 42 U.S.C. 7411(d)(2) provides the EPA the same authority to prescribe a plan for a state in cases where the state fails to submit a satisfactory plan as the Agency would have under CAA section 110(c) in the case of failure to submit a National Ambient Air Quality Standard implementation plan. In addition, the EPA has authority under CAA section 111(d)(1) to prescribe regulations that establish procedures similar to CAA section 110 with respect to the submission of state plans, and the EPA also has general rulemaking authority as necessary to implement the CAA under section 301. A federal Plan under CAA section 111(d) applies, implements and enforces standards of performance for affected EGUs. Under the Clean Power Plan Emission Guidelines, state plans will be due on September 6, 2016. States are also allowed to seek a two year extension for a final plan submittal, upon submitting a satisfactory initial submittal by the same deadline. If a state fails to submit a final state plan or initial submittal, or if either a final state plan or an initial submittal does not meet the requirements of the final emission guidelines, the Agency will take the appropriate steps to finalize and implement a federal plan.
States will remain free, and indeed are strongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jurisdictions. Upon approval of the state plan by EPA, the federal plan will no longer apply to the affected EGUs covered by the approved state plan, starting at the initiation of the next compliance period with the limitations noted in the federal plan.
1.2.2 Health and Welfare Impacts from Climate Change
According to the National Research Council, “Emissions of CO 2 

### from the burning of fossil fuels have ushered in a new epoch where human activities will largely determine the
evolution of Earth’s climate. Because CO 2 

### in the atmosphere is long lived, it can effectively lock Earth and future generations into a range of impacts, some of which could become very severe.

### 1-3

T h erefore, emission reduction choices made today matter in determining impacts experienced not just over the next few decades, but in the coming centuries and millennia.” 2


### In 2009, based on a large body of robust and compelling scientific evidence, the EPA Administrator issued the Endangerment Finding under CAA section 202(a)(1). 3 

### In the Endangerment Finding, the Administrator found that the current, elevated concentrations of GHGs in the atmosphere—already at levels unprecedented in human history—may reasonably be anticipated to endanger public health and welfare of current and future generations in the
United States.
Since the administrative record concerning the Endangerment Finding closed following the EPA’s 2010 Reconsideration Denial, the climate has continued to change, with new records being set for a number of climate indicators such as global average surface temperatures, Arctic sea ice retreat, CO 2 

### concentrations, and sea level rise. Additionally, a number of major scientific assessments have been released that improve understanding of the climate system and strengthen the case that GHGs endanger public health and welfare both for current and future generations. These assessments are from the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Change Research Program (USGCRP), and the National Research Council (NRC). These
and other assessments are discussed in more detail in the Final Clean Power Plan Emission Guidelines preamble and in Chapter 4 of the Clean Power Plan Final Rule Regulatory Impact Analysis (RIA). 4



### 1.2.3 Market Failure
Many regulations are promulgated to correct market failures, which otherwise lead to a suboptimal allocation of resources within the free market. Air quality and pollution control regulations address “negative externalities” whereby the market does not internalize the full opportunity cost of production borne by society as public goods such as air quality are unpriced.

2 Na t ional Research Council, Climate Stabilization Targets, p.3.

3 “Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act,” 74 Fed. Reg. 66,496 (Dec. 15, 2009) (“Endangerment Finding”).

4 U.S. Environmental Protection Agency (U.S. EPA). 2015a. Regulatory Impact Analysis for the Clean Power Plan Final Rule. EPA-452/R-15-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC.

### 1-4

G H G emissions impose costs on society, such as negative health and welfare impacts, that are not reflected in the market price of the goods produced through the polluting process. For this regulatory action the good produced is electricity. If a fossil fuel-fired electricity producer pollutes the atmosphere when it generates electricity, this cost will be borne not by the polluting firm but by society as a whole, thus imposing a negative externality. The equilibrium market price of electricity may fail to incorporate the full opportunity cost to society of generating electricity. All else equal, given this externality, the composition of EGUs used to generate electricity in a free market will not be socially optimal, and the quantity of electricity generated may not be at the socially optimal level. Fossil fuel-fired EGUs may produce more electricity than would occur if they had to account for the cost associated with this negative externality. Consequently, absent a regulation on emissions, the composition of the fleet of EGUs used to generate electricity may not be socially optimal, and the marginal social cost of the last unit of electricity produced may exceed its marginal social benefit. In the instances where the agency finalizes and implements a federal plan for a state’s affected EGUs, this proposed regulation will work towards addressing this market failure by causing affected EGUs to begin to internalize the negative externality associated with CO 2 

### emissions.
1.3 Background for the Proposed Federal plan and model trading rules
1.3.1 Definition of Affected Sources
Existing fossil fuel-fired electric generating units subject to the final Clean Power Plan Emission Guidelines that are located in a state that does not have an EPA-approved state plan are potentially subject to this proposed action. Existing fossil fuel-fired EGUs are those that were in operation or had commenced construction on or before January 8, 2014. 5


### 1.3.2 Trade in Compliance Instruments across States
The EPA intends to set up and administer a program to track trading programs – both rate-based and mass-based – that will be available for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments

5 A n affected EGU is any fossil fuel-fired EGU that was in operation or had commenced construction as of January 8, 2014, and is therefore an ‘‘existing source’’ for purposes of CAA section 111, and that in all other respects would meet the applicability criteria for coverage under the proposed GHG standards for new fossil fuel-fired EGUs (79 FR 1430; January 8, 2014).

### 1-5

w i th affected EGUs in any other state covered by a federal plan or a state plan meeting the conditions for linkage to the federal plan. In the proposed mass-based federal-plan trading program, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. Similarly, in the proposed rate-based federal-plan trading program approach, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a compliance instrument, an ERC issued in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. EPA is proposing that an affected EGU in a state covered by the mass-based trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a state covered by the rate-based trading federal plan must use ERCS for compliance (not allowances).
1.3.3 Model Trading Rule
A state program that adheres to the model trading rule provisions specified in this rulemaking would be presumptively approvable. States may submit means of meeting the emission guidelines requirements that differ from the model trading rule provisions, so long as the state demonstrates to the EPA’s satisfaction in the state plan submittal that such alternative means of addressing requirements are at least as stringent as the presumptively approvable approach described here. Additionally, there are stand-alone portions of the model trading rules, such as the evaluation, measurement, and verification (EM&V) procedures that would be approvable even if a state adopted an approach that differs from the federal plan. The model trading rules serve as a mechanism to facilitate larger trading markets since consistency with the federal plan allows trading across both the state and federal programs. The EPA expects a larger trading region is likely to result in lower overall costs.
1.4 Summary of Regulatory Analysis
In accordance with Executive Order 12866, Executive Order 13563, OMB Circular A-4, and the EPA’s “Guidelines for Preparing Economic Analyses,” the EPA prepared this RIA for this “significant regulatory action.” This action is an economically significant regulatory action because it may have an annual effect on the economy of $100 million or more or adversely affect

### 1-6

i n a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities. 6


### This action proposes a federal plan under section 111(d) of the CAA for the control of
CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil-fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass- and rate-based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission performance rates in the emission guidelines. The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.
However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or adopt a model rule. Because of this lack of information, for this RIA, the EPA has chosen to examine two federal plan approach scenarios where all states of the contiguous U.S. will be regulated under a federal plan or a model rule. The first federal plan approach we examine in this RIA assumes all states in the contiguous U.S. are regulated under a rate-based federal plan or model rule. The second federal plan approach we examine assumes all contiguous states are regulated under a mass-based federal plan or model rule. These two approaches are a re-presentation of the modeling done for the Clean Power Plan
Emission Guidelines RIA.
This approach is consistent with the analysis presented in the RIA for the final Clean Power Plan Emission Guidelines (U.S. EPA 2015). As a result, this RIA for the proposed federal plan and model trading rules re-presents the key results from the final Clean Power Plan Emission Guidelines RIA. These key results encompass the potential costs, emission reductions, and benefits of the proposed federal plan and model trading rules, as well as the potential impacts on electricity markets, employment, and markets outside the electricity sector.
The RIA also presents a discussion of limitations of the analysis and solicitations for public comments that will contribute to the analysis supporting the promulgation of final federal

6 T h e analysis in this proposal RIA constitutes the economic assessment required by CAA section 317. In the EPA’s judgment, the assessment is as extensive as practicable taking into account the EPA’s time, resources, and other duties and authorities.

### 1-7

p l ans (as needed) and model trading rules. In evaluating the impacts of the proposed federal plan and model trading rules, we address a number of uncertainties.
It is important to note that the potential regulatory impacts presented in the Clean Power Plan Final Rule RIA and the RIA for this proposed rule are not additive. Both RIAs present estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan emissions guidelines. In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading rules, the same performance rates are accomplished but are assumed to be accomplished under the federal plan or model trading rules.
This RIA also presents in Chapter 2 the statutory and executive order analyses that accompany the proposal for this action, including the Initial Flexibility Regulatory Analysis (IRFA). The IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the proposed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on small entities. This IRFA has been prepared following EPA’s guidance document for preparing initial and final regulatory flexibility analyses. 7


### 1.4.1 Base Case and Years of Analysis
The base case for this analysis, which uses the Integrated Planning Model (IPM), includes state rules that have been finalized and/or approved by a state’s legislature or environmental agencies, as well as final federal rules. The IPM Base Case v.5.15 includes the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Rule (MATS), the proposed Carbon Pollution Standards for New Power Plants, the Cooling Water Intakes (316(b)) Rule, the Combustion Residuals from Electric Utilities (CCR), and other state and Federal regulations to the extent that they contain measures, permits, or other air-related limitations or

7 Se e “EPA’s Action Development Process : Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act.” OPEI Regulatory Development Series. November 2006. Available at: <http://www.epa.gov/sbrefa/documents/Guidance-RegFlexAct.pdf>. Accessed July 21, 2015.

### 1-8

r e quirements. Additional legally binding and enforceable commitments for GHG reductions
considered in the base case are discussed in the documentation for IPM. 8


### To present a complete picture of the potential costs and benefits of the proposed federal plan and model trading rules, this RIA presents results for the analysis years 2020, 2025, and 2030. While 2020 is before the first year of the interim compliance period (2022), the EPA expects states and affected EGUs to perform voluntary activities that will facilitate compliance with interim and final goals. These pre-compliance period activities might include investments in renewable energy or demand-side energy efficiency projects, for example, that produce emissions reductions in the compliance period. Activities might also include preparatory investments in transmission capacity or monitoring, reporting, and recordkeeping systems. As a result, there are likely to be benefits and costs in 2020, so these are reported in this RIA. Meanwhile, cost and benefits are estimated in this RIA for 2025, which is intended to represent a central period of the interim compliance time-frame as states are on glide paths toward fully meeting the final CO 2 

### emission performance goals. Lastly, the RIA presents costs and benefits for 2030, when the emission performance goals are fully achieved.
1.4.2 Federal Plan Approaches Examined in RIA
In the Final Clean Power Plan Emission Guidelines, the EPA translated the source category-specific CO 2 

### emission performance rates into equivalent state-level rate-based and
mass-based CO 2 

### goals in order to maximize the range of choices that states will have in developing their plans. 9 

### As noted above, like the RIA for the Final Clean Power Plan Emission Guidelines, this RIA presents two scenarios designed to achieve these goals, which we term the rate-based federal plan approach and the mass-based federal plan approach.
It is very important to note that the differences between the analytical results for the ratebased and mass-based federal plan approaches presented in this RIA may not be indicative of likely differences between the approaches. In other words, if one approach performs differently

8 D e tailed documentation for IPM v.5.1 5 is available at: http://www.epa.gov/powersectormodeling.

9 See the preamble of the final Clean Power Plan Emissions Guidelines for these state-level rate-based and massbased CO 2 goals.

### 1-9

t h an the other on a given metric during a given time period, this does not imply this will apply in all instances in all time periods in all places.
In the rate-based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, avoided generation from demand-side energy efficiency is counted towards meeting the emission performance rates at affected EGUs. However, this federal plan and model trading rule proposal takes comment on whether EPA should allow demand-side energy efficiency to directly count toward the compliance rate of affected EGUs in a rate-based compliance approach. Because energy efficiency is not proposed to be eligible to generate ERCs that could be used to comply in the proposed rate-based federal plan, this RIA might be forecasting a different a generation mix and emissions levels than might occur from the proposed federal plan. 10 

### Compliance strategies under either approach to the federal plan (mass or rate) may be anticipated to rely on different abatement measures than those modeled for this RIA. The climate benefits and health co-benefits arising from these alternative strategies may be different those presented here. We will update this analysis as necessary to support the final rule.
Even without explicit incentives for energy efficiency under a rate-based federal plan, we believe that the increased focus that the Clean Power Plan Emission Guidelines will bring to
considerations of CO 2 

### emissions from EGUs will encourage states to consider more aggressive demand-side energy policies. Furthermore, the EPA anticipates that many states will submit fully-approvable plans, and that demand side energy efficiency is likely to be either an explicit component of, or a complimentary policy to, many of those plans. The resulting lower electricity demand in states not subject to a federal plan surrounding a state that is subject to a federal plan will likely have an impact on fossil generation and thus the cost of reducing CO 2 

### emissions. The EPA takes comment on the appropriate way to factor such costs into the analysis of the final federal plan and model trading rules.
In the rate-based approach modeled in the RIA for the final Clean Power Plan Emission Guidelines, affected EGUs may not procure emission reductions from (e.g., by averaging their emissions with) affected EGUs located in other states (which may also have different emission

10 H ow ever, as with states subject to the mass-based approach, energy efficiency activities may be adopted by states subject to the rate-based approach to lower demand, which in turn may reduce the compliance cost of achieving the performance rates.

### 1-10

s t andards) in order to demonstrate compliance. As described in Section 1.3.2, in the proposedrate-based federal plan affected EGUs may procure ERCs from affected EGUs in other ratebased states subject to the federal plan. Furthermore, the rate-based illustrative plan in the FinalClean Power Plan Emission Guidelines RIA assumes that the plan applies a state’s blended ratebased goal as a requirement for affected EGUs in that state to achieve. 11 

### Alternatively, the proposed federal plan specifically establishes an emissions rate performance standard that is applied to affected steam-fired EGUs and an emission rate performance standard that is applied to affected natural gas-fired combined cycle EGUs. Applying the subcategory-specific rate goal may alter the incentives among affected EGUs and could lead to a different generation mix and emission levels. The EPA will further explore the impacts of subcategory-specific rate goals in the analysis supporting the final rule.
The mass-based plan approach requires affected sources in each state to limit their aggregate emissions not to exceed the mass goal for that state. The mass-based scenario presented in this chapter includes a 5 percent set-aside of allowances that would be allocated to recognize deployment of new renewable capacity, which is represented by lowering the capital cost of new renewable capacity in a compliance period by the estimated value of the allowances in the set-aside in that period.
The EPA is also proposing a set-aside approach referred to as output-based allocation (OBA), which provides targeted allocations of a limited portion of allowances to existing NGCC units as a means of mitigating leakage. The EPA believes that this proposed set-aside would address incentives for generation to shift away from EGUs covered under mass-based plans to new unaffected EGUs. OBA provides an incentive for eligible EGUs in mass-based states to increase their generation in order to increase their allocation of allowances. This approach helps align the generation incentives for eligible EGUs in mass-based states with new EGUs that are not subject to the mass-based limits, mitigating the potential for emissions leakage.

11 I n the rate-based scenario in the RIA for the final Clean Power Plan Emission Guidelines, the generation-weighted average emission rate from affected EGUs, in which generation is inclusive of their procurement of zero-emitting generation or demand-side EE savings, in a state must be less than or equal to the state goal. One way for a state to achieve this outcome would be to assign in its plan emission rate performance standards to affected EGUs that equal the state emission rate goal, the incentives of which would be consistent with the analysis and results reported in the RIA for the final Clean Power Plan Emission Guidelines.

### 1-11

W hi le the mass-based scenario analyzed for this proposed rule included a representation of the set-aside for new renewable generation, it did not quantify the effects of the OBA as proposed in this rulemaking. Therefore, in Section 1.5.6, the EPA conducted additional analysis to approximate the potential emissions reductions if the OBA set-aside were included in that mass-based scenario. The EPA is inviting comment on its approach to approximating the impact of OBA. If appropriate, the EPA will further explore OBA as a means to mitigate leakage in the analysis supporting the final federal plan and model trading rules.
The EPA notes that, in this analysis, EGUs within each state comply with the applicable state goals without exchanging a compliance instrument with EGUs in other states. However, under the proposed federal plan and model trading rules if all states had a federal plan and the same type of goal (as they do in this analysis), then trading among EGUs in different states would be allowed and would lead to differences in the generation mix and emissions. The EPA is inviting comment on this approach to the modeling that will contribute to analysis supporting the
final rule.
1.5 Summary of Regulatory Analysis

1.5.1 Emissions Reductions

Table 1-1 shows the emission reductions associated with the modeled rate-based federal plan approach.

### 1-12

T ab le 1-1. Climate and Air Pollutant Emission Reductions for the Rate-Based Federal Plan

Approach 1
CO 2

(million short tons) SO 2 (thousand short tons) Annual NO X (th ou s and short tons) 2020 Rate-Based Approach Base Case 2, 155 1, 311 1,333 Federal Plan Approach 2,085 1,297 1,282 Emissions Change -69 -14 -50 2025 Rate-Based Approach Base Case 2, 165 1, 275 1,302 Federal Plan Approach 1,933 1,097 1,138 Emissions Change -232 -178 -165 2030 Rate-Based Approach Base Case 2,227 1, 314 1,293 Federal Plan Approach 1,812 996 1,011 Emission Change -415 -318 -282 Source: Integrated Planning M o del, 2015. Emissions change may not sum due to rounding. 1 CO 2 e m ission reductions are used to estimate the climate benefits of the proposed rule. SO 2 , and NO X reductions are relevant for estimating air quality health co-benefits of the proposed rule. The proposed rule is also expected to achieve reductions in directly emitted PM 2. 5 , which we were not able to estimate for this RIA.



### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 69 million short tons under the rate-based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 232 million short tons under the rate-based approach compared to
base case levels. CO 2 

### emission reductions increase to 415 million short tons annually in 2030 when compared to the base case emissions. Table 1-1 also shows emission reductions for criteria air pollutants.

### 1-13

T a ble 1-2 shows the emission reductions associated with the modeled mass-based federal plan approach.

Table 1-2. Climate and Air Pollutant Emission Reductions for the Mass-Based Federal Plan

Appproach 1
CO 2

(million short tons) SO 2 (thousand short tons) Annual NO X (th ou s and short tons) 2020 Mass-Based Approach Base Case 2, 155 1, 311 1,333 Federal Plan Approach 2,073 1,257 1,272 Emissions Change -81 -54 -60 2025 Mass-Based Approach Base Case 2,165 1, 275 1,302 Federal Plan Approach 1,901 1,090 1,100 Emissions Change -265 -185 -203 2030 Mass-Based Approach Base Case 2,227 1, 314 1,293 Federal Plan Approach 1,814 1,034 1,015 Emission Change -413 -280 -278 Source: Integrated Planning M o del, 2015. Emissions change may not sum due to rounding.
1 CO 2 e m ission reductions are used to estimate the climate benefits of the proposed rule. SO 2 , and NO X reductions are relevant for estimating air quality health co-benefits of the proposed rule. The proposed rule is also expected to achieve reductions in directly emitted PM 2. 5 , which we were not able to estimate for this RIA.



### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 81 million short tons under the mass-based approach compared to base case levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 265 million short tons under the mass-based approach compared to
base case levels. CO 2 

### emission reductions increase to 413 million short tons annually in 2030 when compared to the base case emissions. Table 1-2 also shows emission reductions for criteria air pollutants.

### 1-14

T a ble 1-3 presents CO 2 

### emission reductions relative to 2005 for the two federal plan approaches.
Table 1-3. Projected CO 2 

### Emission Reductions, Relative to 2005

CO 2 Emissions (million short tons) CO 2 Emissions: Change from 2005 (million short tons) CO 2 Emissions Reductions: Percent Change from 2005

2005 2020 2025 2030 2020 2025 2030 Base Case 2,683 -528 -518 -456 -20% -19% -17% Rate-based - -598 -750 -871 -22% -28% -32% Mass-based

- -610 -782 -869 -23% -29% -32% Source: Integrated Planning M o del, 2015.


### In 2020, the EPA estimates that CO 2 

### emissions will be reduced by 598 million short tons (22 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that
CO 2 

### emissions will be reduced by 750 million short tons (28 percent) under the rate-based approach compared to 2005 levels. Under the rate-based approach, CO 2 

### emission reductions increase to 871 million short tons (32 percent) in 2030 when compared to 2005 levels.
Under the mass-based approach in 2020, the EPA estimates that CO 2 

### emissions will be reduced by 610 million short tons (23 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that CO 2 

### emissions will be reduced by 782 million short tons (29 percent) under the mass-based approach compared to 2005 levels. Under the mass-based approach, CO 2 

### emission reductions increase to 869 million short tons (32 percent) in 2030 when compared to 2005 levels.

1.5.2 Costs
The compliance cost estimates in this analysis are the change in electric power generation costs between the base case and federal plan approach policy cases, including the cost of demand-side energy efficiency measures and costs associated with monitoring, reporting, and recordkeeping requirements (MR&R). 12 

### In the rate-based approach, energy efficiency activities are modeled as being used by EGUs as a low-cost method of demonstrating compliance with their rate-based emissions standards. In the mass-based approach, energy efficiency activities are assumed to be adopted by states to lower demand, which in turn reduces the cost of achieving the

12 S e e Chapter 3 of the Clean Power Plan Final Rule RIA for a detailed discussion of the compliance cost estimates.

### 1-15

m a ss limitations. The level of energy efficiency measures is determined outside of IPM and is assumed to be the same in the two federal plan approaches. 13 

### The compliance assumptions, and therefore the projected “compliance costs” set forth in this analysis, are illustrative in nature.
The annual compliance cost is the projected additional cost of complying with the rule in the year analyzed and reflects the net difference in the sum of the annualized cost of capital investment in new generating sources and heat rate improvements at coal steam facilities, the change in the ongoing costs of operating pollution controls, shifts between or amongst various fuels, demand-side energy efficiency measures, and other actions associated with compliance. The costs for both federal plan approaches are reflected in Table 1-4 below. All dollar estimates
are in 2011 dollars.
The EPA estimates the annual incremental compliance cost for the rate-based approach for the proposed federal plan and model trading rules to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 2030. The EPA estimates the annual incremental compliance cost for the mass-based approach for the federal plan and model trading rules to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030.
Table 1-4. Compliance Costs for the Federal Rate-Based and Mass-Based Plan Approaches Incremental Cost from Base Case (billions of 2011$) Rate -b ased Approach Mass-based Approach 2020 $2.5 $1. 4 2025 $1.0 $3. 0 2030 $8.4 $5.1 Source: Integrated Planning Model, 2015, with post-processing to account for exogenous demand-side management

en e rgy efficiency costs and monitoring, reporting, and recordkeeping costs. See Chapter 3 of the Clean Power Plan Final Rule RIA for a more complete explanation.



### The costs reported in Table 1-4 represent the estimated incremental electric utility generating costs changes from the base case plus the estimates of demand-side energy efficiency program costs (which are paid by electric utilities), demand-side energy efficiency participant costs (which are paid by electricity consumers), and MR&R costs. For example, in 2030, under the rate-based approach, the incremental electric utility generating costs decline by about $18.0

13 F o r more detailed information on demand-side energy efficiency, see U.S. EPA. 2015b. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

### 1-16

bi l lion from the base case. MR&R requirements in 2030 are estimated at $16.0 million, and demand-side energy efficiency costs in 2030 are estimated to be $26.3 billion, split equally between program and participants using a 3 percent discount rate (see Chapter 3 of this RIA for more details on these estimates). These cost estimates sum to the $8.4 billion shown in Table 1-4 and represent the total costs of the rate-based federal plan approach in 2030. The same approach applies in each year of analysis for the rate-based and the mass-based federal plan approaches.
The compliance costs reported in Table 1-4 are not social costs. These costs represent the estimated expenditures incurred by EGUs, the costs to participants in demand-side energy efficiency programs, and states to comply with the BSER goals for the Final Clean Power Plan Emission Guidelines. These compliance cost estimates are compared to estimates of social benefits to derive net benefits of the proposed federal plan and model trading rules, which are presented later in this Chapter.
1.5.3 Monetized Climate Benefits and Health Co-benefits
The climate benefits estimates have been calculated using the estimated values of marginal climate impacts presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866 (May 2013, Revised July 2015) , henceforth denoted as the current SC-CO 2 

### TSD. 14 

### Additionally, this analysis takes into account the social benefits of changes in emissions of non-CO 2 

### pollutants from the electricity sector. The range of combined benefits reflects different concentration-response functions for the air quality health co-benefits, but it does not capture the full range of uncertainty inherent in the health co-benefits estimates. Furthermore, we were unable to quantify
or monetize all of the climate benefits and health and environmental co-benefits associated with the proposed federal plan and model trading rules, including reductions in directly emitted PM 2.5 

### , reduced exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility improvement. The omission of these endpoints from the

14 T e chnical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf> Accessed 7/11/2015.

### 1-17

m o netized results should not imply that the impacts are small or unimportant. Table 1-5 provides the list of the quantified and unquantified health and environmental benefits in this analysis.
Table 1-5. Quantified and Unquantified Benefits

Benefits Category Specific Effect Effect Has Been Quantified Effect Has

B e e n Monetized More Information

Improved E nv i ronment

Reduced climate

e f f ects Global climate impacts from CO 2

— 1  SC-CO 2 TSD

Climate impacts from ozone and black carbon (directly

e m i tted PM) — — Ozone ISA, PM ISA 2 Other climate impacts (e.g., other GHGs such as methane, aerosols, other impacts) — — IPCC 2 Improved Human Health (co-benefits) Reduced incidence of pre m ature mortality from exposure to PM 2.5 Adult premature mortality based on cohort study estimates

and expert elicitation estimates (age >25 or age >30)   PM ISA
Infant mortality (age <1)   PM ISA

Reduced incidence of

mo r bidity from exposure to PM 2.5 Non-fatal heart attacks (age > 18)   PM ISA Hospital admissions—respiratory (all ages)   PM ISA Hospital admissions—cardiovascular (age >20)   PM ISA Emergency room visits for asthma (all ages)   PM ISA Acute bronchitis (age 8-12)   PM ISA Lower respiratory symptoms (age 7-14)   PM ISA Upper respiratory symptoms (asthmatics age 9-11)   PM ISA Asthma exacerbation (asthmatics age 6-18)   PM ISA Lost work days (age 18-65)   PM ISA Minor restricted-activity days (age 18-65)   PM ISA Chronic Bronchitis (age >26) — — PM ISA

2 Emergency room visits for cardiovascular effects (all ages) — — PM ISA 2 Strokes and cerebrovascular disease (age 50-79) — — PM ISA

2 Other cardiovascular effects (e.g., other ages) — — PM ISA 3Other respiratory effects (e.g., pulmonary function, nonas t hma ER visits, non-bronchitis chronic diseases, other ages and populations) — — PM ISA 3
Reproductive and developmental effects (e.g., low birth

we i ght, pre-term births, etc) — — PM ISA 3,4 Cancer, mutagenicity, and genotoxicity effects — — PM ISA 3,4
Reduced incidence of

mo r tality from exposure to ozone Premature mortality based on short-term study estimates (all

ages)   Ozone ISA Premature mortality based on long-term study estimates (a g e 30–99) — — Ozone ISA 2

Reduced incidence of

mo r bidity from exposure to ozone Hospital admissions—respiratory causes (age > 65)   Ozone ISA

Hospital admissions—respiratory causes (age <2)   Ozone ISA Emergency department visits for asthma (all ages)   Ozone ISA Minor restricted-activity days (age 18–65)   Ozone ISA School absence days (age 5–17)   Ozone ISA Decreased outdoor worker productivity (age 18–65) — — Ozone ISA 2 Other respiratory effects (e.g., premature aging of lungs) — — Ozone ISA 3 Cardiovascular and nervous system effects — — Ozone ISA 3 Reproductive and developmental effects — — Ozone ISA 3,4

### 1-18

T ab le 1-5. Continued

Reduced incidence of morbidity from exposure to NO 2 Asthma hospital admissions (all ages) — — NO 2 ISA 2

Chronic lung disease hospital admissions (age > 65)

— — NO 2 ISA 2 Respiratory emergency department visits (all ages)

— — NO 2 ISA 2 Asthma exacerbation (asthmatics age 4–18)

— — NO 2 ISA 2 Acute respiratory symptoms (age 7–14)

— — NO 2 ISA 2 Premature mortality

— — NO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness

a nd i nflammation, lung function, other ages and populations) — — NO 2 ISA 3,4

Reduced incidence of

m o r bidity from exposure to SO 2 Respiratory hospital admissions (age > 65) — — SO 2 ISA 2

Asthma emergency department visits (all ages)

— — SO 2 ISA 2 Asthma exacerbation (asthmatics age 4–12)

— — SO 2 ISA 2 Acute respiratory symptoms (age 7–14) — — SO 2 ISA 2 Premature mortality — — SO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness and i nflammation, lung function, other ages and populations) — — SO 2 ISA 2,3

Reduced incidence of

mo r bidity from exposure to methylmercury Neurologic effects—IQ loss — — IRIS; NRC, 2000 2

Other neurologic effects (e.g., developmental delays,

me m ory, behavior) — — IRIS; NRC, 2000 3
Cardiovascular effects — — IRIS; NRC, 2000 3,4 Genotoxic, immunologic, and other toxic effects — — IRIS; NRC, 2000 3,4 Improved Environment (co-benefits) Reduced visibility im pa irment Visibility in Class 1 areas — — PM ISA 2 Visibility in residential areas — — PM ISA

2 Reduced effects on

ma t erials Household soiling — — PM ISA 2,3 Materials damage (e.g., corrosion, increased wear) — — PM ISA 3 Reduced PM depo s ition (metals and organics) Effects on individual organisms and ecosystems — — PM ISA 3

Reduced vegetation and e cosystem effects from exposure to

ozone Visible foliar injury on vegetation — — Ozone ISA 2 Reduced vegetation growth and reproduction — — Ozone ISA 2 Yield and quality of commercial forest products and crops — — Ozone ISA 2 Damage to urban ornamental plants — — Ozone ISA 3 Carbon sequestration in terrestrial ecosystems — — Ozone ISA 2 Recreational demand associated with forest aesthetics — — Ozone ISA 3 Other non-use effects O zone ISA 3 Ecosystem functions (e.g., water cycling, biogeochemical cy c les, net primary productivity, leaf-gas exchange, community composition) — — Ozone ISA 3

Reduced effects from

ac i d deposition Recreational fishing — — NO x SO x ISA 2

Tree mortality and decline — — NO x SO x ISA 3 Commercial fishing and forestry effects — — NO x SO x ISA 3 Recreational demand in terrestrial and aquatic ecosystems — — NO x S O x ISA 3 Other non-use effects N O x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles) — — NO x SO x ISA 3

### 1-19

T ab le 1-5. Continued

Reduced effects from nutrient enrichment Species composition and biodiversity in terrestrial and

estuarine ecosystems — — NO x SO x ISA 3 Coastal eutrophication

— — NO x SO x ISA 3 Recreational demand in terrestrial and estuarine ecosystems — — NO x S O x ISA 3 Other non-use effects N O x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles, fire

r e g ulation) — — NO x SO x ISA 3 Reduced vegetation

e f f ects from exposure to SO 2 and NO x Injury to vegetation from SO 2 exposure — — NO x SO x ISA 3

Injury to vegetation from NO x e x posure — — NO x SO x ISA 3

Reduced ecosystem

e f f ects from exposure to methylmercury Effects on fish, birds, and mammals (e.g., reproductive

effects) — — Mercury Study RTC 3 Commercial, subsistence and recreational fishing — — Mercury Study RTC 2

1 T h e global climate and related impacts of CO 2 emissions changes, such as sea level rise, are estimated within each integrated assessment model as part of the calculation of the SC-CO 2 . The resulting monetized damages, which are relevant for conducting the benefit-cost analysis, are used in this RIA to estimate the welfare effects of quantified changes in CO 2 emissions.

2 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, due to data and resource limitations for this analysis.

3 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, because we do not have sufficient confidence in available data or methods.

4 We assess these co-benefits qualitatively, as reported in the Chapter 4 of the Clean Power Plan Final Rule RIA, because current evidence is only suggestive of causality or there are other significant concerns over the strength of the association.



### 1.5.3.1 Estimating Global Climate Benefits
We estimate the global social benefits of CO 2 

### emission reductions expected from this rulemaking using the SC-CO 2 

### estimates presented in the current SC-CO 2 

### TSD. 15 

### We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 

### estimates” for the
remainder of this document. The SC-CO 2 

### is a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 

### emissions in a given year. It includes a wide range of anticipated climate impacts, such as net changes in agricultural productivity and human health, property damage from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. It is typically used to assess

15 A l so see Chapter 4 of the Clean Power Plan Final Rule RIA for more details on this assessment of climate benefits.

### 1-20

t h e avoided damages as a result of regulatory actions (i.e., benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 

### emissions).

The SC-CO 2 

### estimates used in this analysis have been developed over many years, using the best science available, and with input from the public. The EPA and other federal agencies have considered the extensive public comments on ways to improve SC-CO 2 

### estimation received via the notice and comment period that was part of numerous rulemakings. In addition, OMB’s Office of Information and Regulatory Affairs recently issued a response to the public comments it sought through a separate comment period on the approach used to develop the SC-CO 2 

### estimates. 16


### An interagency working group (IWG) that included the EPA and other executive branch entities used three integrated assessment models (IAMs) to develop SC-CO 2 

### estimates and recommended four global values for use in regulatory analyses. The SC-CO 2 

### estimates represent global measures because of the distinctive nature of the climate change problem. Emissions of greenhouse gases contribute to damages around the world, even when they are released in the United States, and the world’s economies are now highly interconnected. Therefore, the SC-CO 2 

### estimates incorporate the worldwide damages caused by carbon dioxide emissions in order to reflect the global nature of the problem, and we expect other governments to consider the global consequences of their greenhouse gas emissions when setting their own domestic policies. See Chapter 4 of the final Clean Power Plan Emission Guidelines RIA for more discussion.
The IWG first released the estimates in February 2010 and updated them in 2013 using
new versions of each IAM. The SC-CO 2 

### values was estimated using three integrated assessment models (DICE, FUND, and PAGE) 17 

### , which the IWG harmonized across three key inputs: the probability distribution for equilibrium climate sensitivity; five scenarios for economic, population, and emissions growth; and three constant discount rates. The 2010 SC-CO 2 

### Technical Support Document (2010 SC-CO 2 

### TSD) provides a complete discussion of the methodology and the current SC-CO 2 

### TSD 18 

### presents and discusses the updated estimates. The

16 S e e https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf

17 The full models names are as follows: Dynamic Integrated Climate and Economy (DICE); Climate Framework for Uncertainty, Negotiation, and Distribution (FUND); and Policy Analysis of the Greenhouse Gas Effect (PAGE).

18 The IWG published the updated TSD in 2013, then issued two minor corrections to it in July 2015.

### 1-21

f o ur SC-CO 2 

### estimates are as follows: $12, $40, $60, and $120 per short ton of CO 2 

### emissions in the year 2020 (2011$), and each estimate increases over time. 19 

### These SC-CO 2 

### estimates are associated with different discount rates. The first three estimates are the model average at 5 percent discount rate, 3 percent, and 2.5 percent, respectively, and the fourth estimate is the 95 th 

### percentile at 3 percent.

The 2010 SC-CO 2 

### TSD noted a number of limitations to the SC-CO 2 

### analysis, including the incomplete way in which the IAMs capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature because of a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. 20 

### In particular, the IPCC Fourth Assessment Report concluded that “It is very likely that [SC-CO 2 

### estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts.” Nonetheless, these estimates and the discussion of their limitations represent the best available information about
the social benefits of CO 2 

### emission reductions to inform the benefit-cost analysis.
In addition, after careful evaluation of the full range of comments submitted to OMB’s Office of Information and Regulatory Affairs, the IWG continues to recommend the use of these
SC-CO 2 

### estimates in regulatory impact analysis. With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the National Academies of Sciences, Engineering, and Medicine (Academies) to ensure that the SC-CO 2 

### estimates continue to reflect the best available scientific and economic information on climate change. 21 

### The

19 T h e 2010 and 2013 TSDs present SC-CO 2 in 2007$ per metric ton. The unrounded estimates from the current TSD were adjusted to (1) 2011$ using GDP Implicit Price Deflator (1.061374), http://www.bea.gov/iTable/index_nipa.cfm and (2) short tons using the conversion factor of 0.90718474 metric tons in a short ton. These estimates were rounded to two significant digits.

20 Climate change impacts and SCC modeling is an area of active research. For example, see: (1) Howard, Peter, “Omitted Damages: What’s Missing from the Social Cost of Carbon.” March 13, 2014, http://costofcarbon.org/files/Omitted_Damages_Whats_Missing_From_the_Social_Cost_of_Carbon.pdf; and (2) Electric Power Research Institute, “Understanding the Social Cost of Carbon: A Technical Assessment,” October 2014, www.epri.com.

21 See <https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions>.

### 1-22

A c ademies’ process will be informed by the public comments received and focus on the technical merits and challenges of potential approaches to improving the SC-CO 2 

### estimates in future updates.
1.5.3.2 Estimating Air Quality Health Co-Benefits
The proposed federal plan and model trading rules would reduce emissions of precursor pollutants (e.g., SO 2 

### , NO X 

### , and directly emitted particles), which in turn would lower ambient
concentrations of PM 2.5 

### and ozone. This co-benefits analysis quantifies the monetized benefits associated with the reduced exposure to these two pollutants. 22 

### Unlike the global SC-CO 2 

### estimates, the air quality health co-benefits are only estimated for the contiguous U.S. The
estimates of monetized PM 2.5 

### co-benefits include avoided premature deaths (derived from effect coefficients in two cohort studies [Krewski et al. 2009 and Lepeule et al. 2012] for adults and one for infants [Woodruff et al. 1997]), as well as avoided morbidity effects for ten non-fatal endpoints ranging in severity from lower respiratory symptoms to heart attacks 23 

### (U.S. EPA, 2012). The estimates of monetized ozone co-benefits include avoided premature deaths (derived from the range of effect coefficients represented by two short-term epidemiology studies [Bell et al. (2004) and Levy et al. (2005)]), as well as avoided morbidity effects for five non-fatal endpoints ranging in severity from school absence days to hospital admissions (U.S. EPA, 2008, 2011).
We use a “benefit-per-ton” approach to estimate the PM 2.5 

### and ozone co-benefits in this RIA. Benefit-per-ton approaches apply an average benefit per ton derived from modeling of benefits of specific air quality scenarios to estimates of emissions reductions for scenarios where no air quality modeling is available. The benefit-per-ton approach we use in this RIA relies onestimates of human health responses to exposure to PM and ozone obtained from the peerreviewed scientific literature. These estimates are used in conjunction with population data,

22 We did not estimate the co-benefits associated with reducing direct exposure to SO 2 and NO X . For this RIA, we did not estimate changes in emissions of directly emitted particles. As a result, quantified PM 2.5 related benefits are underestimated by a relatively small amount. In the proposal RIA, the benefits from reductions in directly emitted PM 2.5 were less than 10 percent of total monetized health co-benefits across all scenarios and years.

23 See Chapter 4 and Appendix 4A of the Clean Power Plan Final Rule for details on this assessment of health cobenefits.

### 1-23

b a seline health information, air quality data and economic valuation information to conduct health impact and economic benefits assessments.
Specifically, in this analysis, we multiplied the benefit-per-ton estimates by the corresponding emission reductions that were generated from air quality modeling of the proposed Clean Power Plan Emission Guidelines. Similar to the co-benefits analysis conducted for the final Clean Power Plan Emission Guidelines RIA, we generated regional benefit-per-ton estimates by aggregating the impacts in BenMAP 24 

### to the region (i.e., East, West, and California) rather than aggregating to the nation. The benefit-per-ton for SO 2 

### and NO x 

### emissions used in this proposed rule were calculated using air quality modeling of the base case and the proposed Clean Power Plan (Option 1 State) scenario for 2025 as described in Appendix 4A of the final Clean Power Plan Emission Guidelines RIA. The benefit-per-ton values for 2020 and 2030 are based on applying the air quality modeling from 2025 to population and health information from 2020
and 2030.
To calculate the co-benefits for this proposed rule, we then multiplied the regional benefit-per-ton estimates for the EGU sector by the corresponding emission reductions. All benefit-per-ton estimates reflect the geographic distribution of the modeled emissions, which may not exactly match the emission reductions in this rulemaking, and thus they may not reflect the local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location.
Our estimate of the monetized co-benefits is based on the EPA’s interpretation of the best available scientific literature (U.S. EPA, 2009) and methods and supported by the EPA’s Science Advisory Board and the NAS (NRC, 2002). Below are key assumptions underlying the estimates
for PM 2.5 

### -related premature mortality, which accounts for 98 percent of the monetized PM 2.5 

### health co-benefits.

1. We assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption,

24 Be n MAP is a computer program developed by the EPA that calculates the number and economic value of air pollution-related deaths and illnesses. The software incorporates a database that includes many of the concentration-response relationships, population files, and health and economic data needed to quantify these impacts.

### 1-24 b e cause PM 2.5 

### varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The PM ISA concluded that “many constituents of PM 2.5 

### can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to specific outcomes” (U.S. EPA, 2009b).

2. We assume that the health impact function for fine particles is log-linear without a threshold in this analysis. Thus, the estimates include health co-benefits from reducing fine particles in areas with varied concentrations of PM 2.5 

### , including both areas that do not meet the National Ambient Air Quality Standard for fine particles and those areas that are in attainment, down to the lowest modeled concentrations.

3. We assume that there is a “cessation” lag between the change in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 

### exposures occur in a distributed fashion over the 20 years following exposure based on the advice of theSAB-H1 (U.S. EPA-SAB, 2004c), which affects the valuation of mortality cobenefits at different discount rates.
Every benefits analysis examining the potential effects of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. Despite these uncertainties, we believe this analysis provides a reasonable indication of the expected health co-benefits of the air quality emission reductions for the proposed rule under a set of reasonable assumptions. This analysis does not include the type of detailed uncertainty assessment found in the 2012 PM 2.5 

### National Ambient Air Quality Standard (NAAQS) RIA (U.S. EPA, 2012) because we lack the necessary air quality input and monitoring data to conduct a complete benefits assessment. In addition, using a benefit-per-ton approach adds another important source of uncertainty to the benefits estimates.
1.5.3.3 Combined Benefits Estimates
The EPA has evaluated the range of potential impacts by combining all four SC-CO 2 

### values with health co-benefits values at the 3 percent and 7 percent discount rates. Different

### 1-25

d i scount rates are applied to SC-CO 2 

### than to the health co-benefit estimates because CO 2 

### emissions are long-lived and subsequent damages occur over many years. Moreover, several discount rates are applied to SC-CO 2 

### because the literature shows that the estimate of SC-CO 2 

### is sensitive to assumptions about discount rate and because no consensus exists on the appropriaterate to use in an intergenerational context. The IWG centered its attention on the average SCCO 2 

### at a 3 percent discount rate but emphasized the importance of considering all four SC-CO 2 

### estimates. Table 1-6 (rate-based federal plan approach) and Table 1-7 (mass-based federal plan approach) provide the combined climate benefits and health co-benefits for the proposed federal plan model trading rules estimated for 2020, 2025, and 2030 for each discount rate combination.
All dollar estimates are in 2011 dollars.

### 1-26

T ab le 1-6. Combined Estimates of Climate Benefits and Health Co-Benefits for Rate-Based

Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits Only Climate Benefits plus Health Co

- benefits

(Discount Rate Applied to Health Co-benefits) 3% 7 % In 2020 69 m illion short tons CO 2 5% $0. 80 $1.5 to $2.6 $1.4 to $2.5 3% $2. 8 $3.5 to $4.6 $3.5 to $4.5 2.5% $4.1 $4.9 to $6.0 $4.8 to $5.9 3% (95 th percentile) $8.2 $8.9 to $10 $8.9 to $9.9 In 2025 232 million short tons CO 2 5% $3. 1 $11 to $21 $9.9 to $19 3% $10 $18 to $28 $17 to $26 2.5% $15 $23 to $33 $22 to $31 3% (95 th percentile) $31 $38 to $49 $38 to $47 In 2030 415 million short tons CO 2 5% $6.4 $21 to $40 $19 to $37 3% $20 $34 to $54 $33 to $51 2.5% $29 $43 to $63 $42 to $60 3% (95 th percentile) $61 $75 to $95 $74 to $92 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 em i ssions. Co-benefits are based on regional benefit-per-ton estimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health co-benefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC-CO 2 estimate for the specified discount rate.

### 1-27

T ab le 1-7. Combined Estimates of Climate Benefits and Health Co-benefits for Mass-Based

Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits Only Climate Benefits plus Health Co

- benefits

(Discount Rate Applied to Health Co-benefits) 3% 7 % In 2020 82 m illion short tons CO 2 5% $0. 94 $2.9 to $5.7 $2.8 to $5.3 3% $3. 3 $5.3 to $8.1 $5.1 to $7.7 2.5% $4.9 $6.9 to $9.7 $6.7 to $9.3 3% (95 th percentile) $9.7 $12 to $14 $11 to $14 In 2025 264 million short tons CO 2 5% $3. 6 $11 to $21 $10 to $19 3% $12 $19 to $29 $18 to $27 2.5% $17 $24 to $35 $24 to $33 3% (95 th percentile) $35 $42 to $52 $42 to $51 In 2030 413 million short tons CO 2 5% $6.4 $18 to $34 $17 to $32 3% $20 $32 to $48 $31 to $46 2.5% $29 $41 to $57 $40 to $55 3% (95 th percentile) $60 $72 to $89 $71 to $86 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 em i ssions. Co-benefits are based on regional benefit-per-ton estimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health co-benefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from reductions in directly emitted PM 2.5 , direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 of the Clean Power Plan Final Rule RIA for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, the row reflects the average SC-CO 2 estimate for the specified discount rate.


### 1.5.4 Net Benefits
Table 1-8 and 1-9 provide the estimates of the climate benefits, health co-benefits,compliance costs and net benefits of the proposed federal plan and model trading rules for ratebased and mass-based approaches, respectively. There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 

### emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing emissions of non-CO 2 

### greenhouse gases and co-benefits from reducing exposure to SO 2 

### , NO X 

### , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility impairment. Upon considering these limitations and uncertainties, it remains clear that the benefits of this proposed rule are substantial and far outweigh the costs.

### 1-28

T ab le 1-8. Monetized Benefits, Compliance Costs, and Net Benefits Under the Rate-based

Federal Plan Approach (billions of 2011$) a Rate-Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0. 80 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8. 2 $31 $61
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $0.70 to $1.8 $0.64 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $2.5 $1. 0 $8.4 Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 a n d SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a A l l are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in this table, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co-benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation ofeffect estimates by particle type. Estimates in the table are presented for three analytical years with air quality cobenefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Final Rule RIA includes combined climate and health estimates based on additional discount rates.

### 1-29

T ab le 1-9. Monetized Benefits, Compliance Costs, and Net Benefits under the Mass-based

Federal Plan Approach (billions of 2011$) a Mass-Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0. 94 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9. 7 $35 $60
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $2.0 to $4.8 $1.8 to $4.4 $7.1 to $17 $6.5 to $16 $12 to $28 $11 to $26 Compliance Costs d $1.4 $3. 0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 a n d SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Vi s ibility improvement

a A l l are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The net benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in this table, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co-benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation ofeffect estimates by particle type. Estimates in the table are presented for three analytical years with air quality cobenefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see Chapter 4 of the Clean Power Plan Final Rule RIA for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Compliance costs are the compliance costs estimated using the Integrated Planning Model and a discount rate of approximately 5 percent. It also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The Clean Power Plan Final Rule RIA includes combined climate and health estimates based on additional discount rates.

### 1-30

1. 5. 5 Economic Impacts The federal plan approaches analyzed in this RIA indicate that the proposed federal plan and model trading rules may have important energy market implications. Table 1-10 presents a variety of important energy market impacts for 2020, 2025, and 2030 for both the rate-based and mass-based federal plan approaches.
Table 1-10. Summary Table of Important Energy Market Impacts (Percent Change from

Base Case)
Rate-Based Mass-Based 2020 2025 2030 2020 2025 2030 Retail electricity prices 3% 1% 1% 3% 2% 0% Average electricity bills 3% -4% -7% 2% -3% -8% Price of coal at minemouth -1% -5% -4% -1% -5% -3% Coal production for power sector use -5% -14% -25% -7% -17% -24% Price of natural gas delivered to power sector 5% -8% 2% 4% -3% -2% Natural gas use for electricity generation 3% -1% -1% 5% 0% -4%



### En e rgy market impacts are discussed more extensively in Chapter 3 of the final Clean Power Plan Emission Guidelines RIA. As well as the above energy market impacts, Chapter 3 of the final Clean Power Plan Emission Guidelines RIA presents projections of power sector generation and capacity changes by fuel type.
Additionally, changes in supply or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the production process or that supply those sectors. Changes in cost of production may result in changes in price and/or quantity produced by these sectors and these market changes may affect the profitability of firms and the economic welfare of their consumers. Similarly, demand for new generation or energy efficiency, for example, can result in changes in production and profitability for firms that supply those goods and services. The EPA recognizes that states subject to the federal plan may choose to mitigate impacts to some markets outside the EGU sector, perhaps by implementing the guidelines through a state plan.
1.5.6 Employment Impacts Executive Order 13563 directs federal agencies to consider the effect of regulations on job creation and employment. According to the Executive Order, “our regulatory system must

### 1-31

pr ot ect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science” (Executive Order 13563, 2011). Although standard benefit-cost analyses have not typically included a separate analysis of regulation-induced employment impacts, we typically conduct employment analyses. 25 

### While the economy continues moving toward full-employment, employment impacts are of particular concern and questions may arise about their existence and magnitude.
Given the wide range of approaches that may be used to meet the requirements of the proposed federal plan and model trading rules, quantifying the associated employment impacts is difficult. The EPA’s illustrative employment analysis includes an estimate of projectedemployment impacts for the utility power sector, coal and natural gas production, and demandside energy efficiency activities. These projections are derived, in part, from the detailed model of the utility power sector used for this regulatory analysis, and U.S government data on employment and labor productivity.
In the electricity, coal, and natural gas sectors, the EPA uses the IPM estimates of the changes in generation and fuel use of the proposed rule to estimate there could be a net decrease of approximately 25,000 job-years 26 

### in 2025 for the proposed rule under the rate-based federal plan approach and approximately 26,000 job-years in 2025 under the mass-based approach. For 2030 the estimates of the net decrease in job-years is 30,900 under the rate-based plan, and 33,700 under the mass-based plan. The Agency is also offering an illustrative calculation of potential employment effects due to demand-side energy efficiency programs. Employment impacts from demand-side energy efficiency programs in 2030 could range from approximately52,000 to 83,000 jobs created under proposed federal plan and model trading rules. The IPMderived job-year numbers for the electricity, coal and natural gas sectors should not be added tothe demand-side efficiency job impacts, since the former are reported in full-time equivalent jobye a rs, whereas the latter do not distinguish between full- and part-time employment. More detail

25 T h e employment analysis in this RIA is part of EPA’s ongoing effort to “conduct continuing evaluations of potential loss or shifts of employment which may result from the administration or enforcement of [the Act]” pursuant to CAA section 321(a). 26 Job-years are not individual jobs, but rather the amount of work performed by the equivalent of one full-time individual for one year. For example, 20 job-years in 2020 may represent 20 full-time jobs or 40 half-time jobs in that year.

### 1-32

a b out these analyses can be found in Chapter 6 of the final Clean Power Plan Emission
Guidelines RIA.
1.5.7 Additional Analysis of Output-Based Allocation as a Means of Mitigating Leakage
The application of OBA will provide an incentive to increase generation at existing NGCC EGUs in place of generation at new NGCC EGUs and existing fossil steam EGUs. To approximate the effect of this incentive in the mass-based scenario, the EPA used IPM model plant results from the mass-based scenario to construct the average dispatch order for model plants in each IPM region. Then, based on the allowance prices for the state in which each model plant resides, the EPA adjusted the dispatch order in the case where existing NGCC units were allocated allowances at a rate of 1,030 lbs/MWh for each MWh generated above a 50 percent capacity factor as proposed. In cases where an existing NGCC plant moved ahead of an existing fossil steam plant in the dispatch order, the NGCC plant’s generation was increased while the existing fossil plant’s generation was reduced. The NGCC plant’s generation was increased to the maximum capacity factor assumed feasible within IPM while the amount of reduced generation at the fossil steam plant is determined by the amount that would keep the overallcovered sources’ emissions in the region constant, so as to respect compliance with the massbased standards represented in the modeling scenario. Since the existing NGCC plant has a lower emissions rate than the existing fossil steam plant, the increase in generation at the NGCC plant is greater than the reduction in generation (because more generation is now possible from both plants together at the same given level of emissions). This net increase in generation from existing EGUs is then subtracted from new NGCC generation in the region, consistent with the total generation needed to meet the load assumed in the IPM modeling of the mass-based
scenario.
When applying this algorithm to the results from the mass-based scenario analyzed in this RIA, it forecasts nationally in 2030 a 10 percent increase in generation at existing NGCC EGUs, a 4 percent reduction in generation at existing fossil steam EGUs, and a 29 percent decrease in generation at new NGCC EGUs compared to the modeling scenario results presented above. The result of this reduction in new NGCC EGU generation is a reduction in CO 2 

### emissions of 23 million short tons (an amount equal to 1.3 percent of 2030 forecast emissions in mass-based

### 1-33

s c enario). We do not quantify the effect of these changes in generation on SO 2 

### and NO x 

### emissions, although on net additional co-benefits are expected.
The incentives portrayed in this analysis are consistent with the incentives that would be realized under the OBA set-aside, and the general direction and magnitude of the results are likely consistent with those that would be observed had the mass-based scenario been modeled with the OBA set-aside. However, the results should be viewed as approximate given that analysis does not consider important aspects of power markets included in IPM. For example, the analysis does not consider any potential changes in relative fuel and allowance prices as a result of the OBA set-aside. The application of the OBA set-aside will place upward pressure on the allowance prices and therefore further incentivize a shift away from existing fossil steam generation. The OBA set-aside may also place upward pressure on the price of natural gas which would reduce the effectiveness of the set-aside at encouraging increased utilization of existing NGCC EGUs, but the OBA set-aside would be effective in increasing existing NGCC generation, the analysis does not consider the fact that electricity is traded across many IPM regions. The application of OBA in one state may impact the generation at EGUs in another

state.
1.5.8 Uncertainty Analysis
The Office of Management and Budget’s circular Regulatory Analysis (Circular A-4) provides guidance on the preparation of regulatory analyses required under E.O. 12866, and requires an uncertainty analysis for rules with annual benefits or costs of $1 billion or more. 27 

### This proposed rulemaking potentially surpasses that threshold for both benefits and costs. Throughout this RIA and the referenced final Clean Power Plan Emission Guidelines RIA, we considered a number of sources of uncertainty, both quantitatively and qualitatively, on benefits and costs. We summarize three key elements of our analysis of uncertainty here:

27 O f fice of Management and Budget (OMB), 2003, Circular A-4
, http://www.whitehouse.gov/omb/circulars_a004_a-4 and OMB, 2011. Regulatory Impact Analysis: A Primer. http://www.whitehouse.gov/sites/default/files/omb/ inforeg/regpol/circular-a-4_regulatory-impact-analysis-aprimer.pdf

### 1-34

• A ssess uncertainty in the methods used to calculate the health co-benefits associated with
the reduction in PM 2.5 

### and ozone and the use of a benefits-per-ton approach in estimating
these co-benefits.

• Characterizing uncertainty in monetizing climate-related benefits.
Some of these elements are evaluated using probabilistic techniques, whereas for others the underlying likelihoods of certain outcomes are unknown and we use scenario analysis to evaluate their potential effect on the benefits and costs of this rulemaking.
1.5.8.1 Uncertainty in Costs
Our best estimates of the costs of these illustrative scenarios are reported within the cost analysis of the final Clean Power Plan Emission Guidelines and are included in the cost modeling in this RIA for both the proposed rate-based and mass-based approaches. A source of uncertainty under this regulation is the ultimate approach states that are not subject to the federal plan or adopt the model rule will adopt in response to the guidelines, which will affect both the costs and benefits of this rule. For this reason we modeled the two proposed federal plan approaches assuming they applied to all of the states.
1.5.8.2 Uncertainty Associated with Estimating the Social Cost of Carbon

The 2010 SC-CO 2 

### TSD noted a number of limitations to the SC-CO 2 

### analysis, including the incomplete way in which the integrated assessment models (IAM) capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk
aversion. 28 

### Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature due to a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. These
individual limitations do not all work in the same direction in terms of their influence on the SC-

28 Te c hnical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February 2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf>.

### 1-35

C O 2 

### estimates, though taken together they suggest that the SC-CO 2 

### estimates are likely conservative. In particular, the IPCC Fourth Assessment Report (2007) concluded that “It is very likely that [SC-CO 2 

### estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts” and the IPCC Fifth Assessment report observed that SC-CO 2 

### estimates continue to omit various impacts that would likely increase damages. The 95 th 

### percentile estimate was included in the recommended range for regulatory impact analysis, in part, to address these concerns.
The modeling underlying the development of the SC-CO 2 

### estimates addressed uncertainty in several ways. An ensemble of three IAMs were used to generate the SC-CO 2 

### estimates to capture differences in model structures that, in part, reflect uncertainty in the scientific literature about these relationships. Parametric uncertainty was explicitly addressed in each IAM, though to differing degrees, through Monte Carlo simulations in which explicit probability distributions for key parameters were specified, including the equilibrium climate sensitivity, which represents the long-run responsiveness of the climate to increasing GHG concentrations. Furthermore, the analysis considered five different socioeconomic and emissions forecasts to capture the sensitivity of the SC-CO 2 

### estimates to key exogenous projections used in the modeling. Finally, the results were calculated for three discount rates, which were selected, in part, to reflect uncertainty about how interest rates may change over time and the possibility that climate damages are positively correlated with uncertain future economic activity. This analysis produced 45 different distributions of the SC-CO 2 

### estimates for each emissions year. To produce a range of plausible estimates that are manageable in regulatory analysis but still reflects the uncertainty in the results four point estimates were recommended. The use of this range of point estimates in this rulemaking helps to reflect the uncertainty in the SC-CO 2 

### estimates. Chapter 4 of the final Clean Power Plan Emission Guidelines RIA provides a comprehensive discussion about the methodology and application of the SC-CO 2 

### ; see both the 2010 TSD and current SCCO 2 

### TSD for a full description.
In addition, OMB’s Office of Information and Regulatory Affairs received comments regarding uncertainty and the SC-CO 2 

### estimates in response to a separate request for public comment on the approach used to develop the estimates. Commenters discussed the analyses and presentation of uncertainty in the TSD as well as the implications of uncertainty for use of the
SC-CO 2 

### estimates in regulatory impact analysis. In their response, the interagency working

### 1-36

gr o up (IWG) acknowledged uncertainty in the SC-CO 2 

### estimates but disagreed with commenters that suggested the uncertainty undermines use of the SC-CO 2 

### estimates in regulatory impact analysis. The IWG went on to note that the uncertainty in the SC-CO 2 

### estimates is fully acknowledged and comprehensively discussed in the TSDs and supporting academic literature, and that while all regulatory impact analysis involves uncertainty, these analyses can provide useful information to decision makers and the public. See the IWG Response to Comments for the complete response. 29


### 1.5.8.3 Uncertainty Associated with PM 2.5 

### and Ozone Health Co-Benefits Assessment
EPA provides information on the relative uncertainty in the benefits estimates based on
the 95 th 

### percentile confidence interval for avoided PM-related premature deaths and the associated economic valuation estimated in the benefits analysis for the recent PM NAAQS RIA (U.S. EPA, 2012).. In general, the 95th percentile confidence interval for monetized PM 2.5 

### benefits ranges from approximately -90 percent to +180 percent of the central estimates based on the two key PM mortality studies. To further explore uncertainty in the premature mortality benefits, EPA provides the PM-related results using concentration-response functions from two key epidemiology studies, as well as alternate concentration-response relationship provided by an expert elicitation and alternative ozone-related results using concentration-response relationships provided by alternative epidemiology studies. In addition, we include anassessment of the distribution of population exposure in the modeling underlying the benefit-perton estimates.
In addition to the uncertainties in the underlying concentration-response and valuation functions, all benefit-per-ton approaches have inherent limitations, including that the estimates reflect the geographic distribution of the modeled sector emissions, which may not match the emission reductions anticipated by this proposed rule, and they may not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other localfactors for any specific location. In addition, these estimates reflect the regional average benefitper-ton for each ambient PM 2.5 

### precursor emitted from EGUs, which assumes a linear atmospheric response to emission reductions. The regional benefit-per-ton estimates, although

29 S e e https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf

### 1-37

l e ss subject to these types of uncertainties than national estimates, still should be interpreted withcaution. Even though we assume that all fine particles have equivalent health effects, the benefitper-ton estimates vary between precursors depending on the location and magnitude of their impact on PM 2.5 

### levels, which drive population exposure.

1.6 References 40 CFR Chapter I [EPA–HQ–OAR–2009–0171; FRL–9091–8] RIN 2060–ZA14, “Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act,” Federal Register / Vol. 74, No. 239 / Tuesday, December 15, 2009 / Rules and Regulations. 75 FR 49556. August 13, 2010. “EPA’s Denial of the Petitions to Reconsider the Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act.” Bell, M.L., A. McDermott, S.L. Zeger, J.M. Sarnet, and F. Dominici

. 2004. “Ozone and ShortTerm Mortality in 95 U.S. Urban Communities, 1987-2000.” Journal of the American Medical Association. 292(19):2372-8. Docket ID EPA-HQ-OAR-2009-0472-114577, Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/foragencies/Social-Cost-of-Carbon-for-RIA.pdf>. Accessed July 15, 2015.

### 1-38

D o cket ID EPA-HQ-OAR-2013-0602, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with Participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf>. Accessed July 15, 2015. Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. HEI Research Report, 140, Health Effects Institute, Boston, MA. Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury. Response to to Comments: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. July 2015. Available at:<https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-commentsfinal-july-2015.pdf.> Accessed July 15, 2015. Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: Synthesis Report Contribution of Working Groups I, II and III to the Fourth Assessment Report of the IPCC . Available at: <http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synt hesis_report.htm>. Accessed June 6, 2015. Lepeule, J., F. Laden, D. Dockery, and J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow-Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspectives. 120(7):965-70. Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone Exposure and Mortality: An Empiric Bayes Metaregression Analysis.” Epidemiology. 16(4):458-68.

### 1-39

M e lillo, J.M., T.C. Richmond, and G.W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program. Available at <http://nca2014.globalchange.gov>. Accessed June 4, 2015. National Research Council (NRC). 2000. Toxicological Effects of Methylmercury: Committee on the Toxicological Effects of Methylmercury .” Board on Environmental Studies and Toxicology. National Academies Press. Washington, DC. National Research Council (NRC). 2002. Estimating the Public Health Benefits of Proposed Air Pollution Regulations . National Academies Press. Washington, DC.

National Research Council. 2011. Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia . Washington, DC: The National Academies Press. U.S. Environmental Protection Agency (U.S. EPA). 2008a. Integrated Science Assessment for Sulfur Oxides—Health Criteria (Final Report) . National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. September. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impact Analysis . EPA-452/R-08-003. Office of Air Quality Planning and Standards Health and Environmental Impacts Division, Air Benefit and Cost Group Research Triangle Park, NC. March. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/6- ozoneriachapter6.pdf>. Accessed June 4, 2015. U.S. EPA. 2008c. Integrated Science Assessment for Oxides of Nitrogen: Health Criteria (Final Report). Research Triangle Park, NC: National Center for Environmental Assessment. July. Available at < http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. U.S. Environmental Protection Agency (U.S. EPA). 2008c. Integrated Science Assessment for Oxides of Nitrogen - Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. July. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2009b. Integrated Science Assessment for Particulate Matter (Final Report) . EPA-600-R-08-139F. National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. December. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546>. Accessed June 4, 2015.

### 1-40

U

. S. Environmental Protection Agency (U.S. EPA). 2010d. Section 3: Re

‐ 

### analysis of the Benefits of Attaining Alternative Ozone Standards to Incorporate Current Methods . Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/s3-supplemental_analysis-updated_benefits11- 5.09.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. EPA452/R-12-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013b. Integrated Science Assessment of Ozone and Related Photochemical Oxidants (Final Report). EPA/600/R-10/076F. National Center for Environmental Assessment – RTP Division, Research Triangle Park. Available at: <http://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247492#Download>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2015a. Regulatory Impact Analysis for the Clean Power Plan Final Rule. EPA-452/R-15-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park. U.S. EPA. 2015b. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency. Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. “The relationship between selected causes of postneonatal infant mortality and particulate air pollution in the United States.” Environmental Health Perspectives. 105(6): 608-612.

### 2-1



## C H A PTER 

## 2: S TATUTORY AND 

## E XECUTIVE 

## O RDER 

## R EVIEWS



### 2.1 Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: I mproving Regulation and Regulatory Review This proposed action is an economically significant regulatory action that was submitted to the OMB for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA prepared an analysis of the potential costs and benefits associated with this action. This analysis, which is presented in this RIA, is also available in the docket and is briefly summarized in section VIII of the preamble.
Consistent with Executive Order 12866 and Executive Order 13563, the EPA estimated the costs and benefits for two alternative federal plan approaches to implementing the proposed federal plan and model trading rules. The proposed action will achieve the same levels of emissions performance as required of state plans under the CAA section 111(d) EGs for the
control of CO 2 

### . Actions taken to comply with the guidelines will also reduce the emissions of directly-emitted PM 2.5 

### , SO 2 

### and NO X 

### . The benefits associated with these PM 2.5 

### , SO 2 

### and NO X 

### reductions are referred to as co-benefits, as these reductions are not the primary objective of this
rule.
The RIA for this proposal analyzed two implementation scenarios, which we term the “rate-based federal plan approach” and the “mass-based federal plan approach”. It is veryimportant to note that the differences between the analytical results for the rate-based and massbased federal plan approaches presented in this RIA may not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the proposed rule. In other words, if one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instances.
It is important to note that the potential regulatory impacts presented in the Clean Power Plan Final Rule RIA and this RIA are not additive. Both RIAs present estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan EGs. In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading

### 2-2

r u les, the same performance rates are accomplished but are assumed to be achieved under the federal plan or model trading rules.
The EPA has used the social cost of carbon estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis
Under Executive Order 12866 (May 2013, Revised July 2015) (“current TSD”) to analyze CO 2 

### climate impacts of this rulemaking. We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 

### estimates.” The SC-CO 2 

### is an estimate of the monetary value of impacts associated with a marginal change in CO 2 

### emissions in a given year. The four SC-CO 2 

### estimates are associated with different discount rates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th 

### percentile at 3 percent), and each increases over time. In this summary, the EPA provides the estimate of climate benefits associated with the SC-CO 2 

### value deemed to be central in the current TSD: the model average at 3 percent discount rate.
The EPA estimates that, in 2020, the proposal will yield monetized climate benefits (in2011$) of approximately $2.8 billion for the rate-based approach and $3.3 billion for the massbased approach (3 percent model average). For the rate-based approach, the air pollution health co-benefits in 2020 are estimated to be $0.7 billion to $1.8 billion (2011$) for a 3 percent discount rate and $0.64 billion to $1.7 billion (2011$) for a 7 percent discount rate. For the massbased approach, the air pollution health co-benefits in 2020 are estimated to be $2.0 billion to $4.8 billion (2011$) for a 3 percent discount rate and $1.8 billion to $4.4 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR costs in 2020, are approximately $2.5 billion for the rate-based approach and $1.4 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2020 are estimated to range from $1.0 billion to $2.1 billion (2011$) for the rate-based approach and from $3.9 billion to 6.7 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).
The EPA estimates that, in 2025, the proposal will yield monetized climate benefits (in2011$) of approximately $10 billion for the rate-based approach and $12 billion for the massbased approach (3 percent model average). For the rate-based approach, the air pollution health co-benefits in 2025 are estimated to be $7.4 billion to $18 billion (2011$) for a 3 percent

### 2-3

d i scount rate and $6.7 billion to $16 billion (2011$) for a 7 percent discount rate. For the massbased approach, the air pollution health co-benefits in 2025 are estimated to be $7.1 billion to $17 billion (2011$) for a 3 percent discount rate and $6.5 billion to $16 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR costs in 2025, are approximately $1.0 billion for the rate-based approach and $3.0 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2025 are estimated to range from $17 billion to $27 billion (2011$) for the rate-based approach and $16 billion to $26 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).
The EPA estimates that, in 2030, the proposal will yield monetized climate benefits (in2011$) of approximately $20 billion for the rate-based approach and $20 billion for the massbased approach (3 percent model average). For the rate-based approach, the air pollution health co-benefits in 2030 are estimated to be $14 billion to $34 billion (2011$) for a 3 percent discount rate and $13 billion to $31 billion (2011$) for a 7 percent discount rate. For the mass-based approach, the air pollution health co-benefits in 2030 are estimated to be $12 billion to $28 billion (2011$) for a 3 percent discount rate and $11 billion to $26 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR costs in 2030, are approximately $8.4 billion for the rate-based approach and $5.1 billion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2030 are estimated to range from $26 billion to $45 billion (2011$) for the rate-based approach and from $26 billion to $43 billion (2011$) for the mass-based approach, using a 3 percent discount rate (model average).Table 1-8 and Table 1-9 of this RIA provides the estimates of the climate benefits, health cobenefits, compliance costs and net benefits of the proposal for rate-based and mass-based federal plan approaches, respectively.
There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 

### emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing
emissions of non-CO 2 

### GHGs ( e.g ., nitrous oxide and methane) and co-benefits from reducing

### 2-4

d i rect exposure to SO 2 

### , NO X 

### , and HAP ( e.g ., mercury), as well as from reducing ecosystem effects and visibility impairment. Based upon the foregoing discussion, it remains clear that the benefits of this proposed action are substantial, and far exceed the costs. Additional details on benefits, costs, and net benefits estimates are provided in this RIA.
2.2 Paperwork Reduction Act
The information collection requirements in this rule have been submitted for approval to OMB under the PRA. The Information Collection Request (ICR) document prepared by the EPA has been assigned EPA ICR number 2526.01 . You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until approved by OMB.
This rule does not directly impose specific requirements on state and U.S. territory governments with affected EGUs. The rule also does not impose specific requirements on tribal governments that have affected EGUs located in their area of Indian country. This rule does impose specific requirements on EGUs located in states, U.S. territories or areas of Indian country.
The information collection activities in this proposed rule are consistent with those activities defined under the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units finalized on August 3, 2015. The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The ICR document prepared by the EPA has been assigned EPA ICR number 2526.01. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here.
Aside from reading and understanding the rule, this proposed action would impose minimal new information collection burden on affected EGUs beyond what those affected EGUs would already be subject to under the authorities of CAA parts 75 and 98. OMB has previously approved the information collection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060–0626 and 2060– 0629, respectively. Apart from certain reporting costs based on requirements in the NSPS General Provisions (40 CFR part 60, subpart A), which are mandatory for all owners/operators

### 2-5

s ubj ect to CAA section 111 national emission standards, there are no new information collection costs, as the information required by this proposed rule is already collected and reported by other regulatory programs. The recordkeeping and reporting requirements are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confidentiality is made is safeguarded according to agency policies set forth in 40 CFR part 2, subpart B.
Although EPA cannot determine at this time how many affected EGU respondents will submit information under the federal plan, EPA has estimated an “upper bound” burden estimate for this ICR that estimates burden should every affected EGU read and understand the rule. This is the only potential respondent activity that would be required under the 3-year period following publication of the final federal plan, so there are no obligations to respond in this period. The results of this “upper bound” estimate of federal plan burden are presented below:
Respondents/affected entities: 1,028
Respondents’ obligation to respond: Not applicable, no responses are required during the period covered by the ICR.

Es t imated number of respondents: Unknown at this time, but have assumed all affected entities are respondents for an upper bound estimate.
Frequency of response: None, no responses are required during the period covered by the
ICR.
Total estimated burden: 17,133 hours (per year). Burden is defined at 5 CFR 1320.3(b). Total estimated cost: $1,706,501 (per year)
An agency may not conduct or sponsor, and a person is not required to respond to, a

co l lection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA’s regulations in 40 CFR are listed in 40 CFR part 9.
Submit your comments on the agency’s need for this information, the accuracy of the provided burden estimates and any suggested methods for minimizing respondent burden to theEPA using the docket identified at the beginning of this rule. You may also send your ICRrelated comments to OMB’s Office of Information and Regulatory Affairs via email to oria_submissions@omb.eop.gov , Attention: Desk Officer for the EPA. Since OMB is required to

### 2-6

m a ke a decision concerning the ICR between 30 and 60 days after receipt, OMB must receive comments no later than 30 days after the date of publication in the Federal Register. The EPA will respond to any ICR-related comments in the final rule.
2.3 Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA; 5 U.S.C.§ 601 et seq.), as amended by the Small Business Regulatory Enforcement Fairness Act (Public Law No. 104-121), provides that whenever an agency is required to publish a general notice of proposed rulemaking, it must prepare and make available an initial regulatory flexibility analysis (IRFA), unless it certifies that the proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities (5 U.S.C. § 605[b]). Small entities include small businesses, small organizations, and small governmental jurisdictions. An IRFA describes the economic impact of the proposed rule on small entities and any significant alternatives to the proposed rule that would accomplish the objectives of the rule while minimizing significant economic impacts on small entities. Pursuant to section 603 of the RFA, the EPA prepared an initial regulatory flexibility analysis (IRFA) that examines the impact of the proposed rule on small entities along with regulatory alternatives that could minimize that impact.
2.3.1 Reasons why Action is Being Considered On August 3, 2015, the EPA finalized the Clean Power Plan EGs for existing fossil-fuel fired EGUs (40 CFR part 60, subpart UUUU) under authority of section 111 of the CAA. The Guidelines apply to existing fossil-fuel fired EGUs, i.e., those that were in operation or had commenced construction before January 8, 2014. States with existing EGUs subject to the guidelines are required to submit to the EPA by September 6, 2016, a state plan that implements the EGs. States may also make initial plan submittals in lieu of a complete state plan, in which case extensions will be granted until September 6, 2018 (40 CFR &&&). 30 

### As discussed in section VI.D of the preamble, Indian Tribes may, but are not required to, submit tribal plans. Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 31 

### section

30 S e e Section VII of the preamble for additional information on proposed changes to 40 CFR 60.27 to provide enhancements and flexibilities to the agency’s process for review and action on state plans and promulgation of federal plans.

31 If a state has submitted a complete plan, then the EPA will go through a public notice and comment process to fully or partially approve or disapprove the state plan.

### 2-7

111 o f the CAA and 40 CFR 60.27 require the EPA to develop, implement, and enforce a federal plan for existing EGUs located in that state. In addition, CAA section 301(d)(2) authorizes the Administrator to treat an Indian Tribe in the same manner as a state for this EGU requirement.
See 40 CFR 49.3; see also “Indian Tribes: Air Quality Planning and Management,” hereafter “Tribal Authority Rule,” (63 FR 7254, February 12, 1998). As discussed in section VI.D of the preamble, the agency in this action is proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these
affected EGUs.
The agency believes it is appropriate to propose the federal plan at this time for any states that may ultimately be found to have failed to submit a plan, or had their plan disapproved by the EPA. For some states in this situation, the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an approved plan in place. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves as two proposed model trading rules which states can adopt or tailor for adoption as their state plan.
2.3.2 Statement of Objectives and Legal Basis for Proposed Rules
The EPA is proposing this rulemaking for a federal plan to implement greenhouse gas Emission Guidelines for existing fossil fuel-fired electric generating units (EGUs). The emission guidelines were proposed in June 2014 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (79 FR 34830; the Clean Power Plan). This plan is part of the President’s Climate Action Plan announced in June of 2013 to reduce carbon emissions from the power sector by 30 percent below 2005 levels. This federal plan serves to: 1) provide a model rule that states can tailor for implementation, and 2) set in place a plan that EPA can implement for states that do not develop an approvable state plan. The EPA sees this federal plan as an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until states assume their role as the preferred implementers of the emission guidelines.
The final Clean Power Plan Emission Guidelines are related to but separate from the proposed federal plan. The final Emission Guidelines will detail the carbon dioxide (CO 2 

### )

### 2-8

r e duction goals for sources by state. The purpose of the proposed federal plan is to lay out
mechanisms to achieve reductions in CO 2 

### emissions from affected EGUs that are not covered by an EPA-approved state plan. The EPA is considering a range of options and approaches through which affected EGUs would meet a rate-based goal or a mass-based equivalent. The EPA intends to incorporate flexibility to the extent possible into the proposed federal plan so affected units can achieve these reductions in a cost-effective way.
2.3.3 Description and Estimate of Affected Small Entities
EPA conducted this regulatory flexibility analysis at the ultimate (i.e., highest) level of ownership, evaluating parent entities with the largest share of ownership in at least one potentially-affected EGU included in EPA’s Base Case using the Integrated Planning Model (IPM) v.5.15, used in this RIA. 32 

### This analysis draws on the “parsed” unit-level estimates using IPM results for 2030, as well as ownership, employment, and financial information for the potentially affected small entities drawn from other resources described in more detail below. EPA chose to examine potential impacts in 2030 because that is when the emission performance goals are required to be fully achieved. Also, as presented in this RIA, 2030 is the year where the estimated annual compliance costs for the contiguous U.S. are at their highest. 33


### This action proposes a federal plan under section 111(d) of the CAA for the control of
CO 2 

### , a greenhouse gas pollutant, from certain large emitting fossil-fuel fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass- and rate-based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 

### emission performance rates in the emission guidelines. The federal plan will achieve the same levels of emissions performance as required of state plans under the emission guidelines.
However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or adopt a model rule. Because of this lack of information, for this RIA, the EPA has chosen to examine two federal plan approach scenarios where all

32 S e e 1.4.1 of this RIA for more detail on the IPM base case used for this analysis. Detailed documentation for IPM v.5.15 is available at: http://www.epa.gov/powersectormodeling.

33 See Section 1.5.2 of this RIA.

### 2-9

s t ates of the contiguous U.S. will be regulated under a federal plan or a model rule. The first federal plan approach we examine in this RIA assumes all states in the contiguous U.S. are regulated under a rate-based federal plan or model rule. The second federal plan approach we examine assumes all contiguous states are regulated under a mass-based federal plan or model
rule. We use these scenarios to inform this IRFA.
As with the analysis in this RIA, the IRFA proceeds by examining potential costs to small entities under both the rate-based and mass-based approach, again under the strong assumption that all affected EGUs are regulated under a federal plan. The parsed unit-level estimates used in this IRFA are consistent with the analysis presented elsewhere in this RIA. These 2030 year IPM files can also be found in the docket for the rulemaking.
EPA identified the size of ultimate parent entities by using the Small Business Administration (SBA) size threshold guidelines. 34 

### The criteria for size determination vary by the organization/operation category of the ultimate parent entity, as follows:

• Privately-owned (non-government) entities (see Table 2-1)

o Privately-owned entities include investor-owned utilities, non-utility entities, and entities with a primary business other than electric power generation.

o For entities with electric power generation as a primary business, small entities are those with less than the threshold number of employees specified by SBA for each of the relevant North American Industry Classification System (NAICS) sectors (NAICS 2211).

o For entities with a primary business other than electric power generation, the relevant size criteria are based on revenue, assets, or number of employees by
NAICS sector. 35



### • Publicly-owned entities

34 U

. S. Small Business Administration (SBA). 2014. Small Business Size Standards. Effective as of July 14, 2014. See: http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.

35 Certain affected EGUs are owned by ultimate parent entities whose primary business is not electric power generation.

### 2-10 o P ublicly-owned entities include federal, state, municipal, and other political
subdivision entities.

o The federal and state governments were considered to be large. Municipalities and other political units with population fewer than 50,000 were considered to be
small.

• Rural Electric Cooperatives

o Small entities are those with fewer than the threshold level of employees or revenue specified by SBA for each of the relevant NAICS sectors.
EPA examined affected EGUs included in EPA’s 2030 projections and identified the associated power plants. Next, we determined power plant ownership information, including the name of associated owning entities, ownership shares, and each entity’s type of ownership. EPA primarily used data from SNL and Ventyx, supplemented by limited research using publicly
available data. 36 

### Majority owners of power plants with affected EGUs were categorized as one of the seven ownership types. 37 

### These ownership types are:

1. Investor-Owned Utility (IOU): Investor-owned assets (e.g., a marketer, independent power producer, financial entity) and electric companies owned by stockholders, etc.

2. Cooperative (Co-Op): Non-profit, customer-owned electric companies that generate and/or distribute electric power.
3. Municipal: A municipal utility, responsible for power supply and distribution in a small region, such as a city.
4. Sub-division: Political subdivision utility is a county, municipality, school district, hospital district, or any other political subdivision that is not classified as a municipality under state law. 5. Private: Similar to an investor-owned utility, however, ownership shares are not openly traded on the stock markets.

6. State: Utility owned by the state.

36 S N L Financial data covers the energy market and other industries. For more information, see: www.snl.com. The Ventyx database consists of detailed ownership and corporate affiliation information at the EGU level. For more information, see: www.ventyx.com.

37 Throughout this analysis, EPA refers to the owner with the largest ownership share as the “majority owner” even when the ownership share is less than 51 percent.

### 2-11

7. F e deral: Utility owned by the federal government.
Required ownership information could not be determined for two committed units that are represented in the IPM base case modeling for this proposed rule, preventing their inclusion in this analysis. 38


### Next, EPA used the Hoover’s online database to identify the ultimate owners of power plant owners identified in the SNL and Ventyx databases. This was necessary, as many majority owners of power plants (listed in SNL or Ventyx) are themselves owned by other ultimate parent entities (listed in Hoover’s). 39 

### In these cases, the ultimate parent entity was identified via Hoover’s, whether domestically or internationally owned.
EPA followed SBA size standards to determine which non-government ultimate parent entities should be considered small entities in this analysis. These SBA size standards are specific to each industry, each having a threshold level of either employees, revenue, or assets below which an entity is considered small. SBA guidelines list all industries, along with their associated NAICS code and SBA size standard. Therefore, it was necessary to identify the specific NAICS code associated with each ultimate parent entity in order to understand the appropriate size standard to apply. Data from Hoover’s was used to identify the NAICS codes for most of the ultimate parent entities. 40 

### In many cases, an entity that is a majority owner of a power plant is itself owned by an ultimate parent entity with a primary business other than electric power generation. Therefore, it was necessary to consider SBA entity size guidelines for the range of NAICS codes listed in Table 2-1. This table represents the range of NAICS codes and areas of primary business of ultimate parent entities which are majority owners of potentially
affected EGUs in EPA’s IPM base case.

38 T h e ORIS codes of these two units are 83609 and 83921. Without knowledge of entity type and size, it was not possible to accurately estimate revenue or costs impacts. An ORIS code is an identifying number assigned by the U.S. Energy Information Administration to power plants owned by utilities.

39 The Hoover’s Inc. online platform includes company records that can contain NAICS codes, number of employees, revenues, and assets. For more information, see: http://www.hoovers.com.

40 In the case of two entities, NAICS codes could not be located in Hoover’s, so publicly available information was used to determine the primary area of business for the ultimate parent entities.

### 2-12

T ab le 2-1. SBA Size Standards by NAICS Code

Notes: 1) Based on size standards effective at the time EPA conducted this analysis (SBA size standards, effective July 14, 2014) 2) Small business size standards are not established for the Public Administration industry (NAICS code 921110). It is assumed that a comparable NAICS private sector industry is Fossil Fuel Electric Power Generation (NAICS code 221112). Therefore, for this analysis, the NAICS code 921110 is assumed to have a size standard of 750 employees. Source: SBA, 2014 NAICS Code NAICS Description SBA Size Standard

211111 Crude Petroleum and Natural Gas Extraction 500 employees 211112 Natural Gas Liquid Extraction 500 employees 212111 Bituminous Coal and Lignite Surface Mining 500 employees 212221 Gold Ore Mining 500 employees 213112 Support Activities for Oil and Gas Operations $38.5 million in revenue 221111 Hydroelectric Power Generation 500 employees 221112 Fossil Fuel Electric Power Generation 750 employees 221113 Nuclear Electric Power Generation 750 employees 221118 Other Electric Power Generation 250 employees 221121 Electric Bulk Power Transmission and Control 500 employees 221122 Electric Power Distribution 1,000 employees 221210 Natural Gas Distribution 500 employees 238210 Electrical Contractors and Other Wiring Installation Contractors $15 million in revenue 238290 Other Building Equipment Contractors $15 million in revenue 324110 Petroleum Refineries 1,500 employees 325120 Industrial Gas Manufacturing 1,000 employees 325211 Plastics Material and Resin Manufacturing 750 employees 325320 Pesticide and Other Agricultural Chemical Manufacturing 500 employees 331110 Iron and Steel Mills and Ferroalloy Manufacturing 1,000 employees 331313 Alumina Refining and Primary Aluminum Production 1,000 employees 333613 Mechanical Power Transmission Equipment Manufacturing 500 employees 333999 All Other Miscellaneous General Purpose Machinery Manufacturing 500 employees 335312 Motor and Generator Manufacturing 1,000 employees 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing 500 employees
423610 Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers 100 employees
424720 Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals) 100 employees 454310 Fuel Dealers 50 employees 486210 Pipeline Transportation of Natural Gas $27.5 million in revenue 522110 Commercial Banking $550 million in assets 522220 Sales Financing $38.5 million in revenue 522320 Financial Transactions Processing, Reserve, and Clearinghouse Activities $38.5 million in revenue 523120 Securities Brokerage $38.5 million in revenue 523910 Miscellaneous Intermediation $38.5 million in revenue 523920 Portfolio Management $38.5 million in revenue 523930 Investment Advice $38.5 million in revenue 524113 Direct Life Insurance Carriers $38.5 million in revenue 524126 Direct Property and Casualty Insurance Carriers 1,500 employees 524210 Insurance Agencies and Brokerages $7.5 million in revenue 525110 Pension Funds $32.5 million in revenue 525120 Health and Welfare Funds $32.5 million in revenue 525990 Other Financial Vehicles $32.5 million in revenue 541611 Administrative Management and General Management Consulting Services $15 million in revenue 551112 Offices of Other Holding Companies $20.5 million in revenue 561110 Office Administrative Services $7.5 million in revenue 813910 Business Associations $7.5 million in revenue 921110 Public Administration 750 employees

### 2-13

E P A compared the relevant entity size criterion for each ultimate parent entity to the SBA threshold value noted in Table 2-1. We used the following data sources and methodology to estimate the relevant size criterion values for each ultimate parent entity:

1. Employment, Revenue, and Assets: EPA used the Hoover’s database as the primary source for information on ultimate parent entity employee numbers, revenue, and assets. 41 

### In parallel, EPA also considered estimated revenues from affected EGUs based on analysis of parsed-file estimates for 2030. 42 

### EPA assumed that the ultimate parent entity revenue was the larger of the two revenue estimates. In limited instances, supplemental research was also conducted to estimate an ultimate parent entity’s number of employees,
revenue, or assets.

2. Population: Municipal entities are defined as small if they serve populations of less than 50,000. EPA primarily relied on data from the Ventyx database and the U.S. Census Bureau to inform this determination. Supplemental research of individual municipalities
was also conducted in some instances.
Ultimate parent entities for which the relevant measure is less than the SBA size criterion were identified as small entities and carried forward in this analysis. In the case of six entities, data limitations prevented the comparison of entities against their appropriate SBA size standards. For the purposes of this analysis, EPA assumed that these six entities are small
entities. 43


### EPA identified 223 potentially affected EGUs owned by 74 small entities included in EPA’s 2030 projections. Fifty-nine of these potentially affected EGUs are projected to no longer be operating by 2030 in the Base Case of EPA’s version of IPM v.5.15. 44 

### Twenty-four small

41 E s timates of sales were used in lieu of revenue estimates when revenue data was unavailable.

42 The methodology for the analysis of IPM results is detailed later in this IRFA.

43 Generation from potentially affected EGUs owned by these six entities represents less than two percent of total generation from potentially affected EGUs owned by small entities under EPA’s base case projections.

44 Detailed documentation for IPM v.5.15 is available at: http://www.epa.gov/powersectormodeling.

### 2-14

e n tities are projected to have all of their potentially affected EGUs cease operation by 2030 in
this Base Case.
2.3.4 Compliance Cost Impact Estimates
2.3.4.1 Methodology for Estimating Impacts on Small Entities
This section presents the methodology used in this analysis for estimating the compliance costs of this proposed rule for small entities. For the purposes of this IRFA, EPA estimated net compliance costs for individual EGUs of the proposed rule using the following equation:



## C net compliance cost 

## = ∆ C operating + annualized capital 

## + ∆ C fuel 

## + ∆ C demand-side energy efficiency 

## + ∆ R

where C represents the components of cost as labeled, R represents revenue, and 

## ∆ indicates the calculation of difference between the base case and the federal plan approach under examination. The specific meaning of these variables is discussed below.
This approach to estimate net compliance costs is consistent with previous proposed power sector regulations that required IRFAs, such as the proposed Mercury and Air Toxics
Rule. 45 

### However, there is an additional component in the net compliance cost equation: thechange in the program costs of demand-side energy efficiency programs. Investment in demandside energy efficiency results in lower electricity demand, and consequently fewer emissions as production is reduced to meet the lower demand, an important emission-reduction strategy modelled in the rate-based and mass-based federal plan approaches.
Because this analysis evaluates the net compliance costs as a sum of the costs changes associated with compliance choices as well as changes in electricity revenues, it captures potential net compliance cost increases or decreases. For example, if under the proposed rule entities increase revenue more than costs, the net compliance costs will be negative. As a result, the approach used here to estimate net compliance costs is well-equipped to evaluate the potential distributional consequences of the proposed regulation.
For this analysis, EPA used the parsed unit-level estimates mentioned before to estimate three of the four components of the net compliance cost equation above: the change in operating

45 U

. S. Environmental Protection Agency (U.S. EPA). 2011. Regulatory Impact Analysis of the Proposed Toxics Rule: Final Report . Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/ToxicsRuleRIA.pdf.

### 2-15

a n d annualized capital costs, the change in fuel costs, and the change in revenue, where all changes are estimated as the difference between the base case and federal plan scenario. These impacts were then summed for each small entity, adjusting for ownership share. 46 

### As described momentarily, additional analysis was performed to estimate the change in costs of demand-side energy efficiency that factors in IPM-projected outputs but is not directly an output of the model. These individual components of compliance cost were estimated as follows:

1. Operating and capital costs: Using the IPM parsed estimates for the base case and the rate-based and mass-based federal plan approaches, EPA evaluated changes in operating and capital costs at the EGU level. The equations for calculating operating and capital costs were adopted from technology assumptions used in EPA’s version of IPM version 5.15. The model calculates the capital cost (in $/MW); the fixed operation and maintenance (O&M) cost (in $/MW-year); and the variable O&M cost (in $/MWh).

2. Fuel costs: Using the IPM parsed estimates for the base case and the rate-based and mass-based federal plan approaches, EPA evaluated projected changes in fuel cost at the EGU level. These projected fuel costs are based on estimated EGU-level fuel input (in million British thermal units, MMBtu) and delivered fuel prices ($/MMBtu).

3. Demand-side energy efficiency program costs: Demand-side energy efficiency program costs are estimated and allocated to affected EGUs outside of IPM in thisanalysis. For this analysis, we assumed that IOUs, Co-Ops, Municipals, and SubDivisions are utilities that receive revenues on the basis of retail electricity rates. Retail electricity in this and related EPA analyses contain an energy efficiency surcharge. The surcharge reflects the standard mechanism by which utilities collect revenue from their customers to pay for energy efficiency programs. Such surcharges are approved for inclusion in rates by state utility commission for IOUs or the equivalent authority (e.g., municipal or cooperative utility board of directors) for other utility types. To be consistent, EPA assumes that these utilities will incur an energy efficiency surcharge as a cost in this analysis. The demand-side energy efficiency surcharge is state specific, being

46 U n it-level cost impacts are adjusted for ownership shares for individual small entities, so as not to overestimate burden on each entity.

### 2-16

t h e estimated state demand-side energy efficiency program costs 47 

### divided by projected total state sales. The cost in this analysis is the surcharge multiplied by projected sales
from affected EGUs. 48 

### In contrast, entities of the type Private are not assessed demandside energy efficiency program costs in this analysis. 49 

### This distinction is made because EPA assumes that Private entities own non-utility EGUs that will earn wholesale electricity rates. Wholesale electricity rates do not include a demand-side energy efficiency surcharge in this or related EPA analyses.

4. Revenues: EPA estimated the value of electricity generated by multiplying the projected electricity generation from EPA’s IPM modeling results with the regional retail electricity price estimates ($/MWh), for all entities except those categorized as Private in Ventyx. For private entities, EPA used projected wholesale electricity price instead of retail electricity price estimates because most of the private entities are independent power producers (IPP). Since IPPs sell their electricity to wholesale purchasers and do not own transmission facilities, their revenue was estimated with wholesale electricity prices.

2.3.4.2 Results
This section presents the estimated net compliance cost impacts of the proposed rule on small entities in 2030 based on the following endpoints:

• net compliance costs estimated for the proposed rule for potentially affected small entities, and

47 I n practice, the costs of demand-side energy efficiency programs include the costs to the utilities that are funding the programs (known as the program costs) and the additional cost to the end-user purchasing a more energy efficient technology (known as the participant costs). Based upon a literature review, the analysis supporting this proposed rule and the Clean Power Plan Final Rule, total costs are assumed to be divided evenly, 50 percent each, between program costs and participant costs. This IRFA includes only the program costs expected to be incurred by utilities. For more detail on how the demand-side energy efficiency costs are estimated, see U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

48 For these entity types (i.e., IOUs, Co-Ops, Municipals, and Sub-Divisions), projected sales is estimated to be 7.5 percent less than generation. This 7.5 percent reduction is added to account for estimated transmission losses.

49 Note that in this context, “Private” is one of seven distinct ownership types introduced earlier in this chapter.

### 2-17

• t he ratio of small entity compliance cost impacts to revenues from electricity generation
at affected EGUs
It is worth noting again that the results in this section are based on the assumption made for this analysis that all affected EGUs owned by small entities are subject to this proposed rule. EPA chose to examine this scenario because, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan.
The number of affected small entities by ownership type and the potential impact of the federal plan approaches are summarized in Tables 2-2 through 2-5. These tables are specific to either the rate-based federal plan approach (i.e., rate-based), or mass-based federal plan approach (i.e., mass-based). All costs are presented in 2011 dollars.
EPA estimated the annualized net compliance cost to potentially affected small entities in 2030 to be approximately $364 million under the rate-based approach, and $404 million under the mass-based approach. Results for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost-of-service markets are likely able to recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being over-estimates for this set of
utilities. 50

50 Th i s is similarly discussed in previous EPA analyses. For example, see section 7.4.5.2 within the Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/matsriafinal.pdf.

### 2-18

T ab le 2-2. Number of Affected Small Entities in the Base Case, and Projected Impact

under the Rate-Based Federal Plan Approach in 2030 EGU Ownership Type Number of

Potentially Affected Entities Number of Entities

Projected to Withdraw all Affected Units in Base Case Additional Entities Projected to Withdraw all Affected Units under Rate-Based Approach Co-Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub-Division 6 0 2 Grand Total 74 24 7 Notes: 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### Table 2-3. Projected Impact on Small Entities in 2030 under Rate-Based Federal Plan

Approach
EGU Ownership Type Total Net

Compliance Costs (2011$ millions) Number of Small Entities

with Net Compliance Costs > 1% of Generation Revenues Number of Small Entities

with Net Compliance Costs > 3% of Generation Revenues Co-Op 109 8 3 IOU 186 4 4 Municipal 17 7 5 Private 34 11 9 Sub-Division 18 6 2 Grand Total 364 36 23 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities expe r iencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional revenues some entities may earn from other sources. 3) Nine small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.

### 2-19

T ab le 2-4. Number of Affected Small Entities in the Base Case, and Projected Impact

under the Mass-Based Federal Plan Approach in 2030

EGU Ownership Type Number of

Potentially Affected Entities Number of Entities

Projected to Withdraw all Affected Units in Base Case Additional Entities Projected to Withdraw all Affected Units under Mass-Based Approach Co-Op 17 3 1 IOU 8 3 1 Municipal 24 13 1 Private 19 5 2 Sub-Division 6 0 0 Grand Total 74 24 5 Notes: 1) The number of potentially affected entities reflects those with affected EGUs that are modeled within IPM in 2030. 2) In this context, the term withdraw signifies that EGUs are represented in the 2030 IPM results but do not generate electricity. Source: U.S. EPA analysis, based on IPM modeling results.



### Table 2-5. Projected Impact on Small Entities in 2030 under Mass-Based Federal Plan

Approach
EGU Ownership Type Total Net

Compliance Costs (2011$ millions) Number of Small Entities

with Net Compliance Costs > 1% of Generation Revenues Number of Small Entities

with Net Compliance Costs > 3% of Generation Revenues Co-Op 133 10 4 IOU 179 3 3 Municipal 50 5 5 Private 36 8 7 Sub-Division 7 4 2 Grand Total 404 30 21 Notes: 1) The total number of entities with costs greater than 1 or 3 percent of revenues includes only entities expe r iencing positive net compliance costs. 2) Costs are compared to generation revenues from affected EGUs, and do not consider additional revenues some entities may earn from other sources. 3) Eleven small entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from affected sources. Source: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### As noted earlier, there are 74 small entities with potentially affected EGUs that are modeled in the IPM base case in 2030. Of these, 24 small entities are projected to withdraw all of their potentially affected EGUs from operation under base case conditions. This leaves 50 small entities with potentially affected EGUs that are projected to be generating electricity in 2030. Under the rate-based federal plan approach, 7 of these 50 small entities are projected to withdraw all of their potentially affected EGUs from operation by 2030. Under the mass-based federal plan

### 2-20

a ppr oach, 5 of these 50 small entities are projected withdraw all of their potentially affected EGUs from operation by 2030.
Under the rate-based federal plan approach, 23 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 9 entities are estimated to have net compliance cost savings greater than 3 percent of their generation revenues from affected EGUs. Under the mass-based federal plan approach, 21 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 11 entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from their
affected EGUs.
The separate components of the net compliance costs for small entities under the proposed rule are summarized in Table 2-6 and Table 2-7.
Table 2-6. Incremental Costs in 2030 under the Rate-based Federal Plan Approach

Summarized by Ownership Group and Cost Category in 2030 (2011$ millions)
EGU Ownership Type Capital +

Operating + Fuel Costs ($MM) Energy Efficiency

Program Costs ($MM) Change in

Electricity Revenue ($MM) Total Net

Compliance Costs A B C =A+B-C Co-Op (79) 87 (102) 109 IOU 78 93 (15) 186 Municipal (26) 25 (19) 17 Private (7) 0 (40) 34 Sub-Division (68) 16 (70) 18 Grand Total (102) 221 (246) 364 Note: Totals may not add due to rounding. So ur ce: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.

### 2-21

T ab le 2-7. Incremental Costs in 2030 under the Mass-based Federal Plan Approach

Summarized by Ownership Group and Cost Category in 2030 (2011$ millions)
EGU Ownership Type Capital +

Operating + Fuel Costs ($MM) Energy Efficiency

Program Costs ($MM) Change in

Electricity Revenue ($MM) Total Net

Compliance Costs A B C =A+B-C Co-Op (178) 84 (228) 133 IOU (17) 91 (104) 179 Municipal (64) 23 (91) 50 Private (2) 0 (38) 36 Sub-Division (38) 18 (27) 7 Grand Total (299) 215 (488) 404 Note: Totals may not add due to rounding. So ur ce: U.S. EPA analysis, based on EPA’s IPM v.5.15 modeling results.



### The change in electricity revenue under the federal plan approaches take into account both the profit lost from units that do not operate and the difference in revenue for operating units. The cost of withdrawing a unit as uneconomic is estimated as the base case profit that is foregone by not operating under a federal plan approach. One of the primary drivers of the cost impacts is the reduced revenue due to decreased electricity sales related to the modeled implementation of demand-side energy efficiency measures. The EPA solicits comment on: 1) whether it is likely that small entities would consider demand-side strategies as they responded to a federal plan, 2) the appropriateness of considering the demand-side strategies in the analysis, and 3) if demand-side energy efficiency measures are considered in the final analysis, whether it is appropriate to consider them as a cost for a municipality or city-owned utility, as this reduced revenue will translate to direct cost savings for members of the community served by the
affected units.
There are uncertainties and limitations in this analysis that may result in estimates that diverge from what we might see in reality. Some of these have already been noted. Below is a listing of important considerations when interpreting this analysis.

• At the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. The rate-based and mass-based federal plan approaches analyzed in this IRFA are based on a scenario where all states of the contiguous U.S. will be regulated under a federal plan.

### 2-22 • R esults for small entities discussed here do not fully account for the reality that electricity markets are regulated in parts of the country. Entities operating in regulated or cost-of-service markets are likely able to recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being
over-estimates for this set of utilities.

• Small entities owning NGCC EGUs operating in competitive markets may be able to recover compliance costs if steam EGUs are setting the marginal price.

• EPA has not factored in consideration of allowances that would be distributed to affected entities nor revenue that could be generated from the sale of ERCs in its analysis. EPA takes comment on how these factors should be considered in the final analysis.

• In this analysis, estimated state demand-side energy efficiency program costs areallocated to utility EGUs owned by IOUs, Co-Ops, Municipals, and SubDivisions based on the share of forecasted total state electricity sales that they are projected to provide. To the extent that this differs in practice, associated costs incurred by small entities may be over- or under-estimated.

• To the extent that the EGU owner information used is not reflective of reality, the number of small entities may be over- or under-estimated.

• To the extent that the entity-level ownership information (i.e., NAICS code, number of employees, revenues, and assets) are not reflective of reality, the number of small entities may be over- or under-estimated.

2.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements
The reporting, recordkeeping and other compliance requirements are most likely covered under Part 75 and Part 98 programs for affected EGUs. Therefore, only a marginal additional cost is expected for the monitoring, reporting and recordkeeping requirements of the proposed federal plan for affected EGUs.

### 2-23

2. 3. 6 Related Federal Rules
On September 20, 2013, EPA proposed carbon pollution standards for new fossil fuel fired EGUs. On June 2, 2014, the EPA, proposed carbon pollution standards for modified and reconstructed fossil fuel fired EGUs, in addition to the Clean Power Plan EGs, to cut carbon pollution from existing fossil fuel fired EGUs. These existing EGUs are, or will be, potentially impacted by several other recently finalized EPA rules. On February 16, 2012, the EPA issued the mercury and air toxics standards (MATS) rule (77 FR 9304) to reduce emissions of toxic air pollutants from new and existing coal- and oil-fired EGUs. On May 19, 2014, the EPA issued a final rule under section 316(b) of the Clean Water Act (33 U.S.C. 1326(b)). This rule establishes new standards to reduce injury and death of fish and other aquatic life caused by cooling water intake structures at existing power plants and manufacturing facilities. On June 18, 2014 (79 FR 34830), the EPA promulgated the stream electric effluent limitation guidelines (SE ELG) rule to strengthen the controls on discharges from certain steam electric power plants. On April 17, 2015 (80 FR 21302), the EPA promulgated the coal combustion residuals (CCR) rule, which establishes technical requirements for CCR landfills and surface impoundments under subtitle D of the Resource Conservation and Recovery Act (RCRA), the nation's primary law for regulating
solid waste.
2.3.7 Regulatory Flexibility Alternatives

2.3.7.1 Panel Process
Small Entity Representatives (SERs) commented on their perceptions of the adequacy of the SBREFA panel process for the section 111(d) federal plan. Under the statute, EPA provides “information on the potential impacts of the proposed rule on small entities and the type of small entities that might be affected.” § 609(b)(1). Then SERs are selected, and the Panel collects “advice and recommendations” from each SER. § 609(b)(4). The Panel reviews the SERs’ comments, and “any material the agency has prepared in connection with [the RFA],” and “report[s] on the comments of the [SERs] and its findings as to issues related to” preparation of an IRFA. § 609(b)(5). EPA solicited SERs comments during the course of, and after holding three outreach meetings. The Agency provided information to the SERs on two primary regulatory alternatives for the federal plan – a rate-based trading program and a mass-based trading program. The Agency identified specific areas under both of these alternatives where it

### 2-24

w a s still in the decision making process and open to recommendations. This information forms the basis for consideration of issues and additional regulatory options important to these small
entities.
Advocacy shares many of the concerns raised by the SERs (see attached letter from Acting Chief Counsel Claudia Rodgers to EPA Administrator Gina McCarthy). While Advocacy endorses the Panel recommendations, Advocacy agrees that the SERs did not have sufficient information to inform advice and recommendations about specific regulatory alternatives and flexibilities. In Advocacy’s view, this is reflected in Panel recommendations that advise EPA to consider issues raised by the SERs rather than to propose or consider regulatory alternatives. Advocacy regrets that the Panel is not able to make more specific recommendations for flexibilities to minimize the impacts on small entities.
While not all members of the Panel agree with all of these concerns, the concerns of the SERs regarding the Panel process have been noted. Nonetheless, EPA is committed to ensuring that it meets the requirements of the RFA and will, to the maximum extent practicable, fully consider the advice and recommendations of representatives of small entities in the development of the proposed rule. The EPA intends to continue working on issues regarding small businesses, and consider appropriate flexibilities, throughout this rulemaking process.
2.3.7.2 Remaining Useful Life
SERs commented that EPA needed to account for remaining useful life of EGUs. Multiple comments addressed challenges that EPA must face in satisfying the statutory mandate that “in applying a standard of performance to any particular source under a plan submitted under this paragraph to take into consideration, among other factors, the remaining useful life of the existing sources to which such standard applies.” SERs are concerned that EPA will develop EGs under section 111(d) in a manner that either prohibits plans from providing this consideration or only providing for plans to “make these adjustments at the expense of other sources.” AEPCO comments that it has obligations under the Rural Electrification Act to operate under an 80-year mandate. SBA recommends EPA propose allowing for guaranteed amount of run-time for small entities to allow them to recoup investment. EPA believes “remaining useful life” is a concern directed toward plants with short remaining lives, but recognizes that there are concerns about economic viability of some marginal plants.

### 2-25

T h e Panel recommends that EPA clearly explain how it took into consideration remaining useful life and take comment on other ways of defining the remaining useful life consideration. The Panel also recommends proposing or considering economic incentives for compliance that could avoid early retirement or reduce the financial effects of early retirements. For instance, the EPA could propose continuing allocations for a set number of years to units that retire in order to alleviate the financial effects of the retirement. EPA should request comment on how long such allocations should continue. The EPA should also consider whether there are parallel mechanisms in a rate-based proposal that could provide similar regulatory relief or benefits for small entities, if appropriate.
2.3.7.3 Design of the Compliance System
The panel requested SER input on a number of aspects of the federal plan design, based on EPA’s presentation of federal plan options. SER comments ranged quite broadly. Comments included: 1) differing opinions within SERs on favor of rate- vs mass-based approaches, 2) emphasis on market liquidity in a program, 3) support for types of allocation methodologies (in a mass-based allowance system), 4) encouragement for early action crediting, 5) increased averaging and compliance times to help small entities, and 6) whether and how to consider the effects of credit/allowance banking, borrowing, and shelf-life on market liquidity. In some instances, no general consensus emerged. The Panel notes the following specific areas where it is making a recommendation.

Mass-based or rate-based trading
Various SERs favored one system over the other, and some suggested that each individual small entity should be able to choose the system under which they would comply. However, it is unclear to what extent SERs would favor such choice at the expense of a broader trading pool. The panel, however, notes that the idea of individual companies within a statechoosing which system to comply would significantly limit the opportunity for intra- or interstate trading and would therefore not be consistent with other recommendations. The Panel recommends that EPA take comment on which approach (mass or rate) is preferable. In the interests of maximizing liquidity across all federal plan states, the Panel recommends that EPA should propose to finalize a single approach for all federal plans.

### 2-26

A l locations and credit issuance/early action
SERs expressed a variety of views on the appropriate method of allocating allowances under a mass-based system or credits under a rate-based system. Some preferred allowing states to make these decisions. Some wanted allocations to account for early action and energy efficiency efforts. The Panel agrees that EPA should take comment on the use of allocations to minimize the impact of the federal plan on small entities. The Panel notes that the early incentive pool that is part of the EGs does provide credit for early action, but the SERs did not have an opportunity to respond to this flexibility. The panel recommends that in the federal plan the EPA allow credit for early action and energy efficiency efforts to the extent it is allowed under the guidelines.

Non-generating party participation and market liquidity
SERs generally supported developing a system that would ensure a sufficient supply of credits be available on the open market and available for free trade to ensure that they would not be disadvantaged by large utilities withholding excess credits generated by renewable energy in their portfolio. However, some SERs also expressed the need to be able to generate and use credits internally (particularly those with generation across multiple states) (i.e., a portfolio approach). Some SERs endorsed allowing non-generating parties to create and sell credits or allowances. Other SERs warned that third parties should not be allowed to purchase credits or allowances for the purpose of retiring them without offsetting GHG emissions from electricity generation. The Panel recommends that the EPA ensure a liquid market in compliance instruments, through consideration, request or comment, or proposal of several of options, including: allocation methods or rules that could impact liquidity, mechanisms to place allowances or credits into the market relatively early, requirements for public transparency of information related to allowance or credit issuance, tracking, transfers, and holdings, and whether and to what extent oversight authority exists related to measures to ensure liquid
markets Additionally, the Panel recommends that EPA solicit comment on other approaches to ensure liquidity, including but not limited to the concept of an early incentive pool which would serve to incentivize early reductions and create a market of additional allowances.

### 2-27

2. 3. 7.4 Renewable Energy and Energy Efficiency
Generally SERs encouraged EPA to incorporate existing EE efforts into the program in a way that gives credit for the investment and to rely on “deemed” energy savings to earn compliance credits. SERs raised concerns about the accounting of investments in RE and EE efforts in their compliance with GHG emission standards.
SERs also expressed concern that they be able to generate and use credits across state lines. This is particularly important for the investment in renewables, for which the generating potential is highly dependent on geography and is unequally distributed among the states. Thus, the Panel recommends that EPA develop a credit or allowance compliance program that allows for interstate accounting and trading for states under the federal plan. Additionally, the Panel recommends that the program include opportunities for interstate trading between sources in states under the federal plan and states under compatible state plans.

The Panel recommends that EPA consider the treatment of RE and EE in rate-based and mass-based federal plan contexts. EPA should further consider how to implement preferred policy options in a way that incentivizes investment and does not create unintended barriers for small entities. The Panel also recommends that EPA allow crediting of RE across states under the federal plan while soliciting comment for allowing crediting for EE across states under the federal plan.
2.3.7.5 Reliability
Multiple SERs expressed concerns that implementation of the EGs, either by states or through a federal plan, could have a negative impact on reliability because individual units could have operational obligations that conflict with the emissions requirements. In their comments, both the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA) recommend Dynamic Reliability Safety Valve. EPA noted that the use of a reliability mechanism in the EGs is provisioned on the concern that some forms of state plan may create inflexible requirements that could in some limited circumstances raise a reliability concern. However, EPA believes the design of the federal plan as a flexible trading program alleviates these concerns and therefore a reliability mechanism is not needed.

### 2-28

T h e Panel recognizes the connection between meeting the GHG reduction goals of the federal plan and maintaining the reliability of the electric grid. The Panel recommends that EPA fully explain in the proposal and take comment on methods to address reliability and EPA should take comment on establishing a reliability safety valve, and whether there is a need for regulatory flexibility for reliability critical units beyond the flexibilities already built into the design of the federal plan.
2.3.7.6 Subcategorization/Applicability/Exemptions
SER comments on applicability reflect concerns related to the combined series of rulemakings affecting GHG emissions from electricity generating units: the NSPS, the EGs and the federal plan. SERs endorse excluding RICE and NGSC units from the combined rulemakings. One SER requests a subcategory that addresses the particular characteristics of lignite coal. Some SERs suggest special provisions for small units or utilities, including a small system exemption. The SBA suggested taking comment on an economic hardship exemption for small entities and that EPA propose a mechanism for additional compliance time when generation and transmission investments necessary for compliance have been delayed by government reviews. However, EPA noted that regulatory exemptions must be grounded in statute and supported by analysis, and EPA believes the design of the federal plan itself should maximize compliance options that are both consistent with the EGs and also should adequately
address these concerns.
The Panel notes that EPA must be consistent with the EGs on issues of applicability, which should address the SERs’ concerns with regard to inclusion of RICE or NGSC units. The Panel also notes that EPA is proposing a design to the federal plan that utilizes emission trading and thus maximizes compliance options such that individual units can take into account their particular characteristics in designing a compliance strategy. In EPA’s view, this makes it less likely that there is a need for further sub-categorization or the use of unit-specific exemptions. Additionally, the Panel recommends that EPA solicit comment on an alternative allocation methodology under the mass-based proposed federal plan that may increase allocations for small businesses, and consider whether there are parallel mechanisms in a rate-based proposal that could provide similar regulatory relief or benefits for small entities, if appropriate.

### 2-29

2. 4 Unfunded Mandates Reform Act (UMRA)
This action contains a federal mandate under UMRA, 2 U.S.C. 1531-1538, that could potentially result in expenditures of $100 million or more for state, local, and tribal governments, in the aggregate, or the private sector in any one year. This federal plan will apply only to those EGUs located in states that do not submit approvable state plans, which is a subset of the EGUs considered in the RIA for the final emission guidelines (EGs). Because it is impossible to determine at this time which states might be ultimately subject to a federal plan, EPA cannot determine whether this final rule will be subject to UMRA. However, as noted below, the Agency has done substantial outreach to government entities as part of both the federal plan and the related 111(d) rulemaking. Further, regardless of whether EPA does determine that this action ultimately meets the UMRA threshold, the agency intends to do additional outreach with government entities between now and the final rule. Additionally, the EPA has determined that this action is not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments.
Nevertheless, the EPA is aware that there is substantial interest in this rule among small entities (e.g., municipal and rural electric cooperatives). In light of this interest, prior to this action, the EPA sought early input from representatives of small entities while formulating the provisions of the proposed regulation. Such outreach is also consistent with the President’s January 18, 2011 Memorandum on Regulatory Flexibility, Small Business, and Job Creation, which emphasizes the important role small businesses play in the American economy. This outreach process has enabled the EPA to hear directly from these representatives, as EPA developed the rule about how the EPA should approach the complex question of how to apply section 111 of the CAA to the regulation of GHGs from these source categories. We invite comments on all aspects of this proposal and its impacts, including potential adverse impacts, on
small entities.

2.5 Executive Order 13132: Federalism
The EPA believes that this proposed rule may be of significant interest to state and local governments due to its relationship with the Clean Power Plan EGs. Therefore, the EPA has determined that consultations with state and local governments conducted during the Clean Power Plan EGs development process are also relevant to this proposed rule. Consistent with the

### 2-30

E P A’s policy to promote communications between the EPA and state and local governments, the EPA consulted with state and local officials early in the process of developing the Clean Power Plan EGs to permit them to have meaningful and timely input into its development. As described in the Federalism discussion in the preamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501; January 8, 2014), the EPA consulted with state and local officials in the process of developing the proposed standards for newly constructed EGUs. A detailed Federalism Summary Impact Statement (FSIS) describing the most pressing issues raised in pre-proposal and post-proposal comments will be forthcoming with the final Clean Power Plan EGs, as required by section 6(b) of Executive Order 13132. In the spirit of Executive Order 13132, and consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA specifically solicits comment on this proposed
action from state and local officials.

2.6 Executive Order 13175: Consultation and Coordination with Indian Tribal
Governments
This proposed action has tribal implications. However, it will neither impose substantial direct compliance costs on federally recognized tribal governments, nor preempt tribal law. The EGU potentially impacted by this proposed rulemaking located on Indian reservations are primarily owned by private entities, and in one case, partially owned by an agency of the U.S. government. As a result, the tribes on whose areas of Indian country those units are located will not be directly impacted by any costs of complying with this proposed rulemaking incurred by the owners/operators of those units. There would only be tribal implications in regards to compliance costs associated with this proposed rulemaking in the case where a tribal government has an ownership interest in a potentially affected EGU. A tribal government could also incur costs in the event that it seeks and is given delegated authority to enforce the federal plan proposed in this rulemaking. The EPA has, nevertheless, offered consultation to the tribes on whose areas of Indian country the units are located. As part of its general outreach to tribes regarding this proposed rulemaking, the EPA received feedback from a number of tribes regarding the potential overall economic impact that both the proposed Clean Power Plan and a proposed federal plan rulemaking may have on them. In these instances, the EPA has reached out to these tribes and as part of the consultation on the Clean Power Plan engaged with them on their concerns regarding a potential federal plan.

### 2-31

T h e EPA has conducted consultation with tribes on the Clean Power Plan and the Supplemental Proposal for the Clean Power Plan and will offer all tribes consultation on this proposed action. The EPA held consultations with tribes on the Clean Power Plan in the fall of 2014 before the agency issued its Supplemental Proposal for Indian Country and U.S. Territories. Additionally, the EPA held consultations for tribes shortly following the release of the supplemental proposal. The agency also held a public hearing on the supplemental proposal on November 19, 2014, in Phoenix, Arizona. At the public hearing the agency received oral comments from community members representing a number of tribes and a number of tribal officials. The agency also conducted consultation with tribes in the spring and summer of 2015. An overview of the consultations provided as part of the Clean Power Plan is available in section
XII.F of the final EGs.
Additionally, the EPA engaged in meaningful dialogue with tribal stakeholders to obtain their feedback in the pre-proposal stages of this rulemaking. We provided an update on this proposed rulemaking on the May 28, 2015, National Tribal Air Association and the EPA Air Policy call. Additionally, staff attended the National Tribal Forum conference on May 20, 2015 and provided an overview of the Clean Power Plan and explained that the agency would be proposing a federal plan.
Consistent with previous rulemakings impacting the power sector, there is significant tribal interest in these rulemakings because of the potential indirect impacts that rules such as the Clean Power Plan and this proposed federal plan may have on tribes. The EPA specifically solicits additional feedback from tribal officials on all aspects of this proposed rulemaking, including whether tribes whose areas of Indian country contain affected EGU(s) are interested in developing their own plan implementing the final EGs. Additionally, tribal stakeholders will be included in the outreach that the agency will be conducting with those communities already overburdened by pollution, which are often low-income communities, communities of color, and indigenous communities. The actions that the agency will be taking are outlined in section IX of the preamble.

### 2-32

2. 7 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks
The EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying to those regulatory actions that concern health or safety risks, such that the analysis required under section 5–501 of the Order has the potential to influence the regulation. This action is not subject to EO 13045 because it does not involve decisions on environmental health or safety risks that may disproportionately affect children. The EPA believes that the CO2 emission reductions resulting from implementation of the proposed guidelines, as well as substantial ozone and PM2.5 emission reductions as a cobenefit, would further improve children’s health.
2.8 Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use
This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepared a Statement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction in coal-fired electricity generation as a result of this rule. The EPA projects that utility power sector delivered natural gas prices will increase by up to 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal in Chapter 1 of this RIA.
2.9 National Technology Transfer and Advancement Act (NTTAA)
This proposed action does not involve technical standards.

2.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations Executive Order 12898 (59 FR 7629; February 16, 1994) establishes federal executive policy on EJ. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make EJ part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the U.S. The EPA defines EJ as the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and

### 2-33

e nf orcement of environmental laws, regulations, and policies. The EPA has this goal for all communities and persons across this Nation. It will be achieved when everyone enjoys the samedegree of protection from environmental and health hazards and equal access to the decisionmaking process to have a healthy environment in which to live, learn, and work.
Leading up to this rulemaking the EPA summarized the public health and welfare effects of GHG emissions in its 2009 Endangerment Finding. As part of the Endangerment Finding, the Administrator considered climate change risks to minority populations and low-income populations, finding that certain parts of the population may be especially vulnerable based on their characteristics or circumstances. Populations that were found to be particularly vulnerable to climate change risks include the poor, the elderly, the very young, those already in poor health, the disabled, those living alone, and/or indigenous populations dependent on one or a few resources. See sections X.F and X.G of the preamble where the EPA discusses Consultation and Coordination with Tribal Governments and Protection of Children. The Administrator placed weight on the fact that certain groups, including children, the elderly, and the poor, are most
vulnerable to climate-related health effects.
The record for the 2009 Endangerment Finding summarizes the strong scientific evidence in the major assessment reports by the U.S. Global Change Research Program, the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council of the National Academies that the potential impacts of climate change raise EJ issues. These reports concluded that poor communities can be especially vulnerable to climate change impacts because they tend to have more limited adaptive capacities and are more dependent on climate-sensitive resources such as local water and food supplies. In addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those impacted by degradation of
natural and cultural resources within established reservation boundaries and threats to traditional subsistence lifestyles. Tribal communities whose health, economic well-being, and cultural traditions that depend upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated with climate change. The 2009 Endangerment Finding record also specifically noted that Southwest native cultures are especially vulnerable to water quality and availability impacts. Native Alaskan communities are already experiencing disruptive impacts, including coastal erosion and shifts in the range or abundance of wild species crucial to their livelihoods and well-being.

### 2-34

T h e most recent assessments continue to strengthen scientific understanding of climate change risks to minority populations and low-income populations in the U.S. 51 

### The new assessment literature provides more detailed findings regarding these populations’ vulnerabilities and projected impacts they may experience. In addition, the most recent assessment reports provide new information on how some communities of color may be uniquely vulnerable to climate change health impacts in the U.S. These reports find that certain climate change related impacts—including heat waves, degraded air quality, and extreme weather events—have disproportionate effects on low-income populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location), raising EJ concerns. Existing health disparities and other inequities in these communities increase their vulnerability to the health effects of climate change. In addition, assessment reports also find that climate change poses particular threats to health, well-being, and ways of life of indigenous peoples in the U.S.
As the scientific literature presented above and as the 2009 Endangerment Finding illustrates, low income populations and some communities of color are especially vulnerable to the health and other adverse impacts of climate change. The EPA believes that communities will benefit from this proposed federal plan because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 

### emission standards for existing affected fossil fuel-fired EGUs.
In addition to reducing CO 2 

### emissions, the guidelines finalized in this rulemaking would reduce other emissions from affected EGUs that reduce generation due to higher adoption of EE

51 M e lillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program, 841 pp. IPCC, 2014: Clim ate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 1132 pp. IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects

. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Barros, V.R., C.B. Field, D.J. Dokken, M.D. Mastrandrea, K.J. Mach, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 688 pp.

### 2-35

a n d RE. These emission reductions will include SO 2 

### and NO x 

### , which form ambient PM 2.5 

### and ozone in the atmosphere, and HAP, such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 

### NAAQS, 52 

### the EPA identified low-income populations as being avulnerable population for experiencing adverse health effects related to PM exposures. Lowincome populations have been generally found to have a higher prevalence of pre-existing diseases, limited access to medical treatment, and increased nutritional deficiencies, which can increase this population’s susceptibility to PM-related effects. 53 

### In areas where this rulemaking reduces exposure to PM 2.5 

### , ozone, and methylmercury, low-income populations will also benefit from such emissions reductions. Chapter 1 of this RIA provides additional information regarding the health and ecosystem effects associated with these emission reductions.
Additionally, as outlined in the community and EJ considerations section IX of the preamble, the EPA has taken a number of actions to help ensure that this action will not have potential disproportionately high and adverse human health or environmental effects on vulnerable communities. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when determining what
actions to take. 54 

### As described in the community and EJ considerations section of the preamble the EPA also conducted a proximity analysis, which is available in the docket of this rulemaking and is discussed in section IX of the preamble. Additionally, as outlined in sections I and IX of the preamble the EPA has engaged meaningfully with communities throughout the development of the CPP and has devised a robust outreach strategy for continual engagement throughout this rulemaking.

52 “ N ational Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013).

53 U.S. Environmental Protection Agency (U.S. EPA). 2009. Integrated Science Assessment for Particulate Matter (Final Report) . EPA-600-R-08-139F. National Center for Environmental Assessment – RTP Division. December. Available on the Internet at http://www.cfpub.epa.gov/si/si_public_record_Report.cfm?dirEntryId=216546

. 54 Guidance on Considering Environmental Justice During the Development of Regulatory Actions. http://www.epa.gov/environmentaljustice/resources/policy/considering-ej-in-rulemaking-guide-final.pdf. May 2015.

### Uni t ed States

Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC Publication No. EPA-452/R-15-006 August 2015

### Attachment T.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Saturday, August 1, 2015 5:15 PM To: Jones, Toni; Szabo, Aaron Cc: Harvey, Reid; Tsirigotis, Peter; Eck, Janet; Cozzie, David; Culligan, Kevin Subject: RE: EO 12866 CPP Federal Plan

Please have the final CLEAN versions of the rule document and RIA uploaded to ROCIS in the appropriate places.

Please upload the rule under “primary documents” and RIA under “supplementary documents.”

Thanks very much.

Nathan

From: Jones, Toni [mailto:Jones.Toni@epa.gov] Sent: Saturday, August 01, 2015 4:45 PM To: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov>; Szabo, Aaron <Aaron_L_Szabo@omb.eop.gov> Cc: Harvey, Reid <Harvey.Reid@epa.gov>; Tsirigotis, Peter <Tsirigotis.Peter@epa.gov>; Eck, Janet <Eck.Janet@epa.gov>; Cozzie, David <Cozzie.David@epa.gov>; Culligan, Kevin <Culligan.Kevin@epa.gov> Subject: EO 12866 CPP Federal Plan Importance: High

Hi Nathan and Aaron, Attached please find the final, clean versions of the CPP Federal Plan preamble and rule. Additionally, attached is a redline version of both files (indicated by “RLSO” in the file name) that reflect changes made to the package since the initial submittal to OMB. Also attached is the final RIA.

Please let know if you have any questions. It’s been a pleasure working with both of you!

Kind regards, Toni

Toni Wyche Jones, EI, CFM | Fuels & Incineration Group | Sector Policies & Programs Division - Mail Code E143- 05 | Office of Air Quality Planning & Standards | U.S. Environmental Prot ection Agency | RT P, NC 27711 | Phone: (919) 541-0316 |

### Attachment U.From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Sunday, August 2, 2015 10:37 AM To: Culligan, Kevin; McCabe, Janet; Tsirigotis, Peter; Harvey, Reid; Vasu, Amy; Hutson, Nick; Fruh, Steve; Jones, Toni Cc: Shelanski, Howard; Mancini, Dominic J. Subject: Concluding Review Under EO 12866 and 13563 ‐‐ Clean Power Plan Rules

Hello everyone,

I am writing to inform you that OIRA has officially concluded its review under EO 12866 and 13563 of the following three EPA rules:

2060

‐ AQ91 Standards of Performance for Greenhouse Gas Emissions From New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units

2060

‐ AR33 Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units

2060

‐ AS47 Federal Plan for Regulating Greenhouse Gas Emissions From Electric Generating Units

Thank you to everyone and your teams for a tremendous job well done on these important rules.

All the best,

Nathan