UNITED STATES ENVIRONMENTAL PROTECTION AGENCY REGION 1 5 POST OFFICE SQUARE, SUITE 100 BOSTON, MA 02109

- 3912

Memorandum

Date: May 23 , 2016

Subject: Technical Support Document: Analysis Of Actual N O x Emissions In Each Of The Connecticut Nonattainment Areas

From: Donald Dahl Environmental Engineer

To: Files

I have analyzed Connecticut’s SIP submittals regarding emission trading and agreement orders that allow facilities to create and/or use NO x e mission reduction credits to comply with the NO x emission limits in Section 22a

- 174

- 22. Based on the following analysis, I recommend that EPA propose approval of the trading and agreement orders as listed in Table 1.

Table 1

– List of Source Specific Trading Agreement and Orders

Trading Agreement and Order Number(s) Name of Facility or Facilities Facility Location (s)

8116B Modifications 1 and 2, 8302 Connecticut Resource Recovery Authority Hartford

8154A Modifications 1 and 2 Combustion Engineering , Inc. Windsor 8181A Modifications 2 and 3

, 8219A Modification 2

, 8251 Modifications 2 and 3 Devon Power LLC Milford

8109 Modifications 1, 2, and 3, 8291, 8291 Modification 1 Hamilton Sundstrand Corporation Windsor Locks

8093 C Modifications 2 and 3 , 8136A Modifications 1 and 2, 8296 Pfizer Groton2

8119A Modifications 2 and 3, 8304 City of Norwich, Department of Public Utilities Norwich

8241 Modifications 2 and 3, 82 4 4 Modifications 2 and 3, 8253 Modifications 2 and 3, 8301, 8305 PSEG Power LLC, PSEG Fossil LLC, PSEG Power Connecticut LLC Bridgeport (Trading Agreement and Order 8305 also applies to a unit in New Haven) 8115B Modifications 1, 2, and 3 University of Connecticut Storrs

8221A Modifications 1 and 2 , 8222A Modifications 1 and 2

, 8288, 8288 Modification 1 Dominion Nuclear Connecticut, Inc. Waterford

8180 A Modifications 2 and 3 Connecticut Jet Power LLC Branford, Greenwich, and T orrington 8300 (Order supersedes 8180

- 8184 and 825 1) NRG Energy, Inc., Middletown Power LLC, NRG Middletown Operations Inc., Montville Power LLC, NRG Montville Operations I nc., Norwalk Power LLC, NRG Norwalk Harbor Operations Inc.

, Connecticut Jet Power LLC Branford, Greenwich, and T orrington

, Middletown, Norwalk, Milford, Montville

8306 (Order supersedes 8213A, 8214A, 8215A, 8216A

, 8217A, and 8218A ) NRG Energy, Inc., Middletown Power LLC, NRG Middletown Operations Inc., Montville Power LLC, NRG Montville Operations Inc., Norwalk Power LLC, NRG Norwalk Harbor Operations Inc. Middletown, Montville, Norwalk

8114 A Modifications 1 and 2 C YTEC Industries Wallingford 8182A Modifications 2 and 3 , 8213A Modifications 2 and 3, 8214A Modifications 2 and 3

, 8215A Modifications 2 and 3 Middletown Power LLC Middletown3

8183A Modifications 2 and 3

, 8216A Modifications 2 and 3, 8217A Modifications 2 and 3 Montville Power LLC Montville

8184A Modifications 2 and 3 8218A Modifications 2 and 3 Norwalk Power LLC Norwalk

8134A Modifications 1 and 2 , 82 89 United Technologies Corporation East Hartford

8240 Modifications 2 and 3, 8243 Modifications 1 and 2 PSEG Power Connecticut LLC New Haven

8120 A Modifications 1 and 2, 8293, 8293 Modification 1 Sikorsky Aircraft Corporation Stratford

8123A Modifications 1 and 2 Algonquin Gas Transmission LLC, Algonquin Gas Transmission Company Cromwell

8261 Modifications 1 and 2, 8299 Algonquin Power Windsor Locks LLC Windsor Locks

8249 Modifications 2 and 3, 8298 Capitol District Energy Center Cogeneration Associates Hartford

8272, 8279, 8303 NE Hydro Generating Company, First Light Hydro Generating Company Preston

8269, 8269 Modification 1, 8297 Cascades Boxboard Group Connecticut, LLC Versailles

8110A Yale University New Haven



### 1) Analysis Demonstrating Trading and Agreement Orders are Consistent with EPA Guidance

EPA issued a guidance document “Improving Air Quality with Economic Incentive Programs” (EIP Guidance). (See EPA

- 452/R

- 01

- 001, January 2001) 1 . This guidance applies to discretionary economic incentive programs (EIPs). EPA’s final action on these discretionary economic incentive programs occurs when EPA acts on a state’s request to revise the SIP. I have reviewed the source

- specific TAOs with re spect to the expectations of the EIP Guidance.

1 See https://www3.epa.gov/ttn/caaa/t1/memoranda/eipfin.pdf4

Fundamental principles that apply to all EIPs are integrity (meaning that credits are based on emission reductions that are surplus, enforceable, quantifiable, and permanent), equity, and environmental bene fit. These fundamental principles can apply to an EIP in its entirety (the programmatic level) or to individual sources (the source

- specific level). In addition, EIPs that allow sources to purchase credits to demonstrate compliance with reasonable availabl e control technology (RACT) need to meet additional requirements specified in section 16.13 of the EIP Guidance. I have evaluated the Connecticut trading orders against these three fundamental principles, additional requirements for sources subject to RACT , and applicable Clean Air Act requirements. Connecticut’s trading orders are fully consistent with these fundamental principles and the requirements for sources subject to RACT, and I recommend that EPA approv e these trading orders as part of Connecticut’ s SIP.

The basis of my recommendation is as follows:



### A nalysis of the fundamental principle of integrity?

The fundamental principle of integrity consists of the qualities of being surplus, enforceable, quantifiable, and permanent.

1. Integrity element one - surplus

Emission reductions are surplus if the reductions are not presently relied upon in any other air quality

- related programs such as the SIP, SIP

- related requirements such as transportation conformity, other adopted state measures not in the S IP, Federal rules that focus on reducing precursors of criteria pollutants such as new source performance standards, or a consent decree. Emission reductions measured by sources on a retrospective basis are surplus if the source’s actual emissions are belo w its baseline allowable or historical actual emissions, whichever is lower, and the inventories reflect actual emission information as appropriate.

Each source

- specific trading order Connecticut submitted sets emission limits based on the most stringent applicable emission rate under the Clean Air Act. Credits are only generated when a permitted facility’s emissions are below the emission rate 2 . Therefore the credits produced are in addition to reductions from other requirements of the Clean Air Act.

2. Integrity element two

- enforceable

Emission reductions use, generation, and other required actions in the EIP are enforceable on a programmatic basis if they are independently verifiable, define program violations, and identify those liable for violations. For enforceability, both the State and EPA should have the ability to apply penalties and secure appropriate corrective actions where applicable.

2 The TAOs EPA is acting on today consist of either modifications to TAOs previously approved by EPA or are for a different time period than the previously EPA

- approved TAO.5

Citizens should also have access to all the emissions

- related information obtained from the source so that citizens can file suits against sourc es for violations. Required actions must be practicably enforceable in accordance with other EPA guidance on practicable enforceability. At the source

- specific level, the source must be liable for violations, the liable party must be identifiable, and the State, the public, and EPA must be able to independently verify a source’s compliance. The EIP Guidance outlines enforcement elements common to all trading EIPs in Chapter 6.0.

Each facility participating in trading NO x credits has been issued a source

- s pecific trading order containing enforceable conditions for quantifying, recording, and reporting DERCs. Each trading order establishes the monitoring/testing protocol used for quantifying emissions based on either a periodic stack test for developing an e mission rate or continuous emission monitors that directly measure NO x emissions. Each trading order establishes reporting requirements which includes emissions based upon the approved monitoring/testing protocol, the number of credits the source generated , if any, and credits the source previously banked or purchased to cover its emissions. The State also reviews all of the sources subject to trading orders to determine which sources did not meet the specific conditions of their trading orders. Connecticut has authority to enforce the trading orders and the underlying RACT requirements of RCSA section 22a

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- 22 pursuant to RCSA section 22a

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- 12. By approving these source

- specific trading orders, they will become part of the SIP and be enforceable by both EPA and citizens.

3. Integrity element three

- quant ifiable

The generation or use of emission reductions by a source is quantifiable on a source

- specific basis if the source can reliably calculate the amount of emissions and/or emission reductions

occ urring during the implementation of the program, and replicate the calculations. The EIP Guidance further states that when quantifying results, sources must use the same methodology used to measure baseline emissions, unless there are good technical reason s that this approach is not appropriate. Common elements for quantifying results of an EIP are included in Chapter 5.0 of the EIP Guidance. All EIPs should incorporate provisions for predicting results, addressing uncertainty, approving quantification prot ocols, and emission quantification methods. For a reduction to be certified as an emission reduction credit (ERC), the reduction must be real, quantifiable, and surplus at the time the ERC is generated.

Each source

- specific trading order contains a proto col for quantifying emissions. Continuous Emission Monitors (CEMs) are used to quantify emissions at electric generating units that are creating ERCs. CEMs at these facilities are also used to determine if the source needs to use DERCs to comply with NO x R ACT. For sources without CEMs, the protocol requires the source to determine a NO x emission rate through stack testing. The source is also required to maintain fuel use records. Each trading order contains an equation that calculates NO x emissions on a mas s basis using the results from the most recent stack test, CEMs data and/or fuel records. The generation and use of credits is therefore quantifiable.6

4. Integrity element four

- permanent

To satisfy the EIP Guidance expectations for permanence, Connect icut’s trading program must ensure that no emission increases (compared to emissions if there was no EIP) occur over the time defined in the SIP. On a source

- specific basis, the permanence expectations are met if the sources participating in the EIP commit to actions or achieve reductions for a future period of time as defined in the EIP.

Each source

- specific trading order expires five years from the issuance date. This allows Connecticut to determine every five years if emission trading is still the best mechanism for reducing NO x emissions at an individual source. Issuing new trading orders every five years also allows the State to take into account any new CAA requirements that become effective after the initial trading order was issued.

On an annual basis, sources must report to Connecticut all DERCs generated and used. The State reviews each credit generated and assigns an identification number to each credit. The annual reports allow the State to determine both the generator and user of each credit. Because each credit generated receives an individual identification number, the State can reliably track their use.



### A nalysis of the fundamental principle of equity?

The equity principle is composed of two elements

-- general equity and environmental justice.

1. Equity element one

- general equity

General equity means that an EIP ensures all segments of the population are protected from public health problems and no segment of the population receives a disproportionate share of a program's disbenefit s. EIPs should specifically protect communities from disproportionate impacts from emission shifts and foregone emission reductions.

Connecticut has determined the majority of emission credits are generated at a few electric generating units and some othe r large industrial boilers that have continuous emission monitors. These sources are large emitters that can economically decrease emissions on a large scale. However, sources using emission credits are much smaller emitters of NO x and are spread throughou t the State. Therefore, while the benefit of emissions reductions may be higher in certain geographic areas, the impact from sources using credits will not severely impact one geographic area over another. The emission analysis submitted by the CT DEEP and reviewed by EPA demonstrates these facts.

2. Equity element two

- environmental justice7

The environmental justice (EJ) element applies if the EIP covers VOCs and could disproportionately impact communities populated by racial minorities, people with lo w incomes, and/or Tribes. The Connecticut trading program does not allow emission trading of VOC credits. Therefore, today’s actions allowing the trading of NO x emission credits does not create an EJ issue.



### A nalysis of the fundamental principle of environ mental benefit?

All EIPs must be environmentally beneficial and can demonstrate this principle through more rapid emission reductions or faster attainment than would have occurred without the EIP.

A discrete emission reduction credit program (DERC) descr ibed in the EIP meets the expectations for the environmental benefit principle. The ability to generate DERCs provides an incentive for early compliance and more rapid emission reductions. Connecticut sources that create emission credits through their resp ective trading orders must discount the actual credits generated by 10%. In addition, Connecticut discounts the credits generated or used at some sources depending on certain conditions, such as an additional 10% discount rate for sources using stack tests in lieu of continuous emission monitors. These various discount rates result in greater emission reductions then would otherwise be achieved without trading, resulting in an environmental benefit.



### A nalysis regarding the RACT sources?

Sources must use t he presumptive RACT limit in the baseline calculation. Sources are not allowed to use an alternative RACT limit in determining the baseline emission rate.

The EIP Guidance also contains guidance for RACT emission limits with long averaging times and prohibits emission credits generated outside of the ozone season from being used during the

ozone season.

Connecticut’s trading orders limit sources requiring credits for excess emissions during the ozone season to only use credits generated during the oz one season.



### Conclusion:

I have concluded, after review and analysis of the source

- specific TAOs, that they are consistent with the EIP Guidance.8



### 2) Analysis Demonstrating the Trading Agreement and Orders Result in NO x 

### RACT Level Emission Reductions in Each of Connecticut’s Nonattainment Areas

When EPA designated areas for the 2008 ozone standard, Connecticut was divided into two separate areas, the Greater Connecticut Area and the New York

- N. New Jersey

- Long Island NY

NJ

- C T area. Connecticut’s NO x emissions trading program does not prohibit a source in one nonattainment area from purchasing and using NO x emission credits created by a different source located in the other of Connecticut’s two nonattainment areas. Such a stru cture could, in theory, lead to a level of NO x emissions in one of Connecticut’s two nonattainment areas that exceed the levels required by NO x RACT. For example, if all of the sources creating the emission credits resided in a different nonattainment area than the sources using the emission credits, the emission reductions achieved in the nonattainment area containing the sources using the emission credits may not be sufficient to meet RACT

- level emissions. However, before a definitive determination could be made as to whether emissions from all of these emission credit

using sources in the nonattainment area actually exceeded RACT

- level emissions, the process of determining what RACT

- level emissions actually are for these sources, including using emission credits or converting NO x allowances into emission credits, would have to be made.

A state could, on a case

- by

- case basis, determine RACT

- level emissions for a single source on the basis of economic and/or technological feasibility. Unless a case

- by

- case analysis of this kind is conducted for each source, necessary to support an alternati ve RACT limit, accurately quantifying the emission increase from such single

- source NO x RACT actions would be speculative. However, in the 2014 RACT analysis, Connecticut provided information that a valid, justifiable, alternative RACT emission limit for s ome of the sources within the emission trading program may actually have been higher than the emission limit in RSCA 22a

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- 22, due to the cost of emission controls for that particular source to control its emissions to the emission levels contained in RS CA 22a

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- 22.

To determine if each of the two distinct nonattainment areas in Connecticut achieve RACT

- level emission reductions, regardless of whether a source using DERCs purchases them from a source that created the DERCs in the other nonattainment a rea or the source converted a NO x allowance into a DERC from a source outside of the nonattainment area, CT DEEP and EPA analyzed emission trading data for the period of time the TAOs were in effect to determine if more emission reduction credits were bein g used for compliance than were generated or created in any of Connecticut’s two nonattainment areas. In effect, within each nonattainment area, the question is, were actual emissions from sources creating emission reduction credits sufficiently below RACT allowable emission rates in order that they offset the actual emissions from sources that were above the RACT allowable emission rates. As shown in Table 2, the emission trading program achieved more actual emission reductions from sources creating DERCs than the NO x emissions actually emitted by the sources whose actual emissions were above the RACT9

emission rates in RSCA 22a

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- 22 (i.e., the sources using the DERCs to meet RACT) in each nonattainment area.

Table 2

– Actual NO x Emissions Increases and Decreases 3 Time Period Greater Connecticut Area New York

- N. New Jersey

- Long Island NY

- NJ

- CT Area Actual Emissions (tons) Below NO x limit in RSCA 22a

174

- 22 Actual

Emissions (tons) Above NO x limit in RSCA 22a

174

- 22 Actual

Emiss ions (tons) Below NO x limit in RSCA 22a

174

- 22 Actual

Emissions (tons) Above NO x limit in RSCA 22a

174

- 22 2007

- 2013 910 683 5667 405

It is important to note that although the actual emissions listed in Table 2 differ from the number of DERCs (or in the case of an MWC, ERCs) created and used during the 2007

- 2013 time period, the difference is attributable to a number of additional safegu ards built into Connecticut’s trading regulations to ensure emissions reductions required by RACT will be attained. The safeguards used to calculate actual emissions above or below the emission limits contained in RSCA 22a

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- 22 were:

1. Before an emission credit can enter the bank and subsequently be used, the generating source under a TAO must retire 10% of the credits.

2. Sources that use emission credits to comply with an applicable RACT limit are required in a TAO to purchase more credits than the differ ence between what was actually emitted and what was allowed to be emitted pursuant to the emission limitation in RSCA 22a

174

- 22. The procedure to do this is a requirement to reduce the allowable emission rate by 5% when calculating the quantity of emissio n reduction credits necessary.

3. Electric peaking units are required to purchase seven tons of credits for every one ton of actual emissions during high electric demand days (HEDD). Connecticut instituted this ratio to address the fact that electric peakin g units mainly operate on HEDD, which usually coincide with days upon which there are high ambient ozone levels.

Taken together, these factors demonstrate for the years of 2007

- 2013 (which are representative for the TAOs in question) a net environmental N O x emission reduction benefit was achieved in each of the State’s nonattainment areas, consistent with RACT

- level emissions reductions, due to the State’s trading program 4 . Thus, although the TAOs issued by Connecticut allow trading between two nonattainme nt areas, the TAOs still resulted in an overall decrease in actual NO x

3 Table 2 provides summary level information for each nonattainment area.
4 Du ring the years 2007

- 2013 the number of DERCs created by sources within the Greater Connecticut nonattainment area was less than the number of DERCs used by sources within the same area. However, as shown in Table 2, when using the safeguards to convert DER Cs into actual emissions, a net environmental benefit is achieved.10

emissions in both nonattainment areas, resulting in RACT

- level emission reductions in each nonattainment area. This technical demonstration therefore also is consistent with the Court’s holding in NRDC v. EPA , 571 F.3d 1245 (D.C. Cir. 2009).

Conclusion

Based on the analysis contained within this document

, I recommend EPA propose approval of the Connecticut Trading and Agreement Orders that allow sources with in Connecticut to create and use NO x emission reduction credits to meet RACT requirements.