From: Vasu, Amy Sent: Monday, July 6, 2015 11:41 AM To: Frey, Nathan J. Subject: Excerpted text

Nathan, Here is the text on the clean energy investment pool (Section VIII.B.2 of the preamble). Thank you. Amy

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

<< Investment pool_070215 draftI.docx >>*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review ***

1 Section VIII.B.2 of the 7/2/15 Clean Power Plan Preamble B. Timeline for State Plan Performance and Provisions to Encourage Early Action 2. Provisions to encourage early action Many commenters supported providing incentives for states to deploy CO 2 -reducing investments, such as RE and demand-side EE measures, as early as possible. The EPA recognizes the value of such early actions, and in this final rule is providing states with discretion to recognize these activities, in the context of both mass-based and rate-based plans. States will be able to take advantage of the impacts of early investments that occur prior to the beginning of a plan performance period and realize

CO 2 emission reductions during the interim and final plan periods: from 2022 onward. Under a mass-based plan, those impacts will be reflected in reductions in the reported CO 2 emissions of affected EGUs during the plan performance period. Under a rate-based plan, states may recognize early actions implemented after 2012 by crediting MWh of electricity generation and savings that are achieved by those measures during the interim and final plan performance periods. These provisions are addressed in section VIII.K.a. Other commenters pointed out that to the extent that statesand utilities would benefit from greater availability of lowcost RE and other zero-emitting generation options during the*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review ***

2 interim and final plan periods, the EPA should include provisions in the final emission guidelines that accelerate deployment of RE and other zero- and low-emitting resources. In order to encourage early investments in RE and demand-side EE before the start of the interim performance period in 2022, the EPA is establishing a clean energy investment pool as part of the emission guidelines. Through this pool, the EPA intends to make additional ERCs and allowances available to qualified providers that make investments in RE and demand-side EE before

2022. The clean energy investment pool will be administered by the EPA and, recognizing that low-income communities are often under-represented in RE and demand-side EE investment, will place particular emphasis on these communities by including a sizable community reserve to drive these types of investments in low-income communities. The EPA will make awards based upon a demonstration of quantified and verified MWh of zero-emitting generation or energy savings realized before 2022. An affected EGU may use these ERCs or allowances to demonstrate compliance with its emission standard, regardless of whether the state in which the EGU is located is implementing a state plan, or the EPA is implementing a federal plan on behalf of the state. The EPA intends to conduct a future rulemaking and associated outreach process to seek comment on potential*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review ***

3 features of the clean energy investment pool. Features about which the EPA may solicit comment include whether to limit the size of the investment pool and what an appropriate limit might be; the appropriate size of the community reserve, and whether there should be a mechanism to increase the size of the community reserve if it is oversubcribed; the procedures and requirements for distributing ERCs and allowances from the clean energy investment pool; the types of RE and demand-side EE projects that might qualify for the investment pool; and the priorities and concerns the agency should focus on in distributing the community reserve. The clean energy investment pool will provide a number of benefits. First, the investment pool will provide affected EGUs and states with additional resources to help them achieve their state plan obligations. Second, the pool will improve the liquidity, in the early years of the program, of the ERC and allowance markets we expect to emerge for compliance with the requirements of these guidelines. In addition, the clean energy investment pool will provide incentives designed to reduce energy bills early in the program through earlier and broader application of demand-side EE, and help ensure that these benefits are shared with low-income communities. Finally, the EPA believes that stimulating or supporting early investment in RE generation technologies could accelerate the rate at which*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review ***

4 the costs of these technologies fall over the course of the interim performance period. The clean energy investment pool will enable qualified providers to earn ERCs or allowances in exchange for investments in RE and demand-side EE made during the years following the promulgation of these emission guidelines and before 2022 that result in quantified and verified MWh of zero-emitting generation and energy savings during those years. A qualified provider might include an affected EGU, a state, or an independent investor in an RE or demand-side EE project, among

others. In the case of qualified provider that has invested in a state implementing a rate-based state plan approach, the EPA would award MWh from the investment pool, which may be converted into ERCs according to the formula outlined below, to the provider. An affected EGU or could use these ERCs to demonstrate compliance with its rate-based emission standard. In the case of a qualified provider that has invested in a state implementing a mass-based state plan approach, the EPA would award MWh from the investment pool, which may be converted into allowances according to the formula outlined below, to the provider. These allowances are supplemental to the state’s mass-based CO 2 emission goal. An affected EGU could use these allowances to demonstrate compliance with its mass-based emission standard.*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review ***

5 The clean energy investment pool is designed as a transitional mechanism in the early years of implementation of the 111(d) emission guidelines. As a result, the EPA is considering limiting the size of the investment pool. This approach is similar in design to the compliance supplement pool (CSP) included in the NOx SIP call, which was also limited in size. 1 The EPA intends to set aside a portion of the MWh in the investment pool in a community reserve, designed to driveinvestments in RE and demand-side EE projects that benefit lowincome communities. Upon such time the EPA distributes the MWh from the investment pool to a qualified provider, the EPA may convert these MWh into ERCs or allowances, depending on whether the project is in a state with a rate-based or mass-based plan. To a qualified provider implementing a project in a state with a rate-based state plan, the EPA may award one ERC for every two MWh of quantified and verified RE or demand-side EE realized during the period following the promulgation of these emission guidelines and before 2022, as a result of its investment made during this period. To a qualified provider implementing a project in a state with a mass-based state plan, the EPA may award a number of allowances equivalent to the quantified and

1 65 FR 2727 (January 18, 2000), as amended at 71 FR 74795 (December 13, 2006).*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review ***

6 verified MWhs realized during the period following the promulgation of these emission guidelines and before 2022, divided by two and multiplied by the state’s CO 2 emission rate goal. The EPA intends to solicit comment on this two for one distribution requirement in a future rulemaking, including whether this requirement might differ for for qualified providers implementing projects that demonstrate benefits to one or more low-income communities. The EPA intends to distributeMWh from the investment pool to qualified providers on a firstcome first-served basis, based upon the date and time that the EPA receives the project application. A qualified provider may submit a project application to the EPA at any time prior to the implementation of the project. The EPA intends to implement a process for project approval that is similar to the two-step process for ERC issuance included in these emission guidelines. First, an affected EGU will submit a project application to the EPA, which includes (1) a demonstration that the project meets the eligibility requirements defined by the EPA; (2) an EM&V plan that outlines how the MWh results of the project will be quantified and verified, and which adheres to the EM&V requirements included in these final emission guidelines. The project application must be reviewed by an accredited independent third party verifier before it is submitted to the EPA.*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review ***

7 In addition, if a provider wishes to qualify for ERCs or allowances from the community reserve, it must demonstrate in the project application the benefit the project will have to one or more low-income communities. This benefit may be in the form of MWh provided to the low-income community, financial proceeds from the project primarily benefiting the low-income community, or the project lowering utility costs of low-income rate-payers. In step two of the ERC issuance process, after the qualified provider has implemented the project, it submits to the EPA a monitoring and verification report that documents thequantified and verified MWh of eligible RE generation or demandside EE savings realized during the years following the promulgation of these emission guidelines and before 2022. This report must be reviewed by an accredited independent third party verifier before it is submitted to the EPA. The EPA would review this report and, if approved, award to the project provider a number of MWh from the state’s investment pool account, which may be converted into ERCs or allowances according to the formulas described above. An affected EGU may then use these ERCs or allowances to demonstrate compliance with its emission

standard.