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EO12866_CPP Federal Plan 2060 AS47 NPRM_ 20150 7 27 20150 7 31

**ENVIRONMENTAL PROTECTION AGENCY**
**40 CFR Part 62**
**[EPA -**  **HQ -**  **OAR -**  **2015 -**  **0199; FRL_ XXXX**  **- X**  **]**

**RIN 2060**  **- A**  **S4 7** 
**F ederal**  **P lan**  **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** 

**AGENCY:** Environmental Protection Agency.

**ACTION:** Proposed Rule.
**SUMMARY:** In this action, the Enviro nmental Protection Agency (EPA) is proposing a federal plan to implement the greenhouse
gas (GHG) e mission g uidelines (EG s ) for existing fossil fuel

fired electric generating units (EGUs) under the Clean Air Act (CAA)
. The EGs 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 known as the Clean Power Plan or EGs ). This proposal presents two approache s 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 to the EPA : a rate

- based***E.O. 12866 Review

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emission trading program and a mass

- based emission trading program. These proposals also constitute proposed model trading rule s that states can adopt or tailor for implementation of the fi nal EGs. T he federal plan is an i mportant measure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented . The proposed federal plan is related to but separate from the final EGs
. The final EGs establish the best system of emission reduction ( BSER ) for applicable fossil fuel

- fired EGUs in the form of a standard of
&&& carbon dioxide ( CO 2 ) emission performance rate for steam

- fired EGUs and a standard of &&& 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 fede ral plan is to establish requirements directly applicable to a state’s affected EGUs that
meet these emission performance levels, or the BSER equivalent statewide goal, 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
. These CO 2 reductions laid
out The stringency of the emission performance levels established in the final EGs will be equivalent the same whether implemented through a state plan or a federal pla n . The EPA is also proposing enhancements to the CAA section 111(d) framework***E.O. 12866 Review

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regulations related to the process and timing for state plan submissions and EPA actions. The EPA intends to finalize both the rate

- based and mass

- based model trading rules in su mmer 2016
. **DATES:** Comments . Comments must be received on or before **[ insert**  **date 45**  **90 days**  **after date of**  **publication in the Federal**  **Register ]** 
. Public Hearing
. The EPA will be holding XX X **[insert number of hearings here]**  public hearings on the proposed federal plan. The hearings will be held to accept oral comments on the proposed federal plan. The hearings will be held on XXX, 2015 , in XXX, XXX, 2015 , in XXX, and XXX, 2015 , in XXX. **[insert number, days of and locations of**  **hearings here]**
. The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p.m. (local time).
**ADDRESSES** : Submit your comments on the federal plan requirements proposed rule, identified by Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199 , by one of the following methods:

• Federal Rulemaking Portal http:// www.regulations.gov : Follow the online instructions for submitting comments. • Email : Send your comments via electronic mail to A

and

- R

- Docket@epa.gov , Attention Docket ID No. EPA

- HQ

OAR

- 2015

- 0199
. • Facsimile : Fax your comments to (202) 566

- 9744, Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. • Mail : Send your comments to: EPA Docket Center (EPA/DC), Environmental Protection Agency, EPA Docket Center (EPA/DC), Mailcode: 28221T, 1200 Pennsylvania***E.O. 12866 Review

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Ave., NW , Washington, DC 20460, Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. We request that a separate copy also be sent to the contact person identified below (see **FOR FURTHER INFORMATION CONTACT** ). In a ddition, please mail a copy of your comments on the informa tion collection provisions to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attn: Desk Officer for EPA, 725 17th Street NW., Washington, DC 20503
. • Hand Delivery : Deliver your comments to: EPA Docket Center (EPA/DC), , Room 3334, EPA WJC West Building , Room 3334 , 1301 Constitution Ave., NW, Washington, DC, 20004, Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. Such deliveries are accepted only during the Docket’s normal hours of operation (8:30 a.m. to 4:30 p.m., Monday th rough Friday, excluding legal holidays) and special arrangements should be made for deliveries of boxed information. Instructions : Direct your comments on the federal plan requirements proposed rule to Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199. The EPA’s policy is that all comments received will be included in the public docket and may be made available online
at http:// www.regulations.gov , including any personal information provided, unless the comment includes information claimed to be confidential business inf ormation (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through http:// www.regulations.gov or email. The http:// www.regulations.gov W eb site is an “anonymous access” system, which means the EPA will not know your identity or contact information unless you provide it in the body of your***E.O. 12866 Review

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comment. If you send an email comment directly to the EPA without going through http:// www.regulations.go v , your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, the EPA recommends that you include your name and other co ntact information in the body of your comment and with any disk or
CD

- ROM you submit. If the EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, the EPA may not be able to consider your comment. Electronic f iles should avoid the use of special characters, any form of encryption and be free of any defects or viruses. Public Hearing : XXX **[insert number of hearings** hear **here ]**  public hearings will be held to accept oral comments on the proposed federal plan. The h earings will be held on XXX, 2015, in XXX, XXX, 2015, in XXX, and XXX, 2015, in XXX. **[insert number of, dates and locations of hearings here]**  **.** The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p.m. (local time). There will be a lun ch break from 12:00 p.m. to 1:00 p.m. and a dinner break from 5:00 p.m. to 6:00 p.m. To register for the to speak at a hearing, please use the online registration form available at
. : http:// www.epa.gov/cleanpowerplan
. For questions regarding registration, please contact XXXX **[insert*****E.O. 12866 Review

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**name]** at (919) 541

– XXXX. **– [insert number]** 
. The last day to pre

register to speak at the hearing hearing s will be XXX, **[insert date]**  , 2015. Additionally, requests to speak will be taken the day of the each hearing at the hearing registration desk, although preferences on speaking times may not be able to be fulfilled. Please note that registration requests received before the each hearin g will be confirmed by the EPA via email. We cannot guarantee that we can accommodate all timing requests and will provide r equestors with the next available speaking time, in the event that there the ir requested time is taken. Please note that in th e time outlined in the confirmation email received will be the time the one will be scheduled to speak at . Again, depending on the flow of the day, times may

va ry fluctuate
. If you require the service of a translator or special accommodations such as audio description, we ask that
you pre - register for the hearing hearing s by XXX, **[insert date]** , 2015, as we may not be able to arrange such accommodations without advance notice. Pl ease note that any updates made to any aspect of the hearings will be posted online at http ://. :// www.epa.gov/cleanpowerplan
. While the EPA expects the hearing hearing s to go forward as set forth above, we ask that you monitor our Web site or contact XXXX **[insert name]** at (919) 541

– XXXX

– **[insert number]** to determine if there are any updates***E.O. 12866 Review

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to the information on the hearings. The EPA does not intend to publish a notice in the Federal Register announcing any such updates. The hearing hearing s will provide interested parties the opportunity to present data, views, or arguments concerning the proposed action. The EPA will make every effort to accommodate all speakers who arrive and register. The EPA may ask clarifying questions during the oral presentations, but will not respond to the presentations at that ti me. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and supporting information presented at the public hearing. Verbatim transcripts of the hearing and written state ments will be included in the docket for the rulemaking. The EPA plans for the hearing hearing s to run on schedule; however, due to on

- site schedule fluctuations, actual speaking times may shift slightly. Because these hearings are being held at United St ates ( U.S . . ) government facilities, individuals planning to attend the hearing should be prepared to show valid picture identification to the security staff in order to gain access to the meeting room. Please note that the REAL ID Act, passed by Congress i n 2005, established new requirements for entering federal facilities. If your driver’s license is issued by Alaska, American Samoa, Arizona, Kentucky,***E.O. 12866 Review

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Louisiana, Maine, Massachusetts, Minnesota, Montana, New York, Oklahoma, or the state of Washington, you must present an additional form of identification to enter the federal building. Acceptable alternative forms of identification include: Federal employee badges, passports, enhanced driver’s licenses , and military identification cards. In addition, you will need to obtain a property pass for any personal belongings you bring with you. Upon leaving the building, you will be required to return this property pass to the security desk. No large signs will be allowed in the building, cameras may only be used outside of the building , and demonstrations will not be allowed on federal property for security reasons.
A ttendees will be asked to go through metal detectors. To help facilitate this process , please be advised that you will be asked to remove all items from all pockets and place in provided bins for screening; remove laptops, phones , or other electronic devices from their carrying case and place in provided bins for screening; avoid shoes with metal shanks, toe guards, or supports as a part of their construction; remove any metal belts, metal belt buckles, large jewelry, watches ; and follow the instructions of the guard if identified for secondary screening. Additionally, no weapons ( e.g . , pock et knives) or drugs or drug paraphernalia ( e.g . , marijuana) will be allowed in the building. We recommend***E.O. 12866 Review

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that you arrive 20 minutes in advance of your speaking time to allow time to go through security and to check in with the registration desk. Docket : T he EPA has established a docket for this action under Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199. The EPA has previously established a docket for the January 8, 2014, Clean Power Plan proposal under Docket ID No. EPA

- HQ

- OAR

- 2009

- 0559 . All documents in the docket a re listed in the http:// www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g. , CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy form. Publicly available docket materials are available either electronically at http:// www.regulations.gov or in hard copy at the EPA Docket Center EPA/DC, EPA WJC West Building, Room 3334, 1301 Constitution Ave., NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding holidays. The t elephone number for the Public Reading Room is (202) 566

- 1744, and the telephone number for the EPA Docket Center is (202) 566

- 1742. **FOR FURTHER INFORMATION CONTACT** : Ms. Toni Jones, Fuels and Incineration Group, Sector Policies and Programs Division (E143

- 05), Environmental Protection Agency, Research Triangle***E.O. 12866 Review

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Park, North Carolina 27711; telephone number: (919) 541

- 0316; fax number: (919) 541

- 3470; email address: jones.toni@epa.gov
. **SUPPLEMENTARY INFORMATION:** Acronyms and Abbreviations
. The following acron yms and abbreviations are used in this document.
AG Attorney General ANSI American National Standards Institute ASME American Society of Mechanical Engineers ASTM American Society of Testing and Materials ARP Acid Rain Program BSER Best s ystem of e mission r eduction CAA Clean Air Act CAIR Clean Air Interstate Rule CARB California Air Resources Board CBI Confidential Business Information CDX Central Data Exchange CEMS Continuous e missions m onitoring s ystem CFCs C hlorofluorocarbons CISWI Commercial Industrial Solid Waste Incinerators CFR Code of Federal Regulations CAIR Clean Air Interstate Rule CHP Combined h eat and p ower CO 2 Carbon dioxide CO 2 Carbon d ioxide e quivalent CSAPR Cross

- state Air Pollution Rule EG DOE Department of Energy EE Energy e fficiency EG s Emission Guidelines eGRID Emissions & Generation Resource Integrated Database EGU Electric g enerating u nit EIA Energy Information Administration***E.O. 12866 Review

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EJ Environmental j ustice EM&V Evaluation, m easurement, and v erification EPA Environmental Protection Agency EO Executive Order FERC Federal Energy Regulatory Commission FIP Federal i mplementation p lan FR Federal Register GHG Greenhouse g as GHGRP Greenhouse Gas Reporting Program GJ/h Gigajoule per h our HAP Hazardous a ir p ollutants ICR Information c ollection r equest IGCC I ntegrated g asification c ombined c ycle u nit IPM Integrated Planning Model IPCC Intergovernmental Panel on Climate Change ISO/RTO Independent System Operator/Regional Transmission Organization lbs Pounds LML L owest m easured PM 2.5 l evels MATS Mercury and Air Toxics Standards M&V Measurement a nd v erification MMBtu /h M illion B ritish Thermal u nits per h our MSW Municipal s olid w aste MW Megawatt s MWh Megawatt

- h ours NAAQS National Ambient Air Quality Standards NAICS North American Industrial Classification System NEEDS NERC North American Electric Reliability Corporation NSPS New s ource p erformance s tandards NSR New Source Review NTTAA National Electric Energy Data System Technology Transfer and Advancement Act NTAA National Tribal Air Association NO X Nitrogen o xides OAP Office of Atmospheric Programs***E.O. 12866 Review

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OAQPS Office of Air Quality Planning and Standards PPA Power Purchase Ag reement PRA Paperwork Reduction Act PV P hotovoltaics PUC Public Utility Commission RE Renewable e nergy REC Renewable Energy Certificate RFA Regulatory Flexibility Act RGGI Regional Greenhouse Gas Initiative SBA Small Business Administration RIA Regulatory i mpact a nalysis SCT Stationary c ombustion t urbine SGU Steam g enerating u nit SIP State i mplementation p lan SO 2 S ulfur d ioxide TSD Technical support document The Court U.S. Court of Appeals for the District of Columbia Circuit TTN Technology Transfer Network UMRA Unfunded Mandates Reform Act of 1995 UNFCCC United Nations Framework Convention on Climate Change U.S. United States WWW Worldwide World W ide Web Organization of This Document . The following outline is provided to aid in locating information in this preamble. **I. General Information** A. Executive Summary B. Organization and Approach for this Proposed Rule C. Who Does the Proposed Action Apply to? D. What Sho uld I Consider as I Prepare my Comments? **II. Background Information** A. What is the Regulatory Development Background for this***E.O. 12866 Review

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Proposed Rule? B. What is the P urpose of this Proposed Rule? C. Legal Authority D. Timing of EPA Actions on the Model Trading Rules, Federal Plan, and other Proposed Actions E. Use of the Model Trading Rule as a Backstop **III. Federal Plan Structure to Achieve Reductions** A. Overview B. Inventory of Emissions C. Affected EGUs D. Compliance Schedule E. Addressing Reliability Concerns F. Worker Certification G. Remaining Useful Lives and Potential for “Stranded Assets” H. Implications for Other EPA Programs and Rules I. Administrative Appeals Process J. Consistency of Program Structure wi th Clean Air Act Authority **IV. Rate -**  **based Implementation Approach** A. Overview B. Rate Goals C. Crediting Mechanism D. ERC Tracking and Compliance Operations E. Federal Plan and State Plan Interactions **V. Mass -**  **based Implementation Approach** A . Trading Program Overview B. Statewide Mass

- based Emissions Goals C. Compliance Timing and Allowance Banking D. Initial Distribution of Allowances E. State

- determined Allowance Distribution F. Treatment of States Entering or Exiting the Trading Program G. Allowance Tracking, Compliance Operations, and Pen alties H. Emissions Monitoring and Reporting Requirements **VI. Implementation of the Federal Plan and Delegation** A. Delegation of the Federal Plan and Retaine d Authorities B. Mechanisms for Transferring Authority***E.O. 12866 Review

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C. Implementing Authority D. Necessary or Appropriate Finding for Affected EGUs in Indian Country **VII. Amendments to Process for Submittal and Approval of State Plans and EPA Actions**  A. Partial Approvals/Disapprovals B. Conditional Approvals C. Calls for Plan Revisions D. Completeness Criteria E. Update to Deadlines for EPA Actions F. Proposed Interpretation regarding Existing Sources that Modify or Reconstruct G. Separate Finalization of these Changes **VIII. Impacts of this Action** A. Endangered Species Act B. What are the Air Impacts? C. What are the Energy Impacts? D. What are the Compliance Costs? E. What are the Economic and Employment Impacts? F. What are the Benefits of the Proposed Action? **IX. Community and Environmental Justice Considerations**  A. Proximity Analysis B. Community Engagement in This Rulemaking Process C. Providing Communities with Access to Additional Resources D. Federal Programs and Resources Available to Communi ties E. Co

- Pollutants F. Assessing Impacts of Federal Plan Implementation G. The EPA’s Continued Engagement **X. Statutory and Executive Order Reviews**  A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act (PRA) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act (UMRA)***E.O. 12866 Review

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E. Executive Order 13132: Federalism F. Executive Ord er 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks H. Executive Order 13 211: Actions That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act (NTTAA) J. Executive Order 12898: Federal Actions to Address E nvironmental Justice in Minority Populations and Low

- Income Populations

**I. General Information** 
A. Executive Summary
In t he Clean Air Act CAA , Congress created a partnership between the EPA and the states . Under section 111(d) of the Clean Air Act ( CAA ) , , t he EPA establishes emission performance levels based on its determination of the best system of emission reduction ( BSER ) for existing sources of air pollution and provides guidelines for state plans to apply standards of performance to their sources that meet the BSER level of performance
. T he EPA has promulgated the se EGs under CAA section 111(d), which sets source

- level CO 2 emission performance rates for the electric generating units ( E GUs ) at certain large fossil fuel

- fired power plants (“ affected EGUs”) , which the states then apply to their sources in state plans. T he EG s through implementation of state plans. At this point, the responsibility***E.O. 12866 Review

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shifts to the states who can submit plans to achieve these emission performance levels for EPA approval, o r initial submittals, by September 6 , 2016. The amount of reductions in CO 2 that the EPA determined to be achievable for these sources is based on its determination of what constitutes the BSER. This determination is finalized in the EGs, which are designed to maximize the flexibility of both states and affected EGUs in meeting CO 2 emissions performance rates . While states may impose the emission rates directly on their affected EGUs, states also have the option of submitting more tailored plans tha t meet
state

- specific emissions goals . The EGs also provide flexibility by allowing for emissions trading and multi

- state compliance options. The amount of reductions in CO 2 that the EPA determined to be achievable for these sources was based on its determ ination of what constituted the best system of emission reduction ( the BSER) . This determination was finalized in the
EGs. At this point the responsibility shifts to the states, who

can submit plans to achieve these emission performance levels for EPA approval, or initial plan submittals, by August 31, 2016. While i t has been the EPA’s longstanding view that the statute identifies states as the preferred implementers of CAA
programs , t he agency ma kes clear in the EGs that states cannot***E.O. 12866 Review

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and will not be penalized for failing to participate in this program. However, if a state does not submit an approvable plan under section 111(d) of the CAA , the EPA will develop, implement , and enforce a federal plan to reduce CO 2 from the fossil fuel

- fired power plants in that state. This is wholly consistent with the “cooperative federalism” structure of the
CAA and many of our nation’s other environmental laws
. In addition, we have heard from states and other stakeholders that it would be helpful for the agency to present model designs for state plans, and a federal plan would be an appropriate means of doing that. Accordingly, the EPA proposes a federal plan under section 111(d) of the CAA for the control of CO 2 , a greenhouse gas GHG 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
. B oth proposed approaches to the federal plan would requir e affected EGUs to meet emission standards set using the CO 2 emission performance rates in the EGs . The federal plan will achieve the same levels of emissions p erformance as required of state plans under the EGs. The EPA will only promulgate a final***E.O. 12866 Review

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federal plan for the affected EGUs in states that the EPA determines did not submit an approvable plan. At the same time, these two proposed options offer states model trading rules that the states can follow in developing their own plans in order to capitalize on the flexibility built into the final EGs . Thus, this n otice document proposes four discrete actions : ( 1) A rate

- based federal plan fo r each state with affected EGUs; (2) a mass - based federal plan for each state with affected EGUs; (3) a rate

- based model trading rule for potential use by any state; and (4) a mass - based model trading rule for potential use by any state. The regulatory tex t of each federal plan and the corresponding model trading rule is identical , except as indicated otherwise within the text of the model rule (for instance, the EPA is providing model rule text for states to use related to the crediting of a broader set of clean energy resources than is being proposed in the federal plan)
. The EPA intends to finalize both the rate

- based and mass

based model trading rules in summer 2016 . The EPA will only finalize a federal plan for a given state in the event that the
state does not submit an approvable plan by the deadlines specified in the final EGs and the EPA takes action finding that the state has failed to submit a plan, or disapproving a***E.O. 12866 Review

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submit ted plan because it does not meet the requirements of the
EGs . 1 Indeed, states may simply choose to accept a federal plan for their sources rather than undertake the development of a plan of their own by not submitting a state plan
. Under this
propos ed rul e , a federal plan promulgated for a particular state would take the form of either the mass

- based model trading rule or the rate

- based model trading rule. The EPA currently intends to finalize a single approach ( i.e., either the mass

- based or
rate

- based ap proach) for every state in which it promulgates a federal plan , given the benefits of a broad trading program, as discussed in the following section of this preamble
. . . We invite comment on which approach , i.e., either mass - based or rate

- based trading , should be selected if we opt to finalize a single

1 For simplicity, at times this document may refer to the co

proposed federal plans as “the federal plan.” (It may refer to the model trading rules in the singular as well.) Even though the singular is used, this term is meant to encompass both the rate

bas ed approach and the mass

- based approach. The use of the singular when referring to this proposed federal plan also is intended to encompass all state

- specific federal plans. In other words, the EPA intends to finalize “the federal plan” as a series of stat e specific “federal plans.” This is consistent with the agency’s prior practice in other multi

- state trading programs such as the NOx Budget Trading Program, the Clean Air Interstate Rule (CAIR), and the Cross

- State Air Pollution Rule (CSAPR), where a sing le rule promulgated multiple FIPs.***E.O. 12866 Review

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approach. It is the EPA’s intention to give the states as much opportunity as possible to set their own course for carrying out the EGs. Even where a federal plan is put in place for a particular state, tha t state will still be able to submit a plan, which, upon approval, will allow the state and its sources to exit the federal plan. In addition, as discussed in s ection
VI.A of this preamble , states may take delegation of administrative aspects of the federa l plan in order to become the primary implementers. And as discussed in s ection s V.E and
VII.A of this preamble , states may submit partial state plans in order to take over the implementation of a portion of a federal plan. For instance, in a mass

- based tr ading program, the agency proposes to allow states to submit partial state plans t o replace the federal plan allowance

- distribution provisions with their own allowance

- distribution provisions, similar to the approach we have taken in prior trading programs
. Finally, even in states in which the affected EGUs are operating under a federal plan, the agency recognizes that states may adopt complementary measures outside of CAA programming to facilitate compliance and lower costs that could benefit power generat ors and consumers, directly or indirectly.
A state program that adheres to the model trading rule***E.O. 12866 Review

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provisions specified in this rulemaking would be presumptively approvable. States may submit means of meeting the EGs 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 app roach described here. 2 Additionally, there are stand

- alone portions of the model trading rule s , 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 fede ral plan. The model trading rule s serves serve as a mechanism to create 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. These and other aspects of the model trading rules and federal plan provide additional support for this rule

2 For example, in the context of a mass

- or rate

- based trading program, a state may submit a plan with alternative components other than those described, so long as the program includes each of the requirements and the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing the requirements are as stringent as the presumptively approvable approach as described, and therefore provide for the implementation of the state plan’ s emission standards.***E.O. 12866 Review

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as proposed. Thus , the proposed rule would ensure that congressionally mandated emission standards under authority o f section 111 of the CAA are implemented , either by the states in the first instance, or by the EPA where needed. The agency is proposing a finding that it is necessary or appropriate to implement a CAA section 111(d) federal plan for the affected EGUs loc ated in Indian country. CO 2 emission performance rates for these facilities were finalized in the EGs. Tribes generally may seek “treatment as a state” (TAS) and submit a tribal plan to implement CAA programs, including programs under CAA section 111(d), and this proposed finding does not preclude tribes from doing that. However, tribes are not subject to the deadlines applicable to state action under the EGs and in the absence of a federal plan, CO 2 emissions from these EGUs could go unregulated. Therefor e, as discussed in

s ection VI.D of this preamble , we are proposing a necessary or appropriate finding. This n otice document also proposes certain enhancements to the process and timing for state submittals and EPA action in the CAA section 111(d) framework regulations of 40 CFR part 60 ,
s ubpart B ( these proposal s are not a part of the federal plan or model trading rules)
. These changes, if finalized, would be applicable under the Clean Power Plan an d other CAA section***E.O. 12866 Review

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111(d) rules
. These changes clarify the availability of certain procedural mechanisms similar to those available under CAA section 110 (such as calls for plan revisions and the availability of “conditional approvals,” etc.). They also extend the deadlines for EPA action, in part to conform with the timelines in the EGs. These changes do not alter the timelines for state action under the EGs and do not alter the submission requirements established in the EGs. Finally, the agency proposes to clarify and request comment on an interpretive issue rai sed in the Clean Power Plan proposal regarding whether a reconstruction or modification that is subject to a CAA section 111(b) standard mo ves an existing source out of a CAA section 111(d) program. These proposed changes are discussed in s ection
VII of th is preamble . The agency intends to finalize these changes earlier than the finalization of the model trading rules. In proposing a federal plan, the EPA considered a variety of potential impacts that its action might have on the environment, on businesses, particularly in the energy sector, and on the reliability of the electrical grid
. The agency gave extensive consideration to impacts on vulnerable communities, particularly low

- income communities , communities of color , and indigenous communities
. These co nsiderations are generally***E.O. 12866 Review

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discussed in &&& s ections III, VIII, IX, and X of this preamble
. The agency convened a Small Business Advocacy Review Panel under the Regulatory Flexibility Act and has completed an Initial Regulatory Flexibility Analysis (IRFA). Various recommendations from the Panel are found reflected throughout this proposal. In section &&& X of this preamble , the agency explains how it has conducted or intends to conduct all other statutory or executive order (EO) reviews that apply to this
pr oposed action. The EPA also explains in this notice document how it proposes to take into consideration the “remaining useful liv e s ” of affected EGUs in the design of the proposed federal plan, as discussed below in section &&& III. H G of this preamble
. The agency considered the impacts this action could have on the electricity grid and developed options for compliance that
are cost

- effective and ensure that provide substantial flexibility for the affected EGUs that will accommodate the parties charged wit h maintaining the reliability of electrical
power. A key feature of the proposed federal plan and model trading rule is that the flexibility inherent in both of the two approaches ( i.e., rate

- based or mass - based trading ) enables the
EPA and the states to create a level of flexibility for affected EGUs that allows owners and operators to determine the best way to achieve emissions reductions , at the EGU

- , state

- , multi

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state

- , regional

- , or national level
. As a result, compliance strategie s can mirror, or be integrated with, the ongoing operations of the current electricity grid as it continues to serve its primary critical function of ensuring an uninterrupted supply of affordable and reliable electricity. This flexibility is especially va luable whenever the need to address specific reliability concerns arises
. I t allows owners and operators of reliability

- critical EGUs to continue to meet their compliance obligations while operat ing to maintain electric reliability. The EPA outlined and in itiated the Clean Energy Incentive Program (CEIP) in the final EG s ( see section VIII of the final
EGs )
. The program is designed to incentivize investment in certain types of renewable energy ( RE ) projects, as well as demand

- side energy efficiency ( EE ) projects implemented in low

income communities , that generate MWh or reduce end

- use energy demand during 2020 and 2021 2020 and/or 2021 . The EPA proposes to apply the CEIP in all states subject to either a rate

- based or

mass - based federal plan. We also rev iewed impacts that this action could have on the environment and the need to ensure ensu environmental integrity of the program as well as avoid unintended environmental impacts. We took measures to ensure that the reductions in carbon emissions this plan w ill achieve are real, and not just***E.O. 12866 Review

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apparent. As in the EGs, i n both the rate

- and mass

- based approaches , the EPA has incorporated components to address the concern that the dynamics of either a rate

- or mass - based trading program could incentivize shifting generation from existing units in ways that would result in more CO 2 emissions than would otherwise be expected , or that undermine the purpose of the CAA section 111(d) program
. We considered wheth er compliance choices under a federal plan could lead to an unintended concentration of other air pollutants in certain overburdened communities, particularly low

- income communities and communities of color. As discussed below, our analysis shows why we do not expect this to occur at any significant level. In general, as in the EGs, we anticipate that the federal plan will result in overall reductions of co

pollutants, in addition to reductions in CO 2 , with corresponding

co - benefits to public health. We als o reviewed whether this action could trigger an obligation to consult with other agencies responsible for implementing the Endangered Species Act, and propose to conclude that it will not. In the final emission g uidelines, the EPA emphasized the importance of state actions to ensure that in developing their respective compliance plans the states addressed the concerns and priorities of vulnerable communities
. In the process of***E.O. 12866 Review

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developing a final federal plan, the EPA will also take actions to address those concerns as well. In addition to the public hearings that the EPA will be holding for all members of the American public on this proposed rulemaking, we will also be conducting a national webinar and outreach meeting ( s ) in all ten regions on this proposed rulemaking for communities . The goal of these outreach activities is to provide communities with the information they need to understand how the proposed rulemaking will potentially impact their respective communit ies . At the same time, th is information will be useful in helping communities engage the EPA during our comment period, as well as with their states during the state plan development process. We will also be providing other outreach and support activities for vulnerable communitie s, which are outlined in the community and environmental justice (EJ) considerations section IX.B of this preamble
. B. Organization and A pproach for t his P roposed R ule
In this action, the EPA is proposing a federal plan to implement the Clean Power Plan EGs f or affected fossil fuel

fired EGUs operating in states that do not have approved state plans . Specifically, the EPA is co

- proposing two different approaches to a federal plan to implement the Clean Power Plan
EGs

— a rate

- based trading approach and a mass

- based trading***E.O. 12866 Review

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approach. While establish ing emission standards for affected EGUs that would be directly enforceable against the owners and operators of the source , both approaches would grant EGUs substantial flexibi lity in meeting their compliance obligations. For this reason, among othe r s, t hese proposed approaches also serve as two proposed model trading rules that states may adopt or tailor in designing their own plans. The EGs provide that states have until Augus t 31 September 6 , 2016 (or later, if extensions are granted upon making an initial submittal, until September 6, 2018 ) to submit state plans, and the EPA does not inten d to finaliz e and implement the federal plan for any states prior to the agency’s action o f determining a failure to submit a state plan or disapproving a state plan. At the same time, in order to support states’ consideration of adoption of one of the model trading rules as an approvable state plan, the agency intends to finalize either

or bot h model rule options presented in this propos ed rule by summer 2016, prior to the deadline for state submittals. The EPA currently intends to finaliz e a single approach

— i.e. , either a rate

- based or a mass - based approach

— in all promulgated federal plans for particular states in order to enhance the consistency of the federal trading program, achieve economies of scale through a single, broad trading program,***E.O. 12866 Review

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ensure efficient administration of the program, and simplify
comp liance options for affected EGUs. W e invite comment on which approach would be appropriate to finalize for all states. The EPA recognizes that the mass

- based trading approach would be more straightforward to implement compared to the rate

- based trading
appr oach, both for industry and for the implementing agency. The EPA, industry, and many state agencies have extensive knowledge of and experience with mass

- based trading programs. The EPA has more than two decades of experience implementing federally

administ ered mass

- based emissions budget trading programs including the Acid Rain Program ( ARP ) sulfur dioxide ( SO 2 ) trading program, the Nitrogen Oxides ( NO X ) Budget Trading Program, CAIR, and CSAPR. The tracking system infrastructure exists and is proven effective for implementing such programs. The EPA requests comment on which approach

– mass - based or rate

based trading

– is preferred for the federal plan. S ome stakeholders have suggested there could be utility in the availability of both approaches based on the unique circumstances of particular states. T he EPA recognizes that it remains potentially possible to finalize a different approach to a federal plan in some circumstances, but believes that in general, and consistent with prior federal trading programs such as CSAPR, creating a single, broad program has the most***E.O. 12866 Review

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advantages. The stringency of the proposed federal plan is the same as the CO 2 emission p erformance rates established for affected EGUs in the EGs . As explained in the final EGs, the EPA determined the CO 2 emission performance rates through the application of the best system of emission reduction (BSER). BSER. In the EGs , the EPA has taken final action on the BSER for CO 2 emissions from existing fossil fuel

- fired EGUs. Any comments on this proposed rule relating to the BSER, its stringency, rationale, or legal basis, will not be considered as, by definition, they will be beyond the scope of this action. 3 The state goals, stated as both an aggregated emission rate, and as mass

- equivalent, are presented in Table 1. [ &&& insert Table here?]These numbers are the same as those established for states in the final EGs . The emiss ion standards that the EPA proposes to apply to each affected EGU in the federal plan are derived directly from these numbers. 1. The Rate

- based Approach In the first approach, the EPA would implement a rate

- based

3 The agency recognizes that the “remaining useful lives” of facilities subject to a CAA section 111(d) federal plan is a factor that it must consider at the time it implements the federal plan. This factor, and how the agency propose s to consider it, is discussed in section III.G of this preamble below.***E.O. 12866 Review

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emissions trading program. In a rate

- based pr ogram, affected EGUs must meet an emission standard, derived from the EGs , expressed as a rate of pounds of CO 2 per megawatt hour (lbs/MWh). If sources emit above their assigned rate, they must acquire a sufficient number of emission rate credits (ERC), each representing a zero

- emitting megawatt hour (MWh), to bring their rate of emissions into compliance. ERCs may be generated by affected EGUs or by other entities that supply zero

- or low

emitting electricity resources to the grid through an approval and recognition process that the EPA will administer. ERCs may be bought and sold , or banked for use in later years . The rate

based approach is explained in greater detail in s ection IV of the th is p reamble. 2. The Mass

- based Approach The second ap proach to a federal plan that the EPA is proposing in this action is a mass

- based trading program. In a

mass - based program, the EPA would create a state emissions budget equal to the total tons of CO 2 allowed to be emitted by the affected EGUs in each stat e according to , consistent with the mass

- equivalency formula goals established in the EGs . The EPA would initially distribute the allowances within each state budget

– less three proposed allowance set

- asides

– to the affected EGUs based on their historic historic al generation.***E.O. 12866 Review

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Allowances may then be transferred, bought , and sold on the open market , or banked for future use . The compliance obligation on each of the affected EGUs is to surrender the number of allowances sufficient to cover the EGU’s respecti ve emissions at the end of a given c ompliance period. The EPA is also proposing as a part of the mass

- based approach three set

- asi de s of allowances : ( 1) F or a Clean Energy Incentive Program; (2) to support renewable energy RE projects ; and ( 3 ) to allocate allowances based on an updating measurement of affected

- EGU generation. The EPA is also proposing that a jurisdiction may choose to replace the federal

- plan allocation provisions with its own allowance

- distribution allocation provisions. The mass

based app roach is explained in greater de ta il in s ection V of the th is p reamble. 3. Other Proposed Actions
T he EPA is proposing in this action a finding that it is necessary or appropriate to regulate affected EGUs in certain parts of Indian country via a federal plan. This is discussed in section [&&& V I . D ]
. of this preamble
. In this action, the EPA is also proposing a number of changes to the framework CAA section 111(d) regulations of 40
CFR p art 60 , subpart B . These generally are intended to provide enhancements to the process for state plan submissions and the***E.O. 12866 Review

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timing of EPA actions related to state plans and the federal plan
. Specifically, the EPA proposes six changes , to include: (1) P artial approval/disapproval mechanisms similar to CAA section 110(k)(3); ( 2 ) a conditional approval mechanism similar
to CAA section 110(k)(4); ( 3 ) a mechanism for the EPA to make calls for plan revisions similar to the "SIP

- call" provisions of
CAA s ection 110(k)(5); ( 4 ) an error correction mechanism similar
to CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar to CAA s ection 110(k)(1) and (2); and (6) updates to the deadlines for EPA action. These proposed changes are explained in greater detail in s ection &&& V II of the th is
p reamble. They are not a component of the proposed federal plan, or changes in the EGs. If these changes are finalized, they will be applicable to other CAA section 111(d) rules. The EPA intends to finalize these changes earlier than the finalization of the model tr ading rules.
C. Who Does the Proposed Action Apply to ?
R egulated Entities. E xisting fossil fuel

- fired electric generating unit s ( EGUs ( or affected EGU s ) covered by the final Clean Power Plan EGs that are located in a state that does not have an EPA

- approved state plan are potentially subject to th is proposed action . Existing fossil fuel

- fired Affected EGUs are***E.O. 12866 Review

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those that were in operation , or had commenced construction , on or before January 8, 2014 4
. The following North American Industrial Cla ssification System ( NAICS ) codes could apply as shown in Table 1 below of this preamble : **Table 1**  **. Examples of Potentially Regulated Entities**  a
**Category NAICS**  **Code Examples of potentially**  **regulated entities** Industry 221112 a Fossil fuel electric power generating units State/Local Government 221112 b Fossil fuel electric power generating units owned by municipalities

a Includes NAICS categories for source categories that own and operate electric power generating units (includes boilers and stationary combined cycle combustion turbines). b State or local government

- owned and operated establishments are classified accord ing to the activity in which they are engaged. This table is not intended to be exhaustive, but rather provides a general guide for identifying entities likely to be affected by the proposed action. W hether a n affected EGU is affected by this action is described in the applicability

4 An 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, but in all other respects would meet the applicability criteria for coverage under the GHG standards for new fossil fuel

- fired EGUs.***E.O. 12866 Review

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criteria in 40 CFR 6 0
. 5845 and 6 0
. 5850 of subpart UUUU . Q uestions regarding the applicability of this action to a particular entity should be directed to the person listed in the preceding **FOR FURTHER INFORMATION CONTACT** section. 1. What is an Affected Electric Utility Generating Unit ? For the federal plan , the definition of an affected electric generating unit ( EGU ) is identical to the definition in the final Clean Power Plan EGs . Additionally , the applicability of the fede ral plan is consiste nt with the EGs , where an affected EGU subject to the federal plan is any steam generating unit , (SGU) , integrated gasification combined cycle unit ( IGCC ) , or stationary combustion turbine (SCT) that was in operation or had commenced construction as of January 8, 2014, 5 and that meets certain criteria, which differ depending on the type of unit. The criteria t o be an affected EGU are as follows : A unit, if it is a steam generating unit SGU or IGCC, must serve a generator capable of selling greater than 25 MW (Megawatts) to a utility power distribution system, have a base load rating greater than 260 GJ/ hr h (250 MMBtu/ hr h ) heat input of fossil fuel (either alone or in combination with any oth er fuel), and historically

5 January 8, 2014 is the date the proposed GHG standards of performance for new fossil fuel

- fired EGUs were published in the Federal Register (79 FR 1430).***E.O. 12866 Review

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have supplied more than 1/3 of its potential electric output and 219,000 MWh as net

- electric sales on any 3 calendar year basis. If a unit is a stationary combustion turbine SCC , the unit must meet the definition of a combined cyc le or combined heat and
power (CHP) combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, have a base load rating of greater than 260 GJ/h (250 MMBtu/ hr h ), and historically have combusted more t han 90 percent natural gas on a heat input basis on an annual basis.
2. How to D etermine if a U nit is C overed by an A pproved and Effective State Plan Section 111(d) of the CAA, as amended, 42 U.S.C. 7411(d), authorize s the EPA to develop and implement a f ederal plan for affected EGUs upon the EPA’s action finding a failure to submit or disapproving a state plan. 6 The affected EGUs covered in EPA

approved state plans are not subject to the federal plan . If the

6 In this Preamble, the term “state” generally encompasses the 50 states and the District of Columbia, U.S. territories, and any Indian Tribe that has been approved by the EPA pursuant to 40 CFR 49.9 as eligible to develop and implement a CAA section 111(d) plan. However, the federal plan is not proposed for affected EGUs in certain states or territories where the EGs did not finalize emission performance rates.***E.O. 12866 Review

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federal plan has been put in place in a state, but is later replaced by a n EPA

- approved state plan, the affected EGUs would become subject to the state plan as of the effective date specified in a Federal Register notice regarding the EPA’s approval of the state plan. The EPA is not expecting state plans to be submitted by the states that submit negative declarations. However, in the event that there are later determined to be affected EGUs located in these states, the final federal plan would be appl ied to such EGUs through a future action
. Part 62 of Title 40 of the CFR identifies the status of approval and promulgation of CAA section 111(d) state plans for designated facilities in each state. Recognizing the urgent need for actions to reduce GHG emissions, and in accordance with the Presidential Me morandum 7 , as well as the benefit of providing
state s with model trading rule options to consider as they prepare their state plans, the EPA is proposing this rulemaking concurrently with the Administrator’s signing and promulgation of the final Clean Powe r Plan EGs. 40 CFR part 62 is updated only once per year. Thus, if 40 CFR part 62 does not indicate

7 Presidential Memorandum

— Power Sector Carbon Pollution Standards, June 25, 2013. http:// www.whitehouse.gov/the

- press offic e/2013/06/25/presidential

- memorandum

- power - sector

- carbon

pollution

- standards
.***E.O. 12866 Review

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that your state has an approved and effective plan after the compliance date has passed requiring state plan submittal , you should contact your state enviro nmental agency’s A ir D irector or your EPA Regional Office (see Table &&& XXX 2 in section II. D B of this preamble) to determine if approval occurred since publication of the most recent version of 40 CFR part 62.
D. What Should I Consider as I Prepare my Comments ? Do not submit information that you consider to be CBI electronically through http:// www.regulations.gov or email. Send or deliver information identified as CBI to only the following address: OAQPS Document Control Officer (Room C404

- 02), U.S. EP A, Research Triangle Park, NC 27711, Attention Docket ID No. EPA

HQ

- OAR

- 2015

- 0199 . Clearly mark the part or all of the information that you claim to be CBI. For CBI on a disk or CD

ROM that you mail to the EPA, mark the outside of the disk or
CD

- ROM as CBI and then identify electronically within the disk
or CD

- ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the inform ation claimed as CBI must be submitted for inclusion in the public docket. Information marked as CBI will not be disclosed except in accordance with procedures set forth***E.O. 12866 Review

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in 40 CFR part 2. If you have any questions about CBI or the procedures for claiming C BI, please consult the person identified in the **FOR FURTHER INFORMATION CONTACT**  section. 2. Docket . The docket number for the proposed action (40 CFR part 62, subpart MMM) is Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. 3. World Wide Web (WWW) . In addition to being available in the docket, an electronic copy of the proposed action is available on the WWW Internet through the EPA’s Technology Transfer Network (TTN) W eb site
. , a forum for information and technology exchange in various areas of ai r pollution control
. Following signature by the EPA Administrator , the EPA will post a copy of the proposed action at www http:// www 2 .epa.gov/ airtoxics/XX . The TTN provides information and technology exchange in various areas of air pollution control. Addit ional information is also available at cleanpowerplan / regulatory

- actions#regulations
. Following publication in the Federal Register (FR) , the EPA will post the FR version of the proposed rule and key technical documents on the same Web site.***E.O. 12866 Review

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**II. Background**  **Information**
A. What is the R egulatory D evelopment B ackground for this
P roposed R ule? On &&& August 3 , 2015 , the EPA finalized the Clean Power Plan EG s 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 August 31 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 can will be granted until September 6, 2018 (40 CFR &&& ). Supbart UUUU ). 8 As discussed in s ection VI.D of this preamble, Indian Tribes may, but are not required to, submit t ribal plans. Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 9

8 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. 9 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

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section 111 of the CAA and 40 CFR 60.27 require the E PA 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 s ection VI.D of this 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 a ny 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 m andated 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 a s two proposed model trading rule s which states can adopt or tailor for adoption as their state plan. The***E.O. 12866 Review

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role of the model rules is discussed in the following section. In this proposal, the EPA is soliciting public comment only

on the proposed approaches for a federal plan and model trading rule for the implementation of the Clean Power Plan EG s . C omments on the underlying Clean Power Plan rule will be considered out of out side the scope for this action proposed rule
. B. What is the Purpose of this Proposed Ru le ? The purpose of this action is t wo - fold: (1) T o co - propose two approaches to a federal plan to implement the Clean Power Plan EGs for affected EGUs operating in any state lacking an approved state plan by the relevant deadlines ; and (2) to propose these same approaches as model trading rule s for states to consider in developing their own plans. 1. Federal p lan Section 111 of the CAA and 40 CFR 60.27 require the E PA to develop, implement and enforce a federal plan to cover existing EGUs located in states that do not have an approved plan. Section 111 (d) of the CAA relies upon states as the preferred implementers of EG EG s for existing EGUs. States with affected EGUs are to submit state plans or make initial submittals to the EPA by August 31 September 6 , 2016 that ar e at least as***E.O. 12866 Review

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protective as pursuant to the EG s . 10 States without any existing
EGU s are directed to submit to the Administrator a letter of negative declaration certifying that there are no affected EGUs in the state. No plan is required for states that do not have
any affected EGUs . Affected EGUs located in states that mistakenly submit a letter of negative declaration will become subject to the federal plan until a state plan covering those
EGUs becomes approved. The EPA intends to finalize the federal plan only for those states that the EPA finds failed to submit plans or whose plans the EPA disapproves. For more information on the timing and mechanics of EPA action on state plans and finalization of thi s federal plan , see section II.D .1 of this preamble below. 2. Model Trading Rule The EPA is also proposing the federal plan approaches as two forms of a model trading rule ( mass - based and rate

- based), which states can adopt or tailor for implementation as a state plan under the EGs . The EPA intends to finalize the model trading rule s earlier than it promulgates a federal plan for a
state. When the EPA finalizes one or both of its proposed
appro aches as a final model trading rule, and a state adopts a

10 States may request extensi ons of up to two years as part of a complete initial CAA section 111(d) submission.***E.O. 12866 Review

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final model trading rule in its entirety a s its state plan, it would be presumptively approvable
. The EPA has designed these rules so that they meet the requirements of the final EGs. If one of the model rules is adopted by a state without any change, it would be presumptively approvable. We use the term “presumptively” in recognition that a state plan submission must be accompanied by other materials in addition to the regulatory provisions. These r equirements are set forth in the final CPP EGs Clean Power Plan and framework regulations of 40 CFR p art 60, subpart B. For instance, they include a formal letter of submittal from the Governor or his or her designee, evidence that the rule has been adopted into state law and that the state has necessary legal authority to implement and enforce the rule, and evidence that procedural requirements, including public participation under 40 CFR 60.23, have been met. In further support of state use of the model r ules, w e are drafting the model trading rule so that it can be adopted or incorporated by reference with a minimum of c hanges that would be necessary to make the rule appropriate for use by states. This way, a state may incorporate by reference the model rule as the state plan, or as the backstop to a state measures plan with few if any adjustments. States may make changes to the model***E.O. 12866 Review

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trading rule, so long as they still meet the requirements of the EGs. If the state chooses to tailor or modify the model t rading rule such as by expanding the scope of eligibility of projects that may generate ERC s in a rate

- based trading program , the EPA may still approve the plan, but the EPA would conduct appropriate review of such provisions for consistency with the
EGs a nd the state would have to demonstrate to the EPA’s satisfact ion that its alternative provisions are as stringent as the presumptively approvable approach described. We note here, and as a “note” in the r egulatory text of the model trading rule, that the s cope of eligibility of proposed “ERC resources” for the federal plan is different than the scope of eligibility provided for in the model rule. Thus, all of the language and provisions in the regulatory text relevant to these other ERC resources is relevan t only to the proposed model trading rule and not to the federal plan as such
. ( i.e. , those ERC resources discussed in section I V .C.3 of this preamble are applicable to the model rule and only metered RE and applicable nuclear are applicable to the federal plan)
. The EPA’s approval of a state plan, including a plan that adopts the model trading rule, will be the result of an independent notice

- and

- comment rulemaking process. Without prejudging the outcome of that process, the EPA recognizes that***E.O. 12866 Review

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it may be able to approve or “conditionally approve” state plans that are substantially similar, but not identical to, the final model trading rules. Ultimately, state plans must meet the requirements of the EGs for approvability. Thus, a conditional approval would be based on a condition that the state take such actions as may be necessary by a date certain to meet the requirements of the EGs. ( The EPA is proposing to explicitly provide for conditional approvals in the CAA section 111(d) framework regulations. See s ection VII . B of this preamble
. ) In accordance with the EGs, the process for review and approval (or disapproval) of state plans, whether based on the model trading rules or otherwise, would occur once the states have made their submissions by August 31 September 6 , 2016. As provided in the EGs, states have the option of not submitting a full state plan , but rather making an initial submittal, in order to obtain an extension of two 2 years before submitting a full state plan for EPA approval. The EPA belie ves I t could be beneficial for coordination purposes if a state that is interested in adopting one of the model trading rules and but intends to make an initial submittal rather than submit a full plan next August year were to indicate this , and which one, i n their submittal model trading rule they intend to adopt
. This is not an additional requirement beyond what the EGs require for***E.O. 12866 Review

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initial submittals, however. The EPA strongly encourages states to consider adopting one of the model trading rule s , which are designed to be referenced by s tates in their rulemaking s . U se of the model trading rules by states would help to ensure consistency between and among the

s tate programs, which is useful for the potential operat i on of a broad trading program that spans mult i

- state regions or operates on a national scale
. As discussed at length in the EGs, EGUs operate less as individual, isolated entities and more as multiple components of a large interconnected system designed to integrate a range of functions that ensure a n uninterrupted supply of affordable and reliable electricity and while also , for the past several decades, maintaining compliance with air pollution control programs. Since , as a practical matter under both the EGs and any federal plan , emissions reduction s must occur at the affected EGUs, a broad

- scale emissions trading
program would be particularly effective in allowing EGUs to operate in a way that achieves pollution control , without disturbing the overall system of which they are a part and the critical functions it that this system performs. In addition,

c onsistency of requirements benefits the affected EGUs, as well as the states and the EPA in their roles as administrators and implementers of a trading program. States of course remain free***E.O. 12866 Review

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to develop a plan of their own choosing to submit to the EPA for approval following the criteria set out in the final Clean Power Plan EG s . The EPA believes there are compelling policy reasons that support the provision of a proposed model trading rule at this time. The EPA has heard from multiple stakeholders and in public comments submitted on the proposed EG s that there is a strong interest in seeing a model state plan or trading rule prior t o the deadline for state submittals under the EGs. According to these stakeholders, model rules can provide predictability for planning purposes, both among states and affected EGUs . In addition, some states have indicated that they may prefer to rely on a federal plan , either temporarily or permanently, rather than develop a plan of their own. This proposal of a model trading rule addresses th e s e policy interests
. The approach of proposing model trading rule s that are identical in all key respects to propo sed federal plan s that may be promulgated later, is consistent with prior CAA section 111(d) and CAA section 110 rulemakings. For example, the NO x state implementation plan ( SIP ) Call model rule at 40 CFR part 96 (63 FR 57356; Oct. 27, 1998) was identical in all meaningful respects with the Federal NO x Budget T rading Program at 40 CFR part 97 (65 FR 2674; Jan. 18, 2000). And the Clean Air***E.O. 12866 Review

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Interstate Rule ( CAIR ) model rule in 40 CF R p art 96 (70 FR 25339; May 12, 2005) was identical in all meaningful respects with the federal CAIR in 40 CFR p art 97 (71 FR 25396; April 28, 2006). 11 While these identical programs for model rules and Federal Implementation Plans ( FIPs ) were finalized in separate parts of the Code of Federal Regulations C FR , the EPA does not
see any reason that it could not just as easily propose the federal plan as the model trading rule in the same section of the CFR. 12 If a federal plan were to be final ized for a given state at a later time, this would be reflected in 40 CFR p art 62 by cross

- reference , along with any modifications or adjustments that may be appropriate at the time of actual promulgation of a federal plan
. **Table 3**  **2 . Regional Office**  **Contacts**

**Region Regional contact**  **Phone S**  **tates and**  **protectorates** Region I Shutsu Wong wong.shutsu@epa.gov 617

- 918

- 1078 Connecticut, Massachusetts, Maine, New Hampshire, Rhode

11 We also note that historically under the CAA section 111(d)/129 rules, the content of EGs and their corresponding federal plans have had significant overlap. 12 We propose to include a note in the regulatory text explaining where aspects of the proposed subpart relevant to states as part of the model trading rule are not applicable***E.O. 12866 Review

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**Region Regional contact**  **Phone S**  **tates and**  **protectorates** Island, Vermont Region II Gavin Lau lau.gavin@epa.gov 212

- 637

- 3708 New York, New Jersey, Puerto Rico, Virgin Islands Region III Mike Gordon gordon.mike@epa.gov 215

- 814

- 2039 Virginia, Delaware, District of Columbia, Maryland, Pennsylvania, West Virginia Region IV Ken Mitchell mitchell.ken@epa.gov 404

- 562

- 9065 Florida, Georgia, North Carolina, Alabama, Kentucky, Mississippi, South Carolina, Tennessee Region V Alexis Cain cain.alexis@epa.gov 312

- 886

- 7018 Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio Region VI Rob Lawrence lawrence.rob@epa.gov 214

- 665

- 6580 Arkansas, Louisiana, New Mexico, Oklahoma, Texas Region VII Ward Burns burns.ward@epa.gov 913

- 551

- 7960 Iowa, Kansas, Missouri, Nebraska***E.O. 12866 Review

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**Region Regional contact**  **Phone S**  **tates and**  **protectorates** Region VIII Laura Farris farris.laura@epa.gov 303

- 312

- 6388 Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming Region IX Ray Saracino saracino.ray@epa.gov 415

- 972

- 3361 Arizona, California, Hawaii, Nevada, American Samoa, Guam, Northern Mariana Islands Region X Madonna Narvaez narvaez.madonna@epa.gov 206

- 553

- 2117 Alaska, Idaho, Oregon, Washington

C. Legal Authority
S ection 111(d)(2) of the CAA, 42 U.S.C. 74 1 1 (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

a gency would have under CAA section 110(c) in the case of failure to submit an implementation plan. In addition, t he 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 CAA section 301. A f ederal p lan under CAA section***E.O. 12866 Review

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111(d) appl ies , implement s and enforce s standards of performance for affected EGUs
. & && Under the Clean Power Plan EG EG s , state plans will be due on [ August 31 September 6 , 2016 ]. , but s tates are also allowed to seek a two year extension for a final plan submittal , upon submitting a satisfactory initial plan submittal by the same deadline
. See 40 CFR 60.5755, 60.5760(b). If a state does not submit a final state plan or initial plan submittal, 13 or if either a final state plan or an initial plan submittal , does not meet the requirements of the EG , the agency will take the appropriate steps to finalize and implement a federal plan
to for that state’s EGUs . Further, s tates will remain free , and indeed are strongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jurisdiction s . U pon

13 Indeed, states may simply choose to accept a federal plan in lieu of undertaking to develo p a state plan at all. While the statute uses the phrase “fails to submit a satisfactory plan,” the EPA does not believe this should carry any pejorative connotation. While Congress identified states and local governments as having “primary responsibility” for air pollution prevention and control, CAA section 101(a)(3), states are in no way penalized for not submitting a plan under CAA section 111(d). Rather, the EPA steps into the shoes of the state to carry out the CAA section 111(d) program in its stead. To the extent states may be interested in accepting a federal plan, the EPA would be interested in hearing that through the comment process on this proposal.***E.O. 12866 Review

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approval of the state p lan by the EPA , the federal plan will no longer apply to the affected EGUs covered by the state p lan. See
&&& 40 CFR 60.5720.

D. Timing of EPA Actions on the Model Trading Rules, F ederal
P lan , and other Proposed Actions This action co

- proposes two approaches to the federal plan , both of which also constitute proposed model trading rules that states could adopt as state plans for EPA approval. The EPA currently intends to finalize one or both of the model trading rules by next summer so that they may be available to states as soon as possible to help inform their state plan development efforts prior to the initial submittal deadline of August 31, 2016 September 6 , 2016 , and two years before the states’ final plan deadline of Sep tember 6, 2018
. 14 If the EPA finalizes the model trading rules in that timeframe, the only direct consequence will be to provide t he states certainty as to one or two particular approaches to the design of their state plan that the EPA will approve if adopted in full. The finalization of a

14 We anticipate that the model rules’ text could be finalized either in a new subpart or subparts of 40 CFR part 62 of title 40 of the CFR as proposed, or in a final document that is not published in the CFR.***E.O. 12866 Review

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model trading rule will not constitute a final action with respect to a federal plan for the affected EGUs in any state. Rather, the proposed federal plan will remain just that, a proposal. The EPA will promulgate a f inal federal plan for any state only after it has made a finding on a state’s failure to submit a plan, or fully or partially disapproved a submitted state plan. The EPA will go through a public notice and comment process before disapproving a submitted an d complete state plan, in whole or part. The EPA invites comments on this staged approach to finalizing one or more model trading rules on the one hand (which we currently intend to do in summer 2016 ) , and finalizing federal plans on the other (which we cu rrently intend to do state

- by

- state upon our taking predicate action on states’ plans)
. In this action, the EPA is also proposing enhancements to the process for agency action on s tate submittals and promulgation of a federal plan under CAA section 111(d) . For more detailed discussion of these changes, see &&& s ection V II of this preamble
. This aspect of this proposal is separate from the federal plan and the model trading rules. The EPA intends to finalize these changes on a timeline earlier than both a mo del trading rule and the federal plan
. Under the framework regulations and the final EG s , at 40***E.O. 12866 Review

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CFR p art 60.27 and &&& 60.5715 and &&& 5760, respectively, the initial timelines for EPA action on state submittals and, potentially, the promulgation of a federal plan will b e as follows: the EPA will have twelve 12 months from the date of a state's submission to approve or disapprove that state ’s plan. The EPA will have twelve 12 months from the date of its action on

a state submission to promulgate the federal plan for the EGUs in that state. The EPA will have six 6 months from the date of a state’s submission to notify a state that its submittal does not meet completeness criteria and constit utes a failure to submit a plan
. In the case of initial submittals under 60.576 5 , the EPA will have 60 days from August 31 September 6 , 2016 to notify a state that its initial submittal does not meet the requirements of 60.5760(a). As with state plans, the EPA will have twelve 12 months to promulgate a federal plan from the date of its finding that a state failed to submit a complete and approvable initial submittal. (Formally, such a finding would be that the state failed to submit a state plan.) The timeframes stated in the previous paragraph reflect the maximum time allow ed for EPA action. We note that u nder CAA section 111(d)(2) and CAA section 110(c), the EPA may promulgate a final federal plan for a state immediately upon making a finding of failu re to submit a complete state plan or initial***E.O. 12866 Review

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submittal, or upon making a finding of final disapproval of a state plan. Congress gave the EPA authority in CAA section 111(d)(2), as it did in CAA section 110(c), to promulgate a federal plan at any time after it disapproves or finds a failure to submit a state plan. The Supreme Court has recognized that under this authority , the EPA may promulgate a FIP “at any time” within the two 2

- year limit of CAA section 110(c) “that begins the moment EPA determines a SIP to be inadequate.” EME Homer City v. EPA , 134 S. Ct. 1584, 160 1 (2014). “EPA is not obliged to wait two years or postpone its action even a single day . . .
.” Id
. , . I t is essential to implement plans for the control of emission s of carbon dioxide CO 2 expeditiously and avoid unnecessary delay. Among other reasons, this will provide affected EGUs regulatory certainty and will assist the regulated entities as well as those authorities with responsibility for ensuring grid reliability to have as much time as possible to plan for the 2022 compliance start date set in the EGs. Thus, it is reasonable to propose this federal plan now so that federal plans will be ready to be promulgated quickly in cases where
state s have failed to submit a pla n or their plan s are found unsatisfactory
. It is the agency’s intention to promulgate federal plans promptly for states who do not submit plans or initial***E.O. 12866 Review

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submittals by August 31 of next year. September 6 , 2016
. However, the effect of putting the federal plan in place at that time would ultimately be limited in impact upon states. Because the EPA would implement the federal plan, its promulgation does not obligate state officials to take any actions themselves.
F urther, s tates remain free

- and the EPA in fact encourages

s tates

- to submit state plans that can replace the federal plan. States can do so in advance of the beginning of the performance period in 2022, or may transfer to a state plan after that date. H owever, in doing so, the agency and s tates should be mindful of the goals of regulatory certainty discussed in the prior paragraph.
Because we are proposing a federal plan that would apply emission standards to affected EGUs in all states that the

a gency determines not to have an approvable plan, the EPA invite s comment from all persons with concerns about or comments on the proposed federal plan as it may apply in any state , whether or not that state ha s submitted , or intends to submit, its own plan on which the EPA ha s yet to take action. In this n otice document , the EPA is proposing regulatory text setting out the substantive provisions for both of the proposed federal plans/model trading rules. The EPA is not providing specific regulatory text that would , if finalized,***E.O. 12866 Review

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actually promulgate a federal p lan for each state fo r which this proposed federal plan might be applied. 15 We currently envision that this lan guage would be in the form of a new section to the
state

- specific subparts of p art 62 and wou ld be ministerial in
nature . It would likely provide that the affected EGUs in each such state are subject to a federal plan and would then cross

reference or incorporate by reference the substantive provisions of one of the two subparts proposed today in t his action (if finalized) , along with any applicable modifications or adjustments as may be necessary, either based on new information or in response to comments regarding the application of the federal plan to that particular state. This text may appear similar to the FIP language found in the final CSAPR rule ( 76 FR 48208, 48361

- 78 ; Aug ust 8, 2011).
E. Use of the Model Trading Rule as a Backstop As discussed in the final EG s , &&&citation , the EPA believes that ei ther a mass

- based or rate

- based model trad ing rule could function well as the federally enforceable “backstop” that the EGs require to be included in “state measures” type

15 The minimum contents of a notice of proposed rulemaking under the CAA are set forth at CAA section 307(d)(3) and 5 U.S.C. 553(b).***E.O. 12866 Review

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state plans. 16 ( The proposed federal plan does not itself require a “backstop” because it relies on an “emission standard s ”
app roach, rather than a “state measures” approach , as delineated in the final EGs .) The conditions and requirements for the federally enforceable backstop in a state measures approach are discussed in detail in the final EGs. See &&& s ection VIII.C. 4 3 .b and && & VIII.C. 4 6 .c .2 of the final EGs . To summarize those provisions, without reopening them for comment, the federally enforceable backstop must fully achieve the CO 2 emission performance rates or the state’s interim and final CO 2 emission goal if the state pla n fails to achieve the intended level of CO 2 emission performance. T he state plan submittal must identify the federally enforceable emission standards for affected EGUs that would be used in the backstop , demonstrate that those emission standards meet the requirements that apply in the context of an emission standard s approach, identify a schedule and trigger for implementation of the backstop that is consistent with the requirements in the EGs , and identify all necessary state

16 We are aw are of at least one case in which a court has upheld the use of a trading program as a backstop to ensure CAA requirements are met. See WildEarth Guardians v. U.S. EPA , No. 12

- 9596 (10th Cir. filed Oct. 21, 2014) (upholding use of backstop cap - and

- trade pr ogram under 40 CFR 41.309 of the Regional Haze Rule).***E.O. 12866 Review

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administrative and technical procedures for implementing the backstop ( e.g. , how and when the state would notify affected EGUs that the backstop has been triggered)
. In addition, t he backstop emission standards must make up for any shortfall in CO 2 emission performance during a prior plan performance period that led to triggering of the backstop.
T he EGs explicitly recognized that the backstop emission standards could be based on one of the model trading rules that the EPA is proposing in this action. As discussed in s ection
II.B of this preamble above , w e are drafting the model trading rule so that it can be adopted or incorporated by reference with a minimum of changes necessary to make the rule appropriate for use by states , and this includes its use as a backstop
. I nstances of thi s approach are throughout the proposed rule text and reflect our desire to ease the use of the model rule for
states , as a full state plan, or as a backstop to a “state measures” plan
. One way in which a backstop may need to differ from the model trading r ules proposed in this action is the requirement to make up for a shortfall in emissions performance in a state’s prior plan performance period. The model trading rules do not provide provisions that would automatically adjust the emission standards to acco unt for any prior emission performance***E.O. 12866 Review

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shortfall (which is an option states have if designing their own backstop). Thus, a state relying on the model trading rule as its backstop would likely need to submit an appropriate revision to the backstop emission standards adjusting for the shortfall through the state plan revision process . This would likely be done in conjunction with the process for putting the backstop into effect
. If a state chooses to use the model rule as its federally enforceable backstop in a state measures plan, this does not mean that the backstop is itself the federal plan . Rather, the model rule becomes adopted as a part of the state plan. B oth approaches to the model trading rule are “emission standard” approaches under the EGs , in whic h where an emissions standard in the form of an allowable rate of emissions, or an allowance system, emission standard is imposed and federally enforceable on the affected EGUs : in the rate

- based approach the emissions standard is an allowable rate of emissions ; in the mass

- based approach the emission standard is the requirement to hold allowances equal to reported emissions
. The EPA may also handle the administration of the trading program for states utilizing the model trading rule. However, even thou gh the backstop may take the form of an EPA

- administered, federally

- enforceable trading rule , this does not mean that a federal plan has been***E.O. 12866 Review

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put into effect . The state retains all of its rights and responsibilities with respect to the implementation and

e nforcement of the backstop as a component of its state plan
. 1. Applicability and Enforceability If promulgated for the affected EGUs in a particular state,
t h is federal plan will require affected EGUs to meet specific emission standards for CO 2 and related requirements
. The se enforceable compliance obligations will apply to the owners and operators of those affected EGUs. See 40 CFR 62.13. No obligation fall s on states or state officials (except to the extent they may be owners and operators of affected EGUs )
. 17 In the event of noncompliance, the provisions in the federal plan are federally enforceable against an affected EGU, in the same manner as the provisions of an approved state plan under CAA section 111(d), and similar to a FIP or an approved SIP under

17 See Reno v. Condon , 528 U.S. 141, 151 (2000). State officials responsible for developing state plans, however, should be aware of the procedural enhancements being proposed to the framework regulations of 40 CFR part 60, subpart B, in this rulemaking document. These changes are discussed in section VII of this preamble below. These changes are not a component of the proposed federal plan or the EGs. Although these changes do not alter the dea dlines or submission obligations provided in the Clean Power Plan Emission Guidelines, state officials and other interested parties are encouraged to review and comment on these changes.***E.O. 12866 Review

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CAA section 110. See CAA section 111(d)(2)(B), 42 U.S.C. 7411(d)(2)(B) (power to enforce state and federal plans) , section 113(a)

– (h), 42 U.S.C. 7413(a)

- (h), and section 304, 42 U.S.C. 7604
. This means that the Administrator ha s the ability to enforce against violations and secure appropriate corrective actions pursuant to CAA sections 113(a)

– (h), and states and other third parties maintain the ability to enforce against violations and secure appropriate corrective actions pursua nt to CAA section 304.

**III. F**  **ederal P**  **lan Structure to Achieve Reductions** 
A. Overview 1. Interactions with State Plans and Scope of Trading 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 with affected EGUs in any other state covered by a federal plan that uses the same approach
. 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***E.O. 12866 Review

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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 t he federal plan
. or a state meeting the conditions for linkage to the federal plan
. We propose 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 sta te covered by the rate

- based trading federal plan must use ERCS for compliance (not allowances). The agency promulgated provisions for “ready

- for

- interstate

trading ” plans in the EGs. The EPA is proposing the federal plans as ready

- for

- interstate

- trading p lans. States plans that adopt the model rule are also considered ready

- for

- interstate

trading
. The EPA proposes to allow interstate trading between affected EGUs in state s covered by the proposed federal plan s and affected EGUs in state s covered by state plans (referred to below as “linking” states, or “linkages”) under the following conditions , which are discussed further below the list :***E.O. 12866 Review

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• The state plan must be approved
.

• The state plan must implement the same type of trading
program as the federal plan trading program in order to be linked for interstate trading , i.e., mass - based trading
programs can link to mass

- based trading program s only, and
rate

- based trading programs can link to rate

- based trading
programs only
.

• The state plan must use the identical compliance instrument as the federal plan (this requirement is detailed below )
.

• The state plan must be approved as a ready

- for

- interstate

trading plan
.

• 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 )
.

The EPA proposes that interstate ERC trading could occur both 1 ) from affected EGUs in state s covered by the rate

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

- based trading state plans meeting the proposed conditions for linkages , (including the conditions for being “ready

- for

interstate

- trading” that were finalized in the EG) , and 2 ) from***E.O. 12866 Review

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affected EGUs in such state

- plan

- covered state s to affected EGUs in federal

- plan

- covered state s . The EPA also requests comment on expanding the scope of interstate trading to include linking
state s 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 tracking system that is interoperable with an
EPA

- administered ERC tracking system. The EPA also takes comment on allow ing 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 reg istration, to link with state s covered by the
rate

- based trading federal plan. There are multiple benefits to a registration requirement, which include ensuring that the tracking systems are functionally interoperable. For the mass

- based federal plan, t he EPA proposes that interstate allowance trading c ould occur in both dir ections, i.e., from affected EGUs in state s covered by the mass

- based trading federal plan to affected EGUs in state s with approved

mass - based trading state plans meeting the proposed conditions for linkages, and from affected EGUs in su ch state

- plan

- covered
state s to sources in federal

- plan

- covered state s . The EPA proposes that a condition of link age between a***E.O. 12866 Review

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state plan and the federal plan is the use of an identical compliance instr ument . In the mass

- based federal plan the EPA proposes to issue allowances in short tons , th us ; as a condition of result, the EPA is proposing in this rule that linkage to for the mass - based federal plan is that a limited to state plan
must plan s that issue its allowance s in short tons. The agency also requests comment on whether to extend linkage to state plan s that issue allowances in metric tons and on what provisions would be necessary to implement such linkages. The
EPA be lieves that considerations for l inkages to state plans that use metric tons may include tracking system design , and stipulation of which parties convert allowance values state plan allowance s denominated in metric tons to allowances denominated in short tons and at what stage of complianc e operations the conversion occurs. The agency r equests comment on these and any other considerations for linkages between the federal plan and state plans that issue allowances in metric tons. 18 The EPA also requests comment on expanding the scope of interstate trading to include linking state s covered by the

mass - based trading federal plan with any state that has an approved mass - based trading state plan meeting the proposed

18 In this preamble all references to “tons” are short tons, unless ot herwise noted.***E.O. 12866 Review

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conditions for linkages and that use s an EPA

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

administered allowance tracking system. The EPA also requests takes comment on allowing a registration requirement state that has an approved mass - based trading state plan meeting the proposed conditions for li nking to linkages and that uses an EPA

- designated allowance tracking system , as noted above for the rate

- based approach to register with the EPA, and after registration, to link with states covered by the mass based trading federal plan
. In the Clean Power Plan EGs, the EPA promulgated requirem ents that apply to an emissions budget trading state plan that includes non

- affected EGU emission sources , to provide the opportunity for such a state plan to be potentially approvable for linking to other state plans . Th os e requirements include accounting adjustments for net import and export of allowances ( ( see Clean Power Plan EGs , section VIII )
. In this proposed rule, the proposed approach to link from the mass

- based trading federal plan to state plans could resul t in linking of the federal plan to state plans that include non

- affected emission sources. The EPA requests comment on this proposed approach. The EPA believes that a broad trading region provides***E.O. 12866 Review

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greater oppor t unities for cost

- effective implementation of reductions compared to trading limited to a smaller region. The proposed approach to interstate trading is intended to strike a reasonable balance between providing the opportunity for a wide interstate trading system while maintaining the integrity of the linked programs. The agency requests comment on the proposed approach to interstate trading linkages in the federal plans. Whether the EPA ultimately finalizes rate

- based or mass

based federal plans, the a gency believes that the ERC market and the allo wance market would be competitive. T he opportunities for interstate trading detailed above would reduce any potential for firms to exercise market power in the E RC market or allowance market. The EPA requests comment on this expectation of a competitive ER C market and a competitive allowance market, and
comment on potential program design choices that could address any identified market power concern. The EPA intends to provide information to the market and the public, consistent with other trading programs that the agency administers, as detailed in sections IV and V of this preamble , for the rate

- based and mass

based approaches, respectively. A transparent and well

- functioning allowance or ERC market is an important element of a mass

- based or rate

- based tr ading program. EPA has over 20 years of experience implementing***E.O. 12866 Review

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emissions trading programs for the power sector and based on that experience, believes the potential or likelihood of market manipulation is fairly low. Nonetheless, the EPA is evaluating the options for providing oversight of the allowance or ERC markets that may be established through the final EGs and federal plans. This could include engaging with other federal and state agencies as appropriate, and potentially with third parties, in conduc ting market oversight. The agency requests comment on appropriate market monitoring activities, which may include tracking ownership of allowances or ERCs, oversight of the creation and verification of credits, and tracking market activity (e.g., transacti on volumes and prices). 2. Interstate Effects and Addressing Potential Leakage and Interstate Effects
The final EGs reco gnized that emission reduction measures will likely have impacts across states and across categories of generation because of the dynamic flow of power on the regional grid ( see final EGs Sec. VIII. L for a detailed discussion of interstate effects ). In the final EG s , the EPA acknowledged that some amount of interstate movement of generation will inevitably be present and unavoidable and may affect how affected EGUs achieve the applicable CO 2 emission performance rates or state***E.O. 12866 Review

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goals under a state plan. In fact, the final guidelines are premised in part on reductions due to the movement of generation from higher

- emitting to lower

- emitting affected EGUs. However, the risk of foregone emission reductions due to the movement of generation should be minimized
. The final specify the concern of leakage, which is defined in Sec. VII.D The final EGs specify the concern of leakage, which is defined in s ec tion VII.D of the final EGs as the potential of an alternative form of implementation (e.g., the rate

- based and

mass - based state goals) to spur increased emissions from new sources, beyond the emissions expected from new sources if existing EGUs were given create a larger incentive for affected EGUs to shift generation to new fossil fuel

- fired EGUs relative to what would occur when the implementation of the BSER took the form of standards of performance in the form of incorporating the subcategory

- specific emission performance rates
. representing the BSER.
. The final EGs specified that mass

- based plan approaches must address leakage, because the nature form of the mass goals create d differing may ultimately impact the relative incentives to run for affected existing EGUs generate and for new sources , which could result new sources running more and producing more emissions
. emit at affected EGUs as opposed to***E.O. 12866 Review

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shifting generation to new sources, with potential implications for whether the mass goal implements or is consistent with the BSER and overall emissions from the sector
. These circumstances

are much less likel y to be present under a rate

- based plan approach , where both the form of the goal ensures sufficient incentive to affected existing EGUs to generate and new sources face thus avoid leakage, similar incentives to run
. to the CO 2 emission performance rates
. By requiring mass - based plan components that address leakage, the final EGs ensure that mass goals are an equivalent alternative to the subcategories CO 2 emission performance rates and rate

- based goals. Sec. are thus an equivalent expression of the BSER
. S ect ion VII.D of the final EGs details the requirement for addressing leakage and why it is needed, and Sec. section VIII.J of the final EGs specifies options for mass - based state plan compon ents that address leakage. We are proposing, as part of the mass

- based approach under the federal plan and model rule , to implement allowance allocation approaches to address leakage , specifically through establishing an output

- based allocation set

- aside a nd a set

aside that encourages the installation of RE . These proposed strategies are detailed in Sec. section V.D of this proposal preamble
.***E.O. 12866 Review

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There are other various ways that the final EGs and the federal plan and model rule proposal act to avoid other types of foregone reductions, including through the particular structure of the subcategorized CO 2 performance rates, state goals and compliance accounting , that deemphasize the differences between
states . Additionally, there are restrictions to avoid forg one emissions, including the condition that jurisdictions under the
rate

- based federal plan, and states that seek to trade with
rate

- based federal plan jurisdictions, must used the subcategorized CO 2 performance rates . This eliminates differing incentives between states in rate

- based ERC issuance and trading, as discussed in final EGs Sec. VIII.L
. In t he final
EG s , the EPA also discussed the concern that CO 2 emissions reductions would be eroded in situations where a n affected EGU in a rate

- based state count s the MWh from measures located in a

mass - based state, but the generation from that measure acts solely to serve load in the mass

- based state. In that scenario, expected CO 2 emission reduction actions in the rate

- based state are foregone as a result of cou nting MWh that resulted in CO 2 emission reductions in a mass

- based state. The proposed rate

based approach, in accordance with the final guidelines , restricts ERC issuance for any emission reduction measures located in a mass

- based state, except for RE. RE measures***E.O. 12866 Review

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located in a state with a mass

- based state plan can only be approved for ERC issuance for use by a state under a rate

- based federal plan if it can be demonstrated that that load

- serving entities in the rate

- based state have contracted for the del ivery of the RE generation that occurs in a mass

- based state to meet load in a rate

- based state
. As part of this federal plan, we are proposing that t his can be demonstrated through 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 providing documentation that the electricity was treated as comparable to a generation resource used to serve regional load that included the rate

- based state
. T his 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 . Once the project is approved, subsequent application s for issuance of credit to the EPA will need t o reference that the megawatt

hours MWh submitted are associated with that contractual arrangement with the mass

- based RE provider
. The EPA requests comment on this approach. It should also be noted that we are proposing that u nder the proposed mass - based a pproach , if RE located in a mass

- based state receive s mass - based set

- aside allowances for any generation , that generation is not eligible***E.O. 12866 Review

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to be issued ERCs issued ERCs in a rate

- based state.
The EPA requests comment on the proposed treatment of leakage and of interstate effects under both the proposed rate

based federal plan approach and the proposed mass

- based federal plan approach , and as part of the corresponding proposed model rules
. 3. Provisions to Encourage Early Action &&&Placeholder while this secti on being worked on offline&&& The EPA outlined and initiated the Clean Energy Incentive Program (CEIP) in the final EGs (see section VIII.B.2 of the final EGs). The program is designed to incentivize investment in certain types of RE projects, as well as d emand

- side energy efficiency (EE) projects implemented in low

- income communities. These projects must commence construction after the date of submission of a final state plan to the EPA, or after September 6, 2018 for those states on whose behalf the EPA i s implementing the federal plan, and will receive incentives for the MWh they generate or the end

- use energy demand reductions they achieve during 2020 and/or 2021. The CEIP also provides an additional incentive to drive investment in demand

- side EE projec ts implemented in low

- income communities. The EPA proposes to apply the CEIP in all states***E.O. 12866 Review

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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 a re detailed in sections IV and V of this preamble, respectively.

B. Inventory of Emissions Fossil fuel

- fired electric utility generating units ( EGUs ) are by far the largest emitters of GHGs among stationary sources in the U.S., primarily in the form of CO 2 , and among fossil fuel

fired EGUs, coal

- fired units are by far the largest emitters. This section describes the amounts of these emissions and places these amounts in the context of the U.S. Inventory of Greenhouse Gas Emissions and Sinks 19 (the U.S. GHG In ventory). The EPA implements a separate program under 40 CFR p art 98 called the Greenhouse Gas Reporting Program 20 (GHGRP) that requires emitting facilities over threshold amounts of GHGs to report their emissions to the EPA annually. Using data from the G HGRP, this

19 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport. html 20 U.S. EPA Gr eenhouse Gas Reporting Program Dataset, see http:// www.epa.gov/ghgreporting/ghgdata/reportingdatasets.html Formatted: Indent: First line: 0"***E.O. 12866 Review

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section also places emissions from fossil fuel

- fired EGUs in the context of the total emissions reported to the GHGRP from facilities in the other largest

- emitting industries. The EPA prepares the official U.S. GHG Inventory to comply with comm itments under the United Nations Framework Convention on Climate Change (UNFCCC). This inventory, which includes recent trends, is organized by industrial sectors. It provides the information in Table 2 below 3 of this preamble , which presents total U.S. a nthropogenic emissions and sinks 21 of GHGs, including
CO 2 emissions, for the years 1990, 2005 , and 2013.
**Table 2**  **3 . U.S. GHG Emissions and Sinks by Sector (**  **M illion**  **Metric Tons Carbon Dioxide E**  **quivalent (MMT CO 2**  **Eq.)) 22** 

**SECTOR 1990**  **2005 2013** 
Energy 23 5,290.5 6,273.6 5,636.6
Industrial Processes 342.1 367.4 359.1

21 Sinks are a physical unit or process that stores GHGs, such as forests or underground or deep sea reservoirs of CO 2 . 22 From Table ES

- 4 of “Inventor y of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport. html 23 The energy sector includes all greenhouse gases resulting from stationary and mobile energy activities, including fuel combustion and fugitive fuel emissions.***E.O. 12866 Review

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and Product Use Agriculture 448.7 494.5 515.7
Land Use, Land

- Use Change and Forestry 13.8 25.5 23.3

Waste 206.0 189.2 138.3
Total Emissions 6,301.1 7,350.2 6,673.0
Land Use, Land

- Use Change and Forestry (Sinks) (775.8) (911.9) (881.7)
Net Emissions (Sources and Sinks) 5,525.2 6,438.3 5,791.2 Total fossil energy

- related CO 2 emissions (including both stationary and mobile sources) are the largest contributor to total U.S. GHG emissions, representing 77.3 percent of total 2013 GHG emissions. 24 In 2013, fossil fuel combustion by the utility power
sector

– - entities that burn fos sil fuel and whose primary business is the generation of electricity

– - accounted for 38.3 percent of

24 From Table ES

- 2 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport. html.***E.O. 12866 Review

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all energy

- related CO 2 emissions. 25 Table 3 below 4 of this preamble presents total CO 2 emissions from fossil fuel

- fired EGUs, for years 1990, 2005 , and 2013.
**Table 3**  **4 . U.S. GHG Emissions from Generation of Electricity from**  **Combustion of Fossil Fuels (MMT CO 2**  **) 26** 

In addition to preparing the official U.S. GHG Inventory to present , which re present s comprehensive total U.S. greenhouse
gas GHG emissions and comply compl ies with commitments under the

25 From Table 3

- 1 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport. html. 26 From Table 3

- 5 “Invent ory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport. html. **GHG EMISSIONS 1990**  **2005 2013** 

Total CO 2 from fossil fuel

fired EGUs 1,820.8 2,400.9 2,039.8

- from coal 1,547.6 1,983.8 1,575.0

- from natural gas 175.3 318.8 441.9

- from petroleum 97.5 97.9 22.4***E.O. 12866 Review

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UNFCCC, the EPA collects detailed GHG emissions data from the largest emitting facilities in the U.S. through its Greenhouse Gas Reporting Program (GHGRP). GHGRP. Data collected by the GHGRP from larg e stationary sources in the industrial sector show that the utility power sector emits far greater CO 2 emissions than any other industrial sector. Table 4 below 5 of this preamble presents total GHG emissions in 2013 for the largest emitting industrial sec tors as reported to the GHGRP. As shown in Table 3 4 and Table 4 5 of this preamble , respectively, CO 2 emissions from fossil fuel

- fired EGUs are nearly three times as large as the total reported GHG emissions from the next ten largest emitting industrial sec tors in the GHGRP database combined.
**Table 4**  **5 . Direct GHG Emissions Reported to GHGRP by Largest**  **Emitting Industrial Sectors (MMT CO 2**  **e) 27** 

27 U.S. EPA Greenhouse Gas Reporting P rogram Dataset as of August 18, 2014. http://ghgdata.epa.gov/ghgp/main.do. **Industrial s**  **ector 2013**  Petroleum Refineries 176.7 Onshore Oil & Gas Production 94.8 Municipal Solid Waste Landfills 93.0 Iron & Steel Production 84.2 Cement Production 62.8 Natural Gas Processing Plants 59.0 Petrochemical Production 52.7 Hydrogen Production 41.9 Underground Coal Mines 39.8***E.O. 12866 Review

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C. Affected EGUs For the CPP EGs Clean Power Plan and this federal plan , an affected EGU is any steam generating unit SGU , IGCC, or stationary combustion turbine that was in operation or had commenced construction as of January 8, 2014, 28 and that meets the following criteri a, which differ depending on the type of unit. To be an affected EGU , such a unit, if it is a steam generating unit SGU or IGCC, must serve a generator capable of selling greater than 25 MW to a utility power distribution system and have a base load rating greater than 260 GJ/h (250 MMBtu/h) heat input of fossil fuel (either alone or in combination with any other fuel). If such a unit is a stationary combustion turbine SCT , the unit must meet the definition of a combined cycle or combined heat and power CHP combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, and h ave a base load rating of greater than 260 GJ/h (250 MMBtu/h).

28 Under section 111(a) of the CAA, determination of affected sources is based on the date that the EPA proposes action on such sources. January 8, 2014 is the date the proposed GHG standards of performance for new fossil fuel

- fired EGUs were published in the Federal Register (79 FR 1430).

Food Processing Facilities 30.8***E.O. 12866 Review

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When considering and understanding applicability, the following definitions may be helpful. Simple cycle combustion turbine means any stationary combustion turbine which does not recover heat from the combustion turbine engine exhaust gases for purposes other than enhancing the performance of the stationary combustion turbine itself. Combined cycle combustion turbine means any stationary combustion turbine SCT which recovers heat from the combus tion turbine engine exhaust gases to generate steam that is used to create additional electric power output in a steam turbine. Combined heat and power ( CHP ) combustion turbine means any stationary combustion turbine SCT which recovers heat from the combust ion turbine engine exhaust gases to heat water or another medium, generate generate s steam for useful purposes other than exclusively for additional electric generation, or directly uses the heat in the exhaust gases for a useful purpose. We note that certa in affected EGUs are exempt from inclusion in a state plan and this federal plan. Affected EGUs that may be excluded under the EGs are those that (1) A re subject to subpart TTTT as a result of commencing modification or reconstruction; (2) steam generating units are SGU s or IGCC units that are currently and always have been subject to a federally enforceable permit limiting net

- electric sales to one

-***E.O. 12866 Review

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third or less of its potential electric output or 219,000 MWh or less on an annual basis; (3) are non - fossil u nits ( i.e., units that are capable of combusting 50 percent or more non

- fossil fuel) that have historically limited the use of fossil fuels to 10 percent or less of the annual capacity factor or are subject to a federally enforceable permit limiting fossil fuel use to 10 percent or less of the annual capacity factor; (4) are stationary combustion turbines that are not capable of combusting natural gas ( i.e., not connected to a natural gas pipeline); (5) are a combined heat and power unit CHP unit s that

are subject to a federally enforceable permit limiting, or have historically limited, annual net electric sales to a utility power distribution system to the product of the design efficiency and the potential electric output or 219,000 MWh (whichever is greate r) or less; (6) serve a generator along with other steam generating unit SGU (s), IGCC(s), or stationary combustion turbine(s) where the effective generation capacity (determined based on a prorated output of the base load rating of each steam generating uni t SGU , IGCC, or stationary combustion turbine) is 25 MW or less; (7) are a municipal waste combustor unit subject to subpart Eb of 40 CFR p art 60; or (8) are a commercial or industrial solid waste incineration unit that is***E.O. 12866 Review

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subject to subpart CCCC of 40 CFR p art 60. 29 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 emissi on limitation could be calculated and

29 We had proposed in the CPP EGs that affected EGUs were those existing source fossil fuel

- fired EGUs that met the applicability criteria for cover age under the final GHG standards for new fossil fuel

- fired EGUs being promulgated under CAA section 111(b). However, we are finalizing in the EGs that states need not include certain units that would otherwise meet the CAA section 111(b) applicability in this CAA section 111(d) EGs. These include simple cycle turbines, certain non

- fossil units, and certain CHP units. The final CAA section 111(b) standards include applicability criteria for s imple cycle combustion turbines, for reasons relating to implement ation and minimizing emissions from all future combustion turbines.***E.O. 12866 Review

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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. The applicability of this proposed federal plan follows the same applicability criteria as the final EGs . The rationale for these criteria is provided at &&&citation to EGs. in section IV.D of the Clean Power Plan
. We are not reopening the criteria or rationale here. In the federal plan Affected EGU Technical Support Document ( TSD , ) , the EPA lists all applicable affected EGUs according to our records from the National Electric Energy Data System ( NEEDS), Energy Information Administration (EIA), and comments from the CPP. In this TSD, each affected EGU is assigned its proposed applicable standards if a federal plan were to be promulgated for that affected EGU at any time. The EPA requests
comments a nd updates to this list of affected units. Section VI.C of the CPP final EGs describes the data used in setting the standards and how an inventory of affected units has been compiled.
D. Compliance Schedule In accordance with the schedule set out in the EGs , t he***E.O. 12866 Review

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federal plan is proposed to be implemented in a phased approach. The first period, corresponding to the interim period in the EG, is proposed to run from beginning of calendar year 2022 until end of calendar year 2029 (January 1, 2022 to December 31, 2 029) . The final period would run from beginning of calendar year 2030 (January 1, 2030) indefinitely into the future. The first p eriod is proposed to be comprised of three “ c o mpliance periods, ” set by calendar year. The first compliance period will be from January 1, 2022 to midnight, December 31, 2024 ( three 3 calendar years). The second compliance period will be from January 1, 2025 to midnight, December 31, 2027 ( three 3 calendar years). The third compliance period will be from January 1, 2028 to midnight, December 31, 2029 ( two 2 calendar years). Under the EGs , midnight, December 31, 2029 marks the end of the interim period, and the beginning of the final period. The EPA proposes that the compliance periods in the final period will each be two 2 calendar yea rs. Thus, the first compliance period after 2030 would be from January 1, 2030 to midnight, December 31, 2031 . The second compliance period would be from January 1, 2032 to midnight, December 31, 2033. This would repeat accordingly unless changed by the EPA through a revision***E.O. 12866 Review

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to the federal plan or other action. 30 The EPA recognizes that the compliance periods provided for in this rulemaking are longer than those historically and typically specified in CAA rulemakings. As reflected in long

standing CAA pre cedent, “[t]he time over which [the compliance standards] extend should be as short term as possible and should generally not exceed one month.” See e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 Gu idance on Enforceability Requirements for Limiting Potential to Emit through SIP and §112 Rules and General Permits. The EPA determined that the longer compliance periods provided for in this rulemaking are acceptable in the context of this specific rulema king because of the unique characteristics of this rulemaking, including that CO 2 is long

lived in the atmosphere, and this rulemaking is focused on performance standards related to those long

- term impacts. Prior to the beginning of the first compliance pe riod in 2022, the agency intends to establish the infrastructure for operating a federal trading program and to work closely with affected EGUs in the states where the federal plan is promulgated prior to the start of the first compliance period in

30 This schedule would be the same under either a rate

- or mass based approach.***E.O. 12866 Review

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2022. W e request comment on whether it would be possible to grant , on a case - by

- case basis, certain affected EGUs, particularly small entities , additional time to come into compliance, and to request additional input from the public as to the design of such flexi bility that would be compatible with the emission guidelines EG s and a federal plan that implements a trading system.
T he EPA recognizes that it is important to ensure a degree of liquidity in compliance instruments in either of the proposed trading approaches, while also maintaining the stringency required by the final EGs. A number of aspects of the rate

- based and mass

- based programs would assist with this, including allocation methods or rules, mechanisms to place allowances or credits into the mar ket relatively early, requirements for public transparency of information related to allowance , or credit issuance, tr acking, transfers and holdings. The EPA solicit s comment on other approaches to ensure market liquidity while continuing to meet the strin gency of the final EGs.

E. Addressing Reliability Concerns The proposed federal plan h as been designed to ensure that, to the greatest extent possible, implementation would not in ter fere with the power sector ’ s ability to maintain electric***E.O. 12866 Review

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reliability. 31 Like the EG s , the federal plan provides a long planning horizon and implementation period. In addition the federal plan allows affected EGUs to obtain tradable allowances and credits to meet obligations which assures that reliability can be maintained with out disruption to the electricity system
. The re are many features of the electricity system that

ensur e that electric system reliability will be maintained. For example, in the Energy Policy Act of 2005, Congress added a section to the Federal Power Act to make reliability standards mandatory and enforceable by FERC the Federal Energy Regulatory Commission ( FERC ) and the North American Electric Reliability Corporation (NERC), the Electric Reliability Organization which FERC designated and oversees. Along wit h its standards development work, NERC conducts annual reliability assessments via a 10

- year forecast and winter and summer forecasts; audits owners, operators and users for preparedness; and educates and trains industry personnel. Numerous other entities such as FERC, Department of Energy ( DOE , ) , state public utility commissions ( PUCs , ) , independent system operators and regional transmission

31 The EPA evaluated certain aspects of electric reliability in the context of modeling projections for the f inal Clean Power Plan, and that evaluation is described in the “Resource Adequacy and Reliability Analysis TSD” for that rulemaking, a copy of which is also included in the docket for this rulemaking.***E.O. 12866 Review

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organizations ( ISOs/RTOs , ) , and other planning authorities also consider the reliability of the electric system. Th ere are also numerous remedies that are routinely employed when there is a specific local or regional reliability issue. These include transmission system upgrades, installation of new generating capacity, calling on demand response, and other demand

- side actions. Additionally, planning authorities and system operators constantly consider, plan for , and monitor the reliability of the electricity system with both a long

- term and short

- term perspective. Over the last century, the electric industry’s efforts regarding electric system reliability have become multidimensional, comprehensive , and sophistic ated. Under this approach, planning authorities plan the system to assure the availability of sufficient generation, transmission, and distribution capacity to meet system needs in a way that minimizes the likelihood of equipment failure. 32 Long

- term system planning happens at both the local and regional levels with all segments of the electric system needing to operate together in

32 Casazza, J. and Delea, F., Understanding Electric Power Systems: An Overview of the Technology, the Marketplace, and Government Regulations , IEEE Press, at 160 (2010).***E.O. 12866 Review

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an efficient and reliable manner. In the short

- term, electric system operators operate the system within safe operating margins and work to restore the system quickly if a disruption

occurs. 33 Mandatory reliability standards apply to how the bulk electric system is planned and operated. For example, transmission operators and balancing authorities have to develop, maintain , and impl ement a set of plans to mitigate operating emergencies. 34 The EPA’s approach in this proposed federal plan builds on the foundation provided in the EG’s determination of BSER to

ensur e that the final federal plan, like the final EG , does not interfere with the industry’s ability to maintain reliability of the nation’s electricity supply. First , t he federal plan , like the EG, provides more than six 6 years before reductions are required and an eight 8

- year period from 2022 to 2029 to meet interim goals. This a llows time for planning and steady , measured implementation. Second, the federal plan is a market

- based trading program which will allow affected EGUs the opportunity to buy and sell

33 Id. 34 NERC Reliability Standard EOP

- 001

- 2.1b

— Emergency Operations Planning, available at http://www.nerc.net/standardsreports/standard ssummary.aspx .***E.O. 12866 Review

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emissions credits or al lowances as well as bank them. The EPA’s proposed federal plan includes two alternative approaches ; : a

mass - based trading program and a rate

- based trading program. Trading programs of both types have many positive attributes. Among them is that they help to ensure that imposition of the federal plan will not interfere with the industry’s ability to maintain the reliability of the nation’s electricity supply. Such a program does not restrict unit

- level operational decision

- making beyond requiring units to hold a sufficient number of tradable permits ( e.g., allowances or ERC s) to cover emissions. It , therefore , inherently allows for unit level operational flexibility to facilitate the maintenance of reliability and makes the program enormously resilient
. If a unit finds it needs to run more than anticipated, the market

based compliance system provides a way for the EGU to meet its generation needs while it maintains compliance with the federal plan. Third, just as we have required the states to do in developing state plans, the EPA is considering reliability as a part of developing this federal plan
. For example, the EPA will

cons ult with planning authorities. 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***E.O. 12866 Review

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any concerns or other feedback on the federal plan from those entitie s. This meeting will help to ensure that the EPA is taking into consideration any concerns about the relationship of this rulemaking to the abilit y of the industry to maintain electric reliability across the country as we finalize the federal plan
. It will give the planning authorities an opportunity to hear directly from the EPA how the federal plan is designed and gives the planning authorities an opportunity to

vo ice concerns and ask questions. This will help inform comments that planning authori ties may submit to the docket.
In t he final Clean Power Plan CPP EG s , the EPA laid out the availability of a reliability safety valve that could be used i f an unanticipated catastrophic emergency caused a conflict between maintenance of electric reliability and inflexible requirements that a state plan might impo se on an affected EGU or EGUs. Under the federal plan , inflexible requirements are n ot imposed o n specific plants. Rather as explained earlier, the very nature of the federal plan , in which affected EGUs can obtain allowances or credits if needed, supports reliability. Therefore, a reliability safety valve for the federal plan is not needed. The EPA invites comments on this aspect of the proposed federal plan
. The EPA, Department of Energy ( DOE ) and FERC have agreed to***E.O. 12866 Review

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coordinate efforts to help ensure continued reliable electricity generation and transmission during the implementation of the final EG EG s and the final federal plan in any state that does not have an approved state plan
. The three agencies have developed a coordination strategy that reflects their joint understanding of how they will work together to monitor implem en tation
. The three age ncies will work together to monitor implementation, share information and resolve any difficulties that may be encountered. The EPA is not proposing to include an allowance set

- aside , or similar mechanism in a rate

- based approach, to address reliability is sues in the federal plan; however, we request comment on including such a set

- aside in the context of a mass

- based approach . The EPA requests comment specifically on creation of an allowance set

- aside for the purpose of making allowances available in emerg ency circumstances in which an affected EGU was compelled to provide reliability critical generation and demonstrated that a supply of allowance needed to offset its emissions was not available. The set

- aside would be in addition to the proposed set

- aside s that are detailed in section V.D in this preamble. The EPA would set aside allowances in each state under the mass

- based federal plan, and if a reliability issue is perceived by the EPA, DOE , and***E.O. 12866 Review

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FERC coordinated monitoring process discussed above, the EPA would distribute allowances from the set

- aside to support affected EGUs during or after an unforeseen, emergency reliability event. If there were unused allowances remaining in the set

- aside , then the EPA would distribute them to affected EGUs pro rata based on the allocation approach that is detailed in section V.D
. of this preamble
. The EPA requests comment on all elements of such an approach, including what events would trigger the need fo r allowances from the reliability set

- aside; eligibility criteria to receive the set

- aside allowances; the size of the set

- aside; and the timing of distribution of allowances from the reliability set

aside. Additionally, the EPA requests comment on how a r eliability
“set

- aside” approach could be implemented in the rate

- based federal plan. As detailed later in this preamble, the EPA proposes in the federal plan to implement a Clean Energy Incentive Program CEIP , which was established in the EGs to reward inve stment in certain clean energy projects that achieve MWh results during 2020 and 2021 2020 and/or 2021 (see sections IV and V of this preamble for the proposed approach to implement this incentive program in the
rate

- based and mass

- based federal plans, resp ectively). Implementation of the Clean Energy Incentive Program in the federal plans would create ERCs and allowances before 2022, allowing for***E.O. 12866 Review

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creation of banks that could be used in the event of an unforeseen, emergency reliability issue. The EPA request s comment on the potential for these banks of ERCs and allowances to support reliable electricity generation and transmission to be utilized in the event of this kind of reliability emergency.

F. Worker Certification In the EG s, the EPA suggested that to ens ure that emission reductions are realized, it is important that construction, operations and other skilled work undertaken pursuant to state plans is performed to specifications, and is effective, safe, and timely. The EPA asks for comments as to whether t he federal plan should encourage EGUs to ask for a demonstration that the work undertaken under a f ederal p lan is performed by a proficient workforce. A good way to ensure such a workforce is to require that workers have been certified by: ( 1) A n apprenticeship program that is registered with the U.S. DOL, Office of Apprenticeship or a state apprenticeship program approved by the DOL; ( 2) a skill certification aligned with the U.S. DOE Better Building Workforce Guidelines and validated by a third party accrediting body recognized by DOE; or ( 3) other skill certification validated by a third party accrediting body.***E.O. 12866 Review

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G. Remaining Useful Li v e s and Potential for “Stranded Assets” Section 111(d)(2) of the CAA provides, “In promulgating a standard of perfor mance under a plan prescribed under this paragraph, the Administrator shall take into consideration, among other factors, remaining useful lives of the sources in the category of sources to which such standard applies.” 42 U.S.C. 7411(d)(2). This language tracks similar language in CAA section 111(d)(1) with respect to state plans
. In the final EGs ,
we explained how the Guidelines permit states in applying a standard of performance in their state plans to consider the remaining useful life of a facilit y . We determined that it was appropriate to specify that the general variance provisions in 40 CFR 60.24(f) should not apply to the class of affected facilities covered by the se Guidelines. &&&citation. We concluded that facility

- specific factors and in particu lar, remaining useful life, do not justify a state making further adjustments to the performance rates or aggregate emiss i on goal that the Guidelines define for affected EGUs in a state and that must be achieved by the state plan. Because the Guidelines d o not allow for states to deviate from state goals based on remaining useful life, the EPA does not believe such goal adjustments are necessary or appropriate in the federal plan either. Nonetheless, t his does not obviate***E.O. 12866 Review

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the requirement that the EPA itsel f, in the design of its federal plan , consider, among other factors, the remaining useful li v e s of the affected facilities. The agency therefore
proposes the following anal ysis of this factor
. 35 Congress added the “remaining useful liv e s ” factor to CAA section 111(d)(2) in the 1977 CAA Amendments. Congress did not provide in the statute any direction on how or to what degree “remaining useful li v e s ” of facilities subject to a section 111(d) federal plan is to be considered
. As discussed in the preamble t o the final EGs, Congress’ intent in enacting the provision was to allow for older facilties with short remaining useful lives to not be required to install capital

- intensive pollution control devices to meet emission standards that would

35 We note that the preamble and supporting materials for the EGs discuss a related concern raised by some stakeholders, which is whether the EGs could result in widespread “stranded assets” as a direct result of the rule. As explained there, we believe this concern is distinct from the “remaining useful lives” factor in CAA section 111(d)(1), and for the same reasons, believe it is distinct from the factor Congress directed the agency to consider in CAA section 111(d)(2). Nonetheless, we unde rtook analysis in the final EGs of whether and to what extent there may be a “stranded asset” concern. See memorandum to Clean Power Plan Docket EPA

- HQ

OAR

- 2013

- 0602 titled “Stranded Assets Analysis” dated July 2015
. We believe that analysis demonstrates t hat this is not likely to be a widespread issue under the federal plan either.***E.O. 12866 Review

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only be used for a short period of time before a plant ceased operation. A House of Representatives report on a predecessor bill to the enacted statute stated, “Older plants with relatively short remaining useful lives might have chosen to cease operation if the only means of emission limitation available to meet emission limits were pollution control technology.” H. Report 94

- 1175, at 159 (1976) (emphasis added). This language is probative of the fact that Congress viewed “remaining useful lives” as a consideration for fac ilities with relatively little remaining useful life
. W e are confident the proposed federal plan will not force costly pollution control investments at older pl ants with short remaining useful lives. Further, t he statute provides that this factor is one “among other factors” that the agency is to consider in promulgating a standard of performance. Congress provided no guidance in the statute as to what those other factors could be.
T he inclusion of unspecified factors that the agency may determine for itself to consider , along with the use of the term “consider , ” highlights that Congress intended to give the agency a substantial degree of di scretion in determining how the “remaining useful li ves ” factor is considered. T he statute does not require, and Congress did not intend , that this consideration mandate the agency to prevent all premature***E.O. 12866 Review

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retirements of affected EGUs, to impose no emission requirements on older affected EGUs, or to ensure that profitability is maintained at all times for all aff ected EGUs. Congress knew how to explicitly exempt older plants from CAA requirements at the time of the 1977 Amendments. For example, Congress excluded plants in existence before August 7, 1977 from the preconstruction requirements of the PSD/non

- attainme nt new source review (NSR) program, see CAA section 165(a). And in CAA section 169A related to visibility impairment in f ederal class I areas, Congress excluded from applicability units that began operation before August 7, 1962 . 42 U.S.C. 7491(b)(2)(A). I n CAA section 111(d) Congress did not set any such specific criteria. Rather it directed the agency to “consider” the remaining useful liv e s of facilities, among other factors. This view also accords with past agency practice in implementing a similar prov ision. In the 1977 Amendments, Congress listed “remaining useful life” as a factor for consideration in the visibility program under section 169A. 42 USC 7491. The “remaining useful life of the source” is one of several enumerated factors that the state or the EPA is to consider in determining the best available retrofit technology (BART) for a particular source. Consistent with congressional purpose, the EPA has implemented this factor in the regional***E.O. 12866 Review

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haze program for many years through the BART guidelines , in

a ppendix Y to 40 CFR p art 51. The BART Guidelines provide: The “remaining useful life” of a source, if it represents a relatively short time period, may affect the annualized costs of retrofit controls. ... If the remaining useful life will clearly exc eed th[e] time period [for amortization based on the type of control], the remaining useful life has essentially no effect on control costs and on the BART determination process. Where the remaining useful life is less than the time period for amortizing c osts , you should use this shorter time period in your cost calculation. 40 CFR p art 51, App. a pp endix Y, section IV.D.4.k. In the agency’s view, this approach to “remaining useful life” aligns with congressional intent and informs our view of how the “remaining useful lives” factor should be considered under this
CAA section 111(d) federal plan. T he key consideration is whether the time period associated with amortizable costs of compliance will exceed the remaining useful lives of the source s in quest ion.
C onsistent with legislative intent and past agency practice , w e propose that the f ederal Plan adequately consider s ”remaining useful lives” of affected EGU s by providing for trading and other flexibilities authorized in the EGs. To summarize, these in clude: relatively long periods for affected EGUs to come into compliance, the abil ity to credit early action, the use of emissions trading, the use of multi

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compliance periods, and the ability to link to other federal or state plans to create larger e mission s markets. T he f ederal p lan is proposed to include a Clean Energy Incentive Program as provided for in the EGs, which will credit early action and ease compliance in the first initial years of the program. T hese tools will create economic incentives that reward over

- performance of

some affected EGUs , and allow others to simply acquire credits or allowances to comply with their emission standard, thereby avoid ing the need for installation of costly pollution controls
at sour ces with a short remaining life
. T hus, t he proposed federal plan is designed in such a way that it adequately, and inherently, takes into account the remaining useful liv e s of affected EGUs. It provides substantial compliance flexibility, including means o f avoiding the need to make extensive capital investments in control technologies that could not be recouped during the remaining use ful liv e s of a facility. 36 The design of the federal plan as a form of emission

36 Because we believe that this is the case for all facilities through the basic design of the federal plan, we also can confirm, in line with the EGs, that the availability of variances from the emission standards is unnecessary in the federal plan. Under the general framework regulations, facility

- specific variances from an otherwise applicable standard of performance have been potentially available under the application proces s in 40 CFR 60.27(e)(2),***E.O. 12866 Review

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trading provides individual affected EGUs th e flexibility to make co st

- conscious compliance choices. This flexibility avoids or substantially diminishes any likelihood that compliance will be a physical impossibility or result in unreasonable costs. By relying on either rate

- or mass - based emission trading, the proposed federal plan capitalizes on the inherent flexibility available through market

- based techniq ues. In effect, under a trading program with repeating compliance periods, a facility with a short remaining useful life has a total outlay tha t is proportionately smaller than a facility with a long remaining useful life, simply because the first facility would need to comply for fewer compliance periods and would need proportionately fewer ERCs or allowances than the second facility. Buying ERC s or allowances as a compliance method could avoid excessive up

- front capital expenditures that

which incorporates the factors provided in 40 CFR 60.24(f) for states. Consistent with our view that the federal plan adequately considers remaining useful lives, and for the same reasons, the need for facility

- specific variances u nder the circumstances of 60.24(f) (unreasonable costs of controls, physical impossibility of installation of necessary control equipment, or other factors that make longer compliance times or less stringent standards significantly more reasonable) is not expected to arise, and thus, the agency proposes to make 40 CFR 60.27(e) inapplicable in this federal plan.***E.O. 12866 Review

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might be unreasonable for facilities with short remaining useful liv e s , and therefore addresses the consideration of “remaining useful liv e s .” Buying ERCs or al lowances as a compliance method also would reduce the potential for stranded assets. In addition , the timing of the federal plan limits the immediate costs of compliance, particularly for facilities that have useful liv e s ending before 2022, but also for facilities that have useful liv e s ending before 2030. There are no compliance obligations for affected EGUs under this federal plan until 2022, when the first compliance period begins. At that point, the agency is following the glide path provided for in
t he EGs , which begins with relatively higher emission targets that will slowly strenghten over the interim performance period from 2022

- 2029 through three multi

- year compliance periods . The final, most stringent, compliance obligation does not begin until 2 030. Further, unlike state plans that can be more stringent under CAA section 116, the federal plan is no more stringent than the EGs , and , as explained in the EGs, the Guidelines reflect a reasonable, rather than a maximum possible, implementation level f or each building block in order to establish overall goals that are achievable. As discussed in the
EG , &&&cite , the BSER determined an average level of emissions***E.O. 12866 Review

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achievable by groups of EGUs, rather than for an individual EGU. In considering the remainin g useful liv e s of facilities under a federal plan, the EPA believes this approach to setting the emission standards, coupled with the ability to trade, adequately accounts for remaining useful liv e s of facilities. In essence, it allows the facilities to co mply with the federal plan through the purchase or acquisition of ERCs or allowances, and to avoid the need to make costly investments in control technology for plants that have short remaining useful liv e s . 37 For these reasons, we believe the federal plan adequately considers “remaining useful liv e s .” We invite comment on our consideration of facilities’ “remaining useful liv e s ” in the federal plan.

H. Implications for Other EPA Programs and Rules 1. Title V Permitting

a. Permitting Requirements Under the proposed f ederal p lan, title V permits for sources with affected EGUs will need to include any new

37 In addition, the ability to generate ERCs for sale or to sell unneeded emission allowances (depending on whether in a rate

- or mass - based system) may give some affected EGUs an economic incentive to take measures to reduce emissions that otherwise would have been uneconomical.***E.O. 12866 Review

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applicable requirements that the plan places on the affected EGUs. The EPA, however, is not proposing any permitting requirements independent of those that would be r equired under title V of the Clean Air Act C AA and the regulations implementing title V, 40 CFR p arts 70 and 71. 38 All major stationary sources of air pollution and certain other sources are required to apply for title V operatin g permits that include emissi on limitations and other conditions as necessary to assure compliance with applicable requirements of the CAA, including the requirements of an applicable CAA section 111(d) state plan or federal plan.
CAA §§ sections 502(a) and 504(a), 42 U.S.C. 7661a(a) a nd 7661c(a). The “applicable requirements” that must be addressed in title V permits are defined in the title V regulations, and include requirements under CAA section 111(d) (40 CFR 70.2 and 71.2 (definition of “applicable requirement”)). The EPA anticipa tes that, given the nature of the units covered by the proposed f ederal p lan, most of the sources at which they are located are already or will be subject to title V permitting requirements. For sources subject to title V, the

38 Part 70 addresses requirements for title V programs implemented by state, local, and tribal governments, and part 71 gover ns the title V program implemented by the EPA or delegate agencies in areas under federal jurisdiction, such as Indian country.***E.O. 12866 Review

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requirements applicable to th em under the proposed f ederal p lan will be “applicable requirements” under title V and , therefore , will need to be addressed in the title V permits. For example, requirements under the proposed f ederal p lan concerning designated representatives, monitoring, reporting, and recordkeeping, the requirement to either meet an emission rate (including through holding ERCs (rate

- based approach) ) , or to hold allowances covering emissions (mass

- based approach) will be “applicable requirements” to be address ed in the permits. The EPA does not believe this approach is affected by the Supreme Court’s decision in Utility Air Regulatory Group v U.S.
EPA , 134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that the EPA may not treat GHGs as an air pollutant fo r purposes of determining whether a source is a major source required to obtain a title V operating permit. In accordance with that decision, the D.C. Circuit’s amended judgment on April 10, 2015 vacated the title V regulations under review in that case (4 0 CFR 70.12 and 71.13) to the extent that they require a stationary source to obtain a title V permit solely because the source emits or has the potential to emit GHGs above the applicable major source thresholds. The D.C. Circuit also directed the EPA to consider whether any further revisions to its regulations are appropriate in light of UARG v. EPA , and, if***E.O. 12866 Review

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so, to undertake to make such revisions. As the agency made clear in a memorandum to Regional Administrators last year, “While the EPA will no longer apply or enforce the requirement that a source obtain a title V permit solely because it emits or has the potential to emit greenhouse gases GHGs above major source thresholds, the agency does not read the Supreme Court decision to affect other grounds on which a title V permit may be required or the applicable requirements that must be addressed in title V permits.” 39 Accordingly, while the emission of GHGs alone cannot trigger the need for a title V permit under
UARG , the EPA believes a final federal plan under CAA section 111(d) will create new “applicable requirements” in the form of an emission standard (either an emission rate or an allowance system) and related requirements for GHGs (here, carbon dioxide CO 2 ) on affected EGUs. See 40 CFR 70.2, 71.2 (def inition of “applicable requirement” includes “any standard or other requirement under section 111 of the Act, including section 111(d) ”) (emphasis added). Thus, an affected EGU may be required to modify its existing title V permit, or obtain a new permit i f

39 Memorandum from Janet McCabe, Acting Assistant Administrator, Office of Air and Radiation, and Cynthia Giles, Assistant Admini strator, to Regional Administrators, Regions 1

- 10, at 5 (July 24, 2014).***E.O. 12866 Review

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it does not already have one, if it becomes subject to an emission standard for carbon dioxide under a CO 2 under a CAA section 111(d) f ederal p lan. The title V permits program is structured to provide flexibility for market

- based approaches, such as allowance trading programs under the f ederal p lan, including flexibility to make changes under such programs without necessarily requiring a formal permit revision
. For example, the title V regulations provide that a permit issued under title V shall include, for any “approved * * * emissions trading or other similar programs or processes” applicable to the source, a provision stating that no permit revisio n is required “for changes that are provided for in the permit.” 40 CFR 70.6(a)(8) and 71.6(a)(8). Consistent with this provision in the title V regulations, the proposed f ederal p lan regulations include a provision stating that no permit revision shall be required for the allocation, holding, deduction, or transfer of allowances once the requirements applicable to such allocations, holdings, deductions, or transfers of CO 2 allowances are already incorporated in such permit . Consistent with title V regulati ons, this provision should be included in each title V permit for a covered source. As a result, allowances will be able to be traded (or allocated, held, or deducted) under the***E.O. 12866 Review

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f ederal p lan without a revision of the title V permit of any of the sources in volved. As a further example of flexibility under title V, the title V regulations allow the use of the minor permit modification procedures for permit modifications “involving the use of economic incentives, marketable permits, emissions trading, and othe r similar approaches, to the extent that such minor permit modification procedures are explicitly provided for in an applicable implementation plan or in applicable requirements promulgated by EPA.” 40 CFR 70.7(e)(2)(i)(B) and 40 CFR 71.7(e)(1)(i)(B). Ther efore, the EPA is proposing that any changes that may be required to an operating permit with respect to a trading program under the federal p lan may be made using the minor permit modification procedures of the title V rules. The EPA proposes that s uch ch anges may include the initial changes needed to the title V permit to establish the applicability of the trading program to the source, specify the covered units, and to include other permit terms that may be needed for implementation, including the genera l approach for monitoring and reporting. The minor permit modification procedures could also be used for any subsequent changes to permit terms that may be needed with respect to the trading program, although we expect such changes to be infrequent . As***E.O. 12866 Review

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not ed above, once a trading program has been established in the permit, there may be transactions, such as individual trades, that will require no formal permit modification procedures because such trading would be already addressed and allowed by the permit (“provided for in the permit”) and provided the changes do not conflict with any existing terms of the permit. If a sources wishes to make a change that would go against any express term of the permit, the permit must be revised to allow such a change befo re the source begins operation of the change. Under the implementation strategy described above, the EPA believes it would be unlikely that any change in trading allowances would violate a term of a permit, but this principle is important to keep in mind w hen deciding if a minor permit modification is appropriate with respect to operating a trading program in the context of a title V permit. The EPA believes that the approach to permitting requirements we are proposing here, which imposes no additional
perm itting requirements independent of title V and provides for the use of minor permit modification procedures, will streamline the process for sources already required to be permitted under title V and for permitting authorities. If there are any sources tha t would become newly subject to title V as a result of the requirements of this proposed f ederal p lan, the initial title V***E.O. 12866 Review

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permit that would be issued pursuant to 40 CFR 70.7(a) or 71.7(a) would address the f ederal p lan requirements, when finalized. The EP A notes that the approach to title V permitting that is being propos ed is somewhat similar to the approach adopted in the final Cross

- State Air Pollution Rule ( CSAPR ).
. See 76 FR 48299

- 30 (Aug. 8, 2011). The agency recently issued guidance to assist permitting authorities and sources subject to CSAPR in incorporating CSAPR requirements into title V permits. 40 The EPA invites comment on its proposed approach to permitting requirements for the f ederal p lan , including whether it would be of use to develop guidance similar to the guidance developed for permitting under CSAPR. The EPA invites comment on its proposed approach to incorporating applicable requirements of the federal plan into title V permits and revising those requirements, including specifical ly seeking comment on whether all requirements should be eligible for incorporation into title V permits via minor modification procedures or if only a specified

40 Memorandum from Anna Marie Wood, Director, Air Quality Policy Division, Office of Air Quality Planning and Standards (OAQPS), and Reid P. Harvey, Director, Clean Air Markets Divisio n, Office of Atmospheric Programs (OAP), to Regional Air Division Directors, 1

- 7, regarding Title V Permit Guidance and Template for the Cross

State Air Pollution Rule (May 13, 2015).***E.O. 12866 Review

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subset of such requirements should be eligible for such procedures. The EPA also notes that the applicable requirements of this proposed federal plan would apply to a source and are independently enforceable regardless of whether they have yet been included in the source’s Title V permit. 2. Implications for New Source Review Program The new source review ( NSR ) program is a preconstruction permitting program that requires major stationary sources of air pollution to obtain permits prior to beginning construction. The requirements of the NSR program apply both to new construction and to modifications of existing major sources. Generally, a source triggers these permitting requirements as a result of a modification when it undertakes a physical or operational change that results in a significant emission increase and a net emissions increase. NSR regul ations define what constitutes a significant net emissions increase, and the concept is pollutant

- specific. In the final EG s , &&&[citation], the EPA recognized that, as part of its CAA section 111(d) plan, a state may impose requirements that require an a ffected EGU to undertake a physical or operational change to improve the unit’s efficiency that results in an increase in the unit’s dispatch and an***E.O. 12866 Review

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increase in the unit’s annual emissions. If the emissions increase associated with the unit’s changes excee ds the thresholds in the NSR regulations for one or more regulated NSR pollutants, including the netting analysis, the changes would trigger NSR. We noted that while there may be instances in which an NSR permit would be required, we expect those situation s to be few. The EPA believes the analysis of NSR applicability is basically the same for sources under a CAA section 111(d) federal plan. That is, it is conceivable that a source under a federal plan may choose, as a means of compliance with either a
rate

- based or mass

- based approach, to undertake a physical or operational change to improve an affected EGU’s efficiency that results in a sign ificant net emissions increase of a regulated NSR pollutant. This would trigger NSR. However, as with state plans, the EPA believes that these situations will be few. After the proposal for the Clean Power Plan was published in June of 2014, the United Sta tes U.S. Supreme Court issued its opinion in UARG v EPA , 134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that an increase in greenhouse gas GHG emissions alone cannot by law trigger the NSR requirements of the PSD program under section 165 of the CAA . On remand from the Court, the D.C. Circuit issued an amended judgment in Coalition***E.O. 12866 Review

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for Responsible Regulation, Inc. v. Environmental Protection Agency , Nos. 09

- 1322, 10

- 073, 10

- 1092 and 10

- 1167 (D.C. Cir., April 10, 2015), vacating the relevant regulatio ns . Therefore, increases in emissions of greenhouse gases GHGs alone, including those that may occur through actions taken at sources to comply with the proposed f ederal p lan (such as may occur when an NGCC unit increases its operations due to generation sh ift from a steam generating unit SGU ), cannot trigger NSR. The EPA invites comment on what actions sources might take to comply with the f ederal p lan that could trigger NSR, and what flexibilities may be available in the existing NSR program to avoid the ne ed for pre

- construction review in those circumstances. 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 cons istent with judicial precedent. However, the EPA is not proposing any changes to the NSR program in this a ction, 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 out side the scope of this proposed rule. 3. Interactions with Other EPA Rules Existing fossil fuel

- fired EGUs, such as those covered in this proposal, are or will be potentially impacted by several other rules recently finalized or proposed by the EPA . 41
. These

41 We discuss other rulemakings solely for background purposes. The effor t to coordinate rulemakings is not a defense to a violation of the CAA. Sources cannot defer compliance with existing***E.O. 12866 Review

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rules include the Mercury and Air Toxics Standards (MAT S) (77 FR 9304; Feb. 16, 2012 ) ) ; 42 ; the Cross

- State Air Pollution Rule ( CSAPR ); ; Requirements for Cooling Water Intake Structures at Power Plants (79 FR 48300; Aug. 15, 2014); Disposal of Coal Combustion Residuals from Electric Utilities (CCR Rule), , issued on December 19, 2014; and the proposed Steam Electric Effluent Limitation Guidelines and Standards ( SE ELG Rule) ( 78 FR 34432; June 7, 2013). These rules are discussed in more detail in the final EGs along with steps the EPA is taking to enable compliance with obligations under other power sector rules as efficiently as possible. &&&citation. We solicit comment on whether there are specific things the EPA can do in the design and implementation of the f ederal p lan that further this objective.
I. Administrati ve Appeals Process Under either a rate

- based or mass

- based trading program, the EPA anticipates that there may be situations in which indi vidual parties are affected by decisions of the a gency. For example, under a rate

- based plan, a determination may be made
requirements because of other upcoming regulations. 42 The Supreme Court recently reversed and remanded a D.C. Circuit Court of Appeals dec ision that had upheld the MATS rule. Mich. v. EPA , No. 14

- 46 (S. Ct. filed June 29, 2015). The Court did not vacate the rule, however, and it remains in effect.***E.O. 12866 Review

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that an eligibility application by an ERC provider is denied. And, for set

- asides in the mass

- based program, an affected EGU may believe that its allowance allocation amount was misca lculated . Similar to prior trading programs, 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 o f the regulations for appeals procedures set forth in 40 CFR p art 78, to provide for the adjudication of certain disputes that may arise during the course of implementation of a federal plan under CAA section 111(d). We also propose to revise part 78 to ac commodate such appeals. The p art 78 procedures cover prior CAA emission trading programs and were specifically designed with these types of disputes in mind. The persons eligible to file such appeals would be similar to the existing definition of an “inter ested person” in p art 78. The filing of an appeal and the exhaustion of administrative remedies under p art 78 would be a prerequisite to seeking judicial review. For purposes of judicial review, final agency action would occur only when an agency decision under the federal plan listed as appealable under p art 78 has been issued, and the procedures of p art 78 for appealing the decision are exhausted.***E.O. 12866 Review

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The actions we propose to list as appealable under the p art 78 procedures are as follows. In the case of th e rate

- based federal plan: decisions on an eligibility application for ERCs; decisions regarding the number of ERCs generated; decisions on the transfer of ERCs; decisions on the disallowance of ERCs for compliance; decisions that there has been an excess of emissions requiring a 2

- for

- 1 ERC administrative compliance penalty; decisions regarding deduction or surrender of ERCs for compliance from affecte affecte d EGUs’ compliance accounts; decisions on the accreditation of independent verifiers; the use of er ror corrections regarding information submitted by ERC providers, affected EGUs, or other ERC account holders; and the finalization of control compliance period emissions data, including retroactive adjustment based on audit or other investigation. In the case of a mass

- based federal plan: decisions on an eligibilty application for set

- aside allowances; decisions regarding the allocation of allowances to affected EGUs; decisions regarding the allocation of allowances from set

asides; decisions on the trans fer of allowances ; decisions regarding the finalization of emissions data by affected EGUs during compliance periods; decisions making error corrections to information submitted by affected EGUs and other account***E.O. 12866 Review

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holders; decisions that there has been exce ss emissions requiring a 2

- for

- 1 allowance administrative compliance penalty; and decisions regarding the deduction or surrender of allowances for compliance from affected EGUs’ compliance accounts. We request comment on this list of actions for both type s of approaches to the federal plan, and whether there are other decisions that may be made in the course of implementation of the federal plan that are party

- specific that would be appropriate to list as appealable under p art 78. We also take
comment on w hether it would be appropriate for the EPA to finalize an administrative appeals process that differs in any
way from that offered under p art 78, or in addition to that offered under p art 78. If so, we request comment broadly on all aspects of the alternative or additional adminsitrative appeals process, including with respect to any structural, procedural, subtantive, and timing requirements it should include, who should have access to it and in what manner, and how it would differ from p art 78. Finally, we request comment on whether, similar to other programs identified in 40 CFR 78.1(a)(1), the agency should make the procedures of p art 78 available to any actions of the Administrator under the comparable state regulations approved as a part of a state plan under the EGs .***E.O. 12866 Review

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J. Consistency of Program Structure w ith Clean Air Act Authority The EPA is co

- proposing two distinct forms of emissions trading as the mechanism for federal implementat ion of standards of performance that achieve the emission performance levels by determined by application of the Best System of Emission Reduction ( BSER ) in the Clean Power Plan EGs . Both proposals are “emission standard” approaches as defined in the EGs , and t he EPA is not proposing an approach like the “state measures” approach that is also available to states in the final EGs . The EPA has legal authority to establish either of the proposed trading systems as a federal plan under CAA section 111(d)(2).
We discuss this topic briefly here and invite public comment.
T he EGs discussed the role of emissions trading in the BSER,

see , e.g., s ection V.A of the preamble to the final EGs . The EPA regards this to be a separate issue and is not revisiting or reopening th e discussion of the BSER or the role of trading in the BSER here. The EGs recognize and provide ample opportunity for states to establish standards of performance that allow the use of emissions trading or other multi

- unit compliance approaches. H ere we discuss why an emissions trading program is a lawful and appropriate form of federal “implementation” of a

" “ standard of performance " ” under CAA section 111(d)(2). We invite comment on this legal discussion and the agency’s***E.O. 12866 Review

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interpretation of its authori ty. 1. General Section 111(d)(2) Authority Section 111(d)(2) provides as follows: The Administrator shall have the same authority

— (A) to prescribe a plan for a State in cases where the State fails to submit a satisfactory plan as he would have under section 7410(c) of this title [CAA section 110(c)] in the case of failure to submit an implementation plan, and (B) to enforce the prov isions of such plan in cases where the State fails to enforce them as he would have under sections 7413 and 7414 of this title [CAA sections 113 and 114] with respect to an implementation plan. In promulgating a standard of performance under a plan
prescr ibed under this paragraph, the Administrator shall take into consideration, among other factors, the remaining useful lives of the sources in the category of sources to which such standard applies. 42 U.S.C. 7411(d)(2). 43 The phrase “same authority to presc ribe” indicates that Congress viewed the EPA’s authority to issue a federal plan for designated pollutants under CAA section 111(d) as, in some

43 The agency’s interpretation of the “remaining useful lives” provision is discussed above in s ection III.G of this preamble
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sense, co - extensive with its authority to issue a FIP for National Ambient Air Quality Standards ( NAAQS ) pollutants under CAA section 110. This authority under CAA section 111, of course, must be understood in reference to the purpose of that section ( i.e., to achieve emission reductions for designated pollutants from designated facilities), rather than in r eference to the purpose of s ection 110 ( i.e., to attain and maintain the NAAQS). However, it has been the agency’s longstanding view that , in both procedural and substantive respects, Congress intended that the CAA s ection 110 authority be looked to under
CAA s ection 111(d)(2). See 40 FR 53340, at 53342 (Nov. 17, 1975) (“It is obvious that [the Administrator] could only prescribe standards on some substantive basis. The references to section 110 of the CAA suggest that (as in CAA section 110) [she] was inte nded to do generally what the states in such cases should have done, which in turn suggests that (as in CAA section 110) Congress intended the states to prescribe standards on some substantive basis. Thus, it seems clear that some substantive criterion was intended to govern not only the Administrator’s promulgation of standards but also [her] review of state plans.”). Over the several decades of implementation of the Clean Air
Act C AA , the courts, and the EPA, have addressed the nature and***E.O. 12866 Review

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scope of CAA section 110 authority. See, e.g., 71 FR 25328, 25338 (May 12, 2005) (CAIR final rule). In general, the EPA has broad power under CAA section 110(c) to cure a defective state implementation plan. SIP . Thus, in promulgating a FIP under CAA section 110, the EP A may exercise its own, independent regulatory authority in accordance with CAA section 110(c) and the CAA more broadly. When the EPA has promulgated a FIP, courts have not required explicit authority for specific measures: “We are inclined to construe Con gress' Congress ’ broad grant of power to the EPA as including all enforcement devices reasonably necessary to the achievement and maintenance of the goals established by the legislation.” South Terminal Corp. v. EPA , 504 F.2d 646, 669 (1 st Cir. 1974). Further, the same authority that is exercised by the states under the CAA in connection with the adoption, implementation, and enforcement of a SIP may be assumed to be available to the EPA when the agency issues a FIP, after determining that a state has not adopted a satisfactory SIP. As the Ninth Circuit has held, when the EPA acts in place of the state pursuant to a FIP under CAA section 110(c), the EPA “stands in the shoes of the defaulting state, and all of the rights and duties that would otherwise fall to the state accrue instead to EPA.” Central Ariz. Water Conservation Dist. V. EPA , 990 F.2d 1531, 1541 (9 th Cir. 1993). Accord, South Terminal , 504***E.O. 12866 Review

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F.2d at 668 (“[T]he Administrator must promulgate promptly regulations setting forth an imp lementation plan for a state should the state itself fail to propose a satisfactory one. The statutory scheme would be unworkable were it read as giving to the EPA when promulgating an implementation plan for a state, less than those necessary measures all owed by Congress to a state to accomplish f ederal clean air goals. We do not adopt any such crippling interpretation.”). By the same token, if there are clear limits to the EPA’s CAA section 110(c) authority, those too, would arguably carry
over to CAA sec tion 111(d)(2). For instance, CAA section 110(c)(1) ties the EPA’s authority to promulgate a final FIP for
a state to the EPA’s predicate action on a state implementation plan SIP (or lack thereof): generally, either an action disapproving a plan, or a finding that a state has failed to submit a plan. However, even here, as the Supreme Court has recognized, “the plain text of the CAA grants EPA plenary authority to issue a FIP ‘at a ny time’ within the two 2

- year period that begins the moment EPA determines a SIP to be inadequate.” EPA v. EME Homer City Generation , 134 S. Ct. 1584, 1602 n.14 (2014). Congress gave the EPA the same authority to prescribe a plan under CAA section 111(d)( 2) as it possesses under CAA***E.O. 12866 Review

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section 110(c). The EPA believes this authority is the “same” in the sense described above and in the case law. 44 The scope of the EPA’s action to undertake a FIP under CAA section 110 is informed by the scope of the state’s action to undertake a SIP; likewise, the scope of the EPA’s action to undertake a federal plan under CAA section 111(d) is informed by the scope of the state’s action to undertake a state plan. The agency received comments on the proposed EGs from commenters who stated that the EPA cannot require states to implement the building blocks that make up the BSER , ; for example, ordering re

- dispatch to natural gas

- fired units, or ordering the construction of rene wable energy RE projects. These commenters went on to say that the EPA itself would have no authority to order these types of actions under a federal plan. As we explain ed in the Legal Memorandum for the final EGs , and reiterate here, t he

44 We interpret the cross

- reference to be to the currently enacted version of CAA section 110(c), rather than to a prior version. As discussed in section VII of this preamble, below, the current version of CAA section 110, inc luding subsection (c), reflects changes made in the 1990 Amendments based on experience gained in the first two decades of the CAA’s implementation. The statute and legislative history do not expressly address the question, but there is no indication Congr ess would have intended to prevent these improvements from being available under CAA section 111 as well.***E.O. 12866 Review

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premise of these c omments is incorrect. The EPA is not requiring the implementation of the BSER or the building blocks in the EGs . Even where the EPA is directly implementing standards of performance in a federal plan, the agency will not, and need not, attempt to order sou rces to implement the measures that comprise the BSER. Rather, as set forth in the co

- proposed federal plans discussed in s ections IV and V of this preamble , the EPA would set emission standards for each of the affected EGUs in the federal

plan state, provide mechanisms for their implementation and enforcement, and otherwise leave to the owners and operators of the affected EGUs the decisions about what measures they want to take to comply with the emission standard. Though the emission standards will be federally enforceable, as under a state plan, sources may achieve them through implementation of measures in the BSER, or any other method. Thus, the question whether the EPA would have the authority to directly order the implementation of the measures in the building blocks in this proposed federal plan is not only not relevant but represents a categorical misunderstanding of the nature of the BSER in relation to the i mposition of standards of performance under a CAA section 111(d) plan . To illustrate this, by the same token the EPA could not enforce many logistical aspects of a control requirement such as a scrubber

– for instance, the***E.O. 12866 Review

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EPA does not need to assert the a uthority to order into existence companies that manufacture scrubbers, or order their construction or delivery on a certain schedule. The EPA need not in setting emission standards have before it all of the information regarding manufacturing , transportati on of part s, or other logistical requirements to ensure that each scrubber gets constructed and delivered to a source. Similarly, the EPA here does not, and needs not, propose an implementation approach of directly intervening to

re - dispatch certain units, construct new renewable energy RE projects, or take other measures, either included in the BSER or
not. T he agency determined the BSER and emission performance levels in the EGs on a reasonable assumption that all of those things can actually happen. In pr oviding for the implementation of federally enforceable standards of performance in the federal plan proposed in this action , the agency is ensuring that these things will happen
. 2. Use of Market Techniques to Implement Standards of Performance under the Clean Air Act The use of market techniques such as emission trading is well

- supported in the Clean Air Act C AA and has many regulatory precedents. The EPA discussed this history, and the reason why trading is a supportable method of implementation of stan dards of performance under CAA section 111(d) in the Emissions***E.O. 12866 Review

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Guidelines EGs . See s ection V.A of the final EGs . Here we supplement that discussion with respect to the agency’s own authority under CAA section 111(d)(2) to use trading as a method of implemen tation of a “standard of performance” in the federal plan
. The 1990 CAA Amendments added broad authorizations for the use of market techniques in several sections of the statute, including in Title I. States were provided express authority to use such approaches in their NAAQS implementation plans under
CAA s ection 110(a)(2)( A): “Each [state] plan shall

— include enforceable emission limitations and other control measures, means, or techniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights)....” 42 USC 7410(a)(2)(A). The EPA was g iven similar authority in the definition of a “Federal Implementation Plan” in CAA section 302: “The term ‘Federal implementation plan’ means a plan (or portion thereof) promulgated by the Administrator ... which includes enforceable emissions limitations or other control techniques (including economic incentives, such as marketable permits or auctions of emissions allowances), and provides for attainment of the relevant national ambient air quality standard.” 42 U.S.C. 7603(y). Section 111(d)(2) of the CAA
p rovides the EPA “the same power to prescribe” a federal plan***E.O. 12866 Review

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under CAA section 111 as it would have to promulgate a FIP under
CAA section 110(c). Thus, the EPA believes the plain language of the statute authorizes the use of market techniques in CAA sectio n 111(d) federal plan s. However, even if one were to view this language as not wholly unambiguous with respect to the scope of federal authority under CAA section 111, the EPA believes that CAA section 111, in conjunction with authorizations and endorsements of market techniques throughout the Act CA A , and other indicia of congressional intent, strongly support the view that market techniques are within the EPA’s authority to promulgate a federal plan under CAA section 111(d). Case law throughout the history of the CAA has generally confirmed the legal viability of emissions trading as an implementation measure so long as the trading ultimately achieves the emission reduction goals of the statute. See, e.g., Sierra Club v. EPA , No. 12

- 3169 (6 th Cir. F iled March 18, 2015), Slip Op. at 11

- 14 (upholding EPA approval of redesignation of area to attainment on basis that reductions in emissions from
cap - and

- trade programs ( NO x SIP Call, CAIR, and CSAPR) a re permanent and enforceable). Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. , 467 U.S. 837 (1984) (“ Chevron ”), the seminal case establishing the Supreme Court’s standard of review***E.O. 12866 Review

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of agency interpretations of the statutes they administer, upheld one of the EPA’s early emissions trading programs, the Netting Rules of 1980 (45 FR 52676; Aug. 7, 1980), which the EPA in its discretion chose to allow states to apply in both attainment and nonattainment areas (46 FR 50766; Oct. 14, 1981). The Netting Rules allowed existing major sources to modify without triggering certain requirements of PSD or nonattainment NSR, so long as any increase in emissions associated with the modification is compensated for by a corresponding decrease in emissions elsewhere within the same facility, such that there is no significant net increase in emissions from the facility as a whole. In upholding this approach in Chevron , the Supreme Court gave deference to the EPA’s definition of the term “source,” finding in that term sufficient ambiguity to support the

a gency’s reasoned application of an emissions averaging approach for total pollutio n emitted from the source. See EPA v. EME Homer City , 134 S. Ct. 1584, 1603 (2014) (“Because ‘a full understanding of the force of the statutory policy . . . depend[s] upon more than ordinary knowledge’ of the situation, the administering agency’s construc tion is to be accorded ‘controlling weight unless . . . arbitrary, capricious, or manifestly contrary to the statute.’”) (quoting Chevron , 467***E.O. 12866 Review

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U.S. at 844). 45 With the increasing recognition of the utility of trading, crediting, and averaging to meet emiss ion reduction goals efficiently , the EPA set forth a comprehensive policy on trading in 1986. Emissions Trading Policy Statement; General Principles for Creation, Banking and Use of Emission Reduction Credits, 51 FR 43814 (Dec. 4, 1986) (hereinafter “ERC P olicy”). In the ERC Policy, the EPA stated that it “endorses emissions trading and encourages its sound use by states and industry to help meet the goals of the Clean Air Act CAA t more quickly and inexpensively.” At the same time, based on lessons learned f rom its earlier 1982 trading policy, the EPA took steps to tighten its policies on the use of “bubbles” to ensure environmental integrity of trading, particularly in non

- attainment areas. The agency emphasized the requirements of enforceability, tracking ( and

45 The EPA is not aware of any case since at least the Chevron decision in which a trading program under the CAA was invalidated simply by virtue of be ing a trading program. The CAIR trading program was set aside by the D.C. Circuit because the court held it did not accomplish the objective of the Good Neighbor provision of the CAA, not because it used a trading approach per se. North Carolina v. U.S. EP A , 531 F.3d 896, 921 (D.C. Cir. 2008). More recently the Supreme Court upheld key portions of the CSAPR trading program that replaced CAIR in EPA v. EME Homer City , 134 S. Ct. 1584 (2014).***E.O. 12866 Review

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preventing double

- counting), determining the appropriate baseline from which to measure emissions, and demonstration of actual air quality benefits. The use of an emissions trading system for CO 2 reductions for affected EGUs under CAA section 111(d) is also analogous to the trading system for chlorofluorocarbons (CFCs) under the pre

1990 CAA provision for control of stratospheric ozone depleting substances. This program was reviewed by the Office of Legal Counsel (OLC) within the Department of Justice in 1989. See Memorandum for Alan Raul, General Counsel, Office of Management and Budget, from the Office of the Assistant Attorney General (April 14, 1989) (hereinafter “OLC Memo”). 46 The OLC was asked by OMB to opine whether a general grant of reg ulatory authority to the EPA to “control” CFCs was sufficient to authorize an emissions fee or a cap - and

- trade system, including auction , of tradable allowances. The statute authorized the EPA to issue regulations “for the control of any substance, practic e, process, or activity (or any combination thereof) which in his judgment may reasonably be anticipated to affect the stratosphere, especially ozone in the stratosphere, if such effect in the stratosphere may reasonably be anticipated to

46 A copy of this memorandum has been placed in the docket for this rulemaking.***E.O. 12866 Review

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endanger public h ealth.” Former CAA 157(b) (as enacted in the 1977 CAA amendments). The Office of Legal Counsel concluded that this language

-- – which it characterized as “plain,” “unambiguous,” and “sweeping”

-- – was sufficient to authorize the EPA to establish a cap

- and

- trade program with auction for
CFCs. See id. A t 7 (“It cannot seriously be argued that the use of economic incentives to regulate pollution is a novel or strange idea that could not have been anticipated by the authors of the Clean Air Act Amendments [of 1 977].”) (citing multiple examples from the policy literature as early as E. Mishan, The Costs of Economic Growth (1967 ). ) )
. The OLC noted that as of 1977, “Congress was cognizant of economic forms of regulation, did not prohibit them, but instead used general language permitting a wide scope of regulatory measures for the control of CFCs.” To interpret the general authority of this section of the CAA as affirmatively prohibiting market incentives would be, in the OLC’s words, to read into the statute the italicized clause “regulations for the control [of CFCs] by traditional command and control or specification standard methods ,” id
. A t 9

– a rewriting “unwarranted in any case, but especially so where Congress was aware of economic methods of control and where such methods so ably serve the underlying purposes of the statute.” Id.***E.O. 12866 Review

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By the time of the 1990 CAA Amendments, as discussed above, Congress was comfortable enough with the efficacy of market techniques that they were broadly authorized for use in
state SIPs and FIPs for NAAQS. See 42 U.S.C. 7410(a)(2)(A), 7602(y). In the wake of the 1990 Amendments, the EPA issued an “Implementa tion Strategy for the Clean Air Act Amendments of 1990.” 47 This Strategy included as one of nine overarching implementation principles, “Market

- based: Use of market

- based approaches and other innovative strategies to creatively solve environmental problems. ” Further, it announced that the EPA would make “full use of innovative market

- based approaches,” and that the a gency will supplement traditional approaches with broader use of market incentives and other innovative approaches “whenever possible.” Id. A t 3, 9. Since the 1990 Amendments, the EPA has established three of its most robust trading programs

– the Federal NO x Budget Trading Program (65 FR 2674; Jan. 18, 2000), the Clean Air Interstate Rule ( CAIR ) (71 FR 25328; April 28, 2006), and the Cross

- State Air Pollution Rule ( CSAPR ) (76 FR 48208; Aug. 8, 2011), under

47 U.S. EPA, Office of Air and Radiation, Implementation Strategy for the Clean Air Act Amendments of 1990 (Update, 1992) (July 1992), 400

- K

- 92

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CAA section 110(a)(2)(D)(i)(I), relating to air pollution that causes nonattainment or interference with maintenance of air quality standards in downwind states. 48 As noted in the rulemaking no tice for the final EGs , &&&cite&&&, the EPA has instituted or authorized the use of emissions trading programs twice in the past under CAA section 111(d). The EPA authorized NO x emissions averaging or trading within or between facilities under the Municipal Waste Combustors Emission Guidelines EG s in 1995. 60 FR 65387, 65402 (Dec. 19, 1995) (codified at 40 CFR 60.33b(d)(1) and (2)). The EPA also developed a cap - and

- trade system fo r mercury under CAA section 111(d) in the Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 2005). The EPA proposed a federal plan for trading that was identical in all relevant respects to the CAMR rule. 71 FR 77100 (Dec. 22, 2006). However, CAMR was va cated by the D.C. Circuit on grounds unrelated to the establishment of a trading system for implementation , before the CAMR federal plan could be

48 The EPA notes that complicat ions that arise with respect to assigning a “significant contribution” among upwind states for NAAQS pollutant levels in downwind states, and designing a trading regime that accomplishes Good Neighbor objectives, are not present with respect to CO 2 , which is a global pollutant; emission reductions anywhere contribute to the environmental objective of addressing climate change.***E.O. 12866 Review

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finalized. New Jersey v. EPA , 517 F.3d 574 (D.C. Cir. 2008). 49 The agency believes these legal and administrat ive precedents for federal trading programs under the Clean Air
Act C AA going back decades amply support its decision to propose two forms of emission trading as the method of implementation of the Clean Power Plan E G s in the federal plan . Notably, emissions trading is particularly appropriate with respect to a global pollutant such as carbon dioxide that CO 2 that is well

- mixed in the atmosphere and does not have direct, acute health impacts due to inhalation at ambient levels
. 50 Finally, th e Supreme Court has affirmed the breadth of the agency’s discretion under CAA section 111(d) to select the method by which it would control carbon dioxide emissions CO 2 emissions from existing power plants. See AEP v. Connecticut , 131 S. Ct. 2527, 2538 (2011) (“Congress delegated

49 The CAMR program was vacated because the EPA had not made requisite findings under CAA section 112(c)(9) in delisting EGUs with re spect to emissions of a hazardous air pollutants (HAP). No such procedural concern is present here with respect to CO 2 , which is not a HAP under CAA section 112. 50 We recognize that some commenters on the EGs raised concerns about the localized impacts tha t may occur from the potential for concentrations of co

- pollutants associated with CO 2 emitted from affected EGUs. We address those concerns in the communities sections of the final EGs, at section IX, and in this preamble in section IX below.***E.O. 12866 Review

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to EPA the decision whether and how to regulate carbon

- dioxide emissions from power plants.”) (emphasis added); see also id. A t 2539 (“The appropriate amount of regulation in any particular greenhouse gas GHG

- producing sector cannot be prescribed in a vacuum: as with other questions of national or international policy, informed assessment of competing interests is required. Along with the environmental benefit potentially achievable, our Nation’s energy nee ds and the possibility of economic disruption must weigh in the balance. The Clean Air Act C AA entrusts such complex balancing to the EPA in the first instance, in combination with state regulators.”). This proposal is guided by the relevant cases and the experiences of the agency in implementing the CAA trading programs discussed above. The EPA invites comment on this discussion and the agency’s interpretation that CAA section 111(d)(2) authorizes the two approaches to a federal plan proposed here.

**IV. Rate**  **- based Implementation Approach** 
A. Overview
T he EPA’s federal plan r equirements for CO 2 from affected EGUs implement the EGs as previously discussed
. In this federal plan and model rule proposal the EPA is proposing , as one***E.O. 12866 Review

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option, rate

- based emission st andards (i.e., the emission standard approach) for affected EGUs not covered by an approved state plan as specified in the CPP EGs. Clean Power Plan
. T he EPA is proposing to apply the subcategorized emission rates in this federal plan proposal. The se rate

- based emission standard s are consistent with , and would satisfy, the degree of emission limitation achieved by the BSER determination made in the f inal
CPP Clean Power Plan EGs , which included sub

- categorized CO 2
e mission p erformance r ates for affected EGUs to meet during the plan performance periods . An affected EGU subject to this federal plan will demonstrate compliance by achieving a stack emission rate less than or equal to the rate

- based emission standard or by applying ERCs , acquired by t he EGU , to its measured stack emission s rate. The application of ERCs by an affected EGU to comply with an emission standard has been determined in the final CPP EGs Clean Power Plan as a mechanism available to affected EGUs with a CO 2 emission rate greater than its respective performance rate to meet compliance obligations ,
see s ection IV.A.5.a [&&&] VIII . K of the CPP final EGs . Under a
rate

- based federal plan, the EPA would act as the state described in s ection VIII.C. 3 1 .a of the CPP [&&&] final EGs with the EPA acting as the issuer of ERCs, and otherwise implementing and enforcing the standards of performance for affected EGUs***E.O. 12866 Review

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subject to the federal plan
. This section describes the proposed rate

- based federal plan and model trading rule and how each would be designed and operated, consistent with the emission guidelines
. EG s . For the federal plan, the EPA is proposing to limit the issuance of ERCs to designated categories of affected EGUs and to renewable
energy RE resources and certain nuclear generation (from new capacity and incremental capacity uprates) that are measured by a revenue quality meter, rather than the full suite of options discussed in the emission guidelines. EG s . The EPA requests
comment on whether to limit the scope of the fede ral plan in this manner, and if not, what other sources of low

- or zero emitting electricity in federal plan states should also be eligible to generate ERCs for compliance purposes . For both the proposed federal plan and model rule, the EPA requests commen t on which EM&V plan, M&V measurement and verification ( M&V ) report , and verification report requirements should apply for each eligible resource
. F urther discussion of non

- BSER measures that may be eligible to generate ERCs can be found in the CPP EGs Clean Power Plan and section IV.C. 2 3 of this preamble
. (The EPA is not reopening its determination of the BSER.)
B. Rate Goals In the CPP EGs Clean Power Plan the EPA identified a rate

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based “emission standards” approach as a n approvable method for
state plans to implement the final EGs . In this approach the requirements for compliance rest solely on affected EGUs in the form of federally enforceable emission standards expressed as a rate of emissions of CO 2 per unit of energy output
. In the CPP EGs Clean Power Plan , the EPA established , through application of the BSER , separate CO 2 emission performance rates for affected EGUs in two subcategories. The two subcategories are natural
gas - fired stationary combustion turbines ( i.e., natural gas combined cycle units , or NGCC units ) and fossil fuel fired steam generating units SGU s ( i.e., utility boilers and IGCC units) 51
. The CO 2 emission performance rates set in the CPP EG s Clean Power Plan are reflected below in Table 4 6 of this preamble
. The EPA is proposing to apply these rates in the rate

- based federal plan as the emission standards for NGCC units , and steam generating units SGU s , respectively. For a thorough discussion of affected EGU category

- specific CO 2 emission performance rates and rationale , see s ection VI &&& of the CPP final EGs . These calculated standards and the premises that these standards are based on are not within the scope of comment in this rulemaking as they were finalized in the CPP EGs Clean Power Plan
.

51 For simpli city, affected utility boilers and IGCC units will collectively be called “steam generating units.”***E.O. 12866 Review

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As discussed in section III.D of this preamble above , the EPA proposes to implement a compliance schedule for the rate

based federal plan with multi

- year compliance periods as follows: A three 3

- year period (2022 through 2024), followed by a three 3

- year period (2025 through 2027), followed by a two 2

- year period (2028 and 2029), for the interim period; and, commencing in 2030, successive two 2

- year compliance periods for the final period. In the CPP EGs Clean Power Plan , the EPA established CO 2 emission performance rates for the subcategories of affected
EGUs for the performance periods . The EPA proposes to use those emission performance rate s promulgated in the CPP EGs Clean Power Plan as the emission rate standard for the respective EGUs that

w ould become sub je ct to this proposed federal plan if finalized
. The EPA is not opening for comment the determinations made in the CPP EGs Clean Power Plan of each subcategorized CO 2 emission performance rates . The emission rate standards for respective
EGU types are provided for convenience in Table 4. 6 of this preamble
. The EPA is proposing to use a glide path during the interim period for EGUs to provide a smooth transition to the final compliance periods after 2030. This approach is described established in section &&& of the final EGs . In Table 6 of this preamble . In Table 4 . below , the applicable standards***E.O. 12866 Review

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for each interim compliance period is listed.
**Table 4**  **6 .**  **Glide Path Interim**  **Performance Rates (Adjusted Output**   ** Weighted** **- Average Pounds of CO**  **2 Per Net MWh From All Affected**  **Fossil Fuel -**  **Fired EGUs)**

**Technology 2022**  **- 2024**  **Compliance**
**Rate 2025**  **- 2027**  **Compliance**
**Rate 2028**  **- 2029**  **Compliance**
**Rate Final** 
**Rate**

SGU or IGCC 1,671 1,500 1,380 1,305

Stationary combustion turbine 877 817 784 771

The EPA is using the subcategorized rate s in the rate

- based trading approach because it allows ERCs to be fungible across jurisdictional borders and provides an incentive structure, as compared to other rate

- based approaches, that facilitates implementation of measures identified as part of the BSER. Using subcategorized rates allows for: (1) a relatively equitable distribution of burden for emission r eductions aross the
sector consistently applied emission rates for power plants of different types ; and (2) free trading of fungible ERCs among all affected EGUs subject to the federal plan and within the federal trading program. The EPA solicits comments on whether the subcategorized rate approach is the preferred rate

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approach for the federal plan and model trading rule
. 52 If a subcategorized approach for a rate

- based model rule and federal plan is not preferred by commenters , the EPA requests commen t on the perceived benefits of an alternative rate or set of rates ( e.g., applying a uniform rate, i.e., the state goal, to all affected units within the state as the EGUs’ emission standard). C. Crediting Mechanism Under a rate

- base d emission standard approa ch in the federal plan , we are proposing that EGUs subject to the emission performance r equirements for GHGs will either need to emit at or below their emission rate standard , or they will need to acquire
ERCs to achieve compliance. An ERC is a tradable compliance unit representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions
. These ERCs may then be used to adjust the measured and reported CO 2 emission rate of an affected EGU when demonstrating compliance with a
rate

- based emission standard. For each ERC, one MWh is added to the denominator of the reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. Under this proposed federal plan , ERCs will be issued by the EPA to three categories of entities: (1) A ffected EGUs that

52 Note that the values of limits and determinations made as the BSER are not open for comment.***E.O. 12866 Review

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perform at a rate below the applicable emission rate standard ; (2) affected NGCC units for all generation (represents shifting generation from steam generating units SGU s to NGCC units , as anticipated under Building Block 2 ); and ( 3 ) new nuclear units and capacity uprates at existing nuclear units, and (4) 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 &&& I V.D. 6 8 of this preamble . We are also discussing in this preamble , taking
comment on for the federal plan, and proposing for the model trading rule a potential fourth category: other low

- and zero

emitting non - BSER measures that are described in section IV. C. 2 3 of this preamble [ &&& ].
. The concept of using an ERC as a crediting mechanism to meet compliance obligations is consistent with the CPP EGs and is being adopted in this federal plan
. 53
. Because the goal of this rulemaking is the actual reduction of CO 2 emissions, it is fundamental that ERCs represent the MWh of energy generation or savings they purport to represent. To this end, only valid ERCs that actually meet the standards articulated in this rule may be used to satisfy any aspect of

53 The use of ERCs and definition as a compliance mechanism to meet the BSER emission performance rates is established in section VIII.K of the final EGs.***E.O. 12866 Review

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compliance by an affected EGU with emission standards. The responsibility for the validity of the ERC rests with the affected EGU. Despite safeguards included in the structure of ERC issuance and tracking systems, such as the review of eligibility applications and M&V r eports, and EPA issuance of ERCs, ERCs may be issued that do not, in fact, represent eligible zero

- emission MWh as required in the EG s . A variety of situations may result in such improper ERC issuance, ranging from simple paperwork errors to outright fraud . The EPA requests comment on ways that the EPA could safeguard the val idity of an ERC. 1. ERC s Generat ed and Owed Against a Standard The number of ERCs generated or needed for surrender by a n affected fossil fuel

- fired EGU is based on the CO 2 emission rate of the EGU in comparison to an emission rate standard. The calculation of ERCs generated by an EGU or needed for compliance is the CO 2 stack emission rate of the EGU subtracted from the standard the EGU is subject to , and this value is subse quently divided by the standard the EGU is subject to. This value is a normalized quantity of how much better or worse the EGU is performing compared to its standard. Th e normalized value is weighted by multiplying the MWh electricity output from the EGU

a t that emission rate
. This can be generically expressed as:***E.O. 12866 Review

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ERCs = ( EGU standard

− EGU operating rate ) EGU standard ∗ EGU generation If the value calculated is positive, this indicates the number of ERCs that are being generated ; conversely, a negative value indicates how many ERCs will need to be acquired to meet the unit’s emission rate for that compliance period
. ERCs will be issued on an annual basis to ERC providers ( i.e ., entities generating ERCs via the ERC approval and iss uance process detailed below). S urrender of ERCs for compliance by affected EGUs will not occur until the end of the compliance period as further described in section &&& IV.D.10 of this preamble.
As an example, assume a steam EGU operating in the second in terim compliance period is subject to a rate standard of 1, 500 lbs CO 2 /MWh. Assume it operates at 2,000 lbs CO 2 /MW h , and also assume it generates 1 million MWh over a co mplianc e period. Its total emission rate would be 2 billion lbs CO 2 / 1 million MWh. In order to achieve the emission standard, it would need to purchase 3 33 , 334 ERCs (rounded to the nearest higher integer). In essence, th is quantity of ERCs represents the quantity of MWh that need to be added to the steam EGU’s denominator ( i.e., generati on , here, 1 million MWh ), such that 2 billion pounds of
CO 2 (total emissions), divided by total generation ( i.e., in this
case, 1, 333,334 MWh) equals the emission rate for compliance***E.O. 12866 Review

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(1, 500 lbs/MWh). The discussion in this subsection builds on and applies the definition, benefits, use, and determination of using ERCs from the CPP final EGs ( s ection VIII &&& . of the final EGs)
. We invite
comment on use of th e approach just described as a method of implementation of a federal plan and a model trading rule , and we take comment on any alternatives to this approach that still fall within the established criteria described in the CPP EGs . Comments that solely relate to determinations finalized in the
EGs will be considered out of out side the scope of this proposed

r ule
. 2. Incremental NGCC ERCs Building Block 2 (BB2) of the BSER determination in the CPP
EGs describes shifting generation from steam generating units SGU s to NGCC units because NGCC units generate electricity at a less carbon intensive rate. BB2 describes NGCC units generat ing at 75 percent of the unit’s annual operating capacity
. This means that level of generation, for most NGCC units are being called to , would represent an increase in annual generation from a 2012 baseline emissions.
. For every hour of

e lectricity generated by an NGCC beyond its 2012 baseline ( i.e., incremental generation) , there is a corresponding emission***E.O. 12866 Review

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reduction in the power system. 54 The EPA is proposing to reflect the emission reductions of BB2 by crediting all NGCC generation

on a pro - rata basis that reflects expected incremental NGCC generation to 75 percent capacity
. This means that for every hour that an NGCC generates electricity, it will also generate a partial credit associated with the generation shift from fossil
steam to NGCC units. The NGCC will generate a partial credit because the emission reductions associated with BB2 have been distributed on an hourly basis. A discussion on the concepts behind the distribut ion of emission reductions of incremental NGCC generation on an hourly basis can be found at the end of this subsection.
A ll 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 a s G as Shift ERC s (GS

- ERCs) for clarity 55
. T he collective sum of the GS

- ERC s generated realizes the amount of emission reductions described in BB 2 when 75 per cent capacity is

54 It is assumed that any increase in NGCC generation above 2012 levels is displacing fossil fuel

- fired steam EGU generation. 55 A GS

- ERC is treated and represents the same value as an ERC, but has a compliance restriction that it can only be used by steam generating units and not by stationary combustion turbines for compliance obligations.***E.O. 12866 Review

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achieved
. This incentive is not a requirement, however. If NGCC units do not collec tively increase to 75 percent capacity or above , the lost opportunity for ERC generation simply will need to be achieved through other means ( e.g., emissions performance improvements at affected EGUs or additional RE generation). The amount of GS

- ERC s the EPA proposes to be generated for every MWh of NGCC operation is set at a factor relating the amount of electricity generation that NGCC units collectively would generate at the level described in BB 2 ( i.e., reaching 75 percent capacity) and the associa ted emission reductions . This means that fractional GS

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

- ERC s that correlates to the emission reductions anticipated reductions anticipated under BB 2 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

- ERC s have the potential to play a n important role in the sector meeting compliance obligations. The number of GS

- ERCs that an NGCC generates is a combination of three factors. The first is the GS

- ERC Emission Factor. This emission factor represents how much better an***E.O. 12866 Review

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individual NGCC’s emission rate is compared against the fossil steam standard. This measures the emission reductions because of the BB2 shift in generation. The steam generating unit SGU standard used as reference here is as described above in section
IV.B of this preamble and established in the BSER determination from the EGs of the least stringent region 56 ( i.e., the region with the highest calculated emission rate standard for steam generating units). SGU s). The GS

- ERC Emission Factor is exp ressed by taking the complement of the ratio of the NGCC standard to the fossil

- steam standard. It can be summarized by the following expression:
GS

- ERC Emission Factor = 1

− NGCC emission rate Steam Standard The second factor is the Incremental Generation F actor. This factor represents the distribution of the increased NGCC generation across the all NGCC generation. In essence, it is prorating the incremental NGCC generation over all NGCC generation. 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

56 The regions that are used in the CPP EGs and for this proposal are the Ea stern Interconnect, Western Interconnect, and Electric Reliability Council of Texas (ERCOT).***E.O. 12866 Review

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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 fo llowing expression:
Incremental Generation Factor = 1

− Regional 2012 NGCC Baseline 75 % NGCC Regional Capacity The Incremental Generation Factor is a factor that the EPA will calculate and will be calculated for every compliance period based on the least st ingent region’s Incremental Generation Factor based on increased utilization of RE and its replacement of fossil fuel fired generation (based on Building Block 3 of the CPP EGs ). 57 For the cal c ulation of this factor the EPA is using the least stringent region for each compliance period and applying it for all GS

- ERC calculations subject to the federal plan
. The calculations for determinating the least stringent regional Incremental Generation Fa ctor can be found in the
&&& GS

- ERC TSD. Table 5 . below are 7 of this preamble presents the proposed values that would apply for all NGCC units to calculate the amount of issued GS

- ERCs.

57 Note that per the discussion in s ection VI of the final EGs, if the EPA had measured incremental NGCC generation for reassignment to fossil steam rate as the difference from the post building block three levels and full utilization, the post building block three levels would be used in the numerator here, resu lting in a higher “incremental generation factor” and more ERCs for the same amount of NGCC generation.***E.O. 12866 Review

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**Table 5**  **7 . Incremental Generation Factors for Interim and Final**  **Complian ce Periods**  **Corresponding Incremental Generation Factor Compliance** 

**Peri od 1**  **2022 -**  **2024 Compliance**  **Period 2 2025**  **- 2027**  **Compliance Period 3**  **2028 -**  **2029 2030**  **- 2031**  **and thereafter** 0.22 0.32 0.28 0.26

The third factor in calculating an NGCC’s generaton of GS

ERC is the NGCC G eneration. The NGCC Generation is the total net energy output generation of the affected NGCC during the year that ERCs are being calculated. The three factors combine to make the following equation:

GS

- ERCs = NGCC Generation * Incremen tal Generation Factor * GS

- ERC Emission Factor The GS

- ERC equation above gives the number of GS

- ERCs that an NGCC will generate. The Incremental Generation Factor and GS

- ERC Emission Factor combine to make the GS

- ERC generating rate for the NGCC. This functions by the Incremental Generation Factor prorating all incremental NGCC generation and the GS

- ERC Emission Factor designating the proportion of the incremental NGCC generation that will generate ERCs. The GS

- ERC generating rate multiplied by the tota l NGCC Generation gives the total GS

ERCs generated by the NGCC for the year. The EPA is proposing this approach , which provides GS

- ERCs for all affected EGU NGCC generation but at a fractional, pro rated level, using the three factors above, for several r easons.***E.O. 12866 Review

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This approach has the benefit of allowing NGCC units to bid into the electricity market without having to adjust bids based on a projection of whether or not the NGCC will have generation incremental to its baseline in a given year . The proposed me thod also promotes the best performers within the NGCC subcategory by crediting them with a higher rate of generating GS

- ERCs, as shown by the calculations above
. The better the emission performance of an NGCC unit , the more GS

- ERCs it is capable of earnin g per MWh. The proposed method also promotes and incentivizes all NGCC units, regardless of historical generation, to continue to operate at a greater capacity to replace steam generation. The EPA believes that this will allow for more fluidity in the mark et and flexibility for greater NGCC generation. In the CPP EGs the Clean Power Plan the BSER determination for subcategory rates is calculated by using the least stringent region and applying the standards from that region on a national level. The determinat ion of the BSER in the final EGs was a one time determination and is not being altered, updated, or changed here. Rather, i n this preamble the EPA is proposing to use the same regions and to apply the least stringent components to an NGCC’s GS

- ERC calculat ion at a national level ( i.e., applying the GS

- ERC calculation components that generate the most GS

- ERC s***E.O. 12866 Review

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for every MWh). The EPA solicits comment on applying the least stringent regional factor to calculate GS

- ERCs for all affected NGCC units subject to th e federal plan and model rule on a national level. Conversely, t he EPA also requests comment on applying, for each region , its own regional GS

- ERC generation
rate. As proposed, the least stringent region could change from compliance period to compliance period. The EP A requests comment on whether a single “least stringent” region should be chosen and used for calculations or whether being “least stringent” should be evaluated on a compliance period by compliance period basis. The EPA also requests comment on whether “least stringent” should be evaluated on a year to year basis. The EPA also requests comment on whether the GS

- ERC Emission Factor should be calculated on a unit by unit basis (as currently proposed) or be calculated based on the least stringent region’s baseline 2012 average emission rate. This will simplify the practice of calculating and distributing GS

ERC generation, but would not reward the better p erforming NGCC units within the subcategory. In the &&& GS

- ERC TSD, the EPA used the regions ’ average emission rate to calculate a factor that would credit GS

- ERCs to all NGCC units subject to the federal plan. For 2030 and beyond , this value is based on th e Eastern Interconnect and is 0.08 GS

- ERCs/MWh. So for every MWh that an***E.O. 12866 Review

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NGCC generates it would be issued 0.08 GS

- ERCs and , if this were the approach the EPA proposed, this would apply to every NGCC that would be subject to the federal plan. In the &&&& G S

- ERC TSD, the spreadsheet can be manipulated to show what an individual NGCC’s GS

- ERC Emission Factor would be in the proposed method. This is done by adjusting the cell for a year ’s Average GS

- ERC Emission Factor to account for the individual NGCC’s emis sion rate instead of the average NGCC emission rate. The calculation of GS

- ERC s for an NGCC is independent of the calculation of ERCs generated or owed against the NGCC standard. It is possible that an NGCC will owe ERCs against its assigned emission standard for every MWh generated, but still be generating GS

- ERC s. GS

- ERC s may only be used to meet steam generation units’ compliance obligations.
As an example, an NGCC is connected to the grid and generates 1 million MWh of electric output for the first year of the final performance period. During this year it emits 850 million lbs of CO 2 giving it an emission rate of 850 lbs CO 2 /MWh. The NGCC is subject to a final period emission rate limit of 7 71 lbs CO 2 /MWh. Since the NGCC is always subject to it s NGCC emission rate standard of 7 71 lbs/MWh and it is operating at a rate above that standard it will owe non GS

- ERCs for its own***E.O. 12866 Review

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compliance . The ERCs owed are calculated by solving for the number of ERC MWh the NGCC will need to adjust its rate down to i ts emission rate limit. This is shown in the following equation: 850 , 000 , 000 lbs CO 2 / [ 1 , 000 , 000 MWh + ERC MWh ] = 771 lbs CO 2 / MWh When that equation is solved for the number of ERC MWh needed, the NGCC would need to acquire 102,464 ERCs to adjust its emission rate to its emission rate standard. Additionally, the GS

- ERC Emission Factor for this NGCC is calculated by using 771 lbs CO 2 /MWh for the NGCC emission rate and 1,404 lbs CO 2 /MWh for the steam generating unit SGU emission standard in the equation d escribed above.
GS

- ERC Emission Factor = 1

− 771 lbs / MWh 1 , 404 lbs / MWh This calculation results in a GS

- ERC Emission Factor of 0.45. This is only an example. Because the Incremental Generation Factor is calculated by the EPA, it can be found in the &&& GS

ER C TSD and is proposed to be 0.26. By using the GS

- ERC Emission Factor and Incremental Generation Factor calculated above with the NGCC’s generation for the year, the number of GS

- ERCs for this NGCC can be calculated. 0

. 45 ∗ 0

. 26 ∗ 1 , 000 , 000 = GS

- ERC The calculation results in 117 thousand GS

- ERCs being generated.***E.O. 12866 Review

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Because an NGCC cannot use the GS

- ERC s it generates to meet its compliance obligations, this NGCC will both generate ERCs ( 117 ,000 GS

- ERC s) and owe ERCs ( 102,464 non - GS

- ERC s against NGCC
stan dard ). This NGCC may sell (or otherwise transfer) or bank its GS

- ERC s. If a GS

- ERC is sold , those proceeds may, in turn, be used to acquire non

- GS

- ERC s to satisfy the NGCC’s compliance obligations.
A GS

- ERC may not be used to meet an NGCC’s compliance obli gation because they ar e generated to reflect incremental
NGCC generation replacing a steam generating unit’s SGU ’s generation. The calculation to derive a GS

- ERC represents this generation shift. If a GS

- ERC were to be used for compliance for an NGCC it would represent a shift from one NGCC to another , which serves little purpose in achieving emission reductions
. The EPA requests comment on the proposed approach and requests comment and suggestions on o ther approaches for existing NGCC units to generate GS

- ERCs at all times. The EPA is considering this methodology that GS

- ERC s are generated for all NGCC generation because it en sure s that all existing NGCC units are encouraged to run at a greater capacity
. The EPA is requesting comment on alternative methods to account for NGCC units generat ing GS

- ERC s. Specifically, the EPA solicits comment

on NGCC units generating GS

- ERC s once a threshold of electric***E.O. 12866 Review

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generation for the year is exceeded . This threshold is based on 2012 as a baseline and any NGCC generation beyond this threshold would be considered incremental generation. There are two different options to evaluate against a baseline. The first is on a unit level, if a a n NGCC generates more than it did in 2 012, all generation above the 2012 level ( i.e, incremental generation) is eligible to be credited with GS

- ERC s. The other threshold option is to use a percentage threshold. Evaluated on a regional level, the 2012 baseline capacity percentage for NGCC units in the least stringent region is applied to all units
. Each unit is considered to be incrementally generating after it exceeds the capacity percent and will be credited with GS

- ERCs accordingly. The GS

- ERC s in t hese instances are calculated by the following equation:
GS

- ERC = ( Steam standard

− NGCC emission rate ) Steam standard ∗ Incremental NGCC generation This equation quantifies the reductions of the generation shift from fossil steam to NGCC units by the NGCC oper ating rate being evaluated against the fossil steam standard. For all incremental NGCC generation the NGCC operating rate is compared against two different standards: (1) T he NGCC standard against which ERC generation is evaluated; and (2) the steam standa rd against which GS

- ERC generation is evaluated. An evaluation***E.O. 12866 Review

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against each standard is independent of one another and GS

- ERC s, in this situation, are only available for fossil steam compliance purposes. While having a baseline threshold for EGU generatio n to credit GS

- ERC s against closely resembles the EPA’s BSER determination, it enables a system in which GS

- ERC s can be generated by replacing NGCC generation from one unit with NGCC generation from another
. In this situation there is not necessarily any a dditional 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

- ERC s can be generated without achieving the anticipated reductions in CO 2 emissions
. The EP A 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
. . . Comments regarding this section that solely relate to determinations finalized in the EGs will be considered out of out side the scope of this proposed rule
. 3. Eligible Emission Reduction Measures for ERC Generation Under the rate

- based federal plan, the EPA is proposing to specify emission reductions measures used to adjust an emission
rate that are eligible for ERC issuance under the federal plan
.***E.O. 12866 Review

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Specifically, the EPA is proposing that RE generation that meets the requirements for eligible resources in the emission guidelines , EG s (as specified in section VIII.K of the final
EG s ) , meets all other requirements related to ERC issuance in the emission guidelines EG s and this proposal, and falls into one of the following specific categories of RE resources (as specified in section V.E o f the final guidelines Sec.V.E.) EGs ) are eligible to be issued ERCs : on - shore w ind, solar photovoltaics (PV), concentrated solar power , geothermal power, and hydropower. 58 Further, the EPA is proposing for the federal plan that new nuclear units and capacity uprates at existing nuclear units that meet the requirements for eligible resources in the emission guidelines EG s (as specified in section VIII.K of the final emission guidelines Sec.VIII.K.) EG s ) and all other requirements related to ERC issuance in the emission

58 This treatment for RE as an eligible measure type is also proposed for the set

- aside for RE that is part of the proposed mass - based implementation app roach co

- proposed in s ection V of this preamble as the federal plan, and all proposed aspects of the eligible measure types described in this section and the requests for comment included below also apply in the mass

- based set

- aside context. Incremental nu clear is not eligible for the RE set

- aside. The set

- aside method and the use of this eligibility treatment within it are specified in section V.D.3 of this preamble
.***E.O. 12866 Review

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guidelines EG s and this proposal are eligible to generate ERCs
. Further, these RE and nuclear measures must have the ability to provide data from a revenue quality meter, a requirement which that is further discussed in Sec. section IV.D.8 and Sec. IV.G.4below of this preamble
. The EPA is proposing the inclusion of these measure types in the federal plan for the following reasons. These technologies , with the exception of nuclear, are part of the quantification of renewable energy RE generation potential for the BSER. Thus, they are included in the quantification of CO 2 emission performance rates and should be available to affected EGUs to meet their CO 2 emission performance rate un der the federal plan , . S ee the final guidelines EGs for details on the treatment of these measures in BSER (see Sec. section V.E .). of the final EGs ). 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. section V.E.6 of the final
EGs ). These technologies also provide the simplest and most timely path for eval uation, measurement, and verification ( EM&V ) implementation under a federal plan, as because they can use their existing metering infrastructure to quantify generation and submit it for ERC issuance
. A unique concern unique to federal plan implementation is the need for an ERC issuance***E.O. 12866 Review

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process that can be implemented in a streamlined manner across many jurisdictions in the time frame allowed by the federal plan while still assuring a rigorous EM&V process. By limiting eligib ility to measures that can be directly metered, a feasible federal plan process for ERC issuance across a potentially large number of jurisdictions is ensured. This approach would allow for easier determinations of compliance with the requirements for EM&V proposed in s ection IV .&&& .D.8 of this preamble below (see also s ec tion VIII .&&& .K.3 of the final EGs ). The agency requests comment on the inclusion of other emission reduction measures as eligible for ERC issuance under the rate

- based federal plan. This may include other RE technologies not included above, such as distributed RE generation and various types of biomass. In this proposal, the EPA is also offering for comment treatment options for biomass fuels, if it is inc luded as an eligible measure under the federal plan ( see below
. )
. The EPA requests comment on the inclusion of various types of demand

- side EE as eligible measures for ERC issuance under the federal plan , 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***E.O. 12866 Review

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and power (CHP) as an eligible me asure CHP as an eligible measure under the federal plan . Later in this section, the agency has provided detailed requirements for the issuance of ERCs for CHP, and we request comment on these requirements for inclusion in the federal plan
. The EPA requests comment on the inclusion as eligible for ERC issuance under the federal plan of any other emission reduction measure s beyond those mentioned here, as long as they meet the eligibility requirements outlined in the final E G s for
rate

- based crediting. For al l of the above measures on which the EPA requests comment, the agency is particularly interested in comments on how EM&V methods can be implemented for these measures across applicable jurisdictions in the timeframe provided by this proposal in a way that is rigorous, straightforward, widely demonstrated, and in accordance with the EM&V requirements in this proposal, outlined in Sec. &&&, section IV.D.8 of this preamble , and within the requirements outlined in the final guidelines (see Sec. section VIII. G.5 K . 3 of the final
EGs ). It should also be noted that any eligible measure will be subject to the eligibility requirements outlined in this proposal and the final EGs , such as the requirement that the measure be incremental to 2012. The EPA acknowledges that a s new technologies mature, there***E.O. 12866 Review

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should be an avenue to add new technologies to this specified set of eligible measures
. under the federal plan
. The agency is requesting comment on appropriate processes through which , after the federal plan is finalized, t he EPA and/or stakeholders could make a demonstration of demonstrat e the appropriateness of new measure types and the EPA could evaluate and approve the demonstration so that a new measure type can could be considered eligible for ERC issuance under the federal plan. Under the rate

- based model rule, the EPA is proposing that any emission reduction measure is eligible as long as the requirements for eligible resources in the final EGs (as specified in section VIII.K of the final EG s ) and all other requirem ents related to ERC issuance under the model rule that are specified in the EGs and this proposal. In particular, these measures should be able to meet the requirements for EM&V as finalized in the final EGs section VIII.K and those proposed for the model rule in section IV.D.8 of this proposal. In this section, the EPA is also providing detailed requirements for CHP and waste heat power (WHP) , these requirements are proposed under the model rule, and we request comment on their inclusion in the federal pla n. We are requesting comment on the inclusion of biomass and an option for the treatment of biomass in both the proposed rate

- based federal plan and proposed rate

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model rule. As mentioned above, the EPA is requesting comment on the inclusion of biomass as an eligible measure for rate

- based crediting. The EPA is also requesting comment on the following treatment options for biomass if biomass is included as an eligible measure. In the final emissions guidelines EGs , the EPA recognizes that the use of some biomass

- derived fuels can play an important role in controlling increases of CO 2 levels in the atmosphere (see Sec. I.2.c ). section V.A.6 of the final EGs ). T he use of some kinds of biomass has the potential to offer a wide range of environmental benefits, including carbon benefits. However these benefits can typically only be realized only if biomass feedstocks are sourced responsibly and attributes of the

car bon cycle related to the biomass feedstock are taken into
account. Many states have already recognized the importance of
waste

- derived feedstocks via mandatory and voluntary programs supporting such efforts. 59 Some states have also acknowledged the

59 Types of waste

- derived biogenic feedstocks may include: landfill gas generated through the decomposition of Municipal Solid Waste ( MSW ) in a landfill; biogas generated from the decomposition of livestock waste, biogenic MSW, and/or other food waste in an anaerobic digester; biogas generated through the treatment of waste water, due to the an aerobic decomposition of biological materials; livestock waste; and the biogenic fraction of MSW at***E.O. 12866 Review

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potentia l role of certain forestry and agricultural industrial byproduct s (such as black liquor ) in energy production. Many states have also recognized the importance of forests and other lands for climate resilience and mitigation, and have developed a variety of sustainable forestry policies, biomass

- related renewable energy RE incentives and standards, and GHG accounting procedures. 60 In addition to acknowledging such state programs, the EPA has undertaken a technical assessment of biogenic CO 2 emissions from stationary sources associated with the production, processing and use of biomass fuels. In November 2014, the agency released a second draft of the technical report, Framework for Assessing Biogenic Carbon Dioxide for Stationary

waste

- to

- energy facilities (as discussed in section VIII. I . 2
. C of the final EGs ). 60 Some states, for example Oregon and California, have programs that recog nize the multiple benefits that forests provide, including biodiversity and ecosystem services protection as well as climate change mitigation through carbon storage. Others, like California’s Forest Practice Regulations, support sustained production of hi gh

- quality timber while considering ecological, economic and social values. Several states focus on sustainable bioenergy, as seen with the sustainability requirements for eligible biomass in the Massachusetts RPS, which, among other requirements, limits o ld growth forest harvests.***E.O. 12866 Review

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Sources . Th e revised Framework, and the EPA’s Science Advisory Board (SAB) peer review of the 2011 Draft Framework , finds concluded that it is not scientifically valid to assume that all biogenic feedstocks are “carbon neutral” and that the net biogenic CO 2 atmospheri c 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 emi ssions if not used for energy production
. 61 The EPA is engaging in a second round of targeted peer review on the revised Framework with the SAB in 2015. 62 Information in the revised Framework and the second SAB peer review process, including stakeholder comme nts, will assist

61 Specifically, the SAB found that “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 sh ould 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. Of cours e, biogenic feedstocks that displace fossil fuels do not have to be carbon neutral to be better than fossil fuels in terms of their climate impact.” http:// www.epa.gov/climatechange/ghgemissions/biogenic

emissions.html
. 62 http://www.epa.gov/sab
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the EPA in assessing potential qualifying qualif ied biomass feedstocks in federal plan applications. If biomass is included as an eligible measure, we are taking comment on an option for biomass treatment under the
rate

- based federal plan, which w ould 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
. Th is option offered for comment is to specify a list of
pre - approved qua lified biomass fuels. For example, the EPA could recognize the CO 2 and climate policy benefits of waste

- derived feedstocks ( e.g., landfill gas) and certain industrial byproduct feedstocks ( such as e.g. , black liquor or other forestry and agricultural indust rial byproducts with no alternative markets). As another example, the EPA could also recognize biomass feedstocks from sustainably managed forests lands, provided that these feedstocks meet certain requirements
. The pre - approved qualified such as demonstration that the feedstock is sourced from sustainably managed lands (for example, feedstocks from forest lands with sustainable practices like improved management to increase carbon sequestration benefits ) and therefore help s control increa ses of CO 2 in the atmosphere
. The pre - approved qualified biomass feedstocks list could be amended in the future***E.O. 12866 Review

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as the science related to biogenic CO 2 emissions assessments evolves
. The EPA asks for comment on whether to include a provision that allows sources to seek approval for other types of biomass to be added to the pre

- approved list and what that process would entail
. For example, this process could include consideration of the production, processing and use of forest

and agriculture

- derived biom ass fuels and related CO 2 benefits. The EPA also requests comment on options for demonstrating how EGUs would demonstrat e that feedstocks meet the requirements to be accepted as a pre

- approved qualified biomass feedstocks. These requirements could include d emonstration of certification or verification of practices that are additional
to other monitoring , reporting and EM&V requirements discussed in this proposal , such as provision of sufficient credible analysis of carbon benefits, third party verification and/or certification , or a determination of the net biogenic CO 2 effects related to the production, processing and use of the feedstock
. We take The EPA requests broad comment on the types of qualifying qualif ied biomass feedstocks that should be specified in the final model rule, if any. We take request comment on the methods that we should specify in the final model rule for the measurement of the associated biogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the***E.O. 12866 Review

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final model rule related to biomass. Specifically, we seek comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model rule. We take request comment on any other requirements that should be inclu ded in the final model rule regarding EM&V for qualifying qualif ied biomass. Discussion of the biomass EM&V requirements in the rate

- based model rule can be found in
Sec. section IV.D.8 of this preamble below
. T he eligibility requirements for ERC resources discussed in this s ection meet the requirements outlined in the final EGs ( s ee Fina l EGs preamble section VIII. G.1.b K.2 of the final EGs ). The agency in this proposal is including in the regulatory text for the model rule language related to the crediting of these other potential ERC resources, even though they are not being proposed as a part of the federal plan. This Our intent is in order to provide states further direction through the model rule on how states may include this broader set of ERC

- generatin g resources in a rate

- based plan. To reduce confusion over the applicability of these provisions, the agency has added a note in the regulatory text to clarify that these resources, and provisions throughout the proposed subpart that are related to those r esources, are not applicable in the case of a federal plan. Rather they are proposed as part of the model trading rule***E.O. 12866 Review

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only. However, again, the agency is requesting comment on the inclusion of these resources in the federal plan. The EPA is proposing wit h respect to the rate

- based model rule that CHP units are eligible to generate ERCs. With respect to the federal plan, the EPA is requesting comment on the incorporation of non

- affected CHP units. Electric generation from

non - affected CHP units 63 may be use d to adjust the CO 2 emission rate of an affected EGU, as CHP units are low

- emitting electric generating resources that can replace generation from affected EGUs. Electrical generation from non

- affected CHP units that meet the eligibility criteria under sec tion VIII. K .1. a of the Clean Power Plan preamble can be used to adjust the reported CO 2 emission rate of an affected EGU.

63 The accounting treatment described in this section is for a “topping cycle” CHP unit. A topping cycle CHP unit refers to a configuration where fuel is first used to generate electricity and then heat is recovered from the electric generation process to pr ovide additional useful thermal and/or mechanical energy. A CHP unit can also be configured as a “bottoming cycle” unit. In a bottoming cycle CHP unit, fuel is first used to provide thermal energy for an industrial process and the waste heat from that proc ess is then used to generate electricity. Some waste heat power (WHP) units are also bottoming cycle units and the accounting treatment for bottoming cycle CHP units is provided with the WHP description below.***E.O. 12866 Review

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The electrical generation from a non

- affected CHP unit that can be used to adjust the CO 2 emission rate of an affected EGU must be calculated in accordance with the method specified in this section. The CHP unit’s electrical output is prorated based on the
CO 2 emission rate of the electrical output associated with the CHP unit (a CHP unit’s “i ncremental CO 2 emission rate”) compared to a reference CO 2 emission rate. 64 This “incremental CO 2 emission rate” related to the electric generation from the CHP unit would be relative to the applicable CO 2 emission rate standard for affected EGUs in the sta te and would be limited to values between 0 and 1. The CHP unit’s electrical output is prorated as follows: Prorated MWh = (1

- incremental CHP electrical emission rate/applicable affected EGU emission rate standard )* CHP MWh output Where the ratio is limi ted to values between 0 and 1. The CHP electrical CO 2 emission rate is the net emission rate when the CHP unit’s CO 2 emissions related to its thermal output are deducted from the CHP unit’s total CO 2 emissions. The CHP electrical CO 2 emission rate is derived as follows:

64 The applicable CO 2 emission rate standard is in Table 6. of this preamble.***E.O. 12866 Review

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CHP electrical CO 2 emission rate = [CHP fuel input 65 * fuel emission factor 66

– (UTO/boiler efficiency) * fuel emission factor]/CHP electrical MWh Where UTO is the useful thermal output from a counterfactual industr ial boiler that would have existed to meet thermal load in the absence of the CHP unit. This accounting approach takes into account the fact that a

non - affected CHP unit is a fossil fuel

- fired emission source, as well as the fact that the incremental CO 2 emissions related to electrical generation from a non

- affected CHP unit are typically very low. To generate ERCs for CHP, the CHP E lectrical CO 2 Emission
R ate that is calculated (from above) is applied against the applicable affected EGU standards in the same fashion as described in section IV.C.1 of this preamble. The low CO 2 emission rate for electrical generation from a non

- affected CHP unit is a product of both the fact that CHP units are typically very thermally efficient and the fact that a portion of the CO 2 emissions from a non

affected CHP unit would have occurred anyw ay from an industrial boiler used to meet the thermal load in the absence of the CHP

65 This term generally represents the thermal energy associated with the total fuel input.
66 The fuel emission factor can be determined through 40 CFR Part 75 Appendix G.***E.O. 12866 Review

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unit. In contrast, the CHP unit also provides the benefit of electricity generation while result ing in very low incremental CO 2 emissions beyond what would have been emitt ed by an industrial boiler. As a result, the accounting method does not presume that emission reductions occur outside the electric power sector, but instead only accounts for the CO 2 emissions related to the electrical production from a CHP unit that is u sed to substitute for electrical generation from affected EGUs. The EPA is proposing with respect to the rate

- based model rule that WHP units are eligible to generate ERCs. With respect to the federal plan, the EPA is requesting comment on the incorporatio n of non

- affected WHP units. WHP units that meet the eligibility criteria under section VIII.K.1 of the Clean Power Plan preamble may be used to adjust the CO 2 emission rate of an affected EGU. There are several types of WHP units. There are units, also re ferred to as bottoming cycle CHP units, where the fuel is first used to provide thermal energy for an industrial process and the waste heat from that process is then used to generate electricity. 67 There are also WHP facilities where the waste heat from the initial combustion process is used to generate

67 In such a configuration, the waste heat stream could also be generated from a mechanical process, such as at natural gas pipeline compressors.***E.O. 12866 Review

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additional power. Under both configurations, unless the WHP unit supplements waste heat with fossil fuel use, there is no additional fossil fuel used to generate this additional power. As a result, there are no incremental CO 2 emissions associated with that additional power generation. As a result, the incremental electric generation output from the WHP facilities could be considered non

emitting, for the purposes of meeting the emission guidelines, and the MW h of electrical output could be used to adjust the CO 2 emission rate of an affected EGU. 68 The MWh of electrical output from a WHP unit that can be recognized may not exceed the MWh of industrial or other thermal load that is being met by the WHP unit, prio r to the generation of electricity. 69 In addition, where fossil fuel is used to supplement waste heat in a WHP application, the EPA requests comment on what provisions to include in the final model rule to prorate the proportion of fossil fuel heat input to

68 This only applies where no additional fossil fuel is used to supplement the use of waste heat in a WHP facility. Where fossil fuel is u sed to supplement waste heat in a WHP application, MWh of electrical generation that can be used to adjust the CO 2 emission rate of an affected EGU must be prorated based on the proportion of fossil fuel heat input to total heat input that is used by the W HP unit to generate electricity.
69 This limitation prevents oversizing the thermal output of a WHP unit to exceed the useful industrial or other thermal load it is meeting, prior to generation of electricity.***E.O. 12866 Review

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total heat input that is used by the WHP unit to generate electricity. The EPA also solicits comments on other potential accounting mechanisms for WHP. As noted above, the EPA requests comment incorporating WHP as an ERC generating resource for the federal plan.
D. ERC Tracking and Compliance Operations The EPA proposes that the rate

- based federal trading
program use the agency’s already

- existing allowance tracking and compliance system ( ATCS ). Under the proposed rate

- based trading program, the federal trading program would be maintained in the EPA’s existing data system. The ATCS would be used to track the trading of ERCs held by affected EGUs , as well as ERCs held by other entities. Specifically, the ATCS would track the generation of ERCs , holdings of ERCs in compliance accounts ( i.e., accounts for affected EGUs ) and general accounts ( i.e., accounts for other entities and for affected EGUs , including affected EGUs that are under a ready

- for

- interstate

- trading state plan ), deduction of ERCs for complian ce purposes, and transfers of ERCs between accounts. The primary role of the ATCS is to provide an efficient, automated means for covered sources to comply, and for the EPA to determine whether covered sources are complying, with the emissions rate standar ds . The ATCS would also provide data to the ERCs market and the public, including a***E.O. 12866 Review

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record of ownership of ERCs, dates of ERC issuance , ERC transfers, buyer and seller information, serial numbers of ERCs transferred, emissions, and compliance information. This information would be publicly available on the EPA’s W eb site and in annual progress reports. The ATCS and the EPA provide all

re quired elements of a qualified ERC tracking system as described in section VIII of the CPP final EGs . In the subsections that follow, the mechanisms by which a
rate

- based trading program would be implemented and administered

are detailed. The EPA requests c omment on each component of the trading system that is propo s ed in this preamble and the associated model rule , the trading program as a whole , and specifically requests comment on means to expedite the process of issuing ERCs , any minimum and maximum periods for which ERCs should be issued ( e.g ., monthly, quarterly, annually), and any means to insure e nsure that the ERCs issued meet the requirements of the emission guidelines EG s and these proposed rules
. Th e rate

- based federal plan and model rule borrow many concepts from other successful trading programs , and the agency is interested in receiving additional information through comments on successful implementation of similar programs
.***E.O. 12866 Review

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1. Designated Representatives and Alternate Designated Representatives This section establish es the procedures for certifying and authorizing the designated representative, and alternate designated representative, of the owners and operators of the affected EGU and for changing the designated representative and alternate designated representative. These sections also describe the designated representative’s and alternate designated representative’s responsibilities and the process through which he or she coul d delegate to an agent the authority to make electronic submissions to the Administrator. These provisions would be patterned after the provisions concerning designated representatives and alternates in prior EPA

administered trading programs. The designa ted representative would be the individual authorized to represent the owners and operators of each affected EGU in matters pertaining to the rate

- based trading program. One alternate designated representative could be selected to act on behalf of, and leg ally bind, the designated representative and, thus, the owners and operators. Because the actions of the designated representative and alternate would legally bind the owners and operators, the designated representative and alternate would have to submit a certificate***E.O. 12866 Review

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of representation certifying that each was selected by an agreement binding on all such owners and operators and was authorized to act on their behalf. The designated representative and alternate would be authorized upon receipt by the Administrator of the certificate of representation. This document, in a format prescribed by the Administrator, would include: specified identifying information for the cov ered source and covered electric generating units EGUs at the source and for the designated representative and alternate; the name of every owner and operator of the affected EGU ; and certification language and signatures of the designated representative an d alternate. All submissions ( e.g., monitoring plans, monitoring system certifications, and allowance transfers) for a n affected EGU would have to be submitted, signed, and certified by the designated representative or alternate. Further, upon receipt of a complete certificate of representation, the Administrator would establish a compliance account in the ATCS for the affected EGU involved. In order to change the designated representative or alternate, a new certificate of representation would have to be received by the Administrator. A new certificate of representation would also have to be submitted to reflect changes in the owners and operators of the affected EGU***E.O. 12866 Review

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involved. However, new owners and operators would be bound by the existing certificate of representation even in the absence of such a submission. In addition to the flexibility provided by allowing an alternate to act for the designated representative ( e.g., in circumstances where the designated representative might be unavailable), additiona l flexibility would be provided by allowing the designated representative and alternate to delegate authority to make electronic submissions on his or her behalf. The designated representative and alternate could designate agents to submit electronically c ertain specified documents. The previously

- described requirements for designated representatives and alternates would provide regulated entities with flexibility in assigning responsibilities under the rate

- based trading program, while ensuring accountabil ity by owners and operators and simplifying the administration of the proposed rate

- based trading program. 2. ERC Tracking and Compliance System The rate

- based trading program rules establish the procedures and requirements for using and operating the Allowance Tracking and Compliance System (which is the electronic data system through which the Administrator would handle ERC issuance , holding, transfer, and deduction), and for***E.O. 12866 Review

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determining compliance with the ERC

- holding requirements in an efficient and transparent manner. The ATCS provide s a record of ownership, dates of ERC transfers, buyer and seller information, origin of ERCs, the serial numbers of ERCs transferred , and ERC type ( i.e., if it is a GS

- ERC or not) . ERC price information would not be in cluded in the ATCS . The EPA’s experience is that private parties ( e.g., brokers) are in a better position to obtain and disseminate timely, accurate price information than is the EPA. For example, because not all ERC transfers are immediately reported to t he Administrator for recordation, the Administrator would not be able to ensure that any reported price information associated with the transfers would reflect current market prices. 3. Tracking S ystem R equirements This federal plan and model rule’s proposed tracking system and tracking systems that will be presumptively approvable for state plans fufill the criteria set forth in the final EGs . The EPA’s tracking system i nclude s provisions to ensure that ERCs issued to any eligible entity are properly tracked from issuance to submission by affected EGUs for compliance (where ERCs are “surrendered” by the owner or operator of an affected EGU and “retired” or “cancelled” by the Administrator or administering state regul atory body), to ensure they are areused only used once***E.O. 12866 Review

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to meet a regulatory obligation. This is addressed through specified requirements for tracking system account holders, ERC issuance, ERC transfers among accounts, compliance true

- up for affected EGUs, 70 and an accompanying tracking system infrastructure design
. Each issued ERC will have a unique identifier ( i.e. , serial number) and the tracking system will provide traceability of issued ERCs back to the program or project for which they were issued. The EPA received a number of comments from states and stakeholders in on the CPP EGs about Clean Power Plan about the value of the EPA’s support in developing and/or administering tracking systems to support state administration of rate

- based emission trading sys tems. As described above in section III.A of this preamble , the EPA is proposing , as part of both types of model trading rules, a federal trading platform that would allow state plans that are ready

- for

- interstate

- trading to operate through a program in which the EPA provides the tracking and compliance system. This system will meet the requirements of the CPP EGs Clean Power Plan
.

70 “Compliance true

- up” refers to ERC submission by an owner or operator of an affected EGU to adjust a reported CO 2 emission rate, and determination of whether the adjusted rate is equal to or lower than the applicable rate

- based emission limit.***E.O. 12866 Review

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4. Compliance and General Accounts This section describes two types of ATCS accounts: compliance accounts, one of wh ich would be established by the Administrator would establish for each affected EGU upon receipt of the certificate of representation for the source; and general accounts, which could be established by any entity upon receipt by the Administrator of an app lication for a general account. 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
. General accounts could be used by any pe rson or group for holding or trading ERCs. However, ERCs could not be used for compliance with emissions limitations so long as the ERCs were held in, and not properly and timely transferred out of, a general account. To open a general account, a person or group would have be required to submit an application for a general account, which would be similar in many ways to a certificate of representation. The application would include, in a format to be prescribed by the Administrator: T he name and identifying information of the individual who would be the authorized account representative and of any individual who would be the alternate authorized account representative; an identifying name for the account; the names of all persons with an ownership***E.O. 12866 Review

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interest wi th the respect to allowances held in the account; and certification language and signatures of the authorized account representative and alternate. The authorized account representative and alternate would be authorized upon receipt of the application by t he Administrator. The provisions for changing the authorized account representative and alternate, for changing the application to take account of changes in the persons having an ownership interest with respect to ERCs, and for delegating authority to mak e electronic submissions would be analogous to those applicable to comparable matters for designated representatives and alternates. The EPA requests
comment on these compliance mechanisms. 5. Compliance D emonstration The EPA proposes that affected EGUs subject to this federal plan are required to meet compliance obligations by November 1 of the year following the end of the compliance period. For an affected EGU to meet its compliance obligations its average stack emis sion rate over the compliance period must be at or below its applicable rate standard, or the affected EGU must use ERCs to adjust its average stack emission rate to be at or below its applicable rate standard. An EGU ’s average emission rate over the compl iance period will be calculated based on submitted data to ATCS. The compliance period average would be calculated***E.O. 12866 Review

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by taking the m easured CO 2 mass in units of pounds (lbs) summed over the compliance period for an affected EGU and dividing it by the total net energy output over the compliance period for that affected EGU in units of MWh
. 71 This averaged emission rate will be compared to the emissions standards that the EGU is subject to during the corresponding compliance period
. Accordingly , and if necessar y, the appropriate number of ERCs will be retired from the EGU’s compliance account to adjust the emission rate of the EGU to be equal to the emission standard. The discussion of using ERCs for compliance is found in section
IV.D. 8 10 of this preamble. 6. Recordation of ERC Generation and ERC Issuance The EPA proposes to issue ERCs for ERC generating entities
once per year. Thus, in a three 3

- year compliance period, for instance, there would be three points at which the agency issues
ERCs. After each calenda r year , the EPA will calculate the ERCs generated for EGU and non

- EGU ERC generators based on data submitted to the EPA through the Emissions Collection and Monitoring Plan System ( ECMPS ) . These calculated ERC quantities will be proposed as part of a Notic e of Data Availability (NODA)

71 Note that these values will be the submitted values from the affected EGUs to the EPA that have gone through a transparent review process.***E.O. 12866 Review

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with a 30

- day comment period. Subsequently, the EPA will finalize this NODA and issue ERCs accordingly with tracking and serial numbers. For affected EGUs with compliance accounts, the ERCs will be issued to these. For entitie s without compliance accounts, the EPA will issue ERCs to an entity’s general account. The timing for issuing ERCs is consistent with existing programs, and the EPA believes there is value in consistency. 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 regardingERC regarding ERC

- issuance intervals. We request comment on how r eporting and recordkeeping requirements could be minimized , particularly for small entities , to the extent possible under the statute and existing regulations.

a. Issuance of ERCs to Affected EGUs Following the determination of the number of ERCs an affected EGU is eligible to receive, based on an affected EGU’s reported CO 2 emission rate compared to a specified reference
rate 72 , the EPA will issue those ERCs into the affected EGU’s compliance account in ATCS
. The issuance will occur annually

72 As described in section IV.C.1 of this preamble.***E.O. 12866 Review

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through the NODA process. ERCs will have a unique serial number, tracking number, and will distinguish ERC type ( i.e., if it is BB2 or not) when issued to an affected EGU
. b. Issuance of ERCs for Measures Used to Adjust an Emission Rate In the final EGs , the EPA has specified requirements for an ERC issuance process for the quantification and verification of

measures used to adjust an emission rate that provide the necessary rigor and transparency while being efficient and streamlined. This is the intent of the f ederal p lan as well , where there is a particular concern with implementing a streamlined and efficient federal process for ERC issuance across federal plan states
. As required in the final EGs , we are proposing a two

- step application process to th e federal plan tracking systems for ERCs that allows for project approval to take place prior to the performance period, and makes the issuance of ERCs as quick and efficient as possible after generation has been quantified and verified, while still assuri ng a rigorous approval process . For the first step in the
ERC issuance application process, the EPA proposes that RE and nuclear generation providers submit to the EPA a n eligibility application for EPA approval , or its designated agent, demonstrating that the project is eligible for the issuance of credits, including an EM&V plan that meets EPA requirements. The***E.O. 12866 Review

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EPA takes comment on all aspects of the proposed ERC issuance
process. The EPA is also taking comment on how an ERC issuance process would apply t o emission reduction measures for which we are taking comment regarding their eligibility for ERC issuance under the federal plan, including types of RE not covered by the federal plan , demand

- side EE, CHP, biomass, and any other measure that could be cons idered eligible under the final guidelines. The following are proposed required components of the eligibility application , as specified for these measures in the final emission guidelines EG s : (1) The EPA proposes that the federal plan will require that providers must show that the generation they would be providing to the federal plan system for ERC issuance is only being credited in the federal plan , and will not be submitted for ERC issuance in a ny other rate

- based crediting system in any other state. As discussed in

s ection IV.C. above, it is proposed of this preamble , we are proposing that states with rate

- based emission standards plans that have eligibility and EM&V requirements compatible with the federal plan will w ould have the opportunity to participate in the federal plan trading systems, and create a shared pool of creditable***E.O. 12866 Review

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reductions, in which case credits approved by such states would be eligible for use by affected EGUs in the federal plan. (2) The provider must show that the project is using an eligible RE or nuclear resource. Specific requirements are proposed in s ec tion IV.C of this rule preamble
. (3) The provider must show that the project has an EM&V
p lan that meets the federal plan requirements. Proposed requirements specific to the federal plan are proposed in
Sec. section IV.D.6 of this rule preamble
. As specified in
Sec. section IV.D.8 of this preamble , w e take request comment on whether nuclear energy resources should be subject to the same EM&V requirements as renewable
energy RE resources, and if not, we take comment on to which EM&V requirements nuclear energy resources sho uld be subject. (4) There are special conditions if the provider is located in a state with a mass

- based plan. For eligible RE capacity , the provider can only be credited in a rate

based state or rate

- based multi

- state system if the provider can demonstrate that the measure must be implemented to meet el ectricity load in a state with a
rate

- based plan . The EPA is proposing that an RE provider***E.O. 12866 Review

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can make this demonstration by providing documentation of a power purchase agreement (PPA) or delivery contract from the rate

- based state and show that the measure w as treated as a generation resource used to serve regional load that included the rate

- based state . For incremental nuclear capacity, no provider in a state with a mass

- based plan can be eligible for ERC issuance in a rate

- based state. This requirement and the justification for its inclusion is further discussed in Sec . section III.A . of this preamble on Interstate Effects and also discussed in the Interstate Effects section of the final guidelines (Sec. EGs ( section VIII. L of the final EGs ). The EPA is proposing that there is no other geographic limitation on the location of the providers of RE and incremental nuclear generation under the federal plan
. (5) This application must include an independent third

party verifier’s rev iew and approval of the eligibility requirements, as is reflected in EM&V requirements for the final guidelines, and specified as part of proposed federal plan EM&V requirements in Sec. section IV.D.6 of this rule preamble
.
We request comment on each criteri on of the eligibility application described herein and in the proposed model rule,***E.O. 12866 Review

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for each eligible resource. Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level of detail prov ided and whether more or less detail (and what detail) should be included in the final model rule. ERCs will be tracked in the Allowance Tracking and Compliance System (ATCS). Additionally, t he EPA is proposing that the agency will establish a complementar y tracking system for the ERC issuance process. It will provide for transparent access to RE project and program eligibility applications and regulatory approvals as well as information on the activities of accredited third party verifiers (third party ver ifiers are further discussed in Sec. section IV.D.6 of this rule preamble ) , as well for the public to be able to generate reports based on this information
. The agency is proposing that the project eligibility applications will be accepted after the finalization of the federal plan and prior to the first compliance period, as soon as the agency is able to establish an application process, and that applications will be accepted on a n annual basis. The
agency req uests comment on whether a quarterly or bi annual application process is more appropriate. These applications will be accepted through the entirety of all compliance***E.O. 12866 Review

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periods. The EPA will review and approve the project applications. It is proposed that the EPA may designate an agent to coordinate the project application process and assist with review of applications. For the second step in the credit issuance application process, the EPA proposes that providers submit an M&V report
to the EPA , or its designa ted agent , prior to the EPA’s issuance of ERCs . This can only occur after the approval of a project application, the RE has been generated, and necessary EM&V has been completed. The following are proposed required components of the ERC issuance applicatio n: (1) Documentation of completed EM&V in accordance with the EM&V plan submitted by the RE provider , including quantification of the MWh of generation to be credited and verification of their creation. (2) Documentation that the generation has not been submitted for crediting under any other federal or state plan, including to another rate

- based credit tracking system. (3) Documentation that the MWh resulted from RE or incremental nuclear capacity eligible for crediting under the federal plan requirements and in accordance with***E.O. 12866 Review

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final emission guidelines
. EG s . This documentation should note if the MWh are from an RE project located in a state with a mass - based plan , and show if the generation is approved to be eligible for ERC issuance under the federal plan. See s ection &&& IV.C.3 of this preamble for specifics on the required demonstration for this type of RE generation. As discussed in that section, this option is proposed to not be available to incremental nuclear capacity located in a state with a mass

- based plan. (4) This application must include a verification report from a n independent third

- party verifier , submitted after the verifier ’s review and approval of the eligibility applic ation , as is reflected in EM&V requirements for the final guidelines, and specified as part of proposed federal plan EM&V requirements described below and included in detail in the proposed model rule
. If the application meets these requirements, pursuant to review by the EPA or its designated agent, ERCs will be issued to the provider by the EPA through the Allowance Tracking and Compliance System (ATCS). The specific steps of the process by which an eligible resource seeks ERCs, and by which an affected EGU may use ERCs in its compliance demonstration are laid out in the proposed model rule. One of the steps requires***E.O. 12866 Review

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the proponent to register for a general account in the EPA tracking system where the ERCs would be recorded. See section 40 CFR 62.16515 for the requirements to establish a general account. While EPA is proposing to allow eligible resources to use a general account to receive any ERCs issued under this section, the EPA requests comment on extending the designated representative pr ovisions in section 40 CFR 62.16485 to eligible resources instead of the general account provisions. Requiring eligible resources to submit information similar to that collected in the certificate of representation in section 40 CFR 62.16500 and to appoint a designated representative to act on behalf of all owners/operators for all projects requesting ERCs may improve the EM&V process by making the eligible resources more accountable. Because it is critical to the integrity of an ERC that it represents the ac tual MWh of energy generated or saved that it purports to represent, and as required in the emission guidelines EG s for state plans, the federal plan and model rule include provisions to address error correction (mechanisms to adjust the number of ERCs issu ed based on all form of errors, from clerical, to over

- and under

- statements, to material inconsistency with rule provisions, to fraud, etc.). In addition, the federal plan and model rule include provisions***E.O. 12866 Review

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that provide that, at any time for cause, the EPA may temporarily or permanently revoke the qualification status of eligible resources (from being issued ERCs for at least the duration it does not meet the requirements for being issued ERCs) and independent verifiers (from providing verification services for at least the duration it does not meet the requirements of your state plan). For the federal plan, as discussed in s ection III.I of this preamble above , we propose to use the administrative appeals process set forth 40
C.F.R. CFR p art 78 to address party

- specific disputes concerning the issuance and/or validity of ERCs. States may adopt a similar procedural and substantive process at the state level to enable them to rescind or withhold approval of specific credits. We request comment on the content of each of these provisions in the model rule, and specifically seek comment on whether the model rule should include different or additional details related to either procedure or substance for error correction and the revocation of the qualification
stat us of an eligible resource or independent verifier. The agency is proposing that ERC eligibility applications will be accepted starting before the beginning of the first compliance period (January 1, 2022) , through an application
process the agency will es tablish and administer (unless***E.O. 12866 Review

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delegated or taken over through a partial state plan) , and that applications will be accepted on a n annual basis
. These applications will be accepted through the entirety of all compliance periods. The EPA will review and app rove eligibility application s , and may designate an agent to coordinate and assist with ERC eligibility applications. The EPA is proposing that it will issue ERC s for a given year no later than 6 months after the end of the relevant year . This amount of ti me may be necessary to accommodate the ERC issuance process , including necessary EM&V
. . . The overall proposed schedule for trading and true

- up has been constructed to allow for this period of time for EM&V after the compliance period.
&&& Placeholder for language on provisions to encourage early action that is being worked on offline&&& 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 after September 6, 2018 and that generate zero

- emitting MWh or reduce energy demand in 2020 and /or 2021. The EPA intends to implement the program in a way that maintains the string ency of the rate

- based emission standards for affected EGUs in the compliance periods established***E.O. 12866 Review

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in this rule. For the purposes of the rate

- based federal plan, the EPA is proposing to award early action ERCs to two types of eligible projects, as listed be low. The rationale for including these projects is included in section VIII.B.2 of the final EGs.

• RE investments that generate metered MWh from any type of wind or solar resources; and

• Demand

- side EE programs and measures implemented in low

income communit ies that result in quantified and verified electricity savings (MWh)
. 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 eligibl e actions implemented after September 6, 2018 and that generate zero

emitting MWh or reduce end

- use energy demand during 2020 and/or 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 a ccount for the issuance of early action ERCs for MWh generated or avoided in 2020 and/ or 2021. For example, during the interim performance period, a number of ERCs could be retired in an amount equivalent***E.O. 12866 Review

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to the number of early action ERCs that were awarde d for MWh generated or avoided in 2020 and/or 2021 . As another option, the EPA, or a state under the model trading rule, could adjust their targets to achieve the same stringency, taking into account the additional borrowed ERCs. The EPA requests comments on all potential methods to adjust state targets, including modeling

based approaches, and on what information the state must present to demonstrate that the new targets preserve the needed stringency. More generally, the EPA requests comments on these ide as, as well as on 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

r eflect each state’s pro rata share

– based on the amount of the reductions from 2012 levels the affected EGUs in the state are required to achieve relative to those in the other participating
states

– of a federal pool of additional ERCs, which would be li mited to the equivalent of 300 million short tons of CO 2 emissions. Thus, states whose EGUs have greater reduction***E.O. 12866 Review

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obligations will be eligible to secure a larger proportion of the federal pool upon demonstration of quantified and verified MWh of RE genera tion or demand side

- EE savings from eligible projects realized in 2020 and /or 2021. The EPA intends that a portion of these matching ERCs would be reserved for eligible wind and solar projects, and a portion would be reserved for eligible EE projects imple mented in low

- income communities
. The agency recognizes that there have been historic economic, logistical and information barriers to implementing EE programs in these communities , and therefore believes it is appropriate to reserve a portion of the federal pool to incentivize investment in these programs
. The EPA is requesting comment on the size of reserve of matching ERCs for eligible low

- income EE programs as well as for eligible wind and solar projects. The EPA is proposing that unused ERCs in ei ther

reserve would redistributed among participating states. This redistribution could be executed according to the pro

- rata method discussed above. Alternatively, unused matching EE or RE ERCs could be swept back into a federal pool and distributed to pro ject providers on a first

- come, first served basis. EPA requests comment on these ideas as well as alternative proposals regarding the method for redistributing matching ERCs, as well as the appropriate timing for such a redistribution. Following the effe ctive date of a rate

- based federal plan for***E.O. 12866 Review

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a state, the agency will create an account of matching ERCs for the state that reflects the pro rata share of the 300 million short
ton CO 2 emissions

- equivalent matching pool that the state is eligible to receive . Any matching ERCs that remain undistributed after September 6, 2018 73 will be distributed to those states with approved state plans that include requirements for CEIP participation, as well as to those states on whose behalf EPA is implementing a federal plan. These ERCs will be distributed according to the pro rata method outlined above. Unused matching ERCs that remain in the accounts of states participating in the CEIP on January 1, 2023, will be retired by the EPA. The EPA requests comment on how the 3 00 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 a s follows, based upon the quantified and verified MWh of generation or savings achieved by the projects in 2020 and/or 2021 :

73 This may occur because not all states may elect to include requirements for CEIP participation in their state plans.***E.O. 12866 Review

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• For RE projects that generate metered MWh from any type of wind or solar resources: for every two MWh generated, the project will r eceive one early action ERC and one matching ERC from the EPA.

• For EE projects implemented in 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. The EPA will address implementation details of the CEIP in a subsequent action. 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 prio r to such use. 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, in cluding criteria for awards to EE projects that benefit low

- income communities; (3) the mechanism for reviewing project submittals and issuing early action ERCs; (4) EM&V requirements for eligible projects; (5) M&V reports; (6) verification reports from an independent verifier; and (7) the number of early action and matching ERCs that should be awarded for each MWh of generation or***E.O. 12866 Review

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savings from eligible projects to ensure a robust market response to the program. The EPA also seeks comment on how states, tri bes and territories for whom goals have not yet been established in the final EGs may be able to participate in the CEIP in the future. 7. Independent Verifiers The EPA has determined in the final EGs that independent verification requirements are necessary to ensure the integrity of any rate

- based emission trading program, given the types of eligible measures that may generate ERCs and the broad geographic locations in which those measures may occur. Inclusion of an indepen dent verification component provides technical support for the EP A in the context of the proposed federal plan, and the states in the context of their plans, to ensure that eligibility applications and monitoring and verification rep orts are appropriately reviewed prior to issuance of ERCs. Inclusion of an independent verification component is also consistent with similar approaches required by state PUCs for th e review of demand

- side EE program results and GHG offset provisions inclu ded in state GHG emission budget trading programs. The remainder of this section and the related language in the proposed model rule provide the proposed basis by which the EPA intends to evaluate the independence of the verifiers that***E.O. 12866 Review

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it uses to provide verification reports pursuant to the federal plan. The qualifications described here and in the model rule would be presumptively approveable in the context of a state plan. As a starting point, an i ndependent verifier must have the
necessary technical qualifications to provide verification services for the subject in question, as well as fulfill certain codes of conduct i n providing verification services. Only verifiers appro ved or “accredited” by the EPA may provide verification services related to ERC issuance for the federal plan , in the same way that only verifiers approved by a state may be eligible to perform verification services pursuant to a state plan
. 74 In addition, v erifiers must have sufficient knowledge of the rate

- based emission trading program rules, technical expertise, and knowledge of auditing, accounting, and information management practices , in order to perform verifcation services related to the Clean Powe r Plan . Accredited verifiers must be independent. Accredited verifiers may not

74 In this section, the term “verifier” is used interchangeably to refer to both a “verification body” ( i.e ., a verification company or or ganization) and a “verifier,” which is an individual that is a principal or employee of a verification body.***E.O. 12866 Review

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provide verification services for any eligible resource for which they have a financial, management, or other interest. 75 Such relationships constitute a conflict of interest (CO I). COI

75 Accredited verification bodies and individual verifiers may not have any direct or indirect organizational or personal relationships with an ERC provider that would impact their impartiality in assessing the validity and accuracy of the information in an eligibility application or M&V report. In addition to this general requirement, the following specific requirements also apply. Accredited verifie rs must have no direct or indirect financial interest in, or other financial relationships with, an ERC provider or any related program or project that seeks issuance of ERCs. Accredited verifiers must have no relationship with the implementer of a program or project that seeks the issuance of ERCs, or any related ERC provider, that would represent a COI. Accredited verifiers must have no role in the development and implementation of a program or project that seeks issuance of ERCs, beyond the provision of verification services. Accredited verifiers must not be compensated, directly or indirectly, in relation to the quantified and verified MWh in an M&V report or on the basis of program or project approval, ERC issuance, or the number of ERCs issued. Accredi ted verifiers may not hold ERCs, or other financial derivatives related to ERCs, or have a financial relationship with other parties that hold ERCs or other related financial derivatives. Verification reports must include an attestation by the accredited v erifier that it assessed potential COI related to an ERC provider and adequately addressed any identified COI. The EPA requests comment the potential for payments to be channeled through the EPA as fees.***E.O. 12866 Review

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situations may also arise as a result of personal relationships among individuals representing an ERC provider and an accredited verifier. A verification report will not be accepted as part of an eligibility application or M&V report where the accr edited verification body or any individual verifier has a COI. Accredited verification bodies must have management protocols in place to identify and remedy any COI prior to provision of verification services. T hat the proposed federal plan and model rule provide that failure of an accredited verifier to identify and adequately address any COI prior to provision of verification services is grounds for revocation of accreditation. The EPA will perform periodic reviews of accredited verifiers, to ensure that verifiers are maintaining necessary technical and professional qualifications and are meeting program requirements for provision of verification services. The EPA may recognize , in part , accreditation by an outside organization where such outside accreditation demonstrates that federal plan requirements are met. 76 The EPA requests comment on the proposed necessary requirements for an

76 An example is American National Standards Institu te (ANSI) accreditation under ISO 14065:2013 for GHG validation and verification bodies. More information is available at https://www.ansica.org/wwwversion2/outside/GHGgeneral.asp
.***E.O. 12866 Review

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independe n t verifier to perform verification services in connection with the federal plan , including those requirements specifically detailed in this section of the preamble and the related language in the prop o sed model rule , and including whether there are any requirements that are not included in this
prop os a l that should be included in the final rule
. We further request comment on the level of detail that we should include in the final model rule regarding all requirements for indepenent verifiers, and all aspects of verification. 8. Evaluation, Measurement, an d Verification (EM&V) Plans, Monitoring and Verification (M&V) Reports, and Verification Reports
T his section identifies and discusses the EM&V approaches used to quantify and verify MWh from RE, demand

- side EE, and other eligible measures used to generate ERCs or otherwise adjust an emission rate. 77 Only a subset of the potentially creditable ERC resources

77 EM&V is defined here as the set of procedures, methods, and analytic appr oaches used to quantify the MWh from RE, demand

- side EE, and other eligible measures and thereby ensure that the resulting savings and generation are quantifiable and verifiable. In this proposal, we are proposing EM&V for the eligible RE, and taking comme nt on EM&V for demand

- side EE and any other measures that could be eligible.***E.O. 12866 Review

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discussed in this section are actually being proposed as part of the federal plan. The remainder, and the ir associated requirements, are provided as part of the proposed model trading rule. Thus, a ll provisions of this subsection relating to such

resources are presented only for the purpose of comment in the context of the federal plan , but are actually propose d for inclusion in the model trading rule. The ERC resources proposed in the federal plan must meet the following criteria: 1) they are in the following categories of measures: on - shore wind, solar photovoltaics ( PV ), concentrated solar power , geothermal
p ower, hydropower , new nuclear units and capacity uprates at existing nuclear units, and 2) they can provide quantified generation data from a revenue quality meter . The language pertaining to all other measures ( e.g ., demand

- side EE) is proposed only for t he model rule. While they are currently being proposed as part of the model rule and not the federal plan , the EPA requests comment on the inclusion of other RE measures , demand

- side EE measures , and any other measures that may be eligible under the final guidelines as eligible measures under the federal plan. For stakeholders that are submitting comments on the inclusion of such additional measures, the EPA requests comment on how the EPA could implement across applicable jurisdictions a rigorous, straight forward , and widely***E.O. 12866 Review

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demonstrated set of EM&V methods, procedures, and approaches that could be implemented in the time frame allowed by the federal plan and that also meet the requirements outlined in the final guidelines. To the extent proposed for inclus ion in the model trading rule, w e also invite comment on these requirements in the context of state implementation as part of a state plan
. Thus, c ommenters on this aspect of th e proposal should consider whether and how these provisions could be implemented at the state level. Comments that suggest an approach not authorized by the EGs will likely be considered out of out side the scope of this action proposed rule
. Additionally, wi th respect to EM&V , the EPA describes certain established industry best

- practice methods, procedures, and appraoches that would be presumptively approvable if include d in state plans. States wishing to adopt the model rule must submit these methods, proced ures, and approaches as specified, or may submit alternative EM&V that is functionally equivalent to the industry best

- practices described as presumptively approvable. 78

78 The EPA recognizes that EM&V is routinely evolving to reflect changes in markets, technologies and data availability, and expects to update its EM&V guidance over time. Theref ore the agency expects that alternative quantification approaches will emerge***E.O. 12866 Review

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As discussed in section IV.C.3 of this preamble , quantified and verified MWh of RE gen eration and other means of generating ERCs may be used to adjust a CO 2 emission rate when demonstrating compliance with the emission guidelines EG s . Providers other than affected EGUs who seek to earn ERCs must develop EM&V plans outlining how they will quantify and verify the result ing MWh from their efforts. These providers must then submit these EM&V plans as part of their application to the Administrator for project approval. 79

a. Overall A pproach and Measure

- S peci fic R equirements The proposed CPP EGs Cl ean Power Plan stated that the EPA would establish EM&V requirements and procedures to help states, sources, and resource providers quantify and verify MWh savings and generation resulting from zero

- emitting RE and demand

- side EE efforts. This federal plan proposes those requirements that the EPA committed to establish. The CPP EGs Clean Power Plan proposal and associated “State Plans Considerations” TSD 80

that can be approved for use, provided that such approaches are functionally equivalent to the provisions for EM&V outlined in this section. 79 A full discussion of applicable requirements for the establishment and functioning of the rate

- based trading system is provided above, in section I V.D of this preamble. 80 See discussion beginning on p. 34 of the State Plan***E.O. 12866 Review

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suggested that such EM&V requirements would leverage existing industry practices, protocols, and trackin g mechanisms currently utilized by the majority of states implementing RE and demand

side EE. The EPA further noted that many state regulatory bodies and other entities already have significant EM&V infrastructure in place and have been applying, refining , and enhancing their evaluation and quality assurance approaches for over 30 years, particularly with regard to the quantification and verification of energy savings resulting from utility

- administered EE programs. The EPA also observed that the majority o f RE generation is typically quantified and verified using readily available , reliable , and transparent methods such as d irect metering of MWh. The EPA is proposing EM&V methods, procedures, and approaches , described herein, that are intended to be consist ent with and leverage prevailing industry best

- practice s . In addition, the EPA’s proposed EM&V methods, procedures, and appro a ches reflect several overarching objectives and principles offered by states, private organizations, and the public during the comment period of the CPP EGs . One of these is the importance of balanc ing the accuracy and reliability of

Considerations TSD for the Clean Power Plan Proposed Rule: http://www2.epa.gov/carbon

- pollution

- standards/clean

- power - plan

proposed

- rule

- state

- plan

- considerations
.***E.O. 12866 Review

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results with the associated costs of EM&V . Another objective for the EPA’s proposed EM&V is to avoid excessive interference with existing practices t hat are already robust, transparent and effective
. (1) Submittals
. Applicable submittals under a rate

- based emission trading program include eligibility applications (including EM&V plans) , monitoring and verification reports , and verfication reports
. These submittals are described in section &&& VIII.K. 2 3.b of the CPP final EGs preamble and in this model rule and federal plan
. At the initiation of a program or project, ERC providers develop and submit to the state or the EPA, respectively, an EM&V pla n that documents how requirements for quantification and verification will be addressed as EM&V is performed over the program or project period. After implementation has occurred, the ERC provider must submit periodic monitoring and verification (M&V) repo rts to document and describe how each of the requirements were applied. These reports must also specify the resulting MWh savings or generation values, as determined on a retrospective (ex

- post) or real

- time basis. MWh values may not be determined using pr ojections or other ex

- ante quantification approaches. Each EM&V plan submitted in support of an eligibility***E.O. 12866 Review

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application must identify the eligible resource covered by the plan, and provide specific EM&V criteria that specify the manner in which the energy generated or saved by the eligible resource will be quantified, monitored and verified. The manner of quantification, monitoring and verification must meet the criteria outlined below and included in the proposed model rule, as applicable to the specific eligible resource. We take broad comment on each criteria specified below and in the proposed model rule, for each eligible resource. Specifically, we seek comment on the substantive content of the criteria , and we seek comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible

resource . Each M&V report submitted in support of the issuance of ERCs to a specific eli gible resource must include specific criteria described here and in the proposed model rule. For the first M&V report submitted, a key component is documentation that the electricity

- generating resources or electricity

- saving measures were installed or imp lemented consistent with the description in the approved eligibility application. Each following M&V report must then identify the time period covered by the M&V report, describe how the methods specified in the***E.O. 12866 Review

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EM&V plan were applied during the reporting period, and document the quantify (in MWh) of energy generation and/or electricity savings quantified and verified for the period covered by the M&V report. Any change in the energy generation or savings capability of the eligible resource during the perio d covered by the M&V report must also be included in the M&V report, along with the date on which the change occurred, and information sufficient to demonstrate whether the eligible resource continued to meet all eligibility requirements during the period covered by the M&V report. Any change should also be specified in the report. The EPA takes broad comment on each of these criteria, as described here and in the proposed model rule. Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible resource. Each verification report submitted by an ind ependent verifier in support of the issuance of ERCs to a specific eligible resource must address the criteria described here and in the proposed rule text . Each verification report must set forth the findings of the verifier, based on an assessment of all relevant requirements, information and data, including an***E.O. 12866 Review

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assessment of any material misstatements or data discrepancies. Any verification report included as part of an eligibility application must further describe the review conducted by the verifier and verify the following : the eligibility of the resource to be issued ERCs; that the eligible resource exists and has been, or will be, generating energy or saving electricity in the manner required; that the EM&V plan meets its requirements; and any other i nformation required or that the verifier finds, in its professional opinion, is necessary to assess the accuracy of the subject of the verification report. Each verification report included as part of a M&V report must also describe the review conducted by the verifier and verify the following : the adequacy and validity of the information and data submitted to quantify eligible MWh of electric generation or electricity savings during the period covered by the report, as well as all supporting information an d data identified in the EM&V plan and M&V report; evaluate whether all generation or savings data is within a technically feasible range for that specific eligible resource (determined through a quality assurance and quality control check of the data); th at the M&V report meets its requirements; and any other information required or that the verifier finds, in its professional opinion, is necessary to assess the accuracy of the subject of***E.O. 12866 Review

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the verification report. The EPA takes broad comment on each of thes e criteria, as described here and in the proposed model rule. Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible resource. For demand

- side EE, all EM&V plans that are developed for purposes of adjusting an emission rate under this final rule are intended to leverage and closely resemb le the plans already in routine use for a wide range of publicly or rate

- payer funded EE programs and energy service company (ESCO) projects. For RE, EM&V plans similarly leverage resources and approaches to MWh tracking for RE that are broadly applied in the state and regions. The existing reports and documentation from existing tracking systems may serve as the substantive basis for a monitoring and verification report for RE. b. Renewable Energy EM&V Requirements This section describes the EM&V requirements associated with quantifying electricity generation from eligible RE and nuclear , and for documenting these requirements in EM&V plans and reports. Consistent with prevailing views expressed in public comments, the EPA’s requirements presume that the***E.O. 12866 Review

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quant ification of RE generation can leverage the infrastructure and documentation associated with the establishment of renewable
energy certificate certificate s (RECs) and registration of such certificates in REC registries . These registries typically include well

- established safeguards, documentation requirements , and procedures for registry operations intended to support the demonstration of compliance with state RPS policies. A key element of RPS compliance is that each RE generating unit must be uniquely id entified and recorded in a registry to avoid the double counting of RECs
. The primary metric for all RE is electricity generation, in units of MWh. Measured output must be derived either from (1) A revenue quality meter that meets the applicable ANSI C

- 12 standard or equivalent, which is the typical requirement for settlements with RTO and other control

- area operators; or (2) for customer

- sited generators that are interconnected behind the customer meter, measurement at the AC output of an inverter, adjuste d to reflect the energy delivered into either the transmission or distribution grid at the generator bus bar. Further, a RE generating facility of 10 kW Kilowatt capacity or less may estimate the facility’s output if the state where it is located explicitly allows estimates to be used and provides rules for when it will be allowed. In the latter case,***E.O. 12866 Review

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calculations of system output must be based on the RE unit’s capacity, estimated capacity factors, and an assessment of the local conditions that affect genera tion levels. All such input parameters and assumptions must be clearly described and documented. For RE units that are managed by regional transmission operators or other control area operators, metered generation data should be electronically collected by the control area’s energy management system, verified through an energy accounting or settlements process, and reported by the control area operator to the REC registry at least monthly. The EPA requests comment on this proposed requirement for quantifyin g RE generation for the purpose of ERC issuance. For RE units that do not go through a control area settlements process, met ered data may be read and transmitted to the ERC registry by an independent third party, or may be self

reported. Third

- party and se lf

- reported generation data must be reported on a n annual basis. All such data must be verified for reasonableness by the a gency, state or the REC registry. For reporting purposes, RE generation may be aggregated from multiple generators into a single MWh value for the group, provided the following requirements are met: each RE unit is

u niquely identified in the federal tracking system , the nameplate capacity of each RE unit is less than 150 kW Kilowatt ,***E.O. 12866 Review

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the aggregated RE units collectively have nameplate g enerating capacities less than 1.0 MW, the units aggregated are located in the same state, the RE units being aggregated utilize the same technology/fuel type, and the RE unit’s generation data are based on the same metering or the same generation estimati ng software or algorithms. The EPA requests comment on how existing reporting systems can play a role in meeting EM&V requirements under the federal plan, particularly , in assuring that each MWh of RE generation is uniquely identified and recorded to avoid double counting. An additional criterion that applies to distributed RE units that directly serve on

- site end

- use electricity loads is that avoided transmission and distribution ( T&D ) system losses can be considered, as is commonly practiced with demand

- s ide EE. Such calculations must apply the requirements specified for demand

- side E E as described below. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection, includuing the app ropriateness of their use for each type of renewable energy RE resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Clean Power Plan compliance.
For renewable energy RE resource s with a nameplate cap acity***E.O. 12866 Review

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of 10 kW Kilowatt or more and for renewable energy RE resource s with a nameplate capacity of less than 10 kW Kilowatt for which metered data are available , we take comment on the appropriateness of the requirement to use a revenue quality meter for moni toring generation, and we take comment on the definition of revenue quality meter. We take comment on the appropriateness of other types of meters for monitoring generation
. We take comment on whether 10kW 10 Kilowatt is the appropriate threshold, under whi ch an eligible resource can be issued ERCs for generation based on data other than metered generation, and if not, what would be the appropriate threshold.
For renewable energy RE resources of all sizes and means of monitoring, we take comment on the appro priate requirements for allowing generation data to b e aggregated, including comment on the provisions in the proposed model rule and any alternatives to them. We take comment on whether the a ll of the generating units have the same essential generation ch aracteristics, in order for their data to be aggregated, and if so, what the appropriate content of the definition of “ essential generation characteristics ” ( e.g ., are essential generating characteristics determined on a resource by resource basis, or can generation from a group of wind turbines be aggregated with generation from a group of solar panels? We seek comment on the appropriate***E.O. 12866 Review

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thresholds for the aggregated of individual units ( e.g .,
n ameplate capacity of less than 150 kW Kilowatt per unit and the units collectively do not exceed a total nameplate capacity of 1 MW when aggregated, as in the proposed model rule).
For non

- metered units of less than 10 kW Kilowatt , we take comment on whether the final model rule should specify the specific estimating s oftware or algorithms by which generation data should be measured, and if so, we take broad comment on the appropriate estimating software or algorithms and/or the appropriate characteristics for such estimating software or algorithms
. We request comment o n a ny other requirements that should be included in the final model rule regarding EM&V of renewable
energy RE resources. For all energy generating resources (such as RE, but also including applicable resources requiring EM&V described below), we take comment on the appropriate place of measurement of the generation, including comment on whether measurement should be at the bus bar or at a different location (or in the case of meter on units of less than 10kW 10 Kilowatt , at the AC output of the inverter or elsewhere), whether measurement should be before or after parasitic load (and how to separate out parasitic load). In addition, for all energy generating resources, we take***E.O. 12866 Review

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comment on whether generation data should go through a control area settlement process prior to issuance of ERCs, and if so, what level of specificity with respect to that process we should include in the final model rule. If not, or if the unit does not go through a control areas settlement process, we take comment on how the data collection should be specified in the final model rule. Finally, we take comment on the frequency with which data should be collected, for all energy generating resources, of all sizes.

c. Nuclear EM&V Requirements The EM&V requiremen ts associated with quantifying electricity generation from eligible nuclear, and for documenting these requirements in EM&V plans and reports are the same as the requirements for RE discussed in the preceding section. The EPA requests comment on all meter ing, measurement, verification, and other requirements included in this subsection, includuing 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. We take comment on whether nuclear energy resources should be subject to the same EM&V requirements as renewable energy RE resources, and***E.O. 12866 Review

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if not, we take comment on to which EM& V requirements nuclear energy resources sho uld be subject. d. Non

- A ffected Combined Heat and Power EM&V Requirements In additon to the CHP specific EM&V requirements discussed below and in the associated provisions in the model rule, all
CHP must follow the r equirements for RE discussed in the preceding section, including metering requirements, special treatment for units of less than 10 kw Kilowatt , and how to account for T&D losses
. To calculate a CHP unit’s creditable MWh, the electrical output is prorated based on the “incremental CO 2 emission rate” of the CHP unit relative to the applicable CO 2 emission rate for affected EGUs in the state. The CHP unit’s electrical output would be prorated based on the CO 2 emission rate of the electrical output associated with the CHP unit. 81 The incremental rate would be relative to the applicable CO 2 emission rate for affected EGUs in the state and would be limited to values

81 The applicable CO 2 emission limit rate depends on the type of state plan being implemented. Where a state plan includes a s ingle CO 2 emission limit rate for the fleet of affected EGUs, the applicable rate is the rate that applies to all affected EGUs. Where a state plan includes subcategorized rates for different categories of affected EGUs, the applicable rate is the rate tha t applies to affected NGCC EGUs.***E.O. 12866 Review

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between 0 and 1. 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. The CHP electrical emission rate is the net emission rate when the CHP unit’s thermal output emissions are deducted from the CHP unit’s total emissions. It can be derived as follows [CHP fuel input * fuel emission factor

– (UTO/boiler efficiency) * fuel emission factor]/CHP MWh In order to determine the incremental CO 2 emission rate, a CHP unit would monitor requirements f or CO 2 emissions and energy output. 82 The monitoring requirements are standard methods currently in use and the requirements would depend on the size of the CHP units and the fuel used in the unit.
Non

- affected CHP facilities 83 with electric generating
capa city greater than 25 MW would follow the same monitoring and reporting protocols for CO 2 emissions and energy output as are required for affected EGU CHP units. These requirements are discussed in section IV . D . 13
. of this preamble
. For non

- affected

82 Where a CHP unit uses biomass fuel, it must report both total CO 2 emissions and biogenic CO 2 emissions. Proposed requirements for reporting biogenic CO 2 emissions are discussed below in the section titled ‘ EM&V requirements that apply to biomass RE facilities.’ 83 A CHP facility may consist of one or more electric generators.***E.O. 12866 Review

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CHP facilities with electric generating capacity less than or equal to 25 MW, which use only natural gas and/or distillate fuel oil, the low mass emission unit CO 2 emission monitoring and reporting methodology outlined in 40 CFR 75 is acc eptable. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection with respect to CHP, including the appropriateness of their use for CHP (including with respect to the size of the CHP

resour ce). We take comment on whether a CHP unit should be subject to the same EM&V requirements as renewable energy RE

resource s, and we take comment on any additional EM&V requirements to which CHP units should be subject. Specifically, we take comment on speci fying in the final model rule that if a combined heat and power CHP unit has an electric generating capacity greater than 25 MW, its EM&V plan must specify that it will meet the requirements that apply to an affected EGU under § 40 CFR 6 2.16540 of this subpart.
. We also take comment on specifying in the final model rule that if a combined heat and
power CHP unit has an electric generating capacity less than or equal to 25 MW , the EM&V plan must specify that it will meet the low mass emission unit CO 2 emis sion monitoring and reporting methodology in 40 CFR 75. We take comment on any alternatives to these measurement methodologies that should be specified in the***E.O. 12866 Review

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final model rule. We take comment on a ny other requirements that should be included in the final model rule regarding EM&V of
CHP.

e. B iomass EM&V R equirements A state plan that is adopting the rate

- based model rule must propose EM&V requirements for monitoring and reporting biogenic CO 2 emissions from the use of qualified biomass at RE facilities that are eligible for adjusting a CO 2 emission rate. If a state proposes to use the monitoring and reporting requirements for biogenic CO 2 emissions in 40 CFR part 98 (§§ ( 40 CFR 98.3(c), 98.36( b)

- (d), 98.43(b), and 98.46) in its plan submission, those requirements are presumptively approvable. An EM&V plan that addresses biomass RE must follow the requirements for monitoring and reporting biogenic CO 2 emissions from the facility that were approv ed by the EPA in connection with the specific state plan. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection with respect to biomass, including the appropriateness of their use for qualif ied biomass. We take broad comment on the types of qualifying biomass feedstocks that should be specified in the final model rule, if any. We take comment on the methods that we should specify in the final model rule for the measurement of***E.O. 12866 Review

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the associated b iogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the final model rule related to qualfi ed biomass. We take comment on a ny other requirements that should be included in the final model rule regarding EM&V for qualifyi ng qualif ied biomass
. Detailed discussion on the role of qualifying qualif ied biomass feedstocks can be found in Sec. section IV. C.3
. of this preamble
. f. Waste

- to

- E nergy EM&V R equirements A state plan that is adopting the rate

- based model rule must propose EM&V requirements for monitoring and reporting biogenic CO 2 emissions from waste

- to

- energy facilities that are eligible for adjusting a CO 2 emission rate. If a state proposes to include the monitoring and reporting requirements for biogenic CO 2 emissions in 40 CFR part 98 (§§ ( 40 CFR 98.3(c), 98.36(b)

- (d), 98.43(b), and 98.46) in its plan submission, those requirements are presumptively approv able. The EPA may approve other requirements of similar rigor, at its discretion. An EM&V plan that addresses the biogenic CO 2 emissions from a waste

- to

energy facility must follow the requirements for monitoring and reporting biogenic CO 2 emissions from t he facility that were approved by the EPA in connection with the specific state plan. As discussed in the final CPP EGs (see Sec. section VIII.K.1 of the final EGs ) , only the portion of electric generation at a***E.O. 12866 Review

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waste

- to

- energy facility that is due to the b iogenic content of the MSW may be used to generate ERCs or counted by a state towards its achievement of its obligations pursuant to this regulation. The EPA requests comment on all metering, measurement, verification, and other requirements included in t his subsection with respect to WTE, including the appropriateness of their use for WTE. We take comment on whether a waste

- to

- energy resource should be subject to the same EM&V as renewable energy RE

resource s, and we take comment on any additional EM&V requirements to which waste

- to

- energy resource s should be subject, including comment on any specific method s for determining the specific portion of the total net energy output from the resource that is related to the biogenic portion of the
waste that the EPA should include in the final model rule.
g. D emand

- S ide Energy Efficiency EM&V Provisions The following section describes proposes EM&V provisions that will be presumptively approvable EM&V provisions that may be if included in state regulations governing how EE is to be quantified by EE providers and is verified by independent entities acting on behalf of the state. These As noted above
t hes e proposed provisions apply to all demand

- side EE used to adjust an emission r ate . if a state adopts the model rule. The***E.O. 12866 Review

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EPA is soliciting comment on the incorporation of EE for the federal plan and by extension the EM&V associated with it
. For all demand

- side EE used to generate ERCs , the EPA is proposing that the metric is MWh of electricity savings , which is must be quantified on an ex

- post or real

- time basis and defined as a reduction in facility

- or premises

- level electricity consumption due to a n EE program , project , or

measures measure . (1) Common Practice Baseline Based on publ ic input and assessments of industry best

p ractice protocols and procedure s, the EPA has determined is proposing that a it is presumptively approvable EM&V provision is quantif ying to quantify EE saving saving s as the difference between actual metered electricity usage after an EE program, project, or measure is implemented, and a “common practice baseline” (CPB). A CPB is the equipment that would most frequently be installed at the time an existing piece of equi pment fails or is replaced at the end of its effective useful life

– or that a typical consumer or building owner would have continued using for the remainder of the equipment's effective useful life

– in a given circumstance (i.e., a given building type, EE program type or delivery mechanism, and geographic region) at the time of EE implementation. It defines***E.O. 12866 Review

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what would commonly have happened in the absence of the EE intervention program, project, or measure
. The applicable CPB depends on a number of factors, such as characteristics of the EE program, project, or measure, the delivery mechanism to implement the EE measure by which electricity customers are engaged , local consumer and market characteristics, and the applicable building energy codes and product standards (C&S), including the C&S compliance rate. Examples of appropriate CPBs to apply in specific contexts, with consideration of these factors circumstances, which may be presumptively approvable , can be found in the EPA’s draft EM&V guidance. EE providers must document the selected CPB in their EM&V plans, along with clear documentation and discussion of the rationale, applicability, and relevant data sources, protocols, and other supporting information. Monitoring and verification reports must refer to the EM&V plan and confirm that the CPB was appropriately applied. (2) M etho ds U sed to Q uantify S avings from Energy Efficiency Programs and P rojects This section discusses proposes criteria that are presumptively approvable provisions for the general types of EM&V methods that EE providers may use to quantify the MWh savings from demand

- side EE programs, projects, and measures.***E.O. 12866 Review

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During the CPP EG’s public comment period, the EPA received input indicat ing that state PUCs typically allow utilities and other EE providers to use a range of EM&V methods that reflect applicable circumstances and on

- the

- ground conditions (versus mandating which methods must be used in a particular situation)
. Consistent with this approach, the EPA ’s presumptively approvable provision s EPA is proposing to offer flexibility for EE providers to select from three broad categories of EM&V methods to determine savings. 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 approvable, presumptivey approable , the EPA is proposing that EE providers must conduct apply the above methods at a minimum of four 4

- year intervals for building energy codes and product standards; every one, two 1 , 2 or three 3 years for publicly

- or rate

- payer funded utility

- administered EE programs, depending on th e program type, magnitude of savings, and***E.O. 12866 Review

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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 sa vings values will be maintained
. For all demand

- side EE used to adjust an emissions rate The EPA is further proposing that, to be presumptively approvable , the selected method, associated assumptions, and data sources must be identified and described in EM& V plans. For comparison group approaches, the EPA is propsing that states and EE providers can refer to the EPA’s draft EM&V guidance for a discussion of industry best

- practice protocols and guidelines , such as those published by the SEE Action Network an d the U.S. DOE’s Uniform Methods Protocols (UMP) project.
. Where feasible, the EPA seeks is proposing to encourage the use of RCT methods , which determine savings on the basis of energy consumption differences between a treatment group and a comparison grou p, and therefore increase the reliability of results
. A s noted above, an alternative to comparison group methods is the use of deemed savings values , which establish pre determined annual electricity savings values for specific EE

measures. The EPA is proposing that the use of deemed savings values will be presumptively approvable provisions are that***E.O. 12866 Review

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deemed if those values (a) b e are documented in a publicly available database (also known as a Technical Reference Manual) that is accessible on a pu blic website W eb site , or is otherwise readily accessible ; (b) s pecify the conditions for which each deemed value can be applied, including but not limited to climate zone, building type, and EE implementation mechanism ; and (c) b e are updated at a minimum of every 3 years to reflect the per

- measure MWh savings documented in ex

- post EM&V studies apply measurement and verification M&V or comparison group methods
. For M&V methods , the to be presumptively approvable provision , the EPA is proposing is that industry best

- practice protocols and/or guidelines must be followed. These include the International Performance Measurement and Verification Protocol (IPMVP) , Examples of acceptable best

- practice protocols published by the Federal Energy Management Program (FEMP), the American Society of Heating, Refrigeration and Air

- Conditioning Engineers (ASHRAE), and the U.S. DOE’s UMP. guidelines are provided in the EPA's EM&V guidance. EE providers can consult the EPA’s EM&V guidance to assess the app licability of such protocols and guidelines these technical resources to the EE programs and projects generating savings, and must document how these one or more best

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applied in EM& V plans (along with clear documentation and discussion of the rationale, applicability, and relevant data sources, and other supporting information). The EPA is also proposing that monitoring and verification reports must refer to the EM&V plan and confirm that the relevant M&V protocol or guideline was properly applied. (3) Quantifying S avings Regardless of the approach used to quantify and verify MWh savings, the EPA is proposing that EM&V plans must describe how they will address the following presumptively approvable provisions :

• How major changes in independent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be analyzed. accounted for
. The EPA is proposing that
t he effects of these changes must be calculated using industry best

- practices such as real

- time conditions or normalized conditions that are reasonably expected to occur throughout the lifetime of the EE project or

measure.

• How the initial installation of EE will be verified for EE program categories that involve the installation of identifiable measures ( e.g ., most***E.O. 12866 Review

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utility consumer - funded EE programs and project

- based EE are evaluated site

- by

- site). The EPA is proposing that v erification is required within t he first year of program implementation
. and that a ll verification activities must be performed using industry best

practice techniques ( e.g ., phone or mail surveys, document review, site inspections, spot or short

- term metering). For projects implemented as part of a larger program, the EPA is proposing that verification can be performed using a sample of projects to represent the full progra m population.

• How avoided T&D system losses 84 will be quantified and applied to EE savings determined at the customer facility or premises
. The EPA is proposing that d emand

- side EE programs (other than T&D efficiency measures such as CVR and volt/VAR opti mization 85 ) may adjust reported savings by using a T&D adder . If such

84 T&D losses are defined as the difference between the quantified EGU generation required to serve a customer’s load (measured at the EGU b us bar) and the customer’s actual electricity consumption (measured at the customer meter). 85 More information about these technologies is in section VIII.F.1 of the final EGs
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an adder is applied, the presumptively approvable appraoch appro a ch is to use the smaller of 6 percent or the calculated statewide annual average T& D loss rate (expressed as a percentage) calculated using the most recent data published by the U.S. Energy Information Agency (EIA) EIA State Electricity Profile. 86

• How the duration of EE program or project electricity savings will be determined. This must be determined using industry best

- practice protocols and procedures such as involving annual verification assessments, industry

- standard persistence studies, deemed estimates of effective useful life (EUL), or a combination of all three.

• How the accuracy a nd reliability of quantifying MWh savings values will be assessed, and the rigor 87 of the

86 Estimated losses in MWh, total electric supply, and direct electricity use va lues are available in the U.S. EIA’s State Electricity Profiles. See table on Supply and Disposition of Electricity (currently Table 10). Direct electricity use refers to the electricity generated at facilities that is not put onto the electricity grid, an d therefore does not contribute to T&D losses. 87 Rigor refers to the level of effort expended to minimize uncertainty from factors such as sampling error and bias. The higher the level of rigor, the more confident one is that the results of the EM&V activi ties are both accurate and precise.***E.O. 12866 Review

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methods used to control the types of bias or error inherent to the applied EM&V methods. Sampling of populations is appropriate, provided that the quantified MWh deriv ed from sampling have at least 9 0 percent confidence intervals whose end points are no more than +/

- 10 percent of the estimate.

• How double counting will be avoided through the use of tracking and accounting procedures to ensure that the same MWh of electr icity savings is not claimed more than one time (for example, two EGUs claiming savings from the same lighting retrofit). The types of double counting that may arise are discussed in the EPA’s draft EM&V guidance. (4) Use of Energy Efficiency EM&V P rotocols
I n the CPP EG’s public comments, the EPA heard that EM&V protocols for demand

- side EE are currently in wide use, and that th ey should be continued and encouraged. The agency agrees with this observation and is therefore proposing the application of industry best

- practice protocols and procedures for demand

- side
EE. A In particular, the EPA is proposing that, to be presumptively approvable provision for , EM&V plans is that they***E.O. 12866 Review

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must must specify the use of best

- practice protocols and procedures , and must also include a clear description and documentation of how the relevant protocols and procedures will be applied , as well as after

- the

- fact
. EM&V reports must include documentation in EM&V reports of how they such protocols and procedures were actually applied. EE providers can refer to the EPA’s EM&V guidance document for information about protocols that are considered “industry best

- practice protocols and procedures .” (5) Eligible Demand

- S ide E nergy E fficiency Programs and P rojects. There has been stakeholder inte rest expressed through the CPP EG EGs rulemaking process in ac counting methods allowing states to issue ERCs for quantified and verified MWh savings from DS

- EE in under state plans . Consistent with these perspectives, the EPA position is proposing that any demand

- side EE program and , p roject , or measure that result s in MWh savings may be potentially eligible to states generate ERCs , including under this proposed model trading rule , provided that it
meets they meet the presumptively approvable provisions for el igibility described in section &&& , IV.C.3 of this preamble , and that supporting EM&V is rigorous, transparent, credible, complete and fulfills the requirements provided in the emission guidelines EG s and the state plan.***E.O. 12866 Review

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Common Examples of potentially eligible demand

- side EE
programs program and project types include:

• P ublicly or consumer - payer funded customer

- funded demand

- side management programs utility

- administered EE
programs , including those implemented in low

- income residences and facilities
.

• Project

- based EE evaluated site

- by

- site, for example those implemented by ESCOs at commercial buildings and industrial facilities
.

• State and local government building energy code and compliance programs
.

• State and local government incremental product energ y standards
. The EPA’s EM&V guidance contains supplemental information about applicable best

- practice protocols, methods, and other key considerations for quantifying and verifying savings from the above

- listed EE activities in an accurate and reliable man ner. The agency also recognizes that the programs and policies listed above will evolve and change over the rule period, as new technologies emerge and efficiency improves. The agency also expects that new EE program types will emerge and expand throughout the rule period, and that MWh savings resulting from any such programs can similarly be considered if they meet the***E.O. 12866 Review

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requirements of the emission guidelines EG s . (6) Requests for Comment on Energy Efficiency EM&V We take broad comment on each EE EM&V criteria criteri on described herein and in the proposed rule text , for each type of EE activity, project, program, or measure . Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level detail provided regarding these criteria and whether more or less detail (and what detail) should be included in the final model rule. In addition, we seek comment on whether some of the EE EM&V criteria (and if so, which criteria) included in the draft guidance document proposed release d simultaneously with this proposed rulemaking should instead be included in the final model rule, instead of in guidance. Similarly, we seek comment on whether some of the EE EM&V criteria (and if so, which criteria) included in the proposed model rule sh ould instead be addressed in the final EM&V guidance. More generally, we seek comment on what EE criteria the EPA should described in guidance versus what criteria the EPA should specify in the final model, whether or not those criteria are already include d in the draft guidance or draft model rule. We take broad comment on the appropriate EE EM&V criteria for quantifying the electricity savings from every type of EE***E.O. 12866 Review

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activity program , project, program, or measure . We take broad comment on what constitute EE best practices

- practice protocols and procedures for every type of EE activity program , project , program , or measure. We take broad comment on whether, when , and how common practice baselines should and should not be used in calculating electricity savings from EE activities, projects, programs, and measures, including comment on which common practice baselines should be used in which circumstances. We also take comment on whether some alternative metric should be used in lieu of the common practice baseline and, if so, what that metric should be. We take broad comment on the appropriateness of quantifying electricity savings by applying one or more of the following methods and comment on all aspects of each method: project

- based measurement and verification (PB

- MV), comparison group approaches, or deemed savings . We take further comment on circumstances in which it is appropriate (or inappropriate) to use each of these methods , including when it is appropriate to use random control trials (RCT) and quasi

- exp erimental methods , and the circumstances in which they can be encouraged and applied in practice ( e.g ., when a suitable control or comparision group can be identified and applied in a cost

effective manner ). In addition, we take comment on whether the***E.O. 12866 Review

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gene ral suitability and applicaton of quantification methods, such as RCT, quasi

- experimental techniques or other comparison group approaches when they are available at reasonable cost for purposes of quantifying MWh savings for particular EE programs, project s, or measures. If deemed savings are to be used in quantifying electricity savings from an EE program, project, or measure , we take comment on the appropriate characteristics and presumptively approvable provisions for their us e in generating qualifying ERCs , including the basis and frequency for their determination
. , and the appropriateness of their application to particular EE programs, projects or measures in particular states or regions
. We further take comment on the presumptively approvable provisio n for public access and input to the development of the TRMs used to house the applicable deemed savings values. We take comment on the minimum and maximum intervals (in years) over which electricity savings must be quantified , including those time interv als specified in the proposed model rule, and we take comment on any fa ctors that must be taken into consideration when determining the appropriate time interval for specific EE programs, project s , or measure s . Because many states have different EE program s in place***E.O. 12866 Review

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today, and we would expect them to build off of leverage these programs if they incorporated EE into a rate

- based trading scheme with ERCs, it is theoretically possible that an ERC could be issued in one state that would not have been issued in

a nother, even if both states have rate

- based programs in place that meet all of the emission guidelines. EG s . The EPA takes comment on what criteria it should include in the final model rule, and what level of details with respect to those criteria that it should include, in order to ensure that an ERC issued for an EE activity program , project, program, or measure in one state reflects the same 1 MWh of energy or electricity saved in another state. We further take comment on whether there are provisions that the EPA should include in the final model rule that would prevent an entity seeking to be issued an ERC (whe ther from EE or energy generation) from forum shopping, in an effort to find a state with standards for ERC issuance that it deems more lenient or less burdensome than those in another
state. We take comment on how to appropriately consider factors that affect energy savings in the quantification and verification process, including those identified in the proposed model rule, and we take comment on whether these factors should be addressed in every plan or just certain types of plans. Such***E.O. 12866 Review

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factors may inc lude the effect of changes in independent factors , effective useful life (and its basis), and interactive effects of EE programs, projects, and measures
. We take comment on the circumstances and frequency in which savings verification must occur to ensure that EE measure s have been installed, are functioning, and have the potential to save
energy . We take comment on the appropriate steps for avoiding double counting, and how such steps should be documented in an EM&V plan. In particular, w e take comment on the circumstances and conditions in which double counting is most likely to occur ( such as including those identified in this section), and the presumptively approvable provisions that must be adopted in state plans for avoiding and mitigating double counting. We take comment on the appropriate means by which an EM&V plan can ensure the accuracy and rel iability of electricity savings results estimates , including the necessary rigor of the method method s selected to evaluate the electricity savings, the methods used to control all relevant types of bias and to minimize the potential for systematic and rando m error, and the potential effects of such bias and error. We further take comment on the presumptively approvable provision that samples taken to quantify EE program savings must achieve 90/10***E.O. 12866 Review

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confidence and precision. We take comment on the presumptive ly approvable approach to quantifying the electricity savings that result from avoiding a transmission and distribution system loss, including the provisions in the proposed model rule, which specify that e ach EM&V plan must measure quantify the transmissio n and distribution loss based on the lesser of 6 percent of the site

- level electricity savings comsumption measured at the end use meter or the statewide annual average transmission and distribution loss
rate (expressed as a percentage) from the most recent year that is published in the US U . S . EIA State Electricity Profile expressed as a percentage.
. We take comment on the appropriateness of including such a restriction in the final model rule that no other transmission and distribution l oss factors m ay be used in calculating the electricity savings. We take comment on a ny additional criteria that we should include in the final model rule regarding EE EM&V
. h. Skill C ertification S tandards Using a skilled workforce to implement demand

- side E E and RE projects and other measures intended to reduce CO 2 emissions , and to evaluate, measure and verify the savings associated with EE projects or the additional generation from performance improvements at existing EGU’s are both important. Several***E.O. 12866 Review

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comm enters pointed out that skill certification standards can help to assure quality and credibility of demand

- side EE , RE and other carbon emission reduction projects. The EPA also recognizes that a skilled workforce performing the EM&V is important to substantiate the authenticity of emissions reductions. The EPA agrees that in conjunction with other EM&V measures discussed in this section, and in the context of the model trading rules although this is not an aspect needed for presumptive approvability , states are encouraged to include in their plan a description of how states will ensure that workers installing demand side EE and RE projects , or other measures intended to reduce CO 2 emissions, as well as workers who perform the EM&V of demand side EE a nd existing EGU performance will be certified by a third party entity that:

• Develops a training or competency based program aligned with a job task analysis and/or certification scheme;

• Engages with subject matter experts in the development of the job tas k analysis and/or certification schemes that represent appropriate qualifications, categories of the jobs, and levels of experience;

• Has clearly documented the process used to develop the***E.O. 12866 Review

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job task analysis and/or certification schemes, covering such elemen ts as the job description, knowledge, skills, and abilities;

• Has pursued third

- party accreditation aligned with

consensus - based standards, for example ISO/IEC 17024 or IREC 14732. Examples of such entities include: parties aligned with the Department of E nergy’s (DOE) DOE ’s Better Building Workforce Guidelines and validated by a third party accrediting body recognized by DOE; or parties aligned with an apprenticeship program that is registered with the federal Department of Labor (DOL), Office of Apprentice ship; or with a state apprenticeship program approved by the DOL, or by another skill certification validated by a third party accrediting body can help to substantiate the authenticity of emission reductions due to demand

- side EE and RE and other carbon e mission reduction

measures . 9. ERC Transfers and Trading All affected EGUs that may be subject to this proposed federal plan would be required to be a part of the allowance tracking and compliance system (ATCS) that the EPA runs, although the affected EGUs th at are regulated under the rate

based federal plan would use ERCs as a compliance instrument,***E.O. 12866 Review

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not allowances. To register to participate in the ATCS an affected EGU must submit designated representative information. More information on the designated repre sentatives is described below above in section IV. E D .1 of this preamble &&& . . Non

- EGUs who wish to participate ( e.g., RE sources) may submit registration criteria to participate in the ATCS. The ATCS will allow the trading and holding of ERCs that qualify for CPP compliance in a system that also will be used to determine compliance. Quarterly, an affected EGU under the federal plan must submit information and data c onsistent with p art 75
. 88 These quarterly submission dates are the 30 th of April, July, October and January corresponding with the quarterly data ending the month previous the submission deadline ( e.g., an April 30, 2024 submission would include data from J anuary through March of 2024). The data that are posted online would be publicly available.
Non

- EGU ERC generating sources are required to submit generation data annually (see &&& s ection IV
. F C.3 of this preamble for a comprehensive discussion of non

- EGU ERC generating sources). The data must follow the EM&V procedures delineated in s ection IV. F.4 D . 8 of this preamble. Because of the

88 See section IV.D.11 of this preamble for more information.***E.O. 12866 Review

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required rigor of the EM&V process, the EPA provides a time frame of January 1 to [&&& June 1 ] of the year that follows the data’s inception to complete all EM&V processes ( e.g , 2024 RE data must go through the EM&V process and be submitted to the EPA no later than &&& June 1, 2025). After receiving all emission and generation data from ERC generat ing sources and affected EGUs, the EPA will issue ERCs through a NODA as described in section IV. E.4 in D . 6 of this preamble. The EPA is proposing to issue ERCs annually. ERCs are acquired and traded throughout the compliance period. An affected EGU is resp onsible to hold sufficient ERCs that qualify for CPP compliance in its ATCS compliance account by November 1 at midnight of the year following the conclusion of the compliance period
. 89 The process for transferring ERCs from one account to another is quit e simple. A transfer would be submitted providing, in a format prescribed by the agency , the account numbers of the accounts involved, the serial numbers of the ERCs involved, and the name and signature of the transferring authorized account representative or alternate. If the transfer form containing all the required information were submit ted to the EPA and, when the Administrator attempted to record the

89 This true

- up process is further described in section IV.D.8 of this preamble.***E.O. 12866 Review

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transfer, the transferor account included the ERCs identified in the form, the Administrator would record the transfer by moving the ERCs from the transferor account to the transferee accou nt within 5 business days of the receipt of the transfer form. 10. Compliance with Emissions Standards Once the compliance period has ended, affected EGUs would have a window of opportunity to evaluate their reported emissions and obtain any ERCs that they might need to cover their emissions during the compliance period. The agency proposes to require sources to demonstrate compliance, i.e., ERC
true

- up, on November 1 of the year after the last year in the compliance period . For example, if the first complia nce period comprises the three years 2022, 2023, and 2024, then the ERC transfer deadline 90 for that first compliance period (after which point the EPA would evaluate compliance) would be on November 1, 2025. The agency also requests comment on an earlier

a llowance ERC transfer deadline, such as June 1 or March 1, of the year after the last year in the compliance period
. Each ERC issued in the proposed rate

- based trading program would, if applied, be averaged into the compliance rate as one MWh of

90 The “ERC transfer deadline” is the deadline for transferring allowances tha t can be used for compliance in the previous compliance period to a source’s compliance account.***E.O. 12866 Review

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energy with zero CO 2 emissions deemed associated with it for the compliance period that includes the year for which the ERC was issued or be averaged into a later compliance period. Consequently, each affected EGU would need, as of the ERC transfer deadline, to have in its compliance account enough ERCs usable for its compliance obligations for the compliance period. The authorized account representative co uld identify specific ERCs to be applied, but, in the absence of such identification or in the case of a partial identification, the Administrator would deduct on a first

- in, first

- out basis. The ERCs that are used to meet compliance obligations are moved from the compliance account to the EPA’s retirement account. ERC s that are deducted for compliance will remain in the system in an EPA account, which ensures they will not be used again. The EPA will use the submitted generation, CO 2 emissions and ERCs in the affected EGU’s compliance account to calculate an average emission rate for the EGU. It is the responsibility of an affected EGU to calculate the number of ERCs that will need to be held in a compliance account to meet the EGU’s compliance obligations. The method for determining the quantity of ERCs needed to meet compliance obligations has been discussed previously in an example. To reiterate the process, the affected EGU would need to solve for the number of zero

- emitting MWh***E.O. 12866 Review

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( i.e., ERCs) that would n eed to be added to the total MWh of the EGU to make the adjusted emission rate equal to the emission standard. AAAAAAAAAAAAAAAA EEEEEE EEEEEE RRRR = MM oo CCCC 2 ( llll ) GG GG ( MMMM h ) + MMMM h EE This equation can be rearranged to:
MMMM h EE = MM oo CCCC 2 ( llll ) AAAAAAAAAAAAAAAA EEEEEE EEEEEE RRRR ( llll MMMM h ) − GG GG ( MMMM h )
If an affected EGU fails to hold sufficient ERCs to comply with its emission standard the n , upon notification of the deficiency, the owners and operators of the affected EGU must provide, for deduction by the Administrator, tw o ERCs as soon as available for every ERC that the owners and operators failed to hold as required to cover emissions, in addition to the ERCs owed for compliance in that next period. The owed ERCs will be deducted from the EGU’s compliance account as soon as they are available in th is account; the Administrator will not wait until the next true

- up date to make this deduction. The two ERCs owed for each ERC needed for compliance is in addition to any other recourse provided in s ec tions 113 (a )

– ( )

– ( h) or s ection 304 of the Clean Air Act C AA . This requirement to surrender two times the ERCs needed to make up the shortfall for the prior period is an ongoing obligation until compliance is achieved, and there is***E.O. 12866 Review

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an ongoing obligation to comply in the current period. Failure to surrender th ese replacement ERCs is an additional violation that may be subject to federal enforcement. The EPA solicits comment on sources owing two ERCs to make up for each insufficient ERC in previous compliance peri ods and whether two for one is the proper make

- up rate or whether there should be a stricter or a more lenient ratio. The EPA believes that it is important to include a requirement for an automatic deduction of ERCs. The deduction of one ERC per ERC that the owners and operators failed to hold would off set this failure. The deduction of another ERC per ERC that the owners and operators failed to hold provide s a strong incentive for compliance with the ERC

- holding requirement by ensuring that non

- compliance would be a significantly more expensive option t han compliance. This is consistent with other existing trading programs
. 11. Other ERC Tracking and Compliance Operations Provisions These sections also would provide that the Administrator could, at his or her discretion and on his or her own motion and consi stent with existing federal trading programs , correct any type of error that he or she finds in an account in the ATCS . In addition, the Administrator could review any submission under the rate

- based trading program, make adjustments to the***E.O. 12866 Review

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information in the submission, and deduct or transfer ERCs based on such adjusted information. These provisions are a standard part of other trading programs administered by the EPA including the Acid Rain Program ARP and Cross State Air Pollution Rule ( see , e.g., 40 CFR 72.96, 73.37, 97.427, and 97.428). The EPA solicits comment on potential alternatives for error correction that is simpler or more efficient.
12. Banking of ERCs The EPA is proposing to allow unlimited banking or ERCs within and between the interim and final compliance periods. This means that if an affected EGU has more ERCs than are necessary during true

- up, it may save ( i.e
. , bank) those ERCs for application during a future co mpliance period . 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. Other trading rules that the EPA has instituted (e.g., CSAPR) do not have expiration on the tradable properties. The EPA requests comment on the shelf

- life of an ERC. ERC “borrowing” is a flexibility that the EPA is not proposing, bu t is soliciting comment on. ERC borrowing is the***E.O. 12866 Review

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concept that an affected EGU may use an ERC that the EGU will acquire in a future compliance period to meet its current compliance obligations. The EPA requests comment on a methodology that would allow ERC borrowing while maintaining the integrity of the compliance obligations. The EPA also has reservations due to the fact that future ERC generation is not guaranteed. 13. Emissions Monitoring and Reporting The EPA would require that emission and generation data be reported to the EPA quarterly starting on April 30 , 2022 , and continuing every three 3 months thereafter ( i.e., the 30th of April, July, October, and January). The EPA proposes that affected EGUs subject to the rate

- based federal plan trading
progr am would monitor and report CO 2 emissions in accordance with 40 CFR part 75. The EPA is proposing to require affected EGUs in all states covered by the rate

- based federal plan trading program to monitor and report CO 2 emissions by and output data by
Januar y 1, 2022
. Quarterly reporting would be required, with each quarterly report due to the Administrator 30 days after the last day in the quarter. The reporting would be in accordance with 40 CFR p art 75.60. The use of p art 75 certified monitoring methodologies would be required. Many affected EGUs that might be covered by the proposed federal plan s will generally have no***E.O. 12866 Review

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changes to their monitoring and reporting requirements and will continue to monitor and submit report s under p art 75 as they have under existing programs. The EPA anticipates fewer than 50 (approximately 10 of these affected EGUs are coal fired with the remainder being gas and oil fired that will qualify for an excepted monitoring methodology) affected EG Us, that would not otherwise be subject to the Acid Rain Program ARP , will have to purchase and install additional continuous emissions monitoring system ( CEMS ) and data handling systems or upgrade existing equipment in order to meet the monitoring and repo rting requirements of this program. Several of the affected EGUs not otherwise subject to the Acid Rain Program ARP are subject to the MATS program and therefore will have already installed stack flow rate and / or CO 2 monitors in order to comply with the MAT S rule which are also necessary to comply with this rule. The CEMS used to comply and report data for MATS will be used for this rule to generate and report CO 2 emissions data without having to install duplicative monitors. The same CO 2 and stack gas flow rate monitored data used in conjunction with Hg mercury and other CEMS to calculate a toxic pollutant emission rate may be used to calculate a CO 2 mass or CO 2 emission rate for this program. RGGI, The Regional Greenhouse Gas Initiative ( RGGI ) , ARP, MATS and this rule all refer to CEMS installed and certified in***E.O. 12866 Review

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accordance with 40 CFR part 75. RGGI and ARP currently require the reporting of CO 2 mass emissions on an hourly basis and cumulative totals at the end of each calendar quarter. The same monitors and data collected may be used for multiple purposes for RGGI, ARP, MATS and this rule. Relying on the same monitors that are certified and quality ensured in accordance with 40 CFR part 75 ensures cost efficient, consistent, and accurate data tha t may be used for different purposes for multiple regulatory
programs. The majority of the affected EGUs covered by this rule are already affected by the Acid Rain and / or Regional Greenhouse Gas Initiative or RGGI programs and will have minimal additional

mo nitoring and reporting requirements. 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. Only monitoring and reporti ng would be required in 2021

— compliance with an enforceable emission standard would commence on the compliance period schedule that is detailed in section IV.E.3 III.D of this preamble
. E. Federal Plan and State Plan Interactions 1. Interstate Trading The EPA proposes that all affected EGUs within states that are covered by the federal plan , if a rate

- based federal plan is***E.O. 12866 Review

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finalized for two or more states, would be allowed to trade with one another since t here will be an assured commonality in the ERC currency and criteria surrounding the trading program. In addition, the EPA proposes, consistent with the provision for

“ ready

- for

- interstate

- trading ” plans in the EGs that affected EGUs located in states with approved ready

- for

- interstate

trading state plans using the sub

- categorized uniform rate standards, and a common credit currency ( i.e., ERCs representing

one zero - emitting MWh ) may trade with affected EGUs operating under the federal trading program established in this federal plan.
Rate

- based EGUs subject to the federal plan and rate

- based EGUs in ready

- for

- interstate

- trading state plans will be able to trade ERCs seamlessly across jurisdictional borders because of the assurances of being presumptively approvable
. Ready

- for

interstate

- trading states must subm it information that lists all affected EGUs and the EGU type to the Administrator to be able to trade within the federal trading program. To be able to trade in the federal trading program a n affected EGU that is subject
to a ready

- for

- interstate

- trading s tate plan must: (1) C ertify and authoriz e a designated representative per s ection &&& IV. E D .1 of this preamble; and (2) register a general account in the federal trading program, ATCS , in order to have a means of***E.O. 12866 Review

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transferring ERCs with entities operating in the federal trading program. An affected EGU under a state plan will not register a compliance account in the federal system because it will not be demonstrating compliance under th e federal plan. Compliance will be achieved in the EGU’s corresponding state plan. Affected EGUs under a state plan have the ability to acquire ERCs through the federal trading program. These ERCs will be stored in the EGU’s general account in the federal trading program. To use these ERCs for compliance purposes, the ERCs must be transferred to the EGU’s compliance account in the state’s program. The EPA proposes to provide software to states to maintain a state’s compliance and tracking program. A state’s program will have the capability to interact with the federal trading program and software, ATCS, for transferring ERCs if the state is ready

- for

interstate

- trading . A state’s program can be tailored to meet its needs while still providing a platform for a state to be transferring ERCs between the state’s system and the federal trading program. ERCs can flow between a state system and the federal trading program bilaterally. The EPA acknowledges that states may have additional criteria for generating ERCs that are not outlined as part of the federal plan, but because the EPA will have vetted these criteria through a state plan approval these ERCs will be able to be traded within the federal trading***E.O. 12866 Review

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program. 2. Treatment of States Entering or Exiting the Tradi ng Program. The EPA proposes that a rate

- based trading federal plan may be replaced by a state plan for a future compliance period. The EPA is proposing that a state must transition to a state plan at the conclusion of a federal plan compliance period. 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 integrit y 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
. If a state subject to the federal plan transitions to a state plan, any affected EGU impacted by t he change remains responsible for meeting any outstanding obligations under the federal plan. To make the transition to a state plan, a state must have an approved state plan as laid out in the CPP preamble section section s VIII.D and
VIII.E of the final EGs
.
**V. Mass**  **- based Implementation Approach** 
A. Trading P rogram O verview In addition to the rate

- based implementation approach***E.O. 12866 Review

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discussed above, the EPA is proposing a mass

- based implementation approach for the federal plan
. As with the rate

based approach, this proposed federal plan is also a proposed model trading rule that states can adopt. The mass

- based approach that the agency proposes to implement is a mass

- based trading program ( i.e., an emissions budget trading progra m , also referred to as an “allowance system” ). This section provides a brief overview of the proposed mass

- based trading program. The next sections describe the various elements of the proposed trading program in further detail.
A mass

- based trading progra m establishes an “ aggregate emissions limit ” that specifies the maximum amount of emissions authorized from affected EGUs included in the program, and creates allowances that authorize a specific quantity of emissions. The total number of allowances created are equal to, and constitute, the emissions budget or the aggregated emissions limit expressed in terms of short tons of emissions
. T he EPA is proposing that allowances be issued in short tons for the federal plan
. Each facility with affected EGU s in the program must surrender allowances equal in number to the quantity of the emissions of its affected EGUs during the compli ance period. A facility with affected EGU s may buy allowances from, or transfer***E.O. 12866 Review

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or sell allowances to, other affected EGUs or other entities that participate in the market. A mass

- based trading program provides sources with great flexibility in choosing co mpliance strategies. In the proposed mass

- based trading program for the federal plan, the aggregate emissions limit for a state is its statewide

mass - based emission goal (or “mass goal”) as finalized in the Clean Power Plan EGs. The proposed approach to li nking states for interstate allowance trading is detailed in section III.A.1 of this preamble ; i n an interstate trading program the aggregate emissions limit is the sum of the mass goals for the covered
states. The EPA believes that a broad trading region provides greater opportunities for cost

- effective implementation of controls compared to a smaller region. Therefore , the agency proposes that a n affected EGU in any state covered by the proposed mass

- based trad ing federal plan may use for compliance an allowance distributed in any other state covered by the mass based trading federal plan
. The EPA also proposes to provide for allowance trading between affected EGUs and other entities in
states with approved mass

- based

- trading state plans that meet the conditions specified in section III.A.1 of this preamble , above , and affected EGUs and other entities in any state covered***E.O. 12866 Review

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by the federal plan mass

- based trading program
. A mass

- based trading program can provide environmental certainty at lower cost than other policy mechanisms , because it assures the specified emissions outcome while maximizing compliance flexibility available to individual affected EGUs
. Further, allowance banking in such a program creates an in centive to make reductions earlier than required. M ass - based trading programs are relatively simple to operate , which reduces administrative time and cost . Additionally, to inform the mass

based trading approach proposed here, the EPA draws upon more than two decades of experience implementing federally

administered mass - based emissions budget trading programs including the Acid Rain Program ARP SO 2 trading program, the NO X Budget Trading Program, the Clean Air Interstate Rule CAIR , and the Cross

- S tate Air Po llution Rule CSAPR . In the proposed mass

- based trading program federal plans, the emissions limit s in each state would be the mass goals that the EPA promulgated in the Clean Power Plan EGs (if there is interstate trading then the sum of the mass goals for the states in the trading program would constitute the aggregate emissions limit) . The total amount of allowances distribute d in each state for each year would sum to the state ’s mass goal for that year
. As detailed in section V.E of this preamble , t he EPA is***E.O. 12866 Review

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proposing that a state covered by the federal plan can determine its own approach to distribute allowances , and believes that state allocation has important merits . The EPA would distr ibute allowances in a state if the state does not choose to do so , as detailed below
. Each allowance would authorize the emission of one short ton of CO 2 during the compliance period applicable to the allowance’s vintage year or a later compliance period
. The proposed approach to distribute allowances, including three types of allowance set

- asides, is discussed in section V.D
. , of this preamble , below. After each compliance period , a n affected EGU would surrender for compliance an amount of allowances equal to its emissions d uring the course of the compliance period . See section V.C of this preamble for the proposed length of the multi

- year compliance period s . Allowances could be transferred , bought , sold, or banked (carried over for future use) and any party could participate in the allowance market. The EPA is not proposing allowance “borrowing” ( i.e., the bringing forward of future

- period allowances for use in an earlier period) ; the multi

- year co mpliance periods inherently provide the flexibility to schedule relatively greater emission reductions for later
years within each period, as discussed further in section V .C .***E.O. 12866 Review

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of this preamble
. In the proposed mass

- based trading program,
t he emission standard applied to individual affected EGUs is the requirement to surrender emission allowances equal to reported emissions for each compliance period
. The EPA also proposes that a state may choose to replace the federal

- plan allowance

- distri bution provisions with its own allowance

- distribution provisions ( i.e., to determine the distribution of allowances for its EGUs or other entities) using

a state allowance

- distribution methodology . State allowance distribution can have important advantages, because it allows a state to design and shape allowance allocation to its specific goals and characteristics, and because states may have additional flexibility on allocation approaches , includi ng auctions . S ee section V.E of this preamble for further discussion of the proposed approach for state

- determined allowance

- distribution methodologies. This proposed requirement to hold and surrender allowance s equal to emissions for each compliance perio d would apply to all reported emissions from a facility’s affected EGU s including any emissions from co - fired biomass if biomass is included as an eligible measure
. Section &&& IV. F C.3 of this preamble discusses an approach on which the EPA requests comment on the inclusion of biomass as an eligible measure and on a proposed option where***E.O. 12866 Review

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the agency would identify qualifying qualif ied biomass feedstocks (i.e., biomass feedstock s that are demonstrated to be a method to control increases of CO 2 levels in the atmosphere ) and potential methods for demonstrating compliance , and thus reduce the mass emissions attributed to a biomass co

- fir ed affected EGU. If the EPA took such an approach, then for purposes of compliance with the proposed mass

- based federal plan trading program, the affected EGU would need to hold allowances equal to its emissions less the emissions attributed to the co

- fired qualified biomass ; such an approach would reduce the n umber of allowances the affected EGU would need to hold to demonstrate compliance. The EPA requests comment on this approach.
B. Statewide Mass

- b ased Emissions G oals In the Clean Power Plan EGs the EPA established statewide

mass - based emission goals (“mass goals”) for all state s that are equivalent to the rate

- based goals. As discussed in section V.C of this preamble , below, the EPA proposes to implement the mass based trading program with multi

- year compliance periods that are consistent with the compliance timing provisions in the Clean Power Plan EGs , i.e., two three

- year compliance periods followed by a two 2

- year compliance period in the Interim P eriod, and succ essive two 2

- year periods in the Final P eriod. In the Clean Power Plan EGs, t he EPA es tablished mass goals for all***E.O. 12866 Review

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state s for this pattern of compliance period s . The EPA proposes to use those mass goals promulgated in the Clean Power Plan EG s as the mass limits ( i.e., emissions budgets) for any state covered by the mass

- based trading program ( or, if implementing interstate trading, then the EPA would use the sum of a covered group of states’ mass goals as the aggregate mass limit) . The EPA is not opening for comment the determination s , made in the Clean Power P lan EGs, of each state ’s mass goals . The mass goals are provided for convenience in Table

___ 8 of this preamble
.

**Table**

**___ 8**  **. Statewide**  **Mass -**  **B ased**  **Emission Goals**  **(“ Mass**  **Goals ”)**  **( Short**  **T ons)** 

**State Interim period**  **Final period**  **Step 1 2022**  **- 2024**  **Step 2 2025**  **- 2027**  **Step 3 2028**  **- 2029**  **2030 -**  **2031 and**  **thereafter** Alabama 66,164,470 60,918,973 58,215,989 56,880,474 Arizona 35,189,232 32,371,942 30,906,226 30,170,750 Arkansas 36,032,671 32,953,521 31,253,744 30,322,632 California 53,500,107 50,080,840 48,736,877 48,410,120 Colorado 35,785,322 32,654,483 30,891,824 29,900,397 Connecticut 7,555,787 7,108,466 6,955,080 6,941,523 Delaware 5,348,363 4,963,102 4,784,280 4,711,825 Florida 119,380,477 110,754,683 106,736,177 105,094,704 Georgia 54,257,931 49,855,082 47,534,817 46,346,846***E.O. 12866 Review

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Idaho 1,615,518 1,522,826 1,493,052 1,492,856 Illinois 80,396,108 73,124,936 68,921,937 66,477,157 Indiana 92,010,787 83,700,336 78,901,574 76,113,835
Iowa 30,408,352 27,615,429 25,981,975 25,018,136
Kansas 26,763,719 24,295,773 22,848,095 21,990,826 Kentucky 76,757,356 69,698,851 65,566,898 63,126,121 Lands of the Fort Mojave Tribe 636,876 600,334 588,596 588,519 Lands of the Navajo Nation 26,449,393 23,999,556 22,557,749 21,700,587 Lands of the Uintah and Ouray Reservation 2,758,744 2,503,220 2,352,835 2,263,431 Louisiana 42,035,202 38,461,163 36,496,707 35,427,023 Maine 2,251,173 2,119,865 2,076,179 2,073,942 Maryland 17,447,354 15,842,485 14,902,826 14,347,628 Massachusetts 13,360,735 12,511,985 12,181,628 12,104,747 Michigan 56,854,256 51,893,556 49,106,884 47,544,064 Minnesota 27,303,150 24,868,570 23,476,788 22,678,368 Mississippi 28,940,675 26,790,683 25,756,215 25,304,337 Missouri 67,312,915 61,158,279 57,570,942 55,462,884
Montana 13,776,601 12,500,563 11,749,574 11,303,107 Nebraska 22,246,365 20,192,820 18,987,285 18,272,739 Nevada 15,076,534 14,072,636 13,652,612 13,523,584 New Hampshire 4,461,569 4,162,981 4,037,142 3,997,579 New Jersey 18,241,502 17,107,548 16,681,949 16,599,745 New Mexico 14,789,981 13,514,670 12,805,266 12,412,602 New York 35,493,488 32,932,763 31,741,940 31,257,429***E.O. 12866 Review

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North Carolina 60,975,831 55,749,239 52,856,495 51,266,234 North Dakota 25,453,173 23,095,610 21,708,108 20,883,232 Ohio 88,512,313 80,704,944 76,280,168 73,769,806 Oklahoma 47,577,611 43,665,021 41,577,379 40,488,199 Oregon 9,097,720 8,477,658 8,209,589 8,118,654 Pennsylvania 106,082,757 97,204,723 92,392,088 89,822,308 Rhode Island 3,811,632 3,592,937 3,522,686 3,522,225 South Carolina 31,025,518 28,336,836 26,834,962 25,998,968 South Dakota 4,231,184 3,862,401 3,655,422 3,539,481
Tennessee 34,118,301 31,079,178 29,343,221 28,348,396
Texas 221,613,296 203,728,060 194,351,330 189,588,842 Utah 28,479,805 25,981,970 24,572,858 23,778,193 Virginia 31,290,209 28,990,999 27,898,475 27,433,111 Washington 12,395,697 11,441,137 10,963,576 10,739,172 West Virginia 62,557,024 56,762,771 53,352,666 51,325,342 Wisconsin 33,505,657 30,571,326 28,917,949 27,986,988 Wyoming 38,528,498 34,967,826 32,875,725 31,634,412

C. Compliance T iming and Allowance Banking The EPA proposes to evaluate compliance ( i.e., compare emissions from affected EGUs to allowances held by facilities ) in multi

- year periods . A multi

- year compliance period provides greater flexibility to affected EGUs and reduces administrative***E.O. 12866 Review

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burden, compared to a single

- year compliance period . The EPA seeks to strike a reasonable balance between providing flexibility and reducing bu rden while assuring that any noncompliance can be addressed in a timely fashion
. T he compliance periods in the proposed mass

- based trading program would be the same as promulgated in the Clean Power Plan EGs, i.e., the interim period would be divided into three compliance periods: a three 3

- year compliance period (2022 through 2024), a second three 3

- year compliance period (2025 through 2027), and then a two 2

- year compliance period (2028 and 2029) , for the Interim P eriod
. As in the EGs, the F inal P eriod would be divided into successive two 2

- year compliance periods commencing in 2030
. The EPA would evaluate compliance only after the end of a compliance period in the mass

- based trading federal plan , e.g., if a compliance period is three 3 years long, the agency would evaluate compliance only after the end of the third year in the period. The EPA is not reopening for comment the compliance periods promulgated in the Clean Power Plan EGs. Some existing greenhouse gas GHG mass - based trading programs ( i.e., emissions budget trading programs) use m ulti

- year compliance periods
. T he Regional Greenhouse Gas Initiative ( RGGI ) uses three 3

- year compliance period s, along with intervening compliance requirements . The RGGI intervening***E.O. 12866 Review

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compliance requirement is that sources must hold allowances to cover 50 percent of emissions for the first two calendar years of each three 3

- year compliance period ; at the end of each three 3

- year compliance period sources must hold allowances to cover 100 percent of emissions for the period and allowances already deducted for the intervening requirement are subtracted from the three 3

- year obligation
. 91 The California Air Resources Board (CARB) Cap

- and

- Trade Program also use s three 3

- year compliance periods , along with intervening compliance requirements
. The CARB intervening requirement is to e valuate compliance on 30 percent of each source’s previous year’s emissions every year, and evaluat e compliance for the remainder of emissions every three 3 year s. 92 The EPA proposes to evaluate compliance after each multi

- year compliance period and is not proposing to implement intervening compliance requirements such as those in the RGGI or CARB programs, however , the agency requests comment on the inclusion of such requirements. The EPA recognizes that the compliance periods provided for

91 RGGI, Summary of RGGI Model Rule changes: February 2013. http:// www.rggi.org/docs/ProgramReview/_FinalProgramReviewMaterials/Model_Ru le_Summary.pdf Accessed June 9, 2015. 92 Overview of ARB Emissions Trading Program. http:// www.arb.ca.gov/cc/capandtrade/guidance/cap_trade_overview.pdf Accessed June 9, 2015.***E.O. 12866 Review

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in this rulemaking are longer than those historically and typically specified in CAA rulemakings. As reflected in long

standing CAA precedent, “[t]he time over which [the compliance standards] extend should be as short term as possible and should generally not exceed one month.” See e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 Guidance on Enforceability Requirements for Limi ting Potential to Emit through SIP and §112 Rules and General Permits. The EPA determined that the longer compliance periods provided for in this rulemaking are acceptable in the context of this specific rulemaking because of the unique characteristics of this rulemaking, including that CO 2 is long

lived in the atmosphere, and this rulemaking is focused on performance standards related to those long

- term impacts. The EPA proposes that allowances may be banked for use in any future compliance period , with no restriction on the use of banked allowances, including from the I nterim P eriod (2022 through 2029) into the F inal P eriod (2030 and thereafter). The agency requests comment on the proposal to provide for unlimited allowance banking including the banking of I nterim

- P eriod allowances for use during the F inal P eriod. Allowance “borrowing” is a type of timing flexibility wherein allowances from a future compliance period may be***E.O. 12866 Review

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“brought forward” and used for compliance in an earlier compliance period (thus re ducing the amount of allowances available for the future period) . The EPA notes that the proposed multi

- year compliance periods inherently provide the flexibility to emit at relatively higher amounts in earlier
years of a given compliance period by using a llowance s from future years within each compliance period ( e.g., if the first compliance period covers years 2022 through 2024, a vintage 2024 allowance could be used to cover a ton emitted in 2022)
. The EPA is not proposing to allow allowance borrowing ac ross compliance periods in the mass

- based trading federal plans ; h owever the agency is requesting comment on the use of borrowing across compliance periods
. A llowance borrowing across compliance periods would increase the complexity of the proposed mass - based trading
program and reduce the flexibility for state s to replace the federal plan with an approved state plan . First, in order for borrowing to occur , the EPA would have to make allowances from future compliance periods available early so that s ources could use these future allowances in earlier compliance period s. T he EPA proposes to record allowances in source accounts for one compliance period at a time in order to maxim ize the opportunities for a state to replace the federal plan (or***E.O. 12866 Review

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replace the allowance

- distribution provisions of the federal plan) with a n approved state plan (or approved state allowance

distribution methodology )
. The EPA proposes to allow a state to replace the mass

- based trading federal plan (or the federal

- plan allowance

- distribution provisions ) with a state plan (or state allowance

- distribution methodology ) for a compliance period for which the agency has not yet recorded allowances in source
accounts . Recording allowances for multiple compliance periods
at once

– in order to make future

- period allowances available for borrowing

– would therefore l imit th ese opportunities for
state s to take over implementation (or implementation of the allowance

- distribution ). If allowance borrowing from a future compliance perio d were allowed , and the EPA provided the opportunity for a state to replace the federal plan for a year for which allowances had already been borrowed and retired for compliance in an earlier period, th os e borrowed allowances would constitute additional emissions beyond the levels specified in the Clean Power Plan EGs. In that event , the EPA would then need to address whether and how to remove allowances from circulation to prevent inflation of the allowable emissions at affected EGUs in the remaining sta tes subject to the federal plans (to “repay” the borrowed allowances)
. To avoid disruption to sources already***E.O. 12866 Review

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subject to the mass

- based trading federal plan , the EPA is not proposing to allow allowance borrowing across compliance periods
. Although not pro posing to provide for allowance borrowing across compliance periods , the agency requests comment on the potential inclusion of allowance borrowing in the proposed mass

based trading federal plans , including from how far into the future to allow allowances to be borrowed, how inclusion of borrowing would affect opportunities for state s to take over implementation of the EGs (or implementation of the allowance

distribution provisions in the mass

- based trading federal plan), how to address removing the extra a llowances from circulation that would result if borrowed allowances originate in a state that subsequently withdraws from the mass

- based trading program , and on other complexities that borrowing across compliance periods would introduce
. The agency proposes to require sources to demonstrate compliance, i.e., allowance true

- up, on May 1 of the year after the last year in the compliance period . For example, if the first compliance period comprises the three years 2022 , 2023, and 2024, then t he allowance transfer deadline 93 for that first

93 The “allowance transfer deadline” is the deadline for***E.O. 12866 Review

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compliance period (after which point the EPA would evaluate compliance ) would be on May 1 , 202 5
. The agency also requests comment on an earlier or later allowance transfer deadline. The EPA proposes to evaluate compliance ( i.e., allowance
true

- up) at the facility level , not at the individual affected

EGU leve l , in the mass

- based trading program . Facility

- level compliance may ease implementation compared to unit

- level compliance ; each facility has a single compliance account in which to hold allowances to cover emi ssions from all its affected EGUs rather than having individual unit

- level compliance accounts . Fe wer accounts may make it easier for the designated representat ives to manage their allowances. T he EPA has adopted facility

- level compliance in previous emissions budget

- trading programs including the Acid Rain Program ARP (70 FR 25162 ) , Clean Air Interstate Rule the CAIR (70 FR 25162) , and Cross

- state Air Pollution Rule the CSAPR (76 FR 48208)
. The EP A would continue to track unit

- level emissions

– while evaluating compliance at the facility level

– allowing us to track increases and decreases of pollutants at individual EGUs.

transferring allowances that can be used for compliance in the previous compliance period to a source’s compliance account. For further information see section V.G of this preamble.***E.O. 12866 Review

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D. Initial Distribution of A llowances Establishing a mass

- based trading program requires that policymakers establish an approach for the initial distribution of allowances, historically referred to as “allowance allocation.” The EPA believes that states may be well positioned to design their o wn allowance distribution approach because they

can take into account a wide range of considerations and tailor decisions to the particular characteristics and preferences of their state. We are proposing The EPA proposes that states have the flexibility to determine their own approach for distributing allowances in the federal plan , through a process that is detailed in section V.E
. of this preamble
. The EPA believes that

s tates should have the opportunity to make decisions about allowance distribution a nd that they may have additional flexibility on approaches , including allowance auctions
. The EPA is also proposing an allocation approach that we intend to use i n the event we implement the federal plan in a state that does not choose to determine its own allowance

- distribution approach
. The EPA is requesting comment on all of these, and any other, approach es to distribute allowances. The initial allowance allocation approach t hat is based on historic historic al data does not affect the environmental results of the program or generation patterns ; regardless of the***E.O. 12866 Review

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manner in which allowances are initially distributed, the finite total number of allowances limits allowable emissions across all affected EGUs . Allowance allocations also are not intended to prescrib e or suggest any unit

- level compliance requirements n or do they limit unit

- level operational flexibility, because a

mass - based trading program provides operators of affected EGUs with the flexibility to buy, sell, or bank allowances. Allowance allocation is simply a procedure by which allowances are distributed into the marketplace so that they may be available for affected EGUs t o acquire as desired to authorize emissions under the program. However, because these allowances are finite in number and thus a limited resource, they have value, and as a result, initial allowance allocations may raise issues of equity
among recipients. Thus the agency recognizes that its choice of allocation methodology is important from the perspective of distributional effects , and the importance of selecting an approach that is fair and reasonable in light of this consideration and the overall purpose of CAA section 111 informs the agency’s thinking in this proposal. We also invite comment on these considerations, and on any other factors or considerations which
commenters believe should inform the allocation method.
T he EPA believes that the most reas onable basis for an***E.O. 12866 Review

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initial allowance allocation procedure is an approach that uses historical data reported by the affected EGUs subject to the requirement to hold allowances under this program. This approach relies on known data rather than future projec tions . The EPA believes this approach is preferable because any approach tied to future indicators ( e.g. , the expected future EGU

- level pattern of emissions or the ultimate use of allowances) would depend on future outcomes that the EPA cannot project with perfect certainty in advance
. Basing allocation on historic historic al data is also consistent with the EPA’s approach to initial allowance allocation under previously established mass - based trading programs. The EPA proposes to allocate most CO 2 emission allowances to existing affected EGUs in each state covered by a final mass

based trading federal plan , with set

- aside s for a portion of allowances (discussed in more detail below) . For each compliance period , the agency would distribute CO 2 allowances in each covered state in the amount of the state’s CO 2 “ mass goal ” ( i.e., the state’s CO 2 statewide mass

- based emission goal as promulgated in the Clean Power Plan EGs) for that compliance period . For example, if a compliance period is three 3 years long, the EPA would aggregate and distribute allowances for all three 3 years at the same time
. T he agency is not proposing to allocate***E.O. 12866 Review

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allowances to new EGUs , which do not have a compliance obligation under this proposed federal plan
. Within each cov ered state , F or each year of the program, the agency proposes to allocate most of the allowances directly
to affected EGUs using a historic

- generation based approach . The EPA is also proposing three set

- asides of allowances, which are detailed below. Although the EPA cannot anticipate the future EGU

- level pattern of emissions, it is possible to consider potential future emission patterns at the source sub category level. In develop ing the Clean Power Plan EGs, the agency conducted analysis of emission r eduction potential in the two affected EGU

source sub categories, i.e., electric utility steam generating unit s (steam generating unit s) and NGCC units . With that analysis as a basis, 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 into

source sub categor ies based on analysis done in developing the

sourc e category

- specific CO 2 emissions performance rates promulgated in the EGs and then allocate to affected EGUs within each category based on shares of historic generation. This alternative is described later in this section. The EPA recognizes that states m ay prefer different***E.O. 12866 Review

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approaches to distribute CO 2 allowances from the EPA’s approach and that there may be advantages in having states tailor and apply their own allocation approach . Therefore, the agency is proposing that a state may choose to replace the federal

- plan allowance

- distribution provisions with its own allowance

distribution provisions , using any approach to distribute allowances that the state chooses , including methods that the EPA is not proposing here , provided that the state’s approach addresses emissions leakage as detailed in section V.E , and includes a Clean Energy Incentive Program . The proposed requirements for addressing leakage , as well as detailed later in how the EPA proposes to implement the C lean E nergy I ncentive Program for th e mass - based federal plan, are detailed in sections V.E and V.D.4 of this section preamble , respectively. 94
. The EPA proposes that a state could choose its own method for distribut ing allowances for any compliance period including the first period that would commence in 2022. The proposed process for a state to replace federal

- plan allowance

- distribution provisions with its own allowance

- distribution provisions is

94 As detailed in section V.E in this preamble, a state that chooses to determine its own allowance

- distributio n approach under the proposed federal plan may do so through its allocation strategy (such as the set

- aside approaches in section V.D.3) or may make a justification regarding leakage as detailed in section V.E.***E.O. 12866 Review

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detailed in section V.E of this preamble
. The following se ctions discuss and request comment on the EPA’s proposed approach to allocate CO 2 allowances to affected EGUs based on shares of historic generation , the proposed timing of allowance recordation, three proposed allowance set

- asides, allocations to units that change status , and the proposed approach for state s to replace federal

- plan allocation provisions with their own allowance

- distribution approaches. In addition, we request comment on alternative allowance distribution approaches

– such as auctioning o r allocations to load

- serving entities

– that the EPA or states might adopt. The EPA requests comment on all of these aspects of allowance distribution
. 1. Proposed Allocation A pproach and Alternatives The EPA proposes to allocate most of the CO 2 allowances in the mass

- based trading program to affected EGUs based on historic generation (output) data . The EPA also proposes three allowance set

- asides. The first would set aside a portion of allowances in each state from the first compliance period on ly; this set

- aside is for a proposed Clean Energy Incentive Program that is detailed in section V.D.4
. of this preamble
. The second would set aside a portion of allowances in each compliance period except for the first period ( ; the size of this set

- aside***E.O. 12866 Review

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would vary by state as detailed in section V.D.3) ; EPA would proposes to distribute allowances from this set

- aside to affected EGUs via an updating output

- based approach
. as detailed in section V.D.3 of this preamble )
. The third would set aside five percent of allowances in each state, in all compliance periods, to be distributed to renewable energy RE projects as detailed in section V.D.3 of this preamble . In summary, the proposed set

- asides include: (1) Clean Energy Incentive Program. This set

- a side would be of first compliance period allowances only. (2) Output

- based allocation set

- aside. This set

- aside would start in the second compliance period and continue for each compliance period. (3) Renewable energy set

- aside. This set

- aside would be im plemented in all compliance periods. This section describe s the proposed historic

- generation

based approach that the agency would use to allocate all allowances except for the set

- aside allowances. The EPA is proposing affected

- EGU

- level allocations (based on available data) in every state . Further detail on this proposed allocation approach is provided in the Allowance Allocation Proposed Rule TSD in the docket. The affected

- EGU

- level allocations resulting from this proposed histor ic

- generation

- based approach are***E.O. 12866 Review

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provided in the docket in an appendix to the TSD
. The agency requests comment on the proposed historic

- generation based allocation approach and on other allocation approaches. The EPA proposes to allocate the historic

- gener ation

- based portion of the allowances ( i.e., the mass goal minus the set

asides 95 ) to individual affected EGUs based on each affected EGU ’s share of the state ’s historic generation , using 2010 through 2012 data
. The calculation steps for th is proposed historic

- generation

– based allocation approach are as follows:
1. For each unit in the list of likely affected EGUs in each
state , identify annual net generation values for the historic period of 2010 through 2012 ( reflecting affected

EGU

- specific generation a ssumptions incorporated in the data adjustments , e.g., assumed capacity factor for “under construction” units ) . For a year for which an affected EGU has no generation data ( e.g., a year before the year when a unit started operating), assign the affected EG U a value of

95 In the first compliance period this would b e the mass goal minus the Clean Energy Incentive Program set

- aside and the RE set

- aside. In all other compliance periods this would be the mass goal minus the output

- based allocation set

- aside and the RE set

- aside.***E.O. 12866 Review

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zero. 96 (See step 2, below, for how zero values would be treated in the calculations.)
The EPA proposes to use a three 3

- year historic period ( i.e., 2010 through 2012) to reflect unit

- level operations over time. In the Clean Power Plan EGs, the EPA identified a reasonable basis for using aggregate data at the regional level largely based on the most recent data year (in that case, 2012) to inform the establishment of category

- wide
EGs (as opposed to individual, un it

- specific parameters). As a distinct matter, in this context the EPA is considering data at the unit level to inform unit

- specific initial allowance allocations; notwithstanding that these allowance allocations do not impose any unit

- level compliance req uirements in and of themselves, the EPA finds it reasonable to consider a multi

- year data period to

96 The EPA proposes that for affected EGUs that were under construction and began operation during 2012 or after 2012 (and thus don’t have a full year of generation data from the 2010 through 2012 period), the allocation calculations be based on the same 2012 generation estimate as the agency used in the Clean Power Plan EGs for the goal

- setting calculations. That is, the EPA proposes to estimate 2012 generation for such units based on a unit’s net summer capacity and assuming a 55 percent capacity factor for gas units and a 60 percent capacity fac tor for steam units.***E.O. 12866 Review

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inform unit

- level initial allocations in order to consider a broader range of unit

- specific operations over time.

2. Determine each affected EGU ’s average gene ration value by averaging all (non

- zero) 2010 through 2012 annual generation values for the unit. The proposed approach would use only non

- zero values in calculating a unit’s average generation. For example, if generation data for a unit were available for only 2011 and 2012 then the EPA would only use the 2011 and 2012 values to determine the unit’s unadjusted average generation value. The EPA included generation from all units in the historic data set in the proposed allowance calculations and calculated allowances for all such units; the agency requests comment on the treatment of generation from and allocations to units that operated in the historic data set but retire before the start of the program.
3. In each state , sum the average generation values fro m all affected EGUs to obtain that state ’s “total average historic generation.”
4. Divide each affected EGU’s average generation value by the
state ’s total average historic generation to determine that***E.O. 12866 Review

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affected EGU ’s share of the state’s total average histori c generation.
5. Multiply each affected EGU ’s share of the state’s total
average historic generation by the historic

- generation

allocation portion of the state ’s mass goal ( i.e., the
state ’s mass goal minus the set

- asides ) to determine that affected EGU ’s allocation
. The agency believes that this propose d historic

- generation

based allocation approach is a reasonable approach for several
reasons:

• The agency believes that the proposed historic

generation

- based approach maximizes transparency and clarity of allowance allocations. The EPA has placed in the docket the historic generation data and the calculations used to determine the proposed affected

- EGU

level allocations. The agency also placed the proposed aff ected

- EGU

- level allocations, resulting from these calculations, into the docket. These calculations can be relatively easily replicated.

• To calculate allocations, the EPA proposes to use historic affected

- EGU

- level net generation data compiled using a methodology similar to the Emissions & Generation***E.O. 12866 Review

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Resource Integrated Database (eGRID) methodology. The proposed calculation approach is described further below and in the Allowance Allocation Proposed Rule TSD i n the docket. The historic

- data methodology is described in the
&&& CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule . The majority of the generation

- unit

level data in this approach are from reports that emissions sources submit to the EPA under 40 CFR p art 75 and to the Energy Information Administration ( EIA ) on forms EIA

- 860 and EIA

- 923. The EPA believes these are the best data available to the agency at the time of this proposed rule for calculating affected

- EGU

- level allocations.

• Allocating based on historic data (as opposed to data not yet reported) allows for the distribution of allowances prior to the start of the program, which can facilitat e compliance planning. The proposed approach is transparent, based on reliable data, an d, like the approaches used in the NO X SIP Call, Acid Rain Program the ARP , and Cross

- S tate Air Pollution Rule CSAPR , based on historic data. For all these reasons, the agency believes that it is appropriate to use a historic

- generation

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based allocation meth odology in this proposed rule. The EPA also requests comment on a historic

- data approach based on historic emissions. The proposed historic

- data

- based allocations approach would not generally affect the ultimate pattern of generation across individual power plants, as compared to other methods of allocation. The combination of plants, and their contributing generation, that will be used to meet a particular demand for electric power will be based on the relative efficiency (cost of productio n) of available plants. The relevant measure of this efficiency is the marginal cost of generation, which for a particular power plant would be the sum of the cost of additional fuel to generate an additional MWh, additional maintenance costs to increase o utput by an additional MWh, and costs associated with the additional emissions that result from generating an additional MWh. In a mass

- based trading program, additional emissions must be covered by additional allowances , so the cost of emitting is the pri ce of the allowances that must be consumed to authorize those emissions . The se emissions

related costs of electricity production are the same regardless of whether the allowances used to cover those emissions were initially allocated to the user or whether they were acquired subsequent ly in the marketplace.***E.O. 12866 Review

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The same concept applies to any other cost of electricity production. For example, a coal

- fired electric generating unit EGUs operator would account for the cost of consuming coal to produce generation wh ether or not the coal was discovered already on

- site, given to the unit at “no charge”, or purchased from the marketplace; in all cases, the combustion of that coal consumes its value ( i.e., it can no longer be sold). Similarly, the approach taken to distr ibute allowances does not affect the cost accounting for emissions at units because the use of any tradable allowance has an opportunity cost

– a firm loses the opportunity of selling an unneeded allowance when it emits an additional ton. Because a firm lo ses the opportunity of selling an unneeded allowance when it emits an additional ton, even the emission of a ton covered by a “free” allowance causes the generator to incur the cost of emissions based on th e market price of allowances the owner must forgo by emitting that ton and using that allowance. The proposed historic

- data based allocation approach would not be expected to have any effect on freely competitive electricity markets , because the marginal cost of emitting under the m ass - based trading program is determined by the level of the overarching mass goals and is not affected by the distribution of the underlying allowances. This marginal cost of emitting is***E.O. 12866 Review

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what will inform prices, outputs, and competition among power plants. While cost

- of

- service markets are structured differently from competitive markets, the regulated utility still makes the dispatch decision on the basis of marginal costs among the units in its fleet, which is not affected by the amount of allowances that any particular unit in that fleet was initially allocated (assuming a competitive allowance market)
. The EPA recognizes that some stakeholders are concerned about the potential future distribution of emissions at the facility level, and possible effects on communities. However, for the reasons discussed in the above paragraphs, 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 emissi ons under the program. This proposed rule is expected to achieve significant emission reductions across the electric power sector; see section IX of this preamble for discussion of anticipated broad benefits to communities. In addition to the proposed hist oric

- data

- based allocations approach, the EPA also requests comment on other allocation approaches. One alternative approach on which the agency requests comment is similar to the proposed approach in that it allocates allowances based on historic generati on . Ho wever, this***E.O. 12866 Review

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alternative approach would divide the total number of allowances from a state ’s mass goal (minus the set

- asides) into affected EGU source categor ies

– based on analysis done in developing the

source category

- specific CO 2 emissions performance rates promulgated in the Clean Power Plan EGs

– before determining unit

- level allocations
. The EPA requests comment on this alternative approach because dividing the allowances in a state by source category in this manner may result in an initial distribution of allowances that would be closer at the source category level to the future category

- level pattern of emissions , and thus to allowances ultimately used, than the proposed approach. To the extent that this category

- level divi sion of allowances is a reasonable proxy for the future category

- level emissions pattern under the program , this approach may reduce wealth transfer between parties that occurs as a consequence of a less

- anticipatory initial allocation procedure. The EPA c annot observe in advance the future affected

- EGU

- level pattern of emissions
. In this alternative approach, for each state t he EPA would multiply historic steam

- generating

- unit generation by the steam

generating

- unit source category

- specific CO 2 emissions
p erformance rate , and multiply historic NGCC

- unit generation by the NGCC

- unit source category

- specific CO 2 emissions performance***E.O. 12866 Review

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rate . The EPA would do th ese calculation s for each of the compliance periods in the Interim Period using the glide path interim performance rates , and for the Final Period using the final performance rates. These performance rates are shown in Table s &&& and &&& Table 6 in section IV.B of this preamble , above
. The EPA established the source category

- specific emissions performance rates in the Clean Power Plan EGs (see section VI in of the final EGs) ; these rates are not within the scope of this proposed federal plan rulemaking. Next, for each compliance period t he EPA would split the total number of allowances from the state’s mass goal (minus the set

- asides) into affected

- EGU source categories in proportion to the values resulting from the above calculation. The EPA would then allocate the steam

– generating

- unit portion of the allowances to individual steam generating units SGU s using the same historic

generation based approach described above, and would also allocate the NGCC

- unit portion of the allowances to individual
NGCC units using the historic

- generation based approach. The EPA notes that there are multiple approaches that policymakers may use to distribute allowances , beyond the proposed or alternative allocation approaches we included in this proposed rule
. Examples of o ther allocation approaches include allocating based on historic heat input (fuel) or***E.O. 12866 Review

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historic emissions data , rathe r than historic generation data
. T he choice to use historic data for allocati o n ( e.g., generation, heat input, or emissions) means that the distribution of allowance value will be based on past behavior. For example, allocations based on histori c emissions would benefit those that have historically been the large st emitters, whereas allocations based on historic heat input or generation (output) would benefit those that have historically used the most fuel or generated the most electricity
. 97 Alte rnatively , allocations could be distributed based on projected or observed future activity ( e.g., generation, heat input, or emissions)
. The proposed and alternative allocation approaches would determine most of the allocations be fore the start of the
program . Other potential allocation approaches w ould change allocations for future compliance periods based on future activity

– referred to as “updating” allocations . This proposed rule includes an updating

- allocation component , as we are proposing to set aside a portion of the allowances in each state for distribution using an updating output

- based approach as detailed in section V.D.3
. of this preamble
. The EPA requests comment on the use of other updating allocation approaches.

97 Tools of the Trade, A Guide to Designing and Operating a Cap and Trade Program for Pollution Control, EPA, 2003.***E.O. 12866 Review

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Another allowance allocation approach that could minimize the difference between the initial allowance allocation and the ultimate distributional pattern of allowance use for compliance is to conduct an auction, a process whose express intent is to align the allo cation of a scarce good (in this case, the limited authorization to emit CO 2 ) with the parties most willing to pay for its use. Many ascribe benefits, in terms of economic efficiency, to the use of auctioning as a means of allocating allowances. The EPA notes that some state s ( e.g., RGGI participating states) have used auctions to distribute allowances and have used auction revenues for a variety of purposes, including the implementation of demand

- side energy efficiency EE measures intended to help reduce electricity rate impacts and overall program costs, as well as targeted investments in low

- income communities
. The EPA believes that if it conducted allowance auctions, any revenue from such auctions received by the agency must be deposited in the U.S. Tre asury under federal law. 98 As a result, the EPA notes that states implementing state plans may have greater flexibility than the

98 The EPA believes authority to conduct auctions is located in CAA section 111 alone, as well as by its reference to CAA section 110(c) FIPs. The statutory definition of a FIP authorizes “techniques (including economic incentives, such as marketable permits or auctions of emissions allowances).” 42 U.S.C. 7602(y).***E.O. 12866 Review

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federal government would to direct auction funds for particular activities. The agency requests comment on the idea of auctioning all, or a portion of, each state ’s allowances in the proposed federal plan, 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 ; first, second

- price or other ) and who may participate in the auction
. The EPA requests comment on an alternative approach, which is allocating a portion of the allowances to load

- serving entities (LSEs) rather t han to affected EGUs
. LSEs are the entities responsible for delivering power to retail consumers. Allocation to LSEs can help mitigate bill impacts on electricity consumers when applied in concert with certain additional design features. In particular, if LSEs commit and/or are required to pass through to ratepayers the value from their selling of the allocated allowances , this approach can mitigate the impact of electricity bill increases on consumers that might otherwise resul t from application of the federal plan
. As described in the Allowance Allocation TSD, t his type of approach can also help to avoid or mitigate the potential for windfall profits for affected EGUs
. The EPA could apply this approach by condition ing the recei pt of allowances by LSEs on the pass***E.O. 12866 Review

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through to consumers of any allowance value if necessary
. The EPA requests comment on the design and utility of allocating allowances to LSE s 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 cate gories, as well as the EPA’s legal authority to apply any such conditions. The EPA requests comment on the additional design aspects of any potential allocation to LSEs , including but not limited to the following questions : I n particular, what metric should provide the basis for LSE allocation , e.g . , electricity demand served by the LSE , population served by the LSE, emissions associated with generation serving the LSE, or some other metric. If emissions are used as the basis for such allocation, what approach should be taken: on a historic basis or a continually updated basis, on the basis of estimated emissions for the relevant region or some other basis, and using what data to calculate such emissions. Also, the EPA requests comment on the form by wh ich LSEs may distribute the allowance value to
rate

- payers, e.g . as a fixed amount, through reduced rates, etc. Finally, the EPA requests comment on what share of the total***E.O. 12866 Review

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number of allowances should be distributed to LSEs and what monitoring and reporting requirements may be necessary to support an effective program. The EPA requests comment on the proposed historic

generation based allocation approach, the alternative approach that divides total allowances from a mass goal into source subcategori es before allocating to individual affected EGUs within each source category based on historic generation, and on the other alternative approaches described in this section
. T he EPA also requests comment on allocating allowances to all generation in a stat e (including non

- emitting generation) using a historic

- generation based approach. The agency also requests comment on the proposed allowance set

- asides, which are detailed below. The agency requests comment on allocation approaches that may minimize the im pact of this proposed rule on small entities. The EPA also requests comment on any other approaches to distribute allowances
. Finally, T he agency notes that we propose to provide that any state may choose to replace the federal

- plan allocation provisions with an allocation approach of its choosing as discussed below. Finally, w ith regard to alternative allocation methodologies (either those specifically mentioned in this proposal or other allocation methodologies), the EPA requests comment on how those alt ernatives would satisfy the***E.O. 12866 Review

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requirement that in a mass

- based program where new sources are not included as part of the program, the allocation methodology must address leakage to new fossil

- fuel

- fired sources
. 2. Timing of Allowance Recordation The proposed historic

- data

- based allocation approach

– which the EPA proposes to use to allocate all of the allowances in each state except for the set

- aside allowances

– is a one

time determination that is not updated. The allocations resulting from this approach woul d be determined prior to the start of the program. The EPA proposes to record the historic

data based allowances for each compliance period in source accounts prior to the start of each compliance period , and to record allowances for one compliance period at a time. Recording allowances prior to the start of a compliance period provides certainty to affected EGUs of their allocations in advance of when the allowances are needed for compliance and can facilitate long

- term planning. Recording allowances for one compliance period at a time provides flexibility for a state to replace the federal plan with its own plan in a timely way. As discussed in section V.F of this preamble , the EPA proposes to allow a state to replace the federal plan with its own approve d state plan , for a compliance period for which allowances have not yet been recorded (the proposed schedule for allowance recordation is***E.O. 12866 Review

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detailed below)
. T he EPA also proposes that a state could choose to replace the federal

- plan allocations to its affect ed EGUs (and other entities) with its own allocations approach, for a compliance period for which allowances have not yet been recorded as detailed in section V.E of this preamble
. The agency proposes to record allowances for the mass

- based trading program in accounts of affected EGUs seven months prior to the start of each compliance period . For example, if compliance periods are three 3 years long and the first compliance period comprises the years 2022, 2023, and 2024, the EPA would record allowances for 2022, 2023, and 2024 by June 1, 2021
. The EPA requests comment on the proposed approach of recording allowances seven 7 months prior to the start of each compliance period , and o n an alternative of recording allowances 13 months prior to the start of each compliance period
. See section V.D.3 of this preamble for timing of recordation of allowances from the proposed set

- asides. 3. Allowance Set

- asides to Address Leakage to New Source s In addition to the general allocation method proposed above, the EPA is proposing two additional components of allowance allocat ion under a mass

- based federal plan. These two
set

- asides are being proposed to satisfy the requirement in the final guidelines that mass

- based plan s demonstrate that they***E.O. 12866 Review

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have addressed the risk of leakage to new unaffected units, as specified below. 99
The final emission guideline s , in Sec.VII.D, EGs specify leakage to be the concern of leakage, which is defined in sectio n VII.D of the final EGs preamble as the potential of an alternative form of implementation ( e.g ., the rate

- based and

mass - based state goals) to spur increased emissions from new sources, beyond the emissions expected from new sources if existing EGUs were given create a larger incentive for affected EGUs to shift generation to new fossil fuel

- fired EGUs relative to what would occur when the implem entation of the BSER took the form of standards of performance in the form of incorporating the subcategory

- specific emission performance rates
. 100 This section of the final guidelines also specifies how leakage must be addressed as part of an implementation of a mass

- based goal as an expression of BSER. This is because a mass

- based approach provides differing incentives to existing affected EGUs and new unaffected sources, unlike under a rate

- based approach. This

99 The EPA is also proposing a third set

- aside, for a Clean E nergy Incentive Program, which is detailed in section V.D.4 of this preamble , below. 100 Section VII.D of the final guidelines is incorporated by reference in this proposal.***E.O. 12866 Review

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provides an increased potential for leakage u nder a mass

- based approach, and thus states adopting mass

- based plans must address leakage in order to assure the mass

- based goal is equivalent to the mathematical expression of representing the BSER in CO 2 emission perform ance rates. The refore,
. . The final guidelines require EGs specified that jurisdictions implementing a mass - based plan approach make a demonstration that leakage has been addressed in their plan (See final guidelines Sec. VIII. J ) . The options for making that demonstration include : creating a mass limit that opts in new sources, implementing allocation strategies approaches must address leakage, because the form of the mass goals may ultimately impact the relative incentives to generate and emit at affected EGUs as opposed to shifting generation to new sources, with potential implications for whether the mass goal implements or is consistent with the BSER and overall emissions from the sector . These circumstances are much less likely to be present under a rate

- based plan approach, wher e the form of the goal ensures sufficient incentive to affected existing EGUs to generate and thus avoid leakage, similar to the CO 2 emission performance rates . By requiring mass - based plan components that address leakage, or justify ing the final EGs ensure that mass goals are equivalent to the CO 2 emission performance rates and***E.O. 12866 Review

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are thus an equivalent expression of the BSER
. Section VII.D of the final EGs details the requirement for addressing leakage and why leakage it is not a concern fo r the jurisdiction because of existing policy or unique characteristics. needed, and section
VIII.J of the final EGs specifies options for mass - based state plan components that address leakage. We are proposing , as part of the mass

- based approach under the federal plan and model rule , to implement allowance allocation approaches to address leakage through the use of allocations strateg ies , specifically through the use of a combination of establishing an output

- based allocation set

- aside and a set

- aside that e ncourages the installation of RE. As noted in the EG, i f a state were to adopt allowance
set

- aside provisions exactly as they are outlined in the finalized th is model rule , they could once it is finalized , the requirement for that state plan to address leakage would be considered presumptively approvable.
Sec. Section VIII.J of the final guidelines EGs provides a discussion of how set

- asides can effectively address leakage in

a mass - based plan approach , and that section in incorporated by reference in this section of the federal plan and model rule proposal.
. That section of the final guidelines EGs also describes why t he allowance allocation alternative for***E.O. 12866 Review

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addressing leakage must be chosen for the federal plan and model rule proposal instead of the option to regulate new non

- affected fossil fuel

- fired EGUs . This is because the EPA does not have authority to extend regulation of and federal enforceability to new fossil fuel

- fired sources under CAA section 111(d), and therefore we cannot include new sources u nder a federal mass

based plan approach
. Set

- asides can also be used to target and refine allowance allocation in order to achieve beneficial outcomes, for example ensuring program integrity and mitigating costs. The set

- asides we are proposing

– described in detail below

- would establish a pool of allowances that would be allocated to affected EGUS or other entities , and would be allocated based upon different criteria in order designed to support particular program goals , in particular addressing address l eakage
.
These set

- asides are essentially a type of “economic incentive” authorized by the CAA as a means of pollution prevention and control, and the expected benefits of this particular type of economic incentive to address leakage make it appropriate he re. 101 The EPA believes these set

- aside programs

101 In designing a federal plan under CAA section 111(d), the EPA recognizes its authority as being, in some sense, the same as that***E.O. 12866 Review

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are both authorized and consistent with the purpose of the Clean Power Plan under CAA section 111(d) and the specific requirements specified in the final guidelines . They do not have the effect of increasing the stringency of the federal plan , because the overall budget of allowances (representing allowable emissions) remains the same.
T he EPA is aware of the successful use of set

- asides and similar programs in other emissions trading programs. The following are examples of set

- asides and similar programs used in other federal air quality rules, and in state

- based GHG regulat ory programs . The EPA has previously established set

- asides of emissions allowances in FIPs under CAA section 110 of the Clean Air Act.
. For example, in the Cross State Air Pollution Rule ( CSAPR ), , the EPA used a 5 percent set

- aside for new units, because we believed it was “important to have a small new unit set

- aside in each state to cover new units within the budget that was set aside i n order to address the state’s significant contribution and interference with maintenance.” (75 FR 45310; Aug. 2, 2010). This was important, in the EPA’s view, because it allowed for

available under CAA section 110(c), where the use of economic incentives is authorized. See 42 USC 7602(y) (authorizing use of “economic incentives” in FIPs).***E.O. 12866 Review

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growth in the electric utility sector consistent with the EPA’s modeling, where new units showed up in the modeling output as surrogate facilities representing potential new EGUs that come online in future years in response to demand increases or other market drivers. 102 As between a choice of requiring these new units to purchas e their allowance on the open market, versus being treated in the same manner as existing

– and generally understood to be less efficient and more polluting

– units, i.e., by being eligible to receive a free a n initial allowance allocation out of the new un it set

- aside, the EPA chose the latter. As part of the Acid Rain Program ARP under Title IV of the 1990 CAA Amendments, Congress established a “conservation and renewable energy reserve” account. CAA section 404(f), 42 U.S.C. 7651 c (f). This is in essence a set

- aside account of SO 2 allowances which the regulated utilities could earn by undertaking “qualified energy conservation measures” and “qualified renewable energy” projects. The size of the reserve was set at 300,000 allowances, and utilities could earn one SO 2 allowance for every 500 MWh of energy saved through DS

- EE savings or RE generation. In the first years of the program,

102 See also EPA, Allowance Allocation Final Rule TSD, EPA

- HQ

- OAR

2009

- 0491, at 3

- 4 (June 2011).***E.O. 12866 Review

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utilities received bonus allowances equivalent to close to 3,000 tons of avoided SO 2 emissions, while achieving co

- benefits from reductions in other pollutants, and, in the words of one industry representative, “creating a culture change where utilities are looking for opportunities everywhere.” 103 The
reserve program was nonetheless undersubscribed, and the EPA and other parties hav e learned from this case and made adjustments to similar programs to promote participation. This can be done through using alternate strategies for the MWh

- to

- allowance ratio, such as the pro rata distribution strategy proposed as part of the RE set

- aside. This proposal also tries seeks to minimize the administrative burden associated with participation in the th is rule’s proposed set

- aside aside s . In the NO X SIP Call, the EPA encouraged states to “consider including energy efficiency and renewables as a strategy in meeting their [emission] budgets. One way to achieve this goal is including a provision with a state’s NO x Budget Trading Rule that allocates a portion of a state’s trading program budget to implementers of energy efficiency and renewable energ y projects that reduce energy

- related NO x emissions during the ozone
season.” See 63 FR 57356, 57438 (Oct. 27, 1998). A number of

103 U.S. EPA, Acid Rain Program, Conservation and Renewable Energy Reserve, EPA 430

- R

- 94

- 010 (Nov. 1994).***E.O. 12866 Review

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states created RE and demand

- side EE set

- asides in their SIPs in response, and later, for the implementation of CAIR. A “round table” meeting with 25 states in 2006 indicated that states that had established these programs were generally having success with them, and provided a forum for exchanges of ideas on how to handle a variety of implementation issues, such as

over - and unde r - subscription, application issues, compliance and verification, the appropriate size of a set

- aside account, how to garner public input on which projects are selected, and other issues. 104 In general, the EPA believes its experience and those of the states with these set

- aside programs support the view that they are an effective means to spur clean energy projects , which in turn we believe can help to reduce the risk of leakage in this instance
. 105

104 U.S. EPA, State Clean Energy

- Environment Technical Forum Roundtable on State NOx Allowance EE/RE Set Aside Programs, Call Summary (June 6, 2006), available at http:// www.epa.gov/statelocalclimate/documents/pdf/summary_paper_nox_allowan ce_6

- 6

- 2006.pdf . 105 The agency has extensi ve experience in the design and establishment of set

- aside programs. See, e.g., Guidance on Establishing an Energy Efficiency and Renewable Energy (EE/RE) Set

- Aside in the NOx Budget Trading Program (March 1999), available at http:// www.epa.gov/statelocalc limate/documents/pdf/ee

- re_set

- asides_vol1.pdf ; Creating an EE and RE Set

- aside in the NOx Budget Trading Program: Designing***E.O. 12866 Review

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Below, the EPA describes two potential allowance set

asides. F irst, the EPA proposes a set

- aside for allowances distributed to existing NGCC units based on output ( i.e., output

- based allocation ) to mitigate emission leakage to new

sources , with the ancillary advantage of further addressing the potential for increased emissions due to movement of generation
to existing sources in neighboring states that adopt rate

- based approaches , though the potential for that that is minimized by the incentives present under a rate

- based plan
. . Second, the EPA proposes a set

- aside fo r electricity generation from qualifying renewables . This set

- aside also addresses the potential for leakage to new sources, as increased RE capacity can serve electricity demand in place of new sources
. The EPA also solicits comment on other set

- aside options that could support the goals of the program , in particular addressing address leakage , including a set

- aside that provides an incentive for demand

- side EE
. The EPA seeks comment on all aspects of the set

-

the Administrative and Quantitative Elements (April 2000), available at http:// www.epa.gov/statelocalclimate/documents/pdf/ee

- re_s et

- asides_vol2.pdf ; Creating an EE and RE Set

- aside in the NOx Budget Trading Program: Evaluation, Measurement, and Verification of Electricity Savings for Determining Emission Reductions from Energy Efficiency and Renewable Energy Actions (July 2007), av ailable at http:// www.epa.gov/statelocalclimate/documents/pdf/ee

- re_set

- asides_vol3.pdf .***E.O. 12866 Review

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aside options specified in this section. This includes the inclusion of a set

- aside, the method for allocation of allowances to set

- asides, the size of the set

- asides, the requirements for the process of distribution, eligibility requirements for receiving set

- aside allowances, the proposed process for redistribution of undistributed allowances from each
set

- aside , and any other appropriate set

- asides
.
a. Set

- asides for Output

- based Allocation The EPA is proposing a set

- aside approach referred to as output

- ba sed allocation , 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 , and could potentially reduce costs as well as address incentives for generation to shift away from EGUs covered under mass

- based plans to new unaffected EGUs . We seek
comment on all aspects of this proposal and its underlying rationale
. Under the output

- based allocation approach we are proposing , some beginning with the second compliance period, a portion of the total allowances within each mass - based federal plan state are would be allocated to existing NGCC units based, in part, on their level of e lectricity generation in a recent***E.O. 12866 Review

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period. T he allocation to an eligible EGU is not fixed, but instead depend s on its generation
. the previous compliance period. E ach eligible EGU would get a larger allowance allocation from this set

- aside 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 ; . I nstead, it merely modifies the distribution of allowance s in a manner designed to mitigate emission leakage
. O utput

- 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 emitting EGUs within mass

- based states that are
not subject to the a mass - based limits as well as analogous EGUs in other states covered by emission rate limits limit , mitigating emissions leakage
. The EPA also solicits comment on another potential ancillary benefit of this set

- aside: mitigat ing electricity price impacts associated with the proposed f ederal
p lan. O utput

- based allocation lower s the marginal production cost of eligible EGUs . Therefore, if the se EGUs influence***E.O. 12866 Review

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electricity prices, the reduction in their production costs will place do wnward 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 avoid, to the extent possible, reduction in incentives to invest in new zero - or low

- emitting generation as a result of the downward pressure the allocation approach may place on electricity prices. This is also why an RE set

- aside is a useful complement to the output

- based allocation set

- aside
. 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 large a number of allowances for each MWh of generation this could incentivize***E.O. 12866 Review

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generation that is high cost, exclusive of the cost associated with obtaining the mass

- based emission limit, and disincentiviz e low er - cost 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 conce rns. The EPA accordingly solicits is inviting 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 receive the allocation, the vintage for allowances timing of the set

- aside’s allocation procedure , the allocation rate(s ) , and the size of the set

aside
. The EPA solicits also invites comment on what other key parameters may be re levant for design of an appropriate output

based set

- aside. The 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 unit s subject to the final emissions guidelines EGs receive output

- based allocation from the
set

- aside , subject t o limitations described below . The EPA recognizes that performance of output

- based allocation may be***E.O. 12866 Review

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improved by targeting which units receive this additional incentive. In particul ar, this approach can most effectively address emission leakage if targeted to those affected EGUs subject to a mass goal that face the greatest difference in their incentive to generate relative to otherwise similar EGUs that are not subject to emission r ate standards. a mass goal
. As noted in the discussion of the allocation rate below, new combustion turbines (i.e., NGCC units and simple cycle combustion turbines) would be expected to generate more absent this set

- aside. Therefore, t he difference in gener ation incentives between affected stationary combustion turbines under subject to a mass - based implementation goal and otherwise similar new stationary combustion turbines that are not subject
to the 111(b) standards a mass goal is likely one of the most salient deviations in production incentives to address. As discussed further below, under this proposal other affected EGUs would not receive output

- based allocations from this set

- aside
. Below we also request comment on whether sources other than NGCC units subject to the emissions guidelines should be eligible for output

- based allocations under this set

- aside
. The EPA also proposes that this approach be targeted towards marginal generation by providing allocations under this

se t

- aside only to eligible EGUs that exceed a certain average***E.O. 12866 Review

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capacity factor over the compliance period , and only for the portion of their generation that exceeds the specified capacity factor
. 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 allo wances from this set

- aside for generation below this average capacity factor ( although all affected EGUs will still receive allowances through the historic

- generation

- based approach detailed above ) . This approach avoids incentivizing production at lower le vels of generation from an eligible source , and therefore avoids discouraging a relatively inefficient or infrequently used EGU from retiring. 106 The EPA proposes an approach under which each existing NGCC that is eligible for the
set

- aside receiv e output

- ba sed allocation at the allocation rate

106 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 capac ity

- 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.***E.O. 12866 Review

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only if its average capacity factor in the compliance period is above 50 percent on a net

- basis . Furthermore, we propose that each eligible EGU receives allowances at the allocation rate for all generation above a n ave rage capacity factor of 50 percent . That is, there would be no “maximum” average capacity factor above which output

- based allocations are not earned by an EGU eligible to receive them
. 107 This is to maintain the marginal incentive to generate from the affect ed EGU. (The total number of allowances available in the set

- aside is limited, however, as described below.) The EPA requests comment on implications of this approach for the operation and efficiency of electricity markets. The EPA also 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 cur rent compliance period’s allocation, which is the period in which the eligible generation occurs, and a future compliance period’s allocation. If allowances are allocated from a future period’s allocation, affected EGUs can receive additional allowances in a given future period, based on

107 Effectively, the allocation rate of output

- based all ocation is zero up until this average capacity factor.***E.O. 12866 Review

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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 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 the ir 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, a n advantage of allocating allowances from a future compliance period is that af fected EGUs will know ex

- ante how many allowances they will be allocated in a given period. However, if there is an expectation 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 ulti mate 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.***E.O. 12866 Review

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Weighing these observations, the EPA proposes allocating allowances based on generation from eligible EGUs in 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. In the fi rst compliance period of the federal plan, allowances allocated to affected 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 set

- aside. The EPA also requests comment on extending output

- based allocation from this set aside to affected SGU s. Output

- based allocation for SGU s may increase generation subject to the mass limit, leading to reduced generation and emissions from new emitting sources. However, the EPA does not propose this approach because it is not as effective as output

- based allocation to NGCC units. This is bec ause output

- based allocation to SGU s would incentivize generation from relatively high

- emitting EGUs, which would likely increase allowance prices as other emission reductions are made to respect the overarching mass limit. This approach would thus strongl y counteract the intended effect of lowering the production cost from sources***E.O. 12866 Review

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subject to the proposed mass

- based federal plan (compared to emitting sources not subject to the plan). The EPA also requests comment on extending output

- based allocation from th is set

- aside
to zero

- emitting generators (including both renewable and nuclear generation ), and how the design of the OBA set

- aside for such generators would differ relative to the NGCC approach (e.g., the amount of allowances earned per MWh, the capacity

factor threshold, the size of the total set

- aside). The EPA also proposes that this approach be targeted towards marginal generation that may not have otherwise occurred absent this set

- aside, by providing allocations under this set

aside only to eligible EGUs that exceed a 50 percent capacity factor on a net basis over the compliance period , and only for the portion of their generation that exceeds that capacity factor
. 108 The EPA also solicits comment on the timing of the OBA set

aside’s allocation procedure, which involves the relationship between the time at which eligible generation occurs and the vintage year(s) of the allowances allocated from this set

- aside to recognize that generation
. The EPA is proposing a lagged accounting procedure for this set

- aside, where eligible

108 Effectively, the allocation rate (defined below) of output

based allocation is zero up until this average capacity factor.***E.O. 12866 Review

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generation that occurs during a given compliance period would receive allowances through this set

- aside taken from vintage years in the subsequent compliance period. In k eeping with this lagged accounting procedure, the EPA is proposing not to reserve any allowances of vintage years during the first compliance period (2022

- 2024) for allocation through this set

- aside; eligible generation that occurs during the first complia nce period would be recognized through this set

- aside with allowances of vintage years from the second compliance period (2025

- 2027). The EPA is proposing this lagged accounting procedure because the amount and location of eligible generation in any given compliance period remains uncertain until the compliance period has ended and the relevant data has been reported and verified. Without this lagged accounting procedure, the EPA would have to withhold a n amount of allowances for this set

aside from certain vintage years even as the corresponding compliance period was already underway. Given the size of this proposed OBA set

- aside in certain states, the EPA believes it would be more advantage ous for affected EGUs to know in advance how many allowances they w ill be allocated in a given period ,***E.O. 12866 Review

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inclusive of allowances allocated through this OBA set

- aside
. 109

The EPA request s comment on options for the allocation rate under this approach. The allocation rate is the emissions

equivalent number of allowances , in an amount equal to a specific amount of emissions , that the affected EGU receives per

one net MWh of generation eligible for the set

- aside
. The EPA
propose s to set the allocation rate equal to the emission rate standard (on a net

- basis) for new NGCC units 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 (&&&cite to 111(b) rule)
. . Specifically, an additional MWh of eligible gene ration 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 lb s /MWh

- net . ( Carbon Pollution Standards for new, modified, and reconstructed EGUs). The EPA requests comments on other values for the allocation rate (or, potentially, allocation rates ).
. F or example the allocation rate may be the expected net emissions rate of newly constructed NGCC

109 The EPA recognizes that under this lagged accounting procedure, if the federal plan is replaced by a state plan in a future compliance period, the incentive to create eligible generation in the last compliance period subject to the federal plan is potentially diminished.***E.O. 12866 Review

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units, the historic average emissions rate from NGCC u nits, or the NGCC or fossil steam uniform source category

- specific emissions performance rates under promulgated in the Clean Power Plan EGs ( see section VI in of the final EGs )
.

The EPA proposes to calculate a n NGCC unit’s capacity factor based on the previous compliance period’s net generation and the 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).
. 110 The EPA pr oposes to use net summer capacity as reported to EIA . In the alternative, the EPA proposes to require that NGCC units report net summer capacity directly to the EPA ; we would add EGU

- level net summer capacity by adding it as a required data field in the certificate of registration that a unit’s owner or operator would submit to the agency per the procedure detailed in (see section V. G. The EPA requests comment on the relative efficiency H of obtaining net summer capacity from data reported to EIA or of addi ng net summer capacity as a required data field on the certificate of registration. this

110 See section V.H of this preamble for proposed monito ring and reporting requirements. The EPA proposes to make the reported generation data available to the public on the agency’s Web site.***E.O. 12866 Review

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preamble )
. The EPA notes that the EIA net summer capacity data is r eported at the generator level not the affected

- EGU level ; if we add this data point to the certificate of registration it would be reported at the affected

- EGU level , which would facilitate calculation of the capacity factors
. The EPA also requests comment on whether the “maximum load value,” which is a parameter that EGUs report to the EPA in t he ir monitoring plans, is a reasonable proxy for EGU

- level net summer capacity for these calculations. The EPA also requests comment on an alternative approach of basing the capacity

- factor calculation on nameplate capacity instead of net summer capacity , or other approaches to the calculation.

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 thereafter. The EPA proposes to determine the size of the set

- aside assuming that it would incentivize existing NGCC to increase utilization to a 60 percent capacity factor. The assumed 60 percent capacity factor offers a way to limit the s ize of this set

- aside, which allows the remainder of the allowances in a given compl iance period to be allocated through the historic

- generation approach (as detailed above) and***E.O. 12866 Review

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the other proposed set

- asides (as detailed below)
. Furthermore , limiting the size of the set

- aside avoid s the risk of incentivizing too much generation from eligible sources , as discussed further in the Allowance Allocation Proposed Rule TSD
. The EPA proposes to determine the size of the output

- based
set

- aside using 2012 baseline data from the Clean Power Plan EGs . 111 The EPA would calculate the size of the set

- aside as 10 percent of the NGCC capacity in the state 112 multiplied by the hours in a year multiplied by the allocation rate for the set

aside. The EPA takes comment on the proposed capacity data used as the basis for determining the size of the output

- based set

aside, and alternative sources of capacity data that may be used for determining its size
. The set

- asides resulting from this proposed approach are shown in Table 9 of this preamble
. 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 th e same for each compliance period , as the mass goals decrease with each

111 CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule. 112 The sum of net summer capacity for a ffected NGCC units in the 2012 baseline for the Clean Power Plan EGs (CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule).***E.O. 12866 Review

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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 detai l s the proposed approach to determine the size of the set

- aside. The EPA requests comment on a potential limit for the size of the set

- aside in a compliance period based on a percentage of the state’s total allowances for the compliance period.

**Table 9**  **. Proposed Size of Output**  **- Based**  **Set -**  **Aside for the Second**  **Compliance Period and Later (**  **Short Tons)** 

**State Allowances in output**  **** **based set -**  **aside** Alabama 4,185,496 Arizona 4,197,813 Arkansas 2,102,538 California 8,458,604 Colorado 1,348,187 Connecticut 1,090,811 Delaware 649,190 Florida 12,102,688 Georgia 3,563,104 Idaho 246,638 Illinois 1,598,615 Indiana 1,106,150 Iowa 492,510 Kansas 62,257 Kentucky 288,730 Lands of the Fort Mojave Tribe 248,127 Lands of the Navajo Nation 0 Lands of the Uintah and Ouray Reservation 0 Louisiana 2,207,879***E.O. 12866 Review

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Maine 563,925 Maryland 103,762 Massachusetts 2,439,991 Michigan 2,105,786 Minnesota 909,724 Mississippi 3,132,671 Missouri 815,210 Montana 0 Nebraska 144,635 Nevada 2,326,529 New Hampshire 542,721 New Jersey 3,413,100 New Mexico 627,085 New York 3,815,381 North Carolina 2,120,178 North Dakota 0 Ohio 1,757,326 Oklahoma 3,121,167 Oregon 1,291,027 Pennsylvania 4,392,931 Rhode Island 778,307 South Carolina 1,029,366 South Dakota 130,831 Tennessee 632,949 Texas 15,990,657 Utah 825,586 Virginia 3,011,811 Washington 1,383,060 West Virginia 0 Wisconsin 1,181,175 Wyoming 45,114 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 above an average capacity factor of 50 percent in the preceding compliance***E.O. 12866 Review

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period , multiplied by the 111 (b ) rate standard for NGCC units of 1, 0 30 lb/MWh

- net. (The proposed approach to determine the size of the set

- aside is detailed below.)

Given the proposed limit on the total size of the set

aside, and the amount of potential generation eligible for the

se t aside, there may be fewer allowances available in the set aside than can be earned at the allocation rate . The EPA proposes that, i f 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. The EPA propose s that if the number of allowances allocated from the set aside is less than the size of this set

- aside , then the remaining all owances would be distributed to all affected EGUs using the historic

- generation based

- approach described above
. The EPA proposes to provide notice of the capacity and generation data used to calculate allocations from the set

aside, and the resulting allocations, by August 1 of the first year in each compliance period, e.g., by August 1, 2025 for the compliance peri od that commences in 2025 (and based on the data***E.O. 12866 Review

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from the prior compliance period). 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 t he 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 are in the Allowance Allocation Proposed Rule TSD in the docket. The EPA proposes to determine the size of the set

- aside based on the total allowances in each state , the allocation
rate , the capacity factor abov e 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, the EPA proposes that the share of the total used for the set

- aside be equal to the allocation rate ( i.e., 1,030 lb/MWh

- net) , multiplied by the amount of potential generation from all NGCC

- unit affected EGUs in the state above a n average capacity factor of 50 percent and below a n average capacity factor of 60 per cent , based on 2012 data as detailed below
. The 50 percent average capacity factor***E.O. 12866 Review

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is the capacity factor above which eligible generation may receive the output

- based allocations. The 60 percent capacity factor limits the s ize of this set

- aside, which increases the share of the allowances allocated based on historic

- generation (as detailed above) . Maintaining a relatively large share of allowances allocated based on historic generation provides all
EGUs subject to the mass

- based plan c ertainty 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 2012 baseline data from the Clean Power Plan EGs (&&&cite to EGs baseline TSD ) . The EPA would calculate the size of the set

- aside as 10 percent of the NGCC capacity in the state 113 multiplied by the hours in a year (8,760 hours) multiplied by the allocation rate for the set

- aside ( 1,030 lb/MWh

- net )
. . The set

- asides resulting from this proposed approach are shown in Table &&&. The set

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

113 The sum of net summer capacity for affected NGCC units in the 2012 baseline for the Clean Power Plan EGs (&&&cite to EGs baseline TSD).***E.O. 12866 Review

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for which there would be no o utput

- 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 st ate’s mass goal. The Allowance Allocation Proposed Rule TSD further detail s the proposed approach to determine the size of the set

- aside. The EPA requests comment on a potential limit for the size of the set

aside in a compliance period based on a percenta ge of the state’s total allowances for the compliance period.

**Table &&&. Proposed Size of Output**  **- based Set**  **- aside**  **for the Second Compliance Period and Later**  **( Short**  **Tons)**

The EPA proposes to determine t he 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 upd ating the size of the set

- aside once after the start of the Final Pe riod using data from 2030 or another year, and also seeks comment on upd ating 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***E.O. 12866 Review

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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, i f 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. The EPA propose s 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 affected 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 steam generating units
. Output

- based allocation for steam generating units may increase generation subject to the mass limit , leading to reduced generation and emissions from new emitting sources. However, the EPA does not propose this approach because it is not as effectiv e as output

- based allocation to NGCC units . This is because output

- based allocation to steam generating un its would incentivize generation from relatively high

- emitting EGUs,***E.O. 12866 Review

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which would likely increase allowance prices as other emission reductions are made to respect the overarching mass limit. This approach would thus counteract the intended effect of loweri ng the production cost from sources subject to the proposed mass

based federal plan (compared to emitting so urces not subject to the plan). The EPA also requests comment on extending output

based allocation from this set

- aside to zero

- emitting generators. 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 or other generation sources should receive any output

- based allocation, 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. b. Set

- asides for Renewable Energy Projects The EPA proposes to provide a set

- aside of allowances for distribution to renewable energy ( RE ) in each state covered by the proposed mass

- based federal plan , and is also proposed for***E.O. 12866 Review

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the mass

- based model rule . The agency is also taking comment on whether distribution should extend to demand

- side energy efficiency (DS

- EE) and combined heat and po wer ( CHP ) projects. Under this program, the EPA would reserve a percentage of each
state’s allowances ( i.e., a percentage of its mass) in a set

aside account for each state . Developers of RE projects could apply to receive set

- aside allowances based on the projected generation from eligible RE capacity. Such a program will serve to facilitate source compliance with the EGs . First, the set

- aside will This set

- aside is expected to address concerns regarding leakage by lowering the marginal cost of production of the incented clean energy technologies within the state. This will make RE more competitive against new sources, reducing the potential for leakage to new sources. All else being equal, this also lowers the c ost of generation in the state overall , and thus can avoid leakage of generation to another state. By lowering the cost of generation, it may also lower its price for electrical consumers, depending on how much the increased cost of allowance for affected EGUs is reflected in electricity costs. While the proposed set

- asides would provide additional incentive for the creation of additional RE capacity, it should also be noted that t he***E.O. 12866 Review

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proposed mass

- based trading program itself would provide incentive for new and existing low and zero

- emitting generation. The EPA is aware of at least one existing program that supports deployment of RE and demand

- side EE using the proceeds from the auction of tradable CO 2 allowances

– the Regional Greenhouse Gas Initiative (RGGI). RGGI adopted an allocation approach in which states could invest auction proceeds to support DS

- EE and RE deployment programs. It was recognized that such investment is a means to reduce the pote ntial for emission leakage from a carbon cap

- and

- trade system in the United States (in RGGI’s case, to sources located outside the RGGI states) . As will likely be similar to the proposed federal plan here, RGGI only covers a subset of states. A RGGI staff proposal in 2008 recognized that reduced electricity demand can reduce the potential for emissions leakage of generation from a participating to a non

- participating state, by reducing the demand for fossil fuel

- fired electric generation, which in turn redu ces the demand for CO 2 allowances, and thus reduces allowance prices within the RGGI market. 114 Under the RGGI program, more

114 RGGI, Potential Emissions Leakage and the Regional Greenhouse Gas Initiative (RGGI), Final Report (March 2008), available at www.rggi.org/docs/20080331leakage.pdf
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than 90 percent of CO 2 allowances are distributed through auction, and more than 60 percent of cumulative investment of auction proce eds has been directed to DS

- EE. 115 While not a set

aside program per se, the basic concept is similar in that RGGI uses the proceeds from the auction of emission allowances to fund programs for DS

- EE and RE that are both complementary with the overall purpos e of the program (to reduce CO 2 emissions), and which also assist in ameliorating the leakage concern. The EPA is proposing that a unique set

- aside would be created for each state covered by a mass

- based federal plan. In the context of the proposed federal plan, t he EPA is proposing that it would create a unique set

- aside for each state covered by a mass

- based federal plan. Under a model rule, the state would create this set

- aside
. The allowances in each set

- aside would be reserved from each vintage of the assigned mass goal to that state prior to allocation of allowances to sources. The EPA is proposing that five percent of allowances will be reserved

115 RGGI, “Second Control Period CO 2 Allowance Allocation,” March 25, 2015. Available at www.rggi.org/docs/CO2AuctionsTrackingOffsets/Allocation/SCP_Allo wance - Allocation.pdf . RGGI, Investment of RGGI Proceeds through 2013, April 2015. Available at www.rggi.org/docs/ProceedsReport/Investment

- RGGI

- Proceeds

Through

- 2013.pdf
.***E.O. 12866 Review

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from the allocation for each state for the purpose of the set

aside. We are also requesting comment on opti ons for a percentage of allowances to be reserved ranging from 1 to 10 percent of total allowances in each state . The proposed percentage has been determined to provide a meaningful additional incentive for RE activities in each state, while assuring that the vast majority of allowances are freely allocated to affected EGUs . The EPA made this conclusion based upon d etermining an appropriate volume of set

- aside resources that, at a range of possible allowance prices, are projected to incent the development of additional RE projects
. The analysis is provided in the docket as part of the Allocations Allowance Allocation Proposed Rule TSD . We note that, under the proposed framework, these allowances would be available to affected EGUs either in the marketplace or through subsequent distribution of unclaimed set

- aside allowances, and thus the provision of these
set

- asides d o es not affect the overall stringency of the
program. In Sec. &&&, In section V.D.5 of this preamble , below , the EPA is proposing that the size of the RE set

- asides may grow over time as certain units shift out of the program. It is the agency’s intention that state s electing to submit a state allowance

- distribution methodology under the We***E.O. 12866 Review

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are proposing , as part of the mass

- based federal plan will have the flexibility to determine their allowance

- distribution method, and thus may determine whether to include a set

- aside and how such a set

- aside will be distributed if they choose to submit a state allowance

- distribution methodology. The allowance distribution methodology must still contain an allocation strategy to address leaka ge, unless the jurisdiction can make the justification that leakage is already addressed by existing policy , by unique characteristics of the jurisdiction or by some other aspect of their state plan
. We are proposing model rule, that a project is eligible t o receive set

- aside allowances if it is renewable energy ( RE ) that meets the eligibility requirements for rate

- based ERC issuance as specified in section IV.C of this proposal Sec. IV.C and preamble and section VIII .K of the final guidelines
Sec. VIII . K EGs . This includes, for example, the requirement that only capacity incremental to 2012 is eligible for the set

- aside. The agency is requesting comment on an additional potential condition that would limit eligibility to project providers that are also the owners or operators of affected EGUs . This approach has precedent in the eligibility requirements for the Acid Rain Program ARP set

- aside, and assures that would limit the entities eligible to receive set

- aside allowances are to t hose that are***E.O. 12866 Review

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subject to the federal plan. The EPA is proposing that eligible RE capacity must meet the following conditions regarding geographic eligibility
. for both the federal plan and model rule
. Eligible RE projects must be located 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. The EPA also proposes that the generation for which an entity receives allowances from the set

- aside would not be eligible for ERC issuance in rate

- based states. As specified in section IV. C of this preamble , the EPA is proposing that the same RE measures are eligible to receive set

aside allowances under a mass

- based federal plan as w ould be eligible for ERC issuance under a rate

- based federal plan
. and the model rule
. Specificall y, the following RE measures are eligible: on - shore w ind, solar photovoltaics (PV), concentrated solar power , geothermal power , and hydropower. The RE measure must also have the capacity to provide data quantified by a

revenue - quality meter, as described in the eligibility requirements for rate

- based ERC Issuance in Sec.IV.F.2 above. a requirement that is further discussed in section IV.D.8 of this preamble
. New nuclear units and capacity uprates at existing nuclear units are not proposed to be eligible to receive set

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aside allowances , as we do not think a set

- aside used as an incentive f or incremental nuclear capacity is a useful way to address lea kage to new sources during the performance period, due to unique costs and development timelines for incremental nuclear power
. All other proposed aspects of the RE eligible measure types described in section IV. C of this preamble and the requests for comment included within that section also apply in the mass

- based set

- aside context
. for both the proposed mass

based federal plan and the proposed mass

- based model rule
. For example, we are requesting comment on the inclusion of other RE

meas ures, incremental nuclear, demand

- side EE measures, CHP and any other technologies emission reduction measure s beyond those mentioned here, as long as they meet the eligibility requirements outlined in the final EGs for rate

- based crediting , as eligible measures to receive set

- aside allowance s . We particularly request comment on how a set

- aside to provide an incentive from these particular measures will serve to address leakage to new sources. We also request comment on the implications of th e inclusion of such technologies for the streamlined implementation of projection

- based EM&V requirements of the set

- aside specified below in a federal plan context across the applicable jurisdictions, while still maintaining necessary rigor . We request co mment on the appropriateness of***E.O. 12866 Review

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the biomass eligibility options treatment requirements offered for comment in Sec. section IV. F.2 C.3 of this preamble in the context of a mass - based set

- asid e context to address leakage
. . We request comment on requirements for the treatment of CHP and WHP, in the context of the mass

- based set

- aside
. We also request
comment on appropriate processes through which , after the federal plan is finalized, the EPA and/or stakeholders could make a demonstration of the appropriateness of new measure types and the EPA could evaluate and approve the demonstration so that a new measure type can be considered eligible for the set

- aside
. To demonstrate that an RE project meets the requirements proposed above, in the context of a mass

- based fed eral plan , it is proposed that the project proponent must provide the following: documentation of the nature of the project and that it meets eligibility requirements, documentation that it will be located within the state in question, and a projection of expected an nual megawatt

- hour MWh generation for an RE project. The EPA must approve the documentation of eligibility and the projection of megawatt

- hour s MWh before the project becomes eligible for a distribution of the set

- aside allowances. In addition, the proponent must register for a general account in the EPA tracking system where the allowances would be recorded. See section 40 CFR 62.16320 for the requirements to establish a***E.O. 12866 Review

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general account. While the EPA is proposing to allow eligible resources to use a general account to receive any allowances allocated under this section, the EPA requests comment on extending the designated representative provisions in section 40 CFR 62.16290 to eligible resources in stead of the general account provisions. Requiring eligible resources to submit information similar to that collected in the certificate of representation in section 40 CFR 62.16305 and to appoint a designated representative to act on behalf of all owners/o perators for all projects requesting allowances may improve the EM &V process by making the eligible resources more accountable. The EPA requests comment on what documentation would be required if other measure types were considered eligible to receive set

- aside allowances. We propose that the same process for approval of projects be applied in a model rule, with the state taking the approving role instead of EPA. The EM&V requirements for the mass

- based set

- aside differ from those for rate

- based ERC issuan ce, particularly because it is based upon projections provided prior to generation rather metered data provided after the generation occurs (though we are proposing that the projections will be checked against ex

- post metered data)
. The projection method e nables the distribution of
set

- aside allowances prior to the year during which the***E.O. 12866 Review

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generation occurs
. The EPA feels this still provides sufficient rigor because the set

- aside does not directly affect program stringency. The reason that stringency is not af fected is because of key differences between issuance of credits and distribution of set

- aside allowances. Under rate

- based implementation, each decision to issue an ERC based on a quantification of RE generation affects the ultimate amount of allowable CO 2 emissions , because the number of ERCs is determined by the amount of MWhs approved as eligible for ERC issuance
. and the ERC does not exist until the issuance decision is made
. Thus the amount of ERCs that are issued can affect the stringency of the rule. A s a result, the EPA has laid out specific requirements (including EM&V procedures) in the final CPP, and in this proposed federal plan and model rule , to assure the environmen tal reliability of measures qualifying for ERC recognition under rate

- based implementation. In contrast, any decision to recognize RE with set

- aside allowance allocations under a mass

- based approach does not affect the validity of the allowance itself and does not affect the CO 2 emissions outcome because the ultimate amount of allowable CO 2 emissions is determined by the total number of allowances initially created (regardless of how they are distributed). As a result, while the EPA believes it is reasonabl e to consider a minimum set of***E.O. 12866 Review

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qualifications for recognizing RE through these allowance set

asides to assure that the RE generation that is incented is actually produced , the EPA does not believe the overall integrity of mass

- based implementation is signi ficantly affected by the robustness of whatever eligibility requirements the EPA ultimately sets for RE recognition through allocation from these
set

- asides. This being said, the agency is proposing to require robust demonstrations of the eligibility and E M&V projections for RE generation submitted for the set

- aside, demonstrations that are based in the best practices of existing programs. This is necessary to assure the delivery of RE as a result of the
set

- aside. The EPA proposes that the projections of megawatt

- hours MWh provided will be the basis of the distribution of set

- aside allowances. A satisfactory demonstration of the future RE generation from an eligible project must use technically sound quantification methods that are reliable, replicable, and accompanied by underlying analytical assumptions and verifiable data sources used to demonstrate future performance. These methods, assumptions and data sources must be specified in documentation accompanying the projections. These projections and support ing documentation should all be provided in the set

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by a third

- party verifier. The EPA invites comment on these proposed requirements for projections. We also take comment on whether set

- asid es should be based on distributed proportional to actual megawatt

- hours MWh provided by the installation in a prior
year or compliance period, or another form of historical generation data. This type of allocation method could also be similar to the structur e proposed for the OBA set

- aside. We propose that the same projection

- based distribution basis be applied in a model rule, with the state taking the approving role instead of EPA. The EPA is proposing the following process for distribution of RE set

- aside allowances. Starting prior to the compliance period, and going forward through the compliance period , RE providers in each state will have an opportunity to apply to the EPA or a designated agent to be approved as eligible to receive
set

- aside al lowances in their state. This application must include all the requirements outlined above, including projections of expected megawatt

- hours MWh of generation. The EPA is proposing to accept RE set

- aside project application s up to a deadline of June 1 in th e year prior to the year during which the RE generation occurs (the “generation year”) . The EPA or its agent will review and approve the project as eligible and it will be entered into the pool of projects that will receive set

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asides in any compliance per iod . If approved, the number of projected megawatt

- hours MWh in each generation year will be the basis of the number of allowances the provider will receive , as an input to the methodology specified below . The providers will have an opportunity to update projections for future generation years, these projections must be received by June 1 of the year prior to the generation year in question. On December 1 of the year prior to each year of the compliance p eriod in question, the EPA is proposing to distribute allowances from the set

- aside to approved providers
. The agency is proposing to distribute set

- aside allowances to approved RE providers pro

- rata, with the number of allowances distributed to each provi der according to the percentage of total approved RE megawatt

- hours MWh for that state that the approved MWHs from their project represent. This method is proposed because it treats all eligible RE projects equally in the distribution of set

- aside allowance . It also inherently provides a more significant incentive in states with less eligible RE generation, but will become less significant as RE generation increases. We would also like to take comment on whether to restrict projects to a maximum number of al lowances they can receive per megawatt

- hour MWh of generation, such as 1 allowance per megawatt

- hour MWh
.***E.O. 12866 Review

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After each generation year, RE providers receiving allowances will have to provide an M&V report with the megawatt

hours MWh of RE generation actually produced, to assure that they have met the projected level of generation. These M&V reports need to document that the generation wa s by an approved project, and the report should be approved by a third party verifier. As discusse d in the rate

- based approach EM&V section above, these data should be readily available from existing metering. The EPA requests comment on the process for submitting M&V reports with actual generation
. If the project or program does not reach the megawat t

hours MWh projected in a particular generation year, the unfulfilled megawatt

- hours MWh will be subtracted from that RE provider ’s megawatt

- hours MWh eligible for the set

- aside in the
next generation year, or multiple years if the deficit exceeds the MWhs projected for the upcoming year. If this deficit is greater than 10 percent in a particular year, the provider will need to provide an explanation of the deficit and will be required to reevaluate their projections for future years. If such deficits conti nue through all three years of the any performance period in which they participate , the provider will be disqualified from receiving future set

- asides for the following compliance period. We also take comment on whether a***E.O. 12866 Review

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provider with continuing deficits should also be disqualified from receiving ERCs for some or all of the remaining performance periods. The agency requests comment on all of the specified aspects of this distribution process. The EPA is proposing that once allowances have been distributed to all approved providers, any remaining allowances in the set

- aside , such as set

- aside allowances designated for projects that no longer exist, will be redistributed to affected EGUs in the state in a pro rata fashion on the same distribution basis as their initial allocations were made. It is proposed that this will occur immediately after the distribution of set

aside allowances to eligible RE providers on December 1 of the year prior to the gene ration year in question. The EPA requests comment on this approach. We propose that the same distribution process as outlined above be applied in a model rule, with the state taking the approving role instead of EPA. The EPA is also seeking comment , in the context of the proposed rate

- based federal plan and model rule, on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities. This benefit could be in the form of MWh provided to the low

- income community, fi nancial proceeds from the project primarily benefiting the low

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community, or the project lowering utility costs of low

- income
rate

- payers. The EPA seeks comment on how a low

- income d community should be defined as eligible 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 the methods that are proposed to apply to other RE projects. The EPA seeks comment , in the context of the proposed rate

based federal plan and model rule, on all aspects of this proposed RE allowance set

- aside program, including whether it should be included as part of a mass

- based federal plan, the structure of the set

- aside reserve, eligibility requirements for receiving set

- aside allowances, demonstration of eligibility, and the process for distribution of allowances. 4. Provisi ons to Encourage Early A ction 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 located in or benefitting a state that are implemente d after September 6, 2018 and that generate zero

- emitting MWh or reduce energy demand in in 2020 and/or 2021 . These early action allowances would be drawn***E.O. 12866 Review

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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 e ach 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. 116 See Table 10 of this preamb le 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,

116 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 less than zero, the EPA proposes to assign such a state a set

- aside equal to one percen t of the state’s 2030 mass goal and adjust the remaining state set

- asides accordingly.***E.O. 12866 Review

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and 2024) for a total of 300 mill ion 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 10, only for those states for whom the EPA is implementing the mass

- based federal plan. The EPA also requests comment on other approaches for determining the size of this set

- aside in the mass

based federal plan. For the purposes of the mass

- based federal plan, the EPA is proposing to award early action allowances to two types of eligible
pr ojects installed after September 6, 2018 that are located in or benefit the state for which the EPA is implementing a federal plan:

• RE investments that generate metered MWh from any type of wind or solar resources; and

• Demand

- side EE programs and measures implemented in low

income communities that result in quantified and verified electricity savings (MWh)
. The EPA proposes the following framework to implement the CEIP in the mass

- based federal plan. First, the EPA pro poses to
create a set

- aside of early action allowances for all federal

- plan 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 im plementing a state plan or the agency is implementing a federal plan on its behalf.***E.O. 12866 Review

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This distribution would reflect each state’s pro rata share of a federal pool of additional ERCs

– based on the amount of the reductions from 2012 levels the affected EGUs in the state are required to achieve relative to those in the other participating
states 117

– which would be limited to the equivalent of 300 million short tons of CO 2 emissions. Thus, states whose EGUs have greater reduction obligations will 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 from eligible proje cts realized in 2020 and/or 2021 . The EPA intends that a portion of these matching allowances would be reserved for eligible wind and solar projects, and a portion would be reserved for eligible EE projects implemented in low

- income communities
. The agency recognizes that there have been historic economic, logistical and information barriers to implementing EE programs in these communities , and therefore believes it is appropriate to reserve a portion of the federal pool to incentivize investment in these p rograms . The EPA is requesting comment on the size of reserve of matching allowances for eligible low

- income EE programs as well as for eligible wind and solar projects. The EPA

117 This is the same distribution method proposed above for the allocation of early action set

- aside allowances to mass

- based federal plan states.***E.O. 12866 Review

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is proposing that unused allowances in either reserve would redistributed amon g participating states. This redistribution could be executed according to the pro

- rata method discussed above. Alternatively, unused matching EE or RE allowances could be swept back into a federal pool and distributed to project providers on a first

- come, first served basis. EPA requests comment on these ideas as well as alternative proposals regarding the method for redistributing matching ERCs, as well as the appropriate timing for such a redistribution. Following the effective date of a federal plan fo r a state, the agency will create an account of matching allowances for the state that reflects the pro rata share of the 300 million short
ton CO 2 emissions

- equivalent matching pool that the state is eligible to receive. Any matching allowances that remai n undistributed after September 6, 2018 118 will be distributed to those states with approved state plans that include requirements for CEIP participation, as well as to those states on whose behalf EPA is implementing a federal plan. These allowances will be distributed according to the pro rata method outlined above. Unused matching allowances that remain in the accounts of states participating in the CEIP on January 1, 2023, will be retired by

118 This may occur because not all states may elect to include requirements for CEIP participation in their state plans.***E.O. 12866 Review

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the EPA. The EPA seeks comment on whether the number of matching allowances available to a state under the mass

- based 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 set

aside. 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/or 2021 :

• For RE projects that generate meter ed MWh from any type of 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 f rom the EPA.

• For EE projects implemented in 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 all owances equivalent to two MWh from the EPA. The EPA will address implementation details of the CEIP in a***E.O. 12866 Review

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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. 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 of this preamble, the EPA proposes to allow any state where a federal plan is being implemented to take responsibilit y for distributing allowances to affected sources. This will allow a state to tailor its allowance

distribution approach to the characteristics and preferences of the state. The EPA proposes that 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 of the final EGs. The EPA intends that such a state would have the same flexibilities as a state implementing a full state plan with respect to implementatio n of the CEIP. That is, the state would not be required to implement a set

- aside of the same size as proposed in Table 10 of this preamble, but rather could choose how many of its allowances to set

- aside for the CEIP.***E.O. 12866 Review

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The EPA requests comment on all aspec ts 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 implemented in low

income communities; (6) the mechanism for re viewing project submittals and issuing early action allowances; (7) EM&V requirements for eligible projects; and, (8) the number of early action and matching allowances that should be awarded for each ton of emissions reduced from eligible generation or lo w - income efficiency projects to ensure a robust response to the program. The EPA also seeks comment on how states, tribes and territories for whom goals have not yet been established in the final EGs may be able to participate in the CEIP in the future. Th e 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.***E.O. 12866 Review

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**Table 10. Proposed Clean Energy Incentive Program Early Action Allowance**  **Set -**  **Aside in the**  **Mass -**  **Based Federal Plan (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***E.O. 12866 Review

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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

5. Allocations to U nits that C hange S tatus Units that retire. The EPA proposes that, if an affected EGU does not operate for two consecutive calendar years, the unit would continue to receive allocations for a limited number of years after it ceases operation , after which the allo wances that would otherwise have been allocated to that unit would be allocated to the renewable energy RE set

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which the retired unit is located
. 119 Continuing allocations to

non - operating units for a period of time reduc es the incentiv e to keep a unit operating simply to avoid losing the allowance allocations for th at unit ( e.g., a unit that would otherwise be retired due to age and inefficiency). On the other hand, non

operating units are no longer emitting and so do not need allowances. The EPA believes that the proposed approach of allocating allowances for a specified , but limited , period after a unit ceases operating is a reasonable middle ground approach. The proposed approach also allows the renewable energy RE set

aside s to grow over time. The EPA proposes to record allowances for each year of a multi

- year compliance period at once , seven 7 months prior to the start of each compliance period , as discussed above. The agency proposes that, if an affected EGU does not operate for two full calendar years, then starting with the next compliance period for which allowances have not yet been recorded, the allowances that would otherwise have been allocated to the unit wo uld be allocated to the renewable energy RE set

- aside. As a result, the

119 This is similar to the approach taken in CSAPR of continuing allocations to retired units for four years and then allocating the allowa nces to a set

- aside; in CSAPR the set

- aside is for new units.***E.O. 12866 Review

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number of years of non

- operation for which a retired unit would receive allocations would var y depending on when a unit retire s . For example, if an affected EGU does not operate for the first
two calendar years of a three 3

- year compliance period , then starting with the next compliance period the allowances that would otherwise have been allocated to that unit would be allocated to the renewable energy RE set

- aside

— in other words the unit would receive allocations f or three 3 years of non

operation
. As a further example, if an affected EGU does not operate for both calendar years of a two 2

- year compliance period, then starting with the compliance period after the next compliance period the allowances would be allocated to the renewable energy RE set

- aside

— in other words the unit would receive allocations for four 4 years of non

- operation. The agency requests comment on this approach for treatment of allocations to affected EGUs that reti re, including on the number of years of non

- operation for which a unit would continue to receive allocations. The EPA also requests comment on an alternative of distribut ing such allowances to the set

- aside for output

- based allocations, or to the remaining affected EGUs in the state in a pro - rata fashion (on the same distribution basis as the initial allocations were made) , instead of allocating such allowances to the state’s renewable energy RE set

- aside
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agency requests comment on a further al ternative approach, which would be to continue allocations to the retired unit s . The EPA also requests comment on treatment of allocations to units that are in long

- term cold storage. The EPA also requests comment on approaches that might consider extending the period for which a retired unit continues to receive allocations to address (&&&). Units that are modified or reconstructed
. Similar to the approach for an affected EGU that retires, the EPA proposes that, if a unit is modified or reconstruct ed such that it is no longer an affected EGU, then starting with the next compliance period for which allowances have not yet been recorded, the allowances that would otherwise have been allocated to the unit would be allocated to the renewable energy RE se t

- aside. The EPA requests comment on this proposed approach , including on the number of years for which a unit would continue to receive allocations . The agency also requests comment on an alternative of distributing such allowances to the set

- aside for ou tput

based allocations, or to the remaining affected EGUs in the
state in a pro

- rata fashion (on the same distribution basis as the initial allocations were made), instead of allocating such allowances to the state’s renewable energy RE set

- aside . The agency requests comment on a further alternative approach, which***E.O. 12866 Review

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would be to continue allocations to the modified or reconstructed units.
E. State

- determined Allowance Distribution The EPA proposes to allow any state to replace the EPA

determined federal

- pla n allowance

- distribution provisions in the

mass - based trading program with state

- developed allowance

distribution provisions. In this way, a state c ould choose how to distribute initial allowance allocations among its affected EGUs (and other entities). The EPA believes that this option may offer significant appeal, because it will allow a state to tailor its allocation approach to the characteristics and preferences of the state. A state would be able to design its allocation approach to address its part icular state priorities, whether they are protecting low

- income consumers, supporting local industries, or other goals. The EPA anticipates that a state would have great flexibility in its allowance distribution approach and could take advantage of allocat ion options discussed in this proposal as well as other allocation options a state might prefer. States could auction allowances and rebate the revenue to consumers, or allocate all allowances to load

- serving entities, while mandating that the value be pas sed through to vulnerable consumers. The EPA believes that the state

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approach offers significant advantages and solicits comment on how to ease its application by states. This is similar to the approach taken in the Cross

- state Air Po llution Rule ( CSAPR ) and Clean Air Interstate Rule ( CAIR ) where the EPA adopted rule s allowing states to submit state implementation plans ( SIPs ) with provisions replacing the allowance

- distribution provisions in the CSAPR or CAIR FIPs, respectively, while remaining in the trading programs under those FIPs (76 FR 48208; August 8, 2011 , 71 FR 25328; April 28, 2006 )
. In both CSAPR and CAIR, some states have chosen to determine their own allocations under the
FIPs. This form of SIP that can replace the allowan ce distribution provisions in CSAPR or CAIR is termed an “abbreviated SIP revision.” In this proposed mass

- based trading federal plan, t he EPA proposes that a state may choose to submit
a “state allowance

- distribution methodology” (analogous to an abbrevia ted SIP revision ) to replace the federal

- plan allowance

distribution provisions with allowance

- distribution provisions of its choosing. The mechanism the agency envisions is in the nature of a partial state plan or (for any future changes in a state’s all ocation methodology) a partial state plan revision. (We request comment below on the advantages and disadvantages of allowing a state to handle allocations via a delegation of***E.O. 12866 Review

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federal plan authority.) In general, under the proposed approach, the procedural requirements states and the agency must follow, including public notice requirements, for the submission and approval of state plans, would be required here. The EPA intends to provide the states with substantial flexibility in choosing a pproach es to distribute their allowances in a state allowance

- distribution methodology. The
EPA proposes that a state may choose any approach , including auctions or other methods the EPA is not proposing here , provided the state’s approach addresses leakage and also im plements the Clean Energy Incentive Program . The EPA is also requesting comment on any other appropriate constraints to impose on state allowa nce - distribution methodologies. The Clean Power Plan EGs require mass

- based state plans to include a demonstration that they have addressed the risk of leakage , and the EGs provide several options for doing so ( Clean Power Plan EGs, section see section s VII.D and VIII. L J of the final EGs ) . One of the options provided in the EGs is to address leakage through an allowance distribution approach that provides incentive to counteract leakage
. In the mass

- based trading federal plan , t he EPA’s proposed approach to allocate allowances would addr ess leakage using two a llowance set

- asides, one for output based allocation and one for renewable energy RE projects,***E.O. 12866 Review

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as detailed in section V.D.3 of this preamble . The EPA believes that a state allowance

- distribution methodology, which would replace the federal

- plan allocation provisions , must also address leakage. The EPA proposes that a state allowance

distribution methodology must address leakage by providing incentive to counteract leakage, e.g., by including allowance
set

- asides like the output

- based allocation and RE set

- a sides detailed in section V.D.3 of this preamble , or other allocation approaches designed to counteract leakage
. The EPA requests comment on this proposed approach for addressing leakage in a state allowance

- distribution methodology and on any other
approa ches for doing so
. The EGs provide an additional option for state plans to address leakage, where a state would provide a demonstration that leakage will not occur (without implementing any of the strategies specified in the EGs) due to specified character istics of the state ( Clean Power Plan EGs , section VIII. L J of the final EGs ) . In this federal plan proposal, t he 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 specifi c characteristics of the state ; the EPA proposes that such demonstration must meet***E.O. 12866 Review

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the requirements in the final EGs, including support by credible analysis, for such a demonstration (see final EGs section VII.D)
. The EPA notes that a state’s allowance

- distribution methodology may also include other set

- aside approaches that are not designed to counteract leakage
. The Clean Power Plan EGs provide for established a Clean Energy Incentive Program ( section VIII in of the final EGs). The EPA proposes that a state allowance

- distribution methodology, which would replace the federal

- plan allocation provisions, must also include a Clean Energy Incent ive Program , as detailed in section V.D.4 of this preamble
. Under the proposed approach of providing for states to determine their allowance distribution approaches in the federal plan mass - based trading program, the affected EGUs in a state that submitted a state allowance

- distribution methodology , which the EPA approved, would participate in the federal plan mass based trading program, but with allowance distribution determined by the state instead of by the EPA. The EPA proposes that a state must submit to the Administrator tables specifying the unit

- level allowances in an electronic format specified by the Administrator and by the specified deadlines appli cable to each compliance period (see Table &&& 11 of this preamble for proposed submission deadlines).***E.O. 12866 Review

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The EPA proposes that a state may submit a state allocation methodology for any compliance period , including the first compliance period , which would comprise the years 2022 , 2023 , and 2024 . The EPA proposes that a state submitting a state allo wance - distribution methodology to modify the federal plan allowance

- distribution provisions must do so for all years within a compliance period ( e.g., for all three 3 years in a
t hree 3

- year compliance period ). The EPA proposes that, if the state’s allowance

distribution provisions meet certain requirements and the state allowance

- distribution methodology does not change any other provisions in the proposed mass

- based trading program, then the agency would likely approve the state allowance

- distribut ion methodology . In the state allowance distribution methodology , the state could distribute allowances to affected EGUs or other entities (such as renewable energy RE facilities) or could auction some or all of the allowances. The agency proposes that for EPA approval, the state allowance

- distribution meth o dology provisions would have to meet the following requirements. The provisions would have to address leakage as d iscussed above. T he provisions would have to provide that, for each year for which the state allowance

- distribution provisions would apply, the total amount of allowances distributed could not exceed the***E.O. 12866 Review

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applicable mass goal for that state for that year . A state’s methodology under this proposed approach could provide that the total amount of allowances distributed is less than the applicable mass goal
. 120 The EPA proposes that a state’s allowance

- distribution provisions would replace the EPA’s allocation pro visions completely

– a state would not have the option of implementing only a portion of its allocations ( e.g., only set

- asides) and having the EPA implement the remainder of its allocations. Additionally, the EPA proposes that a state allowance

- distribution methodology must provide for allowances to be issued in short tons . The allocation (or auction) of allowances would be final and could not be subject to modification. Additionally , the
state ’s provisions could not change any ot her provisions of the proposed mass

- based trading program with regard to the allowances ( e.g., the deadlines for allocation recordation, or requirements for transfer or use of allowances) or any other aspect of such trading programs.

120 A state allowance

- distribution methodology under this proposed approach, which is analogous to an abbreviated SIP revision, could provide that the total amount of allowances distributed is les s than the applicable mass goal, pursuant to the reserved authority to states to set emission standards more stringent than federal standards under CAA section 116.***E.O. 12866 Review

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In order for a state allowance

- distribution methodology’s provisions to replace the EPA’s allowance

- distribution provisions for a given compliance period , a state would have to submit the state allowance

- distribution methodology by a deadline that would provide the agency sufficient time to review and approve it , and to submit the allowance table meeting the specified electronic format by a deadline that would provide sufficient time to record the unit

- by

- unit allowances in sourc e accounts . The EPA believes that about twelve 12 months

— starting from the date of receipt of a state allowance

- distribution methodology

— is sufficient to complete the agency’s review and approval process, which would have to provide an opportunity for public comment on the approval (or disapproval) action. Thus, the EPA proposes the following deadlines, in Table &&& , 11 of this preamble , for submission to the agency of state allo wance distribution methodologies and unit

- level allowances , and for the EPA ’s recordation of allowances, for each compliance period
. The EPA would review and approve state allowance

- distribution methodologies in the twelve 12 months between the proposed deadline for states to submit their methodologies and the proposed deadline for states to submit unit

- level allowance tables. The proposed deadline for submission of allowance tables is three 3 months before the proposed deadline for the agency to***E.O. 12866 Review

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record allowances in source accounts. The EPA proposes to record allowances in source accounts by the recordation deadlines.

**Table** &&&. **11**
. **Proposed Deadlines for Submission of**  **S tate**  **Allowance -**  **Distribution Methodologies**  **and Unit**  **- Level**  **Allowances and for**  **Recordation**

**First c**  **ompliance period**  **for which a**  **llowances would be**  **d istributed**  **Deadline for s**  **ubmittal of s**  **tate a**  **llowance**   ** d** **istribution m**  **ethodologies Deadline for**  **s ubmittal of**  **u nit**  **** **level a**  **llowance t**  **able Deadline for**  the **EPA to r**  **ecord a**  **llowances**
2022, 2023, 2024 March 1, 20 20 March 1, 202 1 June 1, 202 1 2025, 2026, 2027 March 1, 202 3 March 1, 202 4 June 1, 202 4 2028, 2029 March 1, 202 6 March 1, 202 7 June 1, 202 7 2030, 2031* March 1, 202 8 * March 1, 202 9 * June 1, 202 9 * *This pattern of deadlines would hold for successive two 2

- year compliance periods.
The proposed deadlines for submission of state allowance

distribution methodologies are later than the state plan submission deadlines promulgated in the Clean Power Plan E Gs. The agency anticipates that it can complete the approval process relatively quickly for a state allowance

- distribution methodolog y due to its narrow scope. The agency proposes to record the EPA

- determined federal plan allocations only in the absence of an approved state plan or approved state allowance

- distribution methodology. The EPA proposes to record in source accounts allowances that are determined by any state as soon as feasible after approval of a state allowance

- distribution methodology and submission of the unit

- level allowance table, and not to wait until the allowance***E.O. 12866 Review

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recordation deadline to do so. In section V.D.2 of this preamble , the EPA proposes the al lowance recordation deadline seven 7 months prior to the start of the compliance period ( i.e., June 1 of the prior year) and also requests comment on a recordation deadline thirteen 13 months prior to the start of the compliance period ( i.e., December 1 of the year two 2 years before the compliance period starts). If the EPA adopted the earlier recordation deadline on which it requests comment or any other deadline , then we would adjust the deadlines for submission of state allowance

distributi on methodologies and submission of unit

- level allowance tables accordingly. The EPA proposes that a state may not replace EPA

determined allocations for a compliance period for which federal plan allocations have already been recorded , for the same

reason s that the agency proposes that a state may not replace a

mass - based trading federal plan with a state plan for a future compliance period for which allowances have already been recorded, as discussed below in section V.F . of this preamble
. The agency requests comment on the proposed approach to allow states to determine allocations via state allowance

distribution methodologies and replace the federal

- plan allowance

- distribution provisions. The EPA requests comment on***E.O. 12866 Review

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the proposed schedule f or submitting state allowance distribution methodologies to the agency, for submitting the resulting unit

- level allowance tables to the agency, and for the agency to record allowances
. The EPA requests comment on its proposed approach of not replacing EPA

- determined allocations for a compliance period for which allowances have already been recorded. The agency also requests comment on an alternative approach where a state could notify the EPA of its intent to submit a state allowance

- distribution methodology in advance, in which case the agency would hold off on recording EPA

- determined allocations to allow more time for state

- determined allowances to be recorded, similar to the alternative timing approach discussed in section V.F of this preamble
. The EPA is also requesting comment on an alternative approach to p rovide the opportunity for a state to determine its allowance

- distribution provisions in the federal plan mass

- based trading program. The alternative approach on which the agency requests comment is to provide for a partial delegation of the federal plan

– limited to the allowance

- distribution provisions

– to a state that wishes to determine its allowance

- distribution provisions. The EPA requests comment on the relative efficiency and ease of implementation of the two approach es ( the state allowance

- distribution methodology described above , or the***E.O. 12866 Review

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partial delegation ) . The agency requests comment on whether the partial delegation approach would provide sufficient flexibility for a state to choose any method to distribute its allowances including approaches that the EPA is n o t proposing here. See further discussion of delegations in section VI in of this preamble.
F. Treatment of State s Entering or Exiting the Trading P rogram If the EPA implem ents a mass

- based trading program federal plan for any state , the agency will work with a state that wishes to replace the federal plan with an approved state plan to provide a smooth transition. The EPA proposes that a mass

based trading federal plan coul d only be replaced by a state plan for a future compliance period for which allowances have not yet been recorded. For example, if a three 3

- year compliance period comprises 2022, 2023, and 2024, the EPA would record allowances in source accounts for 2022, 2023, and 2024 prior to 2022. Once 2022, 2023, and 2024 allowances had been recorded, the first compliance period for which a state could replace the federal plan with its own plan would be for the period commencing in 2025. The EPA is proposing this stipulation for the timing of replacing a federal plan with a state plan due to the need to avoid disruption to sources already subject to the

mass - based trading feder al plan. Without this stipulation, a***E.O. 12866 Review

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state might withdraw from the mass

- based trading program in the middle of a compliance period even though allowances that authorize emissions throughout that entire compliance period would already be in circulation. In that circumstance, the EPA would then need to address whether and how to remove those allowances from circulation to prevent inflation of the allowable emissions at affected EGUs in the remaining states subject to the federal plans beyond the levels specif ied in the Clean Power Plan EGs. The EPA believes it is more reasonable to avoid this potential disruption by requiring that the replacement of a federal plan with a state plan be scheduled to coincide with the conclusion of the last compliance period for which allowances under the federal plan have already been recorded for that state. 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 o f not replacing a federal plan for any compliance period for which allowances were already recorded. The agency requests comment on an alternative of providing for a state to give notice to the EPA of its intent to submit a state plan to replace the federa l plan (or a state allowance

distribution methodology to replace federal

- plan allocations) , and for the agency to delay recording federal

- plan allocations***E.O. 12866 Review

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for sources in that state until a later date than proposed . The EPA requests comment on whether this alternative would help smooth the transition from federal

- plan implementation to state

plan implementation, and on the trade

- off between recording allowances in a timely way and providing this increased timing flexibility.
G. Allowance T racking , C ompliance O p erations , and P enalties The EPA proposes that the mass

- based trading program use an allowance tracking and compliance system (ATCS) operated essentially the same way as the existing systems that are currently in use for Cross State Air Pollution Rule ( CSA PR ) and the Acid Rain Program ( ARP ) under Title IV
. Under the proposed

mass - based trading program, the CO 2 program would be a separate trading program maintained in the EPA’s existing data system. ATCS would be used to track the trading of CO 2 allowances held by covered affected EGUs in facility level compli ance accounts , as well as such allowances held by other entities or individuals. Specifically, ATCS would track the allocation of all CO 2 allowances, holdings of CO 2 allowances in compliance accounts ( i.e., a fac ility level account for al l affected EGUs at the facility ) and general accounts ( i.e., accounts for other entities such as companies and brokers), deduction of CO 2 allowances for compliance purposes, and transfers of allowances***E.O. 12866 Review

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betwee n accounts. The primary role of ATCS is to provide an efficient, automated means for affected EGUs to comply, and for the EPA to determine whether affected EGUs are complying, with the emissions limitations and any other requirements of the

mass - based trad ing program. ATCS would also provide data to the allowance market and the public, including a record of ownership of allowances, dates of allowance allocations, allowance transfers, buyer and seller information, serial numbers of allowances transferred, emissions, and compliance information. This information would be publicly available on the EPA’s W eb site and in annual progress reports. 1. Designated Representatives and Alternate Designated Representatives This s ection would Th e EPA proposes to establish the procedures for certifying and auth orizing the designated representative, and alternate designated representative, of the owners and operators of an affected EGU and for changing the designated representative and alternate designated representative. These sections would also describe the de signated representative’s and alternate designated representative’s responsibilities and the process through which he or she could delegate to an agent the authority to make electronic submissions to the Administrator. These provisions***E.O. 12866 Review

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would be patterned a fter the provisions concerning designated representatives and alternates in prior EPA

- administered trading
programs. The designated representative would be the individual authorized to represent the owners and operators of each affected EGU in matters per taining to the mass

- based trading program. One alternate designated representative could also be selected to act on behalf of, and legally bind, the designated representative and thus the owners and operators. Because the actions of the designated represen tative and alternate would legally bind the owners and operators, the designated representative and alternate would have to submit a certificate of representation certifying that each was selected by an agreement binding on all such owners and operators an d was authorized to act on their behalf. The designated representative and alternate would be authorized upon receipt by the Administrator of the certificate of representation. This document, in a format prescribed by the Administrator, would include: spe cified identifying information for the affected EGU and for the designated representative and alternate; the name of every owner and operator of the affected EGU ; and certification language and signatures of the designated representative and alternate. All submissions ( e.g., monitoring***E.O. 12866 Review

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plans, monitoring system certifications, and allowance transfers) for a n affected EGU would have to be submitted, signed, and certified by the designated representative or alternate. Further, upon receipt of a complete certif icate of representation, the Administrator would establish a compliance account in the ATCS for each facility with an affected EGU involved. In order to change the designated representative or alternate, a new certificate of representation would have to b e received by the Administrator. A new certificate of representation would also have to be submitted to reflect changes in the owners and operators of the affected EGU involved. However, new owners and operators would be bound by the existing certificate o f representation even in the absence of such a submission. In addition to the flexibility provided by allowing an alternate to act for the designated representative ( e.g., in circumstances where the designated representative might be unavailable), additio nal flexibility would be provided by allowing the designated representative and alternate to delegate authority to make electronic submissions on his or her behalf. The designated representative and alternate could designate agents to submit electronically certain specified documents. The***E.O. 12866 Review

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previously

- described requirements for designated representatives and alternates would provide regulated entities with flexibility in assigning responsibilities under the mass

- based trading program, while ensuring accountab ility by owners and operators and simplifying the administration of the proposed mass

- based trading program. 2. Allowance Tracking and Compliance System The mass

- based trading program rules would establish the procedures and requirements for using and opera ting the Allowance Tracking and Compliance System (which is the electronic data system through which the Administrator would handle allowance allocation, holding, transfer, and deduction), and for determining compliance with the allowance

- holding requireme nts in an efficient and transparent manner. The ATCS would also provide the allowance markets with a record of ownership of allowances, dates of allowance transfers, buyer and seller information, and the serial numbers of allowances transferred. Consistent with the approach in prior EPA

administered trading programs, allowance price information would not be included in the ATCS
. The EPA’s experience is that private parties ( e.g., brokers) are in a better position to obtain and disseminate timely, accurate a llowance price information than is the EPA. For example, because not all***E.O. 12866 Review

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allowance transfers are immediately reported to the Administrator for recordation, the Administrator would not be able to ensure that any reported price information associated with th e transfers would reflect current market prices. 3. Compliance and General Accounts This section describes two types of Allowance Tracking and Compliance system accounts: Compliance accounts, one of which the Administrator would establish for each facility with an affected EGU upon receipt of the certificate of representation for the facility ; and general accounts, which could be established by any entity upon receipt by the Administrator of an application for a general account. A compliance account would be the account in which any allowances used by an affected EGU for compliance with the em issions limitations would have to be held. The designated representative and alternate for the affected EGU would also be the authorized account representative and alternate for the compliance account. Using facility

- level, rather than electric generating unit EGU

- level accounts, would provide owners and operators more flexibility in managing their allowances for compliance, without jeopardizing the environmental goals of the mass

- based trading program, because the facility

- level approach would avoid situati ons where an EGU would hold insufficient allowances and would be in violation of***E.O. 12866 Review

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allowance

- holding requirements even though EGUs at the same facility had more than enough allowances to meet these requirements for the entire facility
. Facility

- level complia nce would also be consistent with other EPA

- administered mass - based trading programs. General accounts could be used by any person or group for holding or trading allowances. However, allowances could not be used for compliance with emissions limitations so long as the allowances were held in, and not properly and timely transferred out of, a general account. To open a general account, a person or group would have to submit an application for a general account, which would be similar in many ways to a cer tificate of representation. The application would include, in a format prescribed by the Administrator: the name and identifying information of the individual who would be the authorized account representative and of any individual who would be the alterna te authorized account representative; an identifying name for the account; the names of all persons with an ownership interest with respect to allowances held in the account; and certification language and signatures of the authorized account representativ e and alternate. The authorized account representative and alternate would be authorized upon receipt of the application by the Administrator. The provisions for***E.O. 12866 Review

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changing the authorized account representative and alternate, for changing the application to take account of changes in the persons having an ownership interest with respect to allowances, and for delegating authority to make electronic submissions would be analogous to those applicable to comparable matters for designated representatives and alte rnates. 4. Recordation of Allowance Allocations and Transfers By J une 1, 2021 , the Administrator would record allowance allocations for electric generating units EGUs for 20 22 through 20 24
. Then, b y June 1 of the year prior to the beginning of each compliance period , the Administrator would record the allowance allocations for the proposed mass

- based trading program for each
year within th at next compliance period , e.g., for 2 0 25, 2026, and 2027 by June 1, 202 4
. Recording these allowance allocations in advance of the first year for which they could be used for compliance would facilitate compliance planning by owners and operators and promote robust allowance markets, including futures markets for allowances. The process for transferring allowances from one account to another would be quite simple. A transfer would be submitted providing, in a format prescribed by the Administrator, the account numbers of the accounts involved, the serial numbers of the allowan ces involved, and the name and signature of the***E.O. 12866 Review

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transferring authorized account representative or alternate. If the transfer form containing all the required information were submitted to the Administrator and, when the Administrator attempted to record th e transfer, the transferor account included the allowances identified in the form, the Administrator would record the transfer by moving the allowances from the transferor account to the transferee account within 5 business days of the receipt of the trans fer form. 5. Compliance with Emissions Limitations Once the compliance period has ended ( e.g., at midnight on December 31, 2024 for the first compliance period ) , facilities with affected EGUs would have a window of opportunity following the compliance perio d to evaluate their reported emissions and obtain any allowances that they might need to cover their emissions during the c ompli ance period . For example, the allowance transfer deadline for the first compliance period would be midnight on May 1 , 2025 (the EPA is also requesting
comment on earlier or later allowance transfer deadline s )
. Each allowance issued in the proposed mass

- based trading program would authorize emission of one t on of CO 2 and so would be usable for compliance, for the compliance period that includes the year for which the allowance was allocated or a later c ompliance period. Consequently, each affected EGU would need , as of the***E.O. 12866 Review

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allowance transfer deadline , to have in its facility compliance account, or to have a properly submitted trans fer that would move into its compliance account, enough allowances usable for compliance to authorize its total emissions for the co mpliance period. The authorized account representative could identify specific allowances to be deducted, but, in the absenc e of such identification or in the case of a partial identification, the Administrator would deduct on a first

- in, first

- out basis. Deducting allowances may have tax and accounting implications, so h aving a default deduction method provi des the representat ives with certainty regarding which allowances will be deducted for compliance. Allowances th at are deducted for compliance will remain in the system in an EPA account, which ensures they will not be used again. If a facility were to fail to hold sufficient allowances for compliance by all affected EGUs at the facility , then the owners and operators of the facility and each affected EGU at the facility would have to provide, for deduction by the Administrator, two allowances allocated for the co mpl iance period in the next year for every allowance that the owners and operators failed to hold as required to cover emissions. This submittal of two t imes the allowances required for the prior period is an ongoing obligation until compliance is achieved, a nd there is an ongoing***E.O. 12866 Review

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obligation to comply in the current period. In addition, the se owners and operators would be subject to civil penalties for each violation in accordance with the Clean Air Act C AA , with each ton of unauthorized emissions and each day of the

co mpliance period involved constituting a violation of the CAA . The EPA believes that it is important to include a requirement for an automatic deduction of allowances. The deduction of one allowance per allowance that the owners and operators fail ed to hold would offset this failure. The automatic deduction of another allowance per allowance that the owners and operators failed to hold that could not be avoided, regardless of any explanation provided by the owners and operators for their failure, w ould provide a strong incentive for compliance with the allowance

- holding requirement by ensuring that non

- compliance would be a significantly more expensive option than compliance. Such automatic deductions have been successfully used in prior programs in cluding the Clean Air Interstate Rule CAIR , achieving compliance rates close to 100 percent. 6. Other Allowance Tracking and Compliance Operations Provisions These sections also would provide that the Administrator could, at his or her discretion and on his or her own motion, correct any type of error that he or she finds in an account in***E.O. 12866 Review

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the Allowance Tracking and Compliance System. In addition, the Administra tor could review any submission under the mass

- based trading program, make adjustments to the information in the submission, and deduct or transfer allowances based on such adjusted information. These provisions are a standard part of other trading program s administered by the EPA including the Acid Rain Program ARP and Cross State Air Pollution Rule ( see 40 CFR §§ 72.96, 73.37, 97.427, and 97.428).
H. Emissions M onitoring and R eporting R equirements The EPA proposes that units subject to the mass

- based federal plan trading program would monitor and report CO 2 mass emissions in accordance with 40 CFR part 75
. The EPA is proposing to require affected EGUs in all states covered by the mass

- based federal plan trading program to monitor and report CO 2 emissions and output data by January 1, 2022
. Quarterly reporting would be required, with each quarterly report due to the Administrator 30 days after the last day in the quarter. The reporting would be in accordance with 40 CFR
p art 75.60. The use of p art 75 certif ied monitoring methodologies would be required. Many EGUs that might be covered by the proposed federal plans will generally have no changes to their monitoring and reporting requirements and will continue to monitor and submit reports under p art 75 as the y have under***E.O. 12866 Review

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existing programs. The EPA anticipates fewer than 50 affected EGUs that would not otherwise be subject to the Acid Rain Program ARP will have to purchase and install additional CEMS and data handling systems or upgrade existing equipment in order to meet the monitoring and reporting requirements of this program ( the EPA anticipates approximately 10 coal fired units and approximately 4 0 gas and oil fired units will qualify for an excepted monitoring methodology)
. Several of the units not otherwise subject to the Acid Rain Program ARP are subject to the
MATS program and , therefore , will have already installed stack flow rate and / or CO 2 mo nitors necessary to comply with this rule in order to comply with the MATS
. The CEMS used to comply and report data for MATS will be used for this rule to generate and report CO 2 emissions data without having to install duplicative monitors. The same CO 2 and stack gas flow rate monitored data used in conjunction with Hg mercury and other CEMS to calculate a toxic pollutant emission rate may be used to calculate a CO 2 mass or CO 2 emission rate for this program
. RGGI, ARP, MATS and this rule all refer to CEMS installed and certified in accordance with 40 CFR part 75. RGGI and ARP currently require the reporting of CO 2 mass emissions on an hourly basis and cumulative totals at the end of each calendar quarter
. The same monitors and data collected may be used fo r multiple purposes for RGGI,***E.O. 12866 Review

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ARP, MATS and this rule
. Relying on the same monitors that are certified and quality ensured in accordance with 40 CFR part 75 ensures cost efficient, consistent, and accurate data that may be used for different purposes for m ultiple regulatory programs. The majority of the units covered by this rule are already affected by the Acid Rain and / or Regional Greenhouse Gas Initiative RGGI programs and will have minimal additional monitoring and reporting requirements. 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. Only the monitoring and reporting would be required in 2021

— co mpliance with the requirement to hold allowances would commence on the compliance period schedule that is detailed in section V.C of this preamble
.

**VI. Implementation of the**  **F ederal**  **P lan**  **and Delegation** Under section 111(d) of the CAA, the EPA adopts Emission Guidelines (EG) EG s that are then implemented when the EPA approves a state or tribal 121 plan or promulgates a federal plan

121 AS discussed in (citation) tribes with EGU in their areas of Indian country can apply for TAS for the purpose of developing and seeking EPA approval of a tribal implementation plan (TIP)***E.O. 12866 Review

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that implements and enforces the EG EG s for affected EGUS in
states or areas of Indian country 122 without an approved state or tribal plan . Congress has determined that the primary responsibility for air pollution prevention and control rests with state and local agencies, while also recognizing that “Federal ... leadership is essential for the development of cooperative Federal, State, region al, and local programs to prevent and control air pollution.” (See section 101(a)(3) and (4) of the CAA.) Congress has also provided for Indian T ribes meeting specified eligibility criteria to implement the Clean Air Act C AA within the exterior boundaries of their reservations or other areas within the tribe’s jurisdiction. (See section 301(d)(1) and (2) of the CAA.) Even in the event that it becomes necessary for the EPA to directly regulate affected EGUS under CAA section 1 11(d), states and eligible tribes may still seek a delegation of authority from the EPA to implement a federal plan, similar to the ability to take delegated authority under other CAA programs. The EPA encourages states and eligible tribes that do not subm it approvable plans to request delegation
implementing the EG, but are not required to do so. 122 As discussed in detail in (citation), in adopting a federal plan implementing the EG s in areas of Indian country containing EGU, the EPA must determine that such a plan is “necessary or appropriate” to protect air quality. See, 40 CFR 49.11(a).***E.O. 12866 Review

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of the federal plan if they wish to have primary responsibility for implementing the EG. Approved and effective state or tribal plans or delegation of the federal plan is the EPA’s preferred outcome in many circums tances where the EPA believes that state and local , or tribal, agencies have practical knowledge and enforcement resources critical to achieving the highest rate of compliance. Legally, delegation of a standard or requirement means that obligations a sourc e may have to the EPA under a federally promulgated standard become obligations to a state or tribe (except for functions that the EPA retains for itself) upon delegation. 123 124
A. Delegation of the F ederal P lan and Retained Authorities If a state or tribe 125 int ends to take delegation of the

123 If the Administrator chooses to retain certain authorities under a standard, those authorities cannot be delegate d, e.g., the authority to allow alternative methods of demonstrating compliance. 124 We note that issuance of a title V permit is not equivalent to the approval of a state plan or delegation of a federal plan. This has been discussed in prior rulemakings, se e , e.g., Proposed Federal Plan for Commercial Industrial Solid Waste Incinerators (CISWI) (67 FR 70640, 70652; Nov. 25, 2002); Final Federal Plan for CISWI (68 FR 57518, 57535; Oct. 3, 2003). 125 A tribe interested in taking delegation of the federal plan must also apply, and be approved by the EPA, for TAS eligibility for that purpose. 40 CFR part 49.***E.O. 12866 Review

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federal plan, the state or tribe should submit to the appropriate EPA Regional Office a written request for delegation of authority. The state or tribe should explain how it meets the criteria for delegation. See generally “G ood Practices Manual for Delegation of NSPS and NESHAP” (EPA, February 1983). The letter requesting delegation of authority to implement the federal plan should: (1) D emonstrate that the state or tribe has adequate resources, as well as the legal and enfor cement authority to administer and enforce the program, (2) include an inventory of affected EGUs, which includes those that have ceased operation but have not been dismantled, include an inventory of the affected units’ air emissions and a provision for s tate or tribal progress reports to the EPA, (3) certify that a public hearing has been held on the state or tribal delegation request, and (4) include a memorandum of agreement between the state or tribe and the EPA that sets forth the terms and conditions of the delegation, the effective date of the agreement and the mechanism to transfer authority. Upon signature of the agreement, the appropriate EPA Regional Office would publish an approval notice in the Federal Register , thereby incorporating the delega tion of authority into the appropriate subpart of 40 CFR part 62. See also EPA’s Delegations Manual, Delegation 7

- 139, “Implementation and***E.O. 12866 Review

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Enforcement of 111(d)(2) and 111(d)(2)/129(b)(3) federal plans.” (A copy of this delegation manual has been placed in the docket for this action.) If authority is not delegated to a state or tribe, the EPA will implement the federal plan. Also, if a state or tribe fails to properly implement a delegated portion of the federal plan, the EPA will assume direct implementati on and enforcement of that portion. The EPA will continue to hold inspection, information gathering, enforcement, and other parallel authorities along with the state or tribe even when a state or tribe has received delegation of the federal plan. In all ca ses where the federal plan is delegated, the EPA will may retain and will not transfer authority to a state or tribe to approve the following certain items promulgated in the 2015 CAA section 111(d) Clean Power Plan : . (1) [&&& DO WE HAVE A LIST OF ITEMS FOR WHICH EPA PREFERS TO MAINTAIN AUTHORITY?]
Today’s This proposed federal plan also specifies that EGU owners or operators who wish to petition the agency for any alternative requirement should submit a request to the Regional Administrator with a copy set to the appropriate state.***E.O. 12866 Review

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B. Mechanisms for Transferring A uthority There are two mechanisms for transferring implementation authority to state and local agencies and tribes : (1) The EPA approval of a state or tribal plan after the federal plan is in effect; and (2) if a state or tribe does not submit or obtain
ap proval of its own plan, the EPA delegation to a state or tribe of the authority to implement certain portions of this federal plan to the extent appropriate and if allowed by state or tribal law. Both of these options are described in more detail below.

1. Federal Plan Becomes Effective Prior to Approval of a State or Tribal Plan After EGUs in a state or area of Indian country become subject to the federal plan, the state or local agency or tribe may still adopt and submit a plan to the EPA. If the EPA deter mines that the state or tribal plan is satisfactory and approvable pursuant to the EG, the EPA will approve the state or tribal plan. If the EPA, on review of the submitted state or tribal plan, determines that this is not the case, the EPA will disapprove the plan and the EGUs covered in the state or tribal plan would remain subject to the federal plan until a state or tribal plan covering those EGU is approved and effective. Prior to disapproval, the EPA will work with states and eligible***E.O. 12866 Review

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tribes to attemp t to reconcile areas of the plan that are unapprovable
. Upon the effective date of an approved state or tribal plan, the federal plan would no longer apply to EGUs covered by such a plan and the state or local agency , or the tribe, would implement and enf orce the state or tribal plan in lieu of the federal plan. The timing of effectiveness of an approved state or tribal plan in this circumstance may depend in part on the need to ensure a smooth transition and maintain regulatory certainty. Thus, for exampl e, under a mass

- based federal plan, we propose to handle these transitions so that they coincide with the compliance periods. The approval of a state or tribal plan would also involve a public comment process, which would give interested stakeholders inclu ding any affected EGUs, the opportunity to comment. This will assist in ensuring that compliance, program integrity, electric reliability, and other critical factors are maintained. When an EPA Regional Office approves a state or tribal plan, it will amend the appropriate subpart of 40 CFR part 62 or 40 CFR part 49, respectively, to indicate such approval , as well as the timing of its effectiveness
. As discussed elsewhere in this Notice document , the EPA may also in certain circumstances approve a partial st ate or tribal***E.O. 12866 Review

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plan (sometimes called an “abbreviated state plan”) that may modify certain limited provisions in the federal plan trading program. For example, this could occur if a state or tribe wishes to handle the initial allocation of allowances in a m ass based trading program, as discussed in section &&& above. V.E of this preamble
. The partial state or tribal plan would allow for the state or tribe to assume direct authority for administering and implementing this aspect of the trading program, while the remainder of the federal plan remains in place. The procedural and submission requirements set forth in the framework regulations of 40 CFR p art 60 , s ubpart B and the EG EG s would generally apply to a partial state or tribal plan, just as they would a full state or tribal plan. The scope of the requirement, however, would be commensurate with the scope of the partial plan. For instance, if a state or tribe seeks approval of a partial plan solely to h andle allowance allocations, then the required statement of legal authority would be limited to those legal authorities the state or tribe must have to implement and enforce this component of the trading program.

2. State or Tribe Takes Delegation of the F ede ral F lan The EPA, in its discretion, may delegate to state or tribal air agencies the authority to implement this federal plan. As***E.O. 12866 Review

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discussed above, the EPA believes that it is advantageous and the best use of resources for state or local agencies or tribes to agree to undertake, on the EPA’s behalf, administrative and substantive roles in implementing the federal plan to the extent appropriate and where authorized by state or tribal law. If a
state or tribe requests delegation, the EPA will general ly delegate the entire federal plan to the state or tribal agency , thereby providing authority to the state or tribe for things such as administration and oversight of compliance reporting and recordkeeping requirements, inspections of its affected EGUs,

a nd enforcement. The EPA will continue to hold inspection, information gathering, enforcement, and other authorities along with the state or tribe even when a state or tribe has received delegation of the federal plan. The delegation will not include
any au thorities retained by the EPA.

C. Implementing Authority The EPA Regional Administrators have been delegated the authority for implementing the federal plan. All reports required by the federal plan should be submitted to the appropriate Regional Administrat or. Section II. C. B of this preamble includes Table [&&&] 2 of this preamble that lists names and addresses of the EPA Regional Office contacts and the states***E.O. 12866 Review

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they cover. With respect to the administration of a federal trading program in any final federal plan for a state or tribe, group of states or combined group of states and tribes, the Office of Air and Radiation within the Headquarters of the EPA is proposed to be the primary office within the agency with delegated CAA section 111(d)(2) authority. See Delegation 7

- 139, section 3(c).
D. Necessary or Appropriate Finding for Affected EGUs in Indian Country Indian T ribes may, but are not required to, submit tribal plans to i mplement the Emission Guidelines (EG)
. EG s . Section 301(d) of the Clean Air Act C AA and 40 CFR part 49 authorize the Administrator to treat an Indian T ribe in the same manner as a state (TAS) for purposes of developing and implementing a tribal plan implementing the EG. See 40 CFR 49.3; see also ‘‘ “ Indian Tribes: Air Quality Planning and Management ,’’ , ” hereafter

‘‘ “ Tribal Authority Rule ,’’ , ” (63 FR 7254 , February 12, 1998). We invite tribes with EGU in their area of Indian country to comment on the level of their interest, if any, in developing their own plans. The EPA is proposing in today’s this action to find that it is necessary or appropriate to reg ulate affected EGUs in each of the three areas of Indian country that have affected EGUs under***E.O. 12866 Review

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the proposed federal plan. The EPA is authorized to directly implement the EG EG s in Indian country when it finds, consistent with the authority of CAA section 301 which the EPA has exercised in 40 CFR 49.11, that it is necessary or appropriate to do so. In the final Emission Guidelines EG s , the EPA finalized establishes emission performance goals rates for the four facilities EGUs located in Indian country a nd mass and rate

based emission goals for each of the three affected areas of Indian country with affected EGUs: . These areas include lands of the Navajo Nation’s reservation, lands of the Ute Tribe of the Uintah and Ouray Reservation, and lands of the For t Mojave Tribe’s reservation. [&&&citation to final EGs]. The EPA proposed carbon pollution emission guidelines EG s for EGUs in these areas and U.S. Territories in a Supplemental Notice of Proposed Rulemaking. See 79 FR 65482 (Nov. 4, 2014). The four facili ties with affected EGUs located in Indian country that the EPA identified in the Supplemental Notice are: the South Point Energy Center, on the Fort Mojave Reservation geographically located within Arizona; the Navajo Generating Station, on the Navajo Indi an Reservation geographically located within Arizona; the Four Corners Power Plant, on the Navajo Indian Reservation geographically located within New Mexico; and the Bonanza Power Plant, on the Uintah and Ouray Indian Reservation geographically***E.O. 12866 Review

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located wi thin Utah. The emission performance targets for these areas were finalized along with those for EGU located in the rest of the country in the final EGs. &&&citation.
In today’s this action, we are proposing to find that it is necessary or appropriate, in each of the three areas of Indian country that have affected EGUs, to establish a federal plan that applies to the four power plants located on the Navajo Nation, the Fort Mojave Ind ian Reservation, and the Uintah and Ouray Reservation of the Ute Tribe. The affected EGUs located on the Navajo Nation are in an area of Indian country located within the continental United States, U.S. , are interconnected with the western electricity grid, and are owned and operated by entities that generate and provide electricity to customers in several
states. The affected EGU located on the Uintah and Ouray Reservation of the Ute Tribe is in an area of Indian country located within the continental Unite d States, U.S. , is interconnected with the western electricity grid, and is owned and operated by an entity that generates and provides electricity to customers in several states. The affected EGU located on the Fort Mojave Indian Reservation is in an area of Indian country located within the continental United States, U.S. , is interconnected with the western electricity grid, and is owned and operated by an entity that generates and provides electricity to customers in***E.O. 12866 Review

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several states. To date, none of the th ree tribes on whose areas of Indian countr y the four power plants are located ha ve expressed a clear intent to develop and seek approval of a tribal implementation plan. Thus, absent a federal plan, the significant emissions from these four power plants co uld go unregulated by the Clean Power Plan. Because the agency has finalized emission performance targets for these power plants in the EGs, there is, in our view, little benefit to be had by not proposing to include them in a federal plan now and a potent ially significant downside to not doing so ; the reductions the EPA has determined are achievable in the EGs would become more difficult and costly for these power p l ants to achieve if they are delayed in entering into the trading program the agency intends to establish. In order to meet the performance targets, we are anticipating that the affected EGUs may need to secure allowances or ERCs (depending on the approach ultimately finalized) during the compliance periods
. They may also be able to generate and sell compliance instruments by participating in the trading program. Thus, proposing a finding that it is necessary or appropriate to establish one or more federal plans providing the ability to participate in a rate

- or mass - based trading program is in th e interest of these four power plants located in areas of Indian country. We believe that this together with the facts that,***E.O. 12866 Review

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as indicated above, all four EGU are interconnected with the western electricity grid and are owned and operated by an entity that generates and provides electricity to customers in several
states thereby making it potentially disruptive and inequitable not to include them in one or more federal plans on the same schedule as other affected EGU str ongly supports proposing to find that it is necessary or appropriate to establish one or more applicable federal plans at this time. We recognize that the governments of these tribes may still choose to seek TAS to develop a tribal plan, and this proposed determination does not preclude the tribes from taking such actions. We also note that this proposed determination does not preclude these tribes from seeking TAS and receiving delegation to administer aspects of any applicable federal plan that is ultima tely promulgated. In the event a federal plan is needed, proposing a necessary or appropriate finding at this time will allow the EPA to expeditiously promulgate a final federal plan for one or all of these power plants in the future to allow trading to

oc cur. We will continue to consult with the governments of the Navajo Nation, Fort Mojave Indian Tribe, and the Ute Tribe of the Uintah and Ouray Reservation during the comment period for this proposal, and prior to taking any action to finalize a necessary or appropriate finding and/or a federal plan. Comments on the***E.O. 12866 Review

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appropriateness of the proposed finding, should be submitted within the comment period specified in the Dates section of this preamble.

**VII. Amendments to Process for Submittal and Approval of State**  **Plans and EPA Actions** As indicated in the final rulemaking notice for the CAA section 111(d) guideline, “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units,” in this action , in addition to the proposed federal plans and model trading rules, the EPA is also proposing to amend the framework regulations and update the process for acting on CAA section 111(d) state plans under Subpart B of 40 CFR p art 60 , subpart B
. These changes would be applicable to any future CAA section 111(d) rules going forward, not just the Clean Power Plan EGs. The EPA proposes six changes to the CAA section 111(d) process in the framework regulations to include: (1) P artial approval/disapproval mechanisms similar to CAA section 110 (k)(3); ( 2 ) a conditional approval mechanism similar
to CAA section 110(k)(4); (3) a mechanism for the EPA to make calls for plan revisions similar to the "SIP

- call" provisions of
CAA s ection 110(k)(5); ( 4 ) an error correction mechanism similar
to CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and***E.O. 12866 Review

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submittals similar to CAA section 110(k)(1) and (2); and (6) updates to the deadlines for the EPA action. In addition, in this s ection, the agency is proposing an interpretation regarding the effect under section 111 if an existing facility subject to CAA section 111(d) modifies or reconstructs. We believe these changes will significantly streamline the state plan review and approval process, be more r espectful of state processes, and generally enhance the administration of the 111d
program. Section 111(d)(1) provides that the EPA “shall establish a procedure similar to that provided by CAA section [110] of this title under which each state shall submit to the Administrator a [111(d)] plan . . ..” 42 U.S.C. 7411(d)(1). Thus, the CAA directs the EPA to look to the structure of the SIP program when designing the procedures the states and agency will use to develop CAA section 111(d) plans . Notably, the CAA does not require the CAA section 111(d) procedures to be identical to those the EPA uses under CAA section 110 for SIPs. 126 Therefore, the EPA interprets CAA section 111(d) to provide the EPA flexibility in designing procedures that reflec t the structure

126 See Webster’s II New Riverside University Dictionary (Riverside 1988) (defining “similar” to m ean “resembling though not completely identical”).***E.O. 12866 Review

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of those used under CAA section 110 for implementation plans, without requiring the EPA to exactly track SIP procedures when acting on section 111(d) plans. As a general matter these proposed changes would simply update the CAA section 111(d) framework regulations to include several new, more flexible procedural tools that Congress introduced into section 110 in the 1990 Clean Air Act C AA Amendments. The basic procedures in the CAA section 111(d) framework regulations were promulg ated in 1975 based on the structure of CAA section 110 as Congress designed it in the 1970
CAA Amendments. See 40 FR 53340

- 49 (Nov. 17, 1975). Over the years since 1970, the EPA and the states learned a great deal about the procedural limitations of the or iginal SIP review process. The 1970 CAA only allowed the EPA to approve or disapprove SIP submittals. The agency struggled to deal responsively to situations where the EPA wanted to work with states to get state programs approved to the extent possible, wh ile maintaining consistency with CAA requirements. Congress responded in 1990 and enhanced the procedural mechanisms the EPA has to act on SIPs. The EPA is proposing correspondingly to update the CAA section 111(d) regulations in a similar fashion
. Currently, the EPA’s framework regulations for submittal and adoption of CAA section 111(d) state plans do not explicitly***E.O. 12866 Review

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provide for the EPA to use some of the same procedures for approving or disapproving state plans Congress introduced into the SIP pr ogram in the 1990 Clean Air Act C AA Amendments. The EPA is proposing to amend the procedures for approval or disapproval of CAA section 111(d) state plans to reflect the enhancements Congress included in CAA section 110 for agency actions on SIPs. These pro posed amendments are discussed in more detail below.
A. Partial Approvals/Disapprovals First , the EPA proposes to add authority similar to that under CAA section 110(k)(3) to partially approve or disapprove a plan. 127 This is a particularly useful function when much of a state plan is approvable and the EPA and the state cannot reach resolution on only a small, severa b l e portion of the state plan. In this case, the EPA prefers not to be in a position where it must disapprove the full plan, but rather to allow the state to move forward with those portions of the plan that are

127 We recognize that the regulations appear to already contemplate partial approval/disapprovals to some extent. See 40 CFR 60.27(a) (“The Administrator may ... extend the period for submission of any plan ... or portion thereof.”) (emphasis added). We note that this language only allows for extensions of time with respect to portions of state plan submissions and may not sufficiently authorize a permanent partial approval. The proposed enhancement will resolve any ambiguity that partial approvals/disapprovals are an acceptable mechanism under CAA section 111(d).***E.O. 12866 Review

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approvable T his approvable
. T his mechanism are th ose situations where the state wishes to take over a discrete part of a federal plan. For instance, in this proposal, states will be able to seek approval of a partial state plan that will give them the ability to handle the allocation of allowances under a mass based federal plan. In cases where elements of a plan are functionally severable from each other, and one element is approvable while another is not, this provision will authorize the EPA to approve one part of a plan and disapprove the other. It wi ll also authorize the EPA to accept and review a state plan that is only partial in nature, if identified by the state as such, so long as the other applicable submission requirements are met (such as demonstration of legal authority and completion of the public process). When the state submits what it intends to be a full state plan (rather than just a partial plan), t he EPA proposes that the approvable portion of a plan must be functionally severable from the rest of the plan , and this will be the case wh en the following conditions are met. First, the approvable portion of the plan must not depend on the rest of the plan. In other words, the disapproval of the remaining portion of the plan must not affect the portion that is approved. Second, approval of t he approvable portion must not alter the function***E.O. 12866 Review

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of the submittal in a way that is contrary to the state’s intent. The partial disapproval would be a disapproval for the purposes of CAA section 111(d)(2)(A) and would trigger the EPA’s authority to issue a federal plan for the state, at least for that part of the plan that was disapproved. Incorporating this mechanism under the framework regulations for CAA section 111(d) will enable the EPA to approve a state to implement as much of its program as is consistent with a CAA section 111(d) guideline and may reduce the scope of any federal plan that would be
necessary. B. Conditional Approvals The second mechanism is the authority under CAA section 110(k)(4) to conditionally approve a pla n. Where a state has submitted a plan that substantially meets the requirements of a CAA section 111(d) e mission g uideline, but requires some specific amendments to make it fully approvable, this provision authorizes the EPA to conditionally approve the pl an. The Governor or her designee must submit to the EPA a commitment that specifies the amendments to be adopted and submitted to the EPA by no later than one 1 year from the effective date of the conditional approval. If the state fails to meet its commitment, the conditional approval is treated as a disapproval.***E.O. 12866 Review

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Incorporating this mechanism under the framework regulations for
CAA section 111(d) will enable the E PA to approve a state to begin to administer a substantially complete program that requires only specific changes to be fully approvable. For example, in this action, we are proposing to conditionally approve state plans that adopt the proposed model tradi ng rule, so long as the state commits to adopt any changes in the final model trading rule necessary to ensure EG requirements are met. This provision is designed to authorize a state with a substantially complete and approvable program to begin implementi ng it, while promptly amending the program to ensure it fully complies with CAA section 111(d).
C. Calls for Plan Revisions
CAA s ection 110(k)(5) authorizes the EPA to find that a
state implementation plan SIP does not comply with the requirements of the CAA. To date, the EPA has not considered using a similar procedure pursuant to the authority under CAA section 111(d). We now propose to do so. The ability to call for plan revisions is fundamental to a program that will be implemented over many years multiple decad Under the Clean Power Plan EGs , state s ha ve more than a decade to fully implement emissions standards or state measures in order to ensure affected EGUs achieve the emission goals of the EGs. Throughou t***E.O. 12866 Review

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this period, the EPA and the states will be monitoring their programs to ensure they are achieving the intended results. It is possible that design assumptions about the effect of control measures the state s incorporate into the ir plan s could prove inacc urate in retrospect and could result over time in the plan not meeting the emissions reduction s required by the EGs . In that case, having a procedural mechanism available under CAA section 111(d) similar to the so

- called “SIP call” mechanism in
CAA section 110(k)(5) will allow the agency to initiate a process with the state to make necessary revisions to ensure the plan functions properly
. Accordingly, the EPA is proposing to amend the framework regulations to include a provision similar to CAA section 110(k)(5) under which the EPA may find that a state’s CAA section 111(d) plan is substantially inadequate to comply with the requirements of the CAA and require the state to revise the plan as necessary to correct such inadequacies. Consistent with
CAA sec tion 110(k)(5), the EPA shall notify the state of any inadequacies and establish a reasonable deadline for the state to submit required plan revisions. That deadline will not exceed 18 months after the date of the notice. The EPA will make its***E.O. 12866 Review

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finding and notice to the state available to the public. 128 The effect of such a finding is that either the state submits the program corrections by the date the EPA sets in the notice, or pursuant to CAA section 111(d)(2)(A), the EPA has authority to issue a federal pl an for a state that misses its deadline to correct its plan. In effect, the finding of plan inadequacy establishes a plan submittal deadline subject to the provisions of CAA section 111(d)(2)(A). A finding of failure to meet that new deadline triggers the EPA’s authority to issue a federal plan for the state. T he EPA may promulgate a federal plan at any time following the state’s failure to timely submit an adequate plan that addresses the EPA’s finding. While these authorities are important, the intention of having a mechanism to call for plan revisions is to have a way to initiate an orderly process to improve plans when they are not meeting program objectives. It is the EPA’s hope that a call for plan revision leads to a constructive dialogue with a stat e or states, and ultimately, an improved and more effective CAA section 111(d) plan. The EPA is also proposing that the a gency can call for a

128 Consistent with the agency’s practice under CAA section 110(k)(5), the EPA anticipates that a call for plan revisions under CAA section 111(d) will be done via notice and comment rulemaking.***E.O. 12866 Review

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plan revision in circumstances where a state is not implementing its approved state plan and , therefore , the state plan is substantially inadequate to provide for the implementation of
CAA section 111(d) standards of performance
. As discussed above, the Act CAA directs the EPA to develop a procedure for state plans under CAA section 111(d) similar to CAA section 110 SIP procedures. Calling a plan that is substantially inadequate to provide for implementation of standards of performance ( i.e., there is a failure to implement a state plan) is one area where the EPA proposes it is appropriate to adapt the procedural mech anisms available in the SIP program to provide a similar process that assures effective state plan implementation under
CAA section 111(d). Under CAA section 110(k)(5), the EPA may call for a revision of a state plan “[w]henever the Administrator finds tha t the . . . plan . . . is substantially inadequate to . . . comply with any requirement of [the Act].”
I f the state does not submit a plan revision in response to the call to cure th e failure to provide for implement ation , the EPA would have the authority to promulgate the federal plan being proposed. One critical requirement of CAA section 111(d)(1)(B) is that a state must submit a plan that “provides for the implementation and enforcement of such standards of performance”***E.O. 12866 Review

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(emphasis added). If, after the EPA has approved a plan, a state fails to implement that plan, the plan has become substantially inadequate to comply with this requirement of the Act CAA . Under this proposal, the EPA’s remedy would be to find the plan is substantially inadequate, which tr iggers the state’s obligation to cure, and failing that, the EPA’s authority to promulgate the federal plan. In the alternative, the EPA proposes that this authority to call a plan for failure to implement is anchored in the authority provided under CAA section 110(k)(5) to call a SIP when the a gency finds that it is “substantially inadequate to attain or maintain the relevant national ambient air quality standard.” In the context of CAA section 111, this authority translates into the EPA calling a state plan when the a gency finds that it is substantially inadequate to achieve the emissions reductions required under the EG. If a state has failed to implement its plan, and that failure is pervasive enough to render the requirements of the plan ineffective, it is reasonable for the EPA to find that the state plan is substantially inadequate to achieve the emissions reductions required under the EG. The state’s failure to implement has revised the effect of the plan so that it is no longer adequate to meet the Act’s CAA ’s requirements. Error Corrections***E.O. 12866 Review

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Error Corrections The fourth mechanism is the error correction authority under CAA section 110(k)(6). Where the EPA concludes that it has erroneously approved, disapproved, or promulgated a plan or plan revision ( or part thereof), this section authorizes the agency to revise its action, in the same manner as the original action, without requiring any further submission from the state. Prior
to the 1990 CAA Amendments , there was some question whether the EPA could unilaterally correct a previous action on a SIP submittal without the state having to submit a new SIP. This limitation imposed unnecessary burdens on states to fix even obvious errors, because CAA section 110(a)(2) requires the state to provide notice and a public hearing on each new SIP submittal. Incorporating this mechanism into the CAA section 111(d) framework regulations will allow the EPA to fix errors in its prior actions on state plans without imposing on the states the corresponding burd en of providing notice and a public hearing as required under the CAA section 111(d) framework regulations. 40 CFR 60.23.
D. Completeness Criteria Completeness criteria provide the agency with a means to determine whether a submission by a state includes the minimum elements that must be met before the EPA is required to act on***E.O. 12866 Review

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such submission. When submittals do not contain the necessary minimum elements, then the EPA may, without further action, find that a state has failed to submit a plan. This determinati on is ministerial in nature and requires no exercise of discretion or judgment on the agency’s part, nor does it reflect a judgment on the sufficiency or adequacy of the submitted portions of a state plan. The task is accomplished by simply comparing the m aterials provided by the state as its submittal against the required criteria to determine whether the plan is complete or not. In the case of SIPs under CAA section 110(k)(1), the EPA promulgated completeness criteria in 1990 at a ppendix V to 40 CFR p art 51 (55 FR 5830; Feb. 16, 1990). The EPA proposes to adopt criteria similar to the criteria set out at section 2.0 of Appendix V for determining the completeness of submissions under
CAA section 111(d). The completeness criteria can be grouped into : (1) A dm inistrative materials ; and (2) technical support. The EPA proposes that both groups would apply to all CAA section 111(d) rules going forward. The agency notes that the addition of completeness criteria in the framework regulations does not alter any of the submission requirements states already have under the EGs . For administrative materials, the EPA is proposing completeness criteria that mir ror the existing administrative***E.O. 12866 Review

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criteria for SIP submittals because the two programs have similar administrative processes. The EPA proposes that a complete final state plan submittal under CAA section 111(d) must include: (1) A formal letter of submittal from the Governor or her designee requesting EPA approval of the plan or revision thereof; ( 2 ) e vidence that the state has adopted the plan in the state code or body of regulations ( That evidence shall include the date of adoption or final issuance as well as the effective date of the plan, if different from the adoption/issuance date .) ; (3) Evidence that the state has the necessary legal authority under state law to adopt and implement the plan; and (4) a copy of the actual regulation, or document submitte d for approval and incorporation by reference into the plan. The submittal shall be a copy of the official state regulation/document signed, stamped and dated by the appropriate state official indicating that it is fully enforceable by the state. The effec tive date of the regulation/document shall, whenever possible, be indicated in the document itself. The state’s electronic copy must be an exact duplicate of the hard copy. For revisions to the approved plan, the submittal shall indicate the changes made ( for example, by redline/strikethrough) to the approved plan; ( 5 ) e vidence that the state followed all of the procedural requirements of the***E.O. 12866 Review

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state's laws and constitution in conducting and completing the adoption/issuance of the plan; ( 6 ) e vidence that public notice was given of the proposed change with procedures consistent with the requirements of 40 CFR 60.23, including the date of publication of such notice; ( 7 ) c ertification that public hearing(s) were held in accordance with the information provide d in the public notice and the state's laws and constitution, if applicable and consistent with the public hearing requirements in 40 CFR 60.23; and ( 8 ) c ompilation of public comments and the state's response thereto. These criteria, as proposed, are inten ded to be generic to all
CAA section 111(d) plans going forward , with the proviso that specific emission guidelines EG s may provide otherwise . The technical support completeness criteria that the EPA proposes will also be generic to all CAA section 111(d) r ules , with the same proviso
. The EPA proposes that the technical support required for all plans must include each of the following: (1)
D escription of the plan approach and geographic scope; (2) i dentification of each designated facility , identification of emission standards for the designated facilties , and monitoring, recordkeeping , and reporting requirements that will determine compliance by each designated facility ; (3) i dentification of compliance schedules and/or increments of progress; ( 4 )***E.O. 12866 Review

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d emonstration that the state plan submittal is projected to achieve emission s performance under the applicable EGs ; ( 5 ) d ocumentation of state recordkeeping and reporting requirements
t o determine the performance of the plan as a whole ; and ( 6 ) d emonstratio n that each emission standard is quantifiable, non

duplicative, permanent, verifiable, and enforceable. The EPA proposes a process similar, though not identical, to that set forth in 40 CFR 51.103 and Appendix V to 40 CFR p art 51 to make completeness determinations. Similar to CAA section 110(k)(1)(C), under this proposal, where the EPA determines that a state submission required under CAA section 111(d) does not meet the minimum completeness criteria we are proposing to
est ablish, the state will be considered to have not made the submission. The EPA further proposes that, similar to CAA section 110(k)(1)(B), within 60 days of the EPA's receipt of a state submission, but no later than 6 months after the date, if any, by which a state is required to submit the plan or revision, the Administrator shall determine whether the minimum criteria have been met. Any plan or plan revision that a state submits to the EPA, and that has not been determined by the EPA by the date 6 months a fter receipt of the submission to have failed to meet the minimum criteria, shall on that date be deemed by operation of law to meet such minimum criteria.***E.O. 12866 Review

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As with the completeness determination process for SIP submissions, the EPA’s determination that a submittal is complete is not a finding that the submittal meets the substantive requirements of CAA section 111(d) or the guideline. That must be done via the process for approval or disapproval of a state plan, which would be done through notice and comme nt rulemaking. In the completeness process, the EPA will confirm that a state’s submittal appears to have addressed the criteria for a complete submittal and, therefore, the submittal is sufficient to trigger the EPA’s obligation to act on it. But in the c ompleteness process the agency will not assess the content of those submissions to determine if they are approvable. Accordingly, even when the EPA affirmatively determines that a submittal is complete, it does not prevent the agency from later finding tha t the state plan does not meet the requirements of the EGs , including finding that the submittal failed to address a required element and must be disapproved. Similarly, when a submittal is determined to be complete by operation of law after six 6 months without the EPA’s affirmative determination of completeness, the only legal consequence is that the EPA now has an obligation to act on that submittal. Completeness by operation of law means that the submittal is deemed complete and requires the EP A’s review, whether or not***E.O. 12866 Review

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the state has actually addre ssed all the required elements. Accordingly, if the agency determines that a state has failed to address a required element in its submittal once the EPA begins review of the state plan that is complet e by operation of law, the agency must go through the process of disapproving (or partially disapproving or conditionally approving, as discussed below) that plan, unless the state and the EPA work together to cure the deficiency. In other words, the EPA c annot simply find the plan incomplete and return it to the state at that point
. But the finding of completeness by operation of law in no way prevents the EPA from subsequently concluding that the state’s submission is missing a required element of the pro gram and making that finding as part of a disapproval of the plan. As described in the final rulemaking notice for the CAA section 111(d) EGs , a state will submit all CAA section 111(d) plans electronically. If the EPA determines that any submission fails to meet the completeness criteria, the agency may return the plan to the state and request corrections, identifying the components that are absent or insufficient to allow the EPA to perform a review of the plan. The state will not have met its obligation to submit a final plan until it resubmits a revised state plan or supporting materials addressing the corrections the EPA identified in its incompleteness determination.***E.O. 12866 Review

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The EPA is also proposing to include an exception to the criteria for complete admini strative materials in cases where a state and the EPA are “parallel processing” the final plan. Parallel processing allows a state to submit the plan prior to final adoption by the state and provides an opportunity for the state to consider the EPA ’s comme nts prior to submission of a final plan for final review and action. The EPA would propose to take action on a state plan based on a proposed state regulation. The EPA would only finalize the action if the state adopts a final plan that is legally effectiv e under state law. The EPA would only approve the plan if the state addressed any corrections that the EPA identified in its proposed action on the state plan without any other material change to the plan. In this scenario, the state’s initial submittal wo uld not be able to meet all the criteria for administrative completeness, and the EPA proposes to adjust those criteria as provided for in 40 CFR Pt. 51, App. V section 2.3. Note that a plan submitted for parallel processing must still meet all the criteria for technical completeness so that the EPA and the public have a sufficient basis on which to evaluate and comment on the EPA’s proposed action. Finally, the EPA proposes t hat, in the case of an initial submittal under the Clean Power Plan EGs , the requirements set***E.O. 12866 Review

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out at Part &&&60 .5760, shall serve as the completeness criteria the EPA will use to determine whether the initial submittal is complete. If those minimal submiss ion requirements have not been met, as determined by the EPA in accordance with &&&60 .5760(b), then the state will be treated as having failed to submit a state plan.
E. Update to Deadlines for EPA Actions
T he EPA proposes to update the deadlines for acting on state submittals and promulgating a federal plan under 40 CFR 60.27(b), (c), and (d) to more closely track the current versions of CAA section 110(c) and 110(k) adopted in 1990. The framework regulations f or CAA section 111(d) state plans currently are parallel to the prior version of CAA section 110. They require the EPA to act on a state plan or plan revision submittal within 4 months after the date required for submission of a plan or plan revision. 40 C FR 60.27(b). The regulations then require the EPA to issue a proposed federal plan in certain circumstances after consideration of any state hearing record, 40 CFR 60.27(c), and require the EPA to promulgate the proposed federal plan within 6 months after the date required for plan submissions, id. 60.27(d). The final carbon dioxide EGs CO 2 EG for Electric Utility Generating Units ( EGUs ) have already adjusted the deadline in***E.O. 12866 Review

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60.27(b) to require the EPA to act on a state plan under those
EGs within 12 months (rather than 4 months) after the date required for submission of a plan. See 40 CFR 60.5715. However, the Clean Power Plan EGs did not modify the 6 month deadline for a federal plan in 60.27(d). The EPA is proposing to amend 40 CFR 60.27( b) to allow the EPA 12 months to approve or disapprove submittals of all plans or plan revisions under CAA section 111(d), not just those related to the Clean Power Plan under 60.5715. This change would provide the EPA with sufficient time for the steps Fd required required to approve or disapprove the submittal, which include proposing the EPA’s approval or disapproval of the plan or plan revision, a public comment period on the EPA’s proposal, time for the EPA to review and respond to public comments, and
t he issuance of a final rule approving or disapproving the plan or plan revision. The EPA is also proposing to amend 40 CFR 60.27(b) to specify that the deadline for the EPA to act on a plan or plan revision is 12 months after receipt of a complete plan or plan revision, rather than 12 months after the deadline for submittal of a plan or plan revision. This amendment will allow the EPA to have the full 12 months to act on submittals of complete plans or plan revisions.***E.O. 12866 Review

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The EPA also proposes slight modificat ions to the provision related to issuing a proposed federal plan in 60.27(c); changing the six 6 month deadline for issuing a final federal plan in 60.27(d) to one 1 year 129 ; and, similar to the change in timing for 60.27(b) above, setting the deadline for promulgation of a federal plan to run from the date of the EPA's action on a state submittal, rather than from the original deadline for a state submittal. The EPA believes it is appropriate to modify these timing

r equirements for several reasons. First, the EPA notes that under CAA section 111(d)(2), Congress gave the EPA the "same" authority to prescribe a federal plan under CAA section 111(d) as it would have under CAA section 110(c) in the case of a state failure to submit a SIP. The term "same" stands in contrast to the term "similar" in CAA section 111(d)(1) (discussed above).

129 As under CAA section 110, the EPA believes that, should it fail for whatever reason to meet a deadline by which it was to take action, such as issue a federal plan, under CAA section 111(d), that failure does not thereby obviate or in any way remove the EPA’s authority or obligation to take that action. See Oklahoma v. U.S. EPA , 723 F.3d 1201, 1224 (10th Cir. 2013) (“Although the statute undoubtedly requires that the EPA promulgate a FIP within two years, it does not stand to reason that it loses its ability to do so after this two

- year period expires. Rather, the appropriate remedy when the EPA violates the statute is an order compelling agency action.”).***E.O. 12866 Review

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As with the use of the term “similar,” the EPA believes it is authorized by this language to follow the timing provisions of
CAA section 110(c) as currently enacted. Second, as a general matter, the timing requirements of current 60.27(c) and (d), which effectively require the EPA to propose and finalize a federal plan within six 6 months of the deadline for state submittals, may be outdated and unrealistic with respect to the timelines for review of state plans and the time periods for action, particularly as informed by the a gency's experience with
CAA section 110 SIPs (which led to the extension of the timelines and other changes t o CAA section 110 in the 1990 Amendments discussed above). Third, in the CPP Emission Guideline, the EPA has finalized a timing requirement that gives the a gency a year to approve or disapprove a state plan or revision. The existing requirement in 60.27(d) that the EPA must promulgate a federal plan within six 6 months of the initial deadline for state plans is therefore inconsistent with this provision. Fourth, existing 60.27(c) tracks the prior version of
CAA section 110(c) with respect to the issuance of a proposed federal plan. This relatively prescriptive language is no longer present in CAA section 110(c). The procedural requirements for rulemakings under both CAA section 110 and 111(d) are set out in section 307(d) of the Act CAA , and the EPA believes those***E.O. 12866 Review

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provisions are appropriate and adequate to guide its rulemaking process for CAA section 111(d) federal plans. The EPA invites comment on all of these proposed changes to the framework regulations. The EPA notes that the addition of these mechanisms to the framework regulations will make them available for all CAA section 111(d) regulations, not just those under the Clean Power Plan at Subpart UUUU.
F. Proposed Interpretation regarding Existing Sources that Modify
or Reconstruct In the propo sed rulemaking for the CPP, the EPA proposed the interpretation that if an existing source is subject to a
CAA section 111(d) state plan, and then undertakes a modification or reconstruction, the source remains subject to the state plan, while also becomin g subject to the modification or reconstruction requirements. 79 FR 34830, 34903

– 4. The EPA did not finalize a position on this issue in the final EGs rule, but indicated that it would re

- propose and take comment on this issue through this federal plan rul emaking. The EPA also stated deferral of action on this issue does not impact states’ and affected EGUs’ pending obligations under this final rule relating to plan submission deadlines, as this issue concerns potential obligations or impacts after an exist ing source has already become subject to the requirements of a state plan. The***E.O. 12866 Review

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EPA intends to finalize its position on this issue through this rulemaking, which will be well in advance of the plan performance period beginning in 2022, at which point state plan obligations on existing sources are effectuated.
We note d in the Clean Power Plan proposal that CAA section 111(d) is arguably silent a s to this issue. Thus, we took this to grant the agency the authority to provide a reasonable interpretation to fil l in the gaps where the statute is silent. In the proposal for the CPP, we proposed to disallow existing
sources to leave the CAA section 111(d) program through modification or reconstruction. We did this for two reasons. First, if a source did so, that could prove disruptive to the state plan. Second, allowing sources to do so could provide them an incentive to do so that would be contrary to the purposes of
CAA section 111(d). We then asked for comment on “whether this in terpretation is supported by the statutory text and whether this interpretation is sensible policy and will further the goals of the statute.” We received many comments disagreeing with this approach. After reviewing these comments, the agency believes an alternative interpretation is more appropriate in the particular context here. In order to give the public an opportunity to comment on this, we are proposing this interpretation here. That***E.O. 12866 Review

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is, when CAA section 111(d) emission guidelines EG s are initially promulgated for existing stationary sources in response to corresponding CAA section 111(b) standards of per formance for the same pollutant, the statute prevents new , modified or reconstructed sources (including under those particular CAA section 111(b) st andards of performance and as those terms are applied in the relevant new source performance standards ( NSPS ) ) ) from simultaneously being subject to state plans under those particular CAA section 111(d) emission guidelines. EG s . This interpretation gives me aning to the definition of “existing source” in CAA section 111(a)(6) and is consistent with the definition of “new source” in section 111(a)(2). Further, it is consistent with the historical treatment of modified and reconstructed sources in the CAA section 111 program. The EPA notes the concerns it noted in the proposal supporting why the originally proposed interpretation was reasonable are being addressed in other ways in the final EGs, and in the proposed federal plan. In other words, there will be other ways to minimize disruption to state plans if such a modification or reco nstruction were to take place. We invite comment on the agency’s proposed interpretation that when an existing source modifies or reconstructs in such a way that it***E.O. 12866 Review

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meets the definition of a new source, for purposes of a particular NSPS and emission guideline, it becomes a new source under the statute and is no longer subject to the CAA section 111(d) program G. Separate Finalization of these Changes The a gency intends to finali ze these procedural changes and interpretation sooner than it finalizes the rest of this proposed action. The EPA believes these changes generally enhance and improve the framework regulations in a way that will be of benefit to the states, the EPA, and ot her stakeholders, and will improve the overall efficacy of the program. We believe it is important to finalize these changes to the framework regulations relatively quickly in order to provide states and other stakeholders predictability in how the EPA int ends to process state plans and submissions under CAA section 111(d). If the EPA does finalize these changes sooner than the model trading rules or the federal plan , it will do so after the close of the comment period, and after consideration and response to any comments on these changes.

**VIII. Impacts of this Action** 
A. Endangered Species Act Consistent with the requirements of section 7(a)(2) of the***E.O. 12866 Review

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Endangered Species Act (ESA), the EPA has considered the effects of this proposed rule and has reviewed applicable E SA regulations, case law, and guidance to determine what, if any, impact there may be to listed endangered or threatened species or designated critical habitat. Section 7(a)(2) of the ESA requires federal agencies, in consultation with the U.S. Fish and Wi ldlife Service (FWS) and/or the National Marine Fisheries Service, to ensure that actions they authorize, fund, or carry out are not likely to jeopardize the continued existence of federally listed endangered or threatened species or result in the destruct ion or adverse modification of designated critical habitat of such species. 16 U.S.C. 1536(a)(2). Under relevant implementing regulations, ESA section 7(a)(2) applies only to actions where there is discretionary federal involvement or control. 50 CFR 402.0 3. Further, under the regulations consultation is required only for actions that “may affect” listed species or designated critical habitat. 50 CFR § 402.14. Consultation is not required where the action has no effect on such species or habitat. Under this standard, it is the federal agency taking the action that evaluates the action and determines whether consultation is required. See 51 FR 19926, 199 49 (June 3, 1986). Effects of an action include both the direct and indirect effects that will be added to the***E.O. 12866 Review

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environmental baseline. 50 CFR 402.02. Direct effects are the direct or immediate effects of an action on a listed species or its habitat. 130 Indir ect effects are those that are caused by the action, later in time, and are reasonably certain to occur. Id. To trigger a consultation requirement, there must thus be a causal connection between the federal action, the effect in question, and if the effect is indirect, it must be reasonably certain to occur. The EPA has considered the effects of this proposed rule and has reviewed applicable ESA regulations, case law, and guidance to determine what, if any, impact there may be to listed species or designated critical habitat for purposes of
ESA section 7(a)(2) co nsultation. The EPA notes that the projected environmental effects of this proposal are, like the
EGs that it implements, positive: reductions in overall GHG emissions, and reductions in PM and ozone

- precursor emissions (SO X and NO X ), for EGUS that will be covered by the federal plan
. However, the EPA’s assessment that the rule will have an overall

130 See Endangered Species Consultation Handbook, U.S. Fish & Wildlife Service and National Marine Fisheries Service at 4

- 25(March 1998 ) (providing examples of direct effects: e.g. , driving an off road vehicle through the nesting habitat of a listed species of bird and destroying a ground nest; building a housing unit and destroying the habitat of a listed species).***E.O. 12866 Review

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net positive environmental effect by virtue of reducing emissions of certain air pollutants does not address whether the rule may affect any listed species or de signated critical habitat for ESA section 7(a)(2) purposes and does not constitute any finding of effects for that purpose. The fact that the rule will have overall positive effects on the national and global environment does not mean that the rule may aff ect any listed species in its habitat or the designated critical habitat of such species within the meaning of ESA section 7(a)(2) or the implementing regulations or require ESA consultation. The EPA has considered various types of potential effects in con sidering whether E SA consultation is required for this rule. With respect to the projected GHG emission reductions, the EPA does not believe that such reductions trigger ESA consultation requirements under ESA section 7(a)(2). In reaching this conclusion, the EPA is mindful of significant legal and technical analysis undertaken by FWS and the U.S. Department of the Interior in the context of listing the polar bear as a threatened species under the ESA. In that context, in 2008, FWS and DOI expressed the vie w that the best scientific data available were insufficient to draw a causal connection between***E.O. 12866 Review

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GHG emissions and effects on the species in its habitat. 131 The DOI Solicitor concluded that where the effect at issue is climate change, proposed actions involvi ng GHG emissions cannot pass the “may affect” test of the ESA section 7 regulations and , thus , are not subject to ESA consultation. The EPA has also previously considered issues relating to GHG emissions in connection with the requirements of ESA section 7(a)(2). In the final EGs, the agency noted that, a lthough the GHG emission reductions projected for the Emissions Guidelines EGs are large ( estimated reductions of about 415 million short tons of C O 2 in 2030 relative to the base case ), the EPA evaluated larger reductions in assessing this same issue in the context of the light duty vehicle GHG emission standards for model years 2012

- 2016 and 2017

- 2025. There the agency projected emission reductions over the lifetimes of the model year s in question, 132 which are roughly five to six times those projected above and, based on air quality modeling of potential environmental effects, concluded that “EPA

131 See, e.g., 73 FR 282 12, 28300 (May 15, 2008); Memorandum from David Longly Bernhardt, Solicitor, U.S. Department of the Interior re: “Guidance on the Applicability of the Endangered Species Act’s Consultation Requirements to Proposed Actions Involving the Emission of Greenhou se Gases” (Oct. 3, 2008). 132 See 75 FR at 25438 Table I.C 2

– 4 (May 7, 2010); 77 FR at 62894 Table III

– 68 (Oct. 15, 2012).***E.O. 12866 Review

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knows of no modeling tool which can link these small, time

attenuated changes in global met rics to particular effects on listed species in particular areas. Extrapolating from global metric to local effect with such small numbers, and accounting for further links in a causative chain, remain beyond current modeling capabilities.” EPA, Light Duty Vehicle Greenhouse Gas Standards and Corporate Average Fuel Econom y Standards, Response to Comment Document for Joint Rulemaking at 4

- 102 (Docket EPA

- OAR

- HQ

- 2009

- 4782). The EPA reached this conclusion after evaluating issues relating to potential improvem ents 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 thes e 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 that the same conclusion applies to the present rule
. See See also , e.g., Ground Zero Center for Non

- Violent Action v. U.S. Dept. of Navy, 383 F. 3d 1082, 1091

- 92 (9th Cir. 2004 ) (where )
. The EPA similarly proposes to determine that the likelihood of jeopardy to a species from a federal this proposed action is extremely remote, and ESA does not require consultation). The EPA’s proposed conclusion is entirely consistent with DOI’s analysis regarding ESA requirements***E.O. 12866 Review

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in the context of federal actions involving GHG emissions. With regard to non

- GHG air em issions, the EPA is also projecting substantial reductions of SO 2 and NO x as a collateral consequence of this proposal (which will be, as stated above, only a subset of the total reductions from the Emissions Guidelines). EGs ). However, CAA section 111(d) c annot directly control emissions of criteria pollutants. And furthermore, a federal plan under CAA section 111(d)(2) does no more than prescribe emissions standards of the same stringency as the corresponding EGs . 40 CFR 60.27(e)(1). Consequently, CAA section 111(d) provides no discretion to set a standard in a federal plan based on potential impacts to endangered species of reduced criteria pollutant emissions. ESA s ection 7(a)(2) consultation is not required with respect to the proje cted reductions of criteria pollutant emissions. See 50 CFR 402.03; see also WildEarth Guardians v. U.S. Envt’l Protection Agency , 759 F.3d 1196, 1207

- 10 (10th Cir. 2014) ( the EPA has no duty to consult under section 7 of the ESA regarding hazardous air po llutant HAP controls that it did not require

-- and likely lacked authority to require

-- in a FIP for regional haze controls under section 169A of the CAA.). Finally, the EPA has also considered other potential effects of the rule (beyond reductions in a ir pollutants) and whether any***E.O. 12866 Review

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such effects are “caused by” the rule and “reasonably certain to occur” within the meaning of the ESA regulatory definition of the effects of an action. 50 CFR 402.02. The EPA recognizes , for instance, that questions may exis t whether decisions such as increased utilization of solar or wind power could have effects on listed species. The EPA received comments on the EGs asserting that because potential increased reliance on wind or solar power may be an element of Building Blo ck 3, and because wind and solar facilities may in some cases have effects on listed species, the EPA must consult under the ESA on this aspect of the rule. The EPA has carefully considered the comments and the correspondence from Congress as well as the case law and other materials cited in those documents. The EPA does not believe that the effects of potential future changes in the energy sector

– including increase d reliance on wind or solar power as a result of future potential actions by states or other implementing entities

– or any potential alterations in the operations of any particular facility would, at the time of promulgation of a federal plan, be sufficie ntly certain to occur so as to require ESA consultation on the rule. The EPA appreciates that the ESA regulations call for consultation where actions authorized, funded, or carried out by federal agencies may have indirect effects on listed species or desi gnated critical habitat. However, as noted above, indirect***E.O. 12866 Review

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effects must be caused by the action at issue and must be reasonably certain to occur. Under a federal plan , it is the EPA that would implement a
CAA section 111(d) plan. The EPA believes that eve n with this proposed federal plan , any effects on listed species or designated habitat are too uncertain to require consultation under ESA section 7. This is so for at least two reasons : (1) T he EPA cannot know with any certainty at this sta g e which states will actually become subject to a finally promulgated federal plan
. W hich affected EGUs , in which states, will be covered by this Plan can only be known after states have failed to submit a plan, or have had their plans disapproved by the EPA ; and (2) , th e federal plan as proposed will be implemented through some form of emissions trading. Emissions trading inherently provides maximum flexibility to individual affected EGUs to choose their method of compliance, including continuing to emit the relevant pol lutant at historical rates so long as the affected EGU holds sufficient credits or allowances. At this point , the EPA has no meaningful information to express in any more than the broadest terms how any particular affected EGU may choose to comply with the federal plan , should it be promulgated for them based on their location in an area not covered by an approved state plan. The Services have explained that ESA section 7(a)(2) was not intended to preclude federal actions based***E.O. 12866 Review

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on potential future speculative effects. 133 These are precisely the types of speculative future activities and effects currently at issue here. The EPA requests comment on its proposed conclusion that ESA section 7 consultation is not required for this acti on. The EPA will continue to evaluate the scope and potential effects of federal planning activities for this source category to the extent federal plans are needed and implemented in specific areas and over specific sources.
B. What are the Air Impacts ? The EPA anticipates significant emission reductions under the final guidelines th is propo s ed action for the utility power

133 See 51 FR at 19933 (describing effects that are “reasonably certain to occur” in the context of consideration of cumulative effects and distinguishing broader consideration that may be appropriate in applying a procedural statute such as the National Environm ental Policy Act, as opposed to a substantive provision such as ESA section 7(a)(2) that may prohibit certain federal actions); Endangered Species Consultation Handbook, U.S. Fish & Wildlife Service and National Marine Fisheries Service at 4

- 30(March 1998) (in the same context, describing indicators that an activity is reasonably certain to occur as including governmental approvals of the action or indications that such approval is imminent, project sponsors’ assurance that the action will proceed, obligati on of venture capital, or initiation of contracts; and noting that the more governmental administrative discretion remains to be exercised, the less there is reasonable certainty the action will proceed).***E.O. 12866 Review

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sector. Specifically, the EPA is proposing approaches in the final form of mass

- and rate

- based trading options that provide flexibilit y in implementing emission guidelines, the EPA has translated 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 source category

- specific
CO 2 emission perf ormance rates into equivalent state

- level rate

based and mass

- based CO 2 goals in order to maximize the range of choices that in the Clean Power Plan EG s . However, at the time of this proposal, the EPA has no information on whether any or how many states will have in developing their plans. require a federal plan or will adopt a model rule. Because of the range of choices available to states and the this lack of a priori knowledge about the specific choices states will make in r esponse to the final
go als, information, in the Regulatory Impact Analysis ( RIA ) for this final action presents proposal, the EPA chose to examine a scenario where all states of the contiguous U.S. will be regulated under a federal plan or will adopt the model rule. Additionally, we examine two alternative federal plan approach scenarios designed to achieve these goals, which we term the “
. The first federal plan approach assumes all states in the contiguous U.S. are regulated under a rate

- based ” illustrative***E.O. 12866 Review

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federal plan. The seco nd federal plan approach and the “ assumes all contiguous states are regulated under a mass - based ” illustrative federal plan approach
. 134 Under the rate

- based approach, when compared to 2005, CO 2 emissions are projected to be reduced by approximately 22
perc ent in 2020, 28 percent in 2025, and 32 percent in 2030. Under the mass

- based approach, when compared to 2005, CO 2 emissions are projected to be reduced by approximately 23 percent in 2020, 29 percent in 2025, and 32 percent in 2030. The final guidelines are proposal is projected to result in substantial co

- benefits through reductions of SO 2 , NO X and PM 2.5 that will have direct public health benefits by lowering ambient levels of these pollutants and ozone. Table [X] 12 and Table [X] show s 13 of this preamble show expected CO 2 and other air pollutant emissions in the base case and reductions under the final guidelines proposal for 2020, 2025, and 2030 for both rate

based and mass

- based approaches.
**Table [X]**  **. 12**  **. Summary of CO**  **2 and Other Air Pollutant Emission**  **Reductions from the Base Case under Rate -**  **Based**

134 It is important to note that the differences bet ween the analytical results for the rate

- based and mass

- based federal plan approaches presented may not be indicative of likely differences between the approaches. If one approach performs differently than the other on a given metric during a given time pe riod, this does not imply this will apply in all instances.***E.O. 12866 Review

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**Illustrative Federal**  **Plan Approach CO**  **2 (millions**  **short tons) SO**  **2 (thousand**  **short tons) NO**  **X (thousand**  **short tons) 2020**  Base Case 2,155 1,311 1,333 Rate

- based Federal Plan Approach 2,085 1,297 1,282 Emissions Reductions 69 14 50 **2025** Base Case 2,165 1,275 1,302 Rate

- based Federal Plan Approach 1,933 1,097 1,138 Emissions Reductions 232 178 165 **2030** Base Case 2,227 1,314 1,293 Rate

- based Federal Plan Approach 1,812 996 1,011 Emissions Reductions 415 318 282 Source: Integrated Planning Model, 201 5
. Note: Emissions may not sum due to rounding.
**Table [X]**  **. 13**  **. Summary of CO**  **2 and Other Air Pollutant Emission**  **Reductions from the Base Case under Mass -**  **Based Illustrative**  **Federal Plan Approach**  **CO 2**  **(million short tons)**  **SO 2**  **(thousand short tons)**  **NO X**  **(thousand short tons)**  **2020** Base Case 2,155 1,311 1,333 Mass

- based Federal Plan Approach 2,073 1,257 1,272 Emissions Reductions 81 54 60 **2025*****E.O. 12866 Review

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Base Case 2,165 1,275 1,302 Mass

- based Federal Plan Approach 1,901 1,090 1,100 Emissions Reductions 265 185 203 **2030** Base Case 2,227 1,314 1,293 Mass

- based Federal Plan Approach 1,814 1,034 1,015 Emissions Reductions 413 280 278 S ource: Integrated Planning Model, 201 5
. Note: Emissions may not sum due to rounding.
The reductions in Tables [X] 12 and [X] 13 of this preamble do not account for reductions in hazardous air pollutants ( HAPs ) HAP that may occur as a result of this rule. For instance, the fine particulate reductions presented above do not reflect all of the reductions in many heavy metal particulates.
C. What are the Energy Impacts ? The final guidelines proposed action may have important energy market implications. Table [X] 14 of this preamble presents a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate

- based and mass

- based illustrative federal plan approaches described in s ection VIII. C of this preamble and presented in the RIA for this proposal
. **Table [X]**  **. 14**  **. Summary Table of Important Energy Market Impacts**  **for Rate -**  **Based and Mass**  **- Based**  **Illustrative Federal**  **Plan Approaches (Percent Change from Base Case)**  **Rate -**  **Based Mass**  **- Based** ***E.O. 12866 Review

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**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%

These figures reflect the EPA’s illustrative modeling that presumes policies that lead to generation shifts and growing use of demand

- side energy efficiency DS

- EE and renewable electricity generation out to 2029. If states make different policy implementation choices are made than those modelled , impac ts could be different. For instance, if states implement renewable and/or demand

- side energy efficiency policies on a more aggressive time

- frame, impacts on natural gas and electricity prices would likely be less. Implementation of other measures not inclu ded in the BSER calculation or compliance modeling, such as nuclear uprates, transmission system***E.O. 12866 Review

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improvements, use of energy storage technologies or retrofit CCS, could also mitigate gas price and/or electricity price impacts. Energy market impacts from the guidelines are discussed more extensively in the RIA found in the docket for this rulemaking.
D. What are the Compliance Costs ? The compliance costs of this final proposed action are represented in this analysis as the change in electric power generation costs between the base case and the final rule in which s tates pursue a distinct set of strategies beyond the strategies taken in the base case to meet the terms of the fin al guidelines. The compliance costs estimates include cost estimates for demand

- side energy efficiency. The compliance assumptions

– and , therefore, the projected compliance costs

- set forth in this analysis are illustrative in nature and do not represent the full suite of compliance flexibilities s tates may ultimately pursue. The illustrative analysis is designed to reflect, to the extent possible, the scope and the nature of the final guidelines. However, there is considerable uncertainty with regards to the precise measures that states will adopt to meet the final requiremen ts, because there are considerable flexibilities afforded to the states in developing their state***E.O. 12866 Review

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plans. The incremental cost is the projected additional cost of complying with the guidelines modeled federal plan approaches described in s ection VIII.B in t his preamble and presented in the RIA for this proposal
. The incremental cost is the projected additional cost of complying with the proposed action in the year analyzed and includes the amortized cost of capital investment, needed new capacity, shifts bet ween or amongst various fuels, deployment of demand

- side energy efficiency DS

- EE programs, and other actions associated with compliance. These important dynamics are discussed in more detail in the RIA in the rulemaking docket. The EPA estimates the annual incremental compliance cost for the rate

- based federal plan approach for final emission guidelines to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 2030 , including the costs associated with monitoring, repor ting, and recordkeeping (MR&R)
. . The EPA estimates the annual incremental compliance cost for the mass

- based federal plan approach for final emission guidelines to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030 , including the costs associated with MR&R .

. More detailed cost estimates are available in the RIA included in the rulemaking docket.***E.O. 12866 Review

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E. What are the Economic and Employment Impacts ? The final standards are Based on the analysis presented in the RIA, t he proposed action is projected to result in certain changes to power system operation as a compliance with the standards. See Table [X] above 14 of this preamble for a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate

- based and mass

- based illustrative federal plan approaches described in Section VIII.B in this preamble and presented in the RIA
. It is important to note that the EPA’s modeling does not necessarily account for all of the factors that may influence business decisions regarding future coal

- fired capacity. Many power companies already factor a potential financial liability associated with carbon emissions into their long term capacity planning that would further influence business decisions to replace these aging assets with mode rn, and significantly cleaner , generation. The compliance modeling done to support the final rule assumes that overall electric demand will decrease as s tates ramp up programs that result in lower overall demand. Demand

side energy efficiency levels are ex pected to increase such that they achieve about a 7.8 percent reduction on overall electricity demand levels in 2030 under the final guidelines
.***E.O. 12866 Review

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Changes in price or demand for electricity, natural gas, and coal can impact markets for goods and services pro duced by sectors that use these energy inputs in the production process or supply those sectors. Changes in the cost of production may result in changes in prices, quantities produced, and profitability of affected firms. The EPA recognizes that these guid elines provide significant flexibilities and states implementing the guidelines may choose to mitigate impacts to some markets outside the utility power sector. Similarly, demand for new generation or demand

- side energy efficiency DS

- EE as a result of states implementing the guidelines can result in shifts in production and profitability for firms that supply those goods and services. Executive Order 13563 directs federal agencies to consider the effect of regulations on job creation an d employment. According to the Executive Order, “our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available

s cience.” (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. D uring the current economic***E.O. 12866 Review

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recovery While the economy continues to move toward full employment , employment impacts are of particular concern and questions may arise about their existence and magnitude. States have the responsibility and flexibility to implement policies and practices for compliance with the final guidelines
. Quantifying the associated employment impacts is complicated by the wide range of approaches that s tates may use. As such, The EPA’s employment analysis includes projected employment impacts associated with illustrative modeled federal plan approaches for these guidelines for the electric power industry, coal and natural gas production, and demand

- side energy efficiency DS

- EE activities. These projections are derived, in part, from a 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 estimates that these guidelines the proposed action could result in a net decrease of approximately 25,0 00 job

- years in 2025 for the final guidelines under the rate

- based illustrative 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 are 31,000 under the
rat e - based approach and 34,000 under the mass

- based approach. The a gency is also offering an illustrative calculation of***E.O. 12866 Review

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potential employment effects due to demand

- side energy efficiency DS

- EE programs. Employment impacts from demand

- side energy efficiency DS

- EE programs in 2030 could range from approximately 52,000 to 83,000 jobs under the final guidelines proposal
. By its nature, demand

- side energy efficiency DS

- EE reduces overall demand for electric power. The EPA recognizes as more efficiency is built in to the U.S. power system over time, lower fuel requirements may lead to fewer jobs in the coal and natural gas extraction sectors, as well as in fossil

- fuel fired EGU construction and operation than would otherwise have been expected. The EPA also recogniz es the fact that, in many cases, employment gains and losses that might be attributable to this rule would be expected to affect different sets of people. Moreover, workers who lose jobs in these sectors may find employment elsewhere just as workers employ ed in new jobs in these sectors may have been previously employed elsewhere. Therefore, the employment estimates reported in these sectors may include workers previously employed elsewhere. This analysis also does not capture potential economy

- wide impacts due to changes in prices (of fuel, electricity, labor, for example) or other factors such as improved labor productivity and reduced health care expenditures resulting from cleaner air. For these***E.O. 12866 Review

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reasons, the numbers reported here should not be interprete d as a net national employment impact.
F. What are the Benefits of the Proposed Action ? Implementing the final standards proposed action will generate benefits by reducing emissions of CO 2 and criteria pollutant precursors, including SO 2 , NO X , and directly emitted particles. SO 2 and NO X are precursors to PM 2.5 (particles smaller than 2.5 microns), and NO X is a precursor to ozone. The estimated benefits associated with these emission reductions are beyond those achieved by previous EPA rulemakings including t he Mercury and Air Toxics Standards rule. The health and welfare benefits from reducing air pollution are considered co

- benefits for these standards. this proposal
. For this rulemaking, we were only able to quantify the climate benefits from reduced emissio ns of CO 2 and the health co

- benefits associated with reduced exposure to
PM 2.5 and ozone. There are many additional benefits which we are not able to quantify, leading to an underestimate of monetized benefits. In summary, we estimate the total combined cl imate benefits and health co

- benefits for the rate

- based federal plan approach to be $3.5 to $4.6 billion in 2020, $18 to $28 billion in 2025, and $34 to $54 billion in 2030 (3 percent discount rate, 2011$). Total combined climate benefits and health co

be nefits for the mass

- based federal plan approach are estimated***E.O. 12866 Review

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to be $5.3 to $8.1 billion in 2020, $19 to $29 billion in 2025, and $32 to $48 billion in 2030 (3 percent discount rate, 2011$). A summary of the emission reductions and monetized benefits estim ated for this rule at all discount rates is provided in Tables [X] 15 through [X] 17 of this preamble.
**Table [**  **&&& ]**  **. 15**  **. Summary of the Monetized Global Climate Benefits**  **for the Final Guidelines**  **Proposal (**  **Billions of 2011$)**  **a Discount Rate** 

**(Statistic) Monetized Climate Benefits** 
**YEAR 2020**  **2025 2030**  **Rate -**  **based Federal Plan**  **Approach**

**CO 2**  **Reductions (million**  **short tons)** 69 232 415

5 percent (average SC

- CO 2 ) $0.80 $3.1 $6.4 3 percent (average SC

- CO 2 ) $2.8 $10 $20 2.5 percent (average SC

- CO 2 ) $4.1 $15 $29 3 percent (95 th percentile SC

- CO 2 ) $8.2 $31 $61
**Mass -**  **based Federal Plan**  **Approach**

**CO 2**  **Reductions (million**  **short tons)** 8 1 26 5 413***E.O. 12866 Review

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5 percent (average SC

- CO 2 ) $0.94 $3.6 $6.4 3 percent (average SC

- CO 2 ) $3.3 $12 $20 2.5 percent (average SC

- CO 2 ) $4.9 $17 $29 3 percent (95 th percentile SC

- CO 2 ) $9.7 $35 $60

a Climate benefit estimates reflect impacts from CO 2 emission changes in the analysis years presented in the table and do not account for changes in non

- CO 2 GHG emissions. These estimates are based on the global social cost of carbon ( SC

- CO 2 ) estimates for the analysis years and are rounded to two significant figures.

**Table [X]**  **. 16**  **. Summary of the Monetized Health Co**  **- Benefits in the**  **U.S. for the Final Guidel**  **ines Proposal**  **, Rate -**  **based Federal Plan**  **Approach ( Billions**  **of 2011$) a** 

**Pollutant National**  **Emission Reductions**  **(thousands**

**of short**

**tons) Monetized**  **Health Co**  

** benefits** **Monetized Health Co**  ****

**benefits (3 percent**  **discount) (7 percent**  **discount)**
**Rate -**  **based Federal Plan**  **Approach, 2020 PM**  **2.5 precursors**  **b**

**SO 2**  14 $0.44 to $0.99 $0.39 to $0.89
**NO X**  50 $0.14 to $0.33 $0.13 to $0.30 **Ozone precursor c** 

**NO X**  **(ozone season only)** 19 $0.12 to $0.52 $0.12 to $0.52***E.O. 12866 Review

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**Total Monetized Health Co -**  **benefits** $0.70 to $1.8 $0.64 to $1.7 **Total Monetized Health Co -**  **benefits combined wi**  **th Monetized Climate Benefits**  **d** $3.5 to $4.6 $3.5 to $4.5

**Rate -**  **based Federal Plan**  **Approach, 2025 PM**  **2.5 precursors**  **b**

**SO 2**  178 $6.4 to $14 $5.7 to $13
**NO X**  1 65 $0.56 to $1.3 $0.50 to $1.1 **Ozone precursor c** 

**NO X**  **(ozone season only)** 7 0 $0.49 to $2.1 $0.49 to $2.1 **Total Monetized Health Co -**  **benefits** $7.4 to $18 $6.7 to $16 **Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $18 to $28 $17 to $26

**Rate -**  **based Federal Plan**  **Approach, 2030 PM**  **2.5 precursors**  **b SO**  **2** 3 18 $12 to $28 $11 to $25
**NO X**  2 82 $1.0 to $2.3 $0.93 to $2.1 **Ozone precursor c**  **NO X**  **(ozone season only)**  1 18 $0.86 to $3.7 $0.86 to $3.7 **Total Monetized Health Co -**  **benefits** $14 to $34 $13 to $31 **Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $34 to $54 $33 to $51

a All estimates are rounded to two significant figures, so estimates may not sum. It is important to note that the***E.O. 12866 Review

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monetized co

- benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosyste m effects or visibility impairment. Air pollution health co

- benefits are estimated using regional benefit

- per - ton estimates for the contiguous U.S. b The monetized PM 2.5 co - benefits reflect the human health benefits associated with reducing exposure to PM 2 .5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The co

b enefits do not include the bene fi ts 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. Clean Power Plan EGs
. PM co

- benefits are shown as a range reflecting the use of two concentration

- response functions, with the lower end of the range based on a function from Krewski et al. (2009) and the upper end based on a function from Lepeule et al. (2012). 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 e stimates by particle type.

c The monetized ozone co - benefits reflect the human health benefits associated with reducing exposure to ozone through reductions of NO X during the ozone season. Ozone co

- benefits are shown as a range reflecting the use of several different concentration

- response functions, with the lower end of the range based on a function from Bell, et al. (2004) and the upper end based on a function from Levy, et al. (2005). Ozone co

benefits occur in the analysis year, so they are the s ame for all discount rates. d We estimate climate benefits associated with four different values of a one ton CO 2 reduction (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent) . Referred to as the social cost of carbon , each value increase s over time. For the purposes of this table, we show the***E.O. 12866 Review

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benefits associa ted with the model average at 3 percent discount rate, however we emphasize the importance and value of considering the full range of social cost of car bon values. We provide combined climate and health estimates based on additional discount rates in the RIA.

**Table [X]**  **. 17**  **. Summary of the Monetized Health Co**  **- Benefits in the**  **U.S. for the Final Guidelines**  **Proposal , Mass**  **- based**  **Federal Plan Approach (**  **Billions of 2011$)**  **a**

**Pollutant National**  **Emission Reductions**  **(thousands**

**of short**

**tons) Monetized**  **Health Co**  

** benefits** **Monetized Health Co**  ****

**benefits (3 percent**  **discount) (7 percent**  **discount)**
**Mass -**  **based Federal Plan**  **Approach, 2020 PM**  **2.5 precursors**  **b**

**SO 2**  54 $1.7 to $3.8 $1.5 to $3.4
**NO X**  60 $0.17 to $0.39 $0.16 to $0.36 **Ozone precursor c** 

**NO X**  **(ozone season only)** 23 $0.14 to $0.61 $0.14 to $0.61 **Total Monetized Health Co -**  **benefits** $2.0 to $4.8 $1.8 to $4.4 **Total Monetized Health Co -**  **benefits combined wi**  **th Monetized Climate Benefits**  **d** $5.3 to $8.1 $5.1 to $7.7

**Mass -**  **based Federal Plan**  **Approach, 2025 PM**  **2.5 precursors**  **b**

**SO 2**  185 $6.0 to $13 $5.4 to $12
**NO X**  203 $0.58 to $1.3 $0.52 to $1.2***E.O. 12866 Review

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**Ozone precursor c** 

**NO X**  **(ozone season only)** 88 $0.56 to $2.4 $0.56 to $2.4 **Total Monetized Health Co -**  **benefits** $7.1 to $17 $6.5 to $16 **Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $19 to $29 $18 to $27

**Mass -**  **based Federal Plan**  **Approach, 2030 PM**  **2.5 precursors**  **b SO**  **2** 280 $10 to $23 $9.0 to $20
**NO X**  27 8 $0.87 to $2.0 $0.79 to $1.8 **Ozone precursor c**  **NO X**  **(ozone season only)**  121 $0.82 to $3.5 $0.82 to $3.5 **Total Monetized Health Co -**  **benefits** $12 to $28 $11 to $26 **Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $32 to $48 $31 to $46

a All estimates are rounded to two significant figures, so estimates may not sum. It is important to note that the monetized co

- benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosyste m effects or visibility impairment. Air pollution health co

- benefits are estimated using regional benefit

- per - ton estimates for the contiguous U.S. b The monetized PM 2.5 co - benefits reflect the human health benefits associated with reducing exposure to PM 2 .5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The co

b enefits do not include the bene fi ts 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***E.O. 12866 Review

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the proposed rule. Clean Power Plan EGs
. PM co

- benefits are shown as a range reflecting the use of two concentration

- response functions, with the lower end of the range based on a function from Krewski et al. (2009) and the upper end based on a function from Lepeule et al. (2012). 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 e stimates by particle type.

c The monetized ozone co - benefits reflect the human health benefits associated with reducing exposure to ozone through reductions of NO X during the ozone season. Ozone co

- benefits are shown as a range reflecting the use of severa l different concentration

- response functions, with the lower end of the range based on a function from Bell, et al. (2004) and the upper end based on a function from Levy, et al. (2005). Ozone co

benefits occur in the analysis year, so they are the same fo r all discount rates. d We estimate climate benefits associated with four different values of a one ton CO 2 reduction (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent) . Referred to as the social cost of ca rbon , each value increase s over time. For the purposes of this table, we show the benefits associa ted with the model average at 3 percent discount rate, however we emphasize the importance and value of considering the full range of social cost of carbon va lues. We provide combined climate and health estimates based on additional discount rates in the RIA.
The EPA has used the social cost of carbon (SC

- CO 2 ) estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact***E.O. 12866 Review

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Analysis Under Executive Order 12866 (May 2013, Revised June Ju ly 2015) (“current TSD”) to analyze CO 2 climate impacts of this rulemaking. 135 We refer to these est imates, which were developed by the U.S. government, as “SC

- CO 2 estimates.” 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 clima te 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 t o assess the avoided damages as a result of regulatory actions (i.e., benefits of rulemakings that lead to an incremental reduction in

135 Docket ID EPA

- HQ

- OAR

- 2013

- 0495, 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 Prot ection 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: http://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

tsd

- fi nal

- july

- 2015.pdf
.***E.O. 12866 Review

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cumulative global CO 2 emissions). The SC

- CO 2 estimates used in this analysis were developed over many years, using the best science available, and with input from the public. Specifically, an interagency working group (IWG) that included the EPA and other executive branch agencies and offices used three integrated assessment models (IAMs) to develop the SC

- CO 2 estimates an d recommended four global values for use in regulatory analyses. The SC

- CO 2 estimates were first released in February 2010 and updated in 2013 using new versions of each IAM. The 2010 SC

- CO 2 Technical Support Document (2010 TSD) 136 provides a complete discus sion of the methods used to develop these estimates and the current TSD presents and discusses the 2013 update (including two recent

136 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 (February 2010). Also available at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/for

agencies/Social

- Cost

- of

- Carbon

- for

- RIA.pdf
.***E.O. 12866 Review

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minor corrections to the estimates). 137 The EPA received numerous comment s on the SC

- CO 2 estimates as part of this rulemaking. The comments covered a wide range of topics including the technical details of the modeling conducted to develop the SC

- CO 2 estimates , the aggregation and presentation of the SC

- CO 2 estimates , and the process by which the SC

- CO 2 estimates were derived. Many but not all commenters were supportive of the SC

- CO 2 and its application to this rulemaking. Commenters also provided constructive recommendations for potential opportunities to improve the SC

- CO 2 estimates in future updates. Many of these co mments were similar to those that OMB’s Office of Information and Regulatory Affairs received comments in response to a separate request for public comment on the

137 The current version of the TSD is available at: https://www .whitehouse.gov/sites/default/files/omb/inforeg/scc

response - to

- comments

- final

- july

- 2015.pdf, Docket ID EPA

- HQ

- OAR

2013

- 0495, Technical Support Document: Technical Update of the Social Cost of Carbon for Regu latory 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 E nergy, 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).***E.O. 12866 Review

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approach used to develop the estimates. After careful evaluation of the full range of comments submitted to OMB, the IWG continues to recommend the use of the SC

- CO 2 estimates in regulatory impact analysis RIA . 138 With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the National Academi es 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. The Academies review will be informed by the public comments received an d focus on the technical merits and challenges of potential approaches to improving the SC

- CO 2 estimates in future updates. See the EPA Response to Comments document for the complete response to comments received on SC

- CO 2 as part of this rulemaking.
Conc urrent with OMB’s publication of the response to
comments on SC

- CO 2 and announcement of the Academies process , OMB posted a revised TSD that includes two minor technical correcti ons to the current estimates. One technical correction addressed an inadverten t omission of climate change damages in the last year of analysis (2300) in one model and the second

138 See https://www.whitehouse.gov/omb/oira/social

- cost

- of

- carbon for additional details, including the OMB Response to Comments and the SC

- CO 2 TSDs.***E.O. 12866 Review

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addressed a minor in dexing error in another model. On average the revised SC

- CO 2 estimates are one dollar less than the mean
SC

- CO 2 estimates reported in t he November 2013 revision to the May 2013 TSD. The change in the estimates associated with the 95th percentile estimates when using a 3 percent discount rate is slightly larger, as those estimates are heavily influenced by the results from the model that w as affected by the indexing

error. The EPA, as a member of the IWG on the SC

- CO 2 , has carefully examined and evaluated the minor technical corrections in the revised TSD and the public comments submitted to OMB’s separate SC

- CO2 comment process. Additiona lly, the EPA has carefully examined and evaluated all comments received regarding the SC

CO2 through this rulemaking process. SC

- CO 2 comment process. The EPA concurs with the IWG’s conclusion that it is reasonable, and scientifically appropriate, to use the current SC

- CO 2 estimates for purposes of regulatory impact analysis RIA , including for this proceeding. The four SC

- CO 2 estimates are as follows: $1 2, $40, $60, and $120 per short ton of CO 2 emissions in the year 2020 (2011$). 139

139 The current version of the TSD is available at: https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

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The first three values are based on the average SC

- CO 2 from the three IAMs, at discount rates of 5, 3, and 2.5 percent, respectively. The SC

- CO 2 value at several discount rates are included because the literature shows that the SC

- CO 2 is quite sensitive to assumptions about the discount rate, and because no consensus exists on the appropriate rate to use in an intergenerational context (where costs and benefits are incurred by d ifferent generations). The fourth value is the 95 th percentile of the SC

- CO 2 from all three models at a 3 percent discount rate. It is included to represent higher

- than

- expected impacts from temperature change further out in the tails of the
SC

- CO 2 distrib ution (representing less likely, but potentially catastrophic, outcomes). There are limitations in the estimates of the benefits from the final emission guidelines t his proposal , including the omission of climate and other CO 2 related benefits that could no t be monetized. The 2010 TSD discusses 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

tsd

- final

- july

- 2015.pdf . The 2010 and 2013 TSDs present SC

- CO 2 in 2007$ per metric ton. The estimates were adjusted to (1) Short tons for using conversion factor 0.90718474 and (2) 2011$ using GDP Implicit Price Deflator, http://www.gpo.gov/fdsys/pkg/ECONI

2013

- 02/pdf/ECONI

- 2013

- 02

- Pg3.pdf
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incomplete treatment of adaptation and technological change,

unce rtainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently, IAMs do not assign value to all of the important impacts of CO 2 recognized in the literature, such as ocean acidification or potential tipping points, for various reasons, including the inherent difficulties in valuing non

- market impacts and the fact that the science incorporated into these models understandably lags behind the most recent research. 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. As previously noted, th e IWG plans to seek independent expert advice on technical opportunities to improve the SC

- CO 2 estimates from the Academies. The Academies process will help to ensure that the SC

- CO 2 estimates used by the federal government continue to reflect the best ava ilable science and methodologies. Additional details are provided in the TSDs. The health co

- benefits estimates represent the total monetized human health benefits for populations exposed to reduced PM 2.5 and ozone resultin g from emission reductions from
t he illustrative compliance strategy for the final standards. federal plan approaches examined in the RIA for this***E.O. 12866 Review

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proposal
. Unlike the global SC

- CO 2 estimates, the air pollution health co

- benefits are estimated for the contiguous U.S. only.
W e used a “benef it

- per - ton” approach to estimate the benefits of this rulemaking. To create the PM 2.5 benefit

- per - ton estimates, we conducted air quality modeling for an illustrative scenario reflecting the proposed standards Clean Power Plan EGs to convert
precursor emiss ions into changes in ambient PM 2.5 and ozone concentrations
. We then used these air quality modeling results in BenMAP 140 to calculate average regional benefit

- per - ton estimates using the health impact a ssumptions used in the PM NAAQS RIA 141 and Ozone NAAQS RIAs. 142 , 143 The three regions were the

140 http://www.epa.gov/airquality/benmap/index.html 141 U.S. Environmental Protection Agency (U.S. EPA). 2012. R egulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter
. Research Triangle Park, NC: Office of Air Quality Planning and Standards, Health and Environmental Impacts Division. (EPA document numbe r EPA

- 452/R

- 12

- 003, December). Available at: http://www.epa.gov/pm/2012/finalria.pdf
. 142 U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impact Analysis. Research Triangle Park, NC: Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Air Benefit and Cost Group Research. (EPA document number EPA

- 452/R

- 08

- 003, March). Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. 143 U.S. Environmental Protection Agency (U. S. EPA). 2010. Section***E.O. 12866 Review

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Eastern U.S., Western U.S., and California. To calculate the co

benefits for the final standards t his proposal , we multiplied the regional benefit

- per - ton estimates generated from modeling of the proposed Clean Power Plan EGs standards by the corresponding regional emission reductions for the final standards th is proposal
. 144 All benefit

- per - ton estimates reflect the geographic distribution of the modeled emissions for the proposed standards Clean Power Plan EGs , which may not exactly match the emission reductions in this final proposed 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. More information regarding the derivation of the benefit

- per - to n estimates is available in the Clean Power Plan Final Rule RIA.

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
. 144 U.S. Environmenta l Protection Agency. 2013. Technical support document: Estimating the benefit per ton of reducing PM 2.5 precursors from 17 sectors. Research Triangle Park, NC: Office of Air and Radiation, Office of Air Quality Planning and Standards, January. Available at : http://www.epa.gov/airquality/benmap/models/Source_Apportionment _BPT_TSD_1_31_13.pdf
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PM benefit

- per - ton values are generated us ing two concentration

- response functions, Krewski et al. (2009) 145 and Lepeule et al. (2012) 146
. 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. Even though we assume that all fine particles have equiva lent health effects, the benefit

per - ton estimates vary between PM 2.5 precursors depending on the location and magnitude of their impact on PM 2.5 concentrations , which drive population exposure. It is important to note that the magnitude of the PM 2.5 and

ozone co - benefits is largely driven by the concentration response function s for premature mortality and the value of a statistical life used to value reductions in premature mortality. For PM 2.5 , we use two key empirical studies, one based on the American Cancer Society cohort study (Krewski et al,

145 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. Health Effects Institute. (HEI Research Report number 140). Boston, MA: Health Effects Institute. 146 Lepeule, J.; F. Laden; D. Dockery; J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extende d Follow

- Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspective, 120(7), July, pp. 965

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2009) and one based on the extended Six Cities cohort study (Lepuele et al, 2012) . We present the PM 2.5 co - benefits results as a range based on benefit

- per - ton estimates calculated using the concentration

- respons e functions from these two epidemiology studies, but this range does not capture the full range of uncertainty inherent in the co

- benefits estimates. In the RIA for this rule, which is available in the docket, we also include
PM 2.5 co - benefits estimates us ing benefit

- per - ton estimates based

on expert judgments of the effect of PM 2.5 on premature mortality (Roman et al., 2008) 147 as a characterization of uncertainty regarding the PM 2.5 - mortality relationship. For the ozone co - benefits, we present the results a s a range reflecting benefit

- per - ton estimates which use s everal different concentration

- response functions for mortality, with the lower end of the range based on a benefit

- per - ton estimate using the function from Bell et al. (2004) 148 and the upper end based on a benefit

- per - ton estimate using the function from Levy et al.

147 Roman, H., et al. 2008. “Expert Judgment Assessment of the Mortality Impact of Changes in Ambient Fine Particulate Matter in the U.S.” Environmental Science & Technology , Vol. 42, No. 7, February, pp. 2268

– 2274. 148 Bell, M.L., et al. 2004. “Ozone and Short

- Term Mortality in 95 U.S. Urban Communities, 1987

- 2000.” Journal of the American Medical Association, 292(19), pp. 2372

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(2005)
. 149 Similar to PM 2.5 , the range of ozone co

- benefits does not capture the full range of inherent uncertainty. In this analysis, in estimating the benefits

- per - ton for
PM 2.5 precursors, the EPA assumes that the health impact function for fine particles is without a threshold. This is based on the conclusions of the EPA’s Integrated Science Assessment for Particulate Matter, 150 which evaluated the substantial body o f published scientific literature, reflecting thousands of epidemiology, toxicology, and clinical studies that documents the association between elevated PM 2.5 concentrations and adverse health effects, including increased premature mortality. This

assessm ent, which was twice reviewed by the EPA’s independent Science Advisory Board, concluded that the scientific literature consistently finds that a no

- threshold model most adequately portrays the PM

- mortality concentration

- response relationship.

149 Le vy, J.I., S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone exposure and mortality: an empiric Bayes metaregression analysis.” Epidemiology . 16(4): p. 458

- 68. 150 U.S. Environmental Protection Agency. 2009. Integrated Science Assessment for Particulate Matter (Final Report)
. Research Triangle Park, NC: National Center for Environmental Assessment, RTP Division. (EPA document number EPA

- 600

- R

- 08

- 139F, December). Available at: http://cfpub.epa.gov/ si / si_public_record_Report.cfm?dirEntryId=2 16546
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In general, we are more confident in the magnitude of the risks we estimate from simulated PM 2.5 concentrations that coincide with the bulk of the observed PM concentrations in the epidemiological studies that are used to estimate the benefits. Likewise, we are less confident in the risk we estimate from simulated PM 2.5 concentrations that fall below the bulk of the observed data in these studies. For this analysis, policy

- specific air quality data are not available, 151 and thus, we are unable to estimate the percentag e of premature mortality associated with this specific rule that is above the lowest measured PM 2.5 levels (LML) for the two PM 2.5 mortality epidemiology studies that form the basis for our analysis
. As a surrogate measure of mortality impacts above the
LML , we provide the percentage of the population exposed above the lowest measured PM 2.5 level (LML) in each of the two studies, using the estimates of baseline projected PM 2.5 from the air quality modeling for the proposed guidelines used to ca lculate the benefit

- per - ton estimates for the EGU sector. Using the Krewski et al. (2009) study, 88 percent of the population is exposed to annual mean PM 2.5 levels at or above the LML of 5.8 micrograms per cubic meter (μg/m 3 ). Using the Lepeule et al.

151 In addition, s ite

- specific emission reductions will depend upon how states implement the guidelines.***E.O. 12866 Review

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(20 12) study, 46 percent of the population is exposed above the LML of 8 μg/m 3
. It is important to note that baseline exposure is only one parameter in the health impact function, along with baseline incidence rates, population, and change in air quality.
Ev ery benefit 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 the air quality co

- benefit analysis for this rule provides a reasonable indication of the expected health benefits of the air pollution emission reductions for the illustrative analysis of the final standards this proposed action 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) 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. The 2012 PM 2.5 NAAQS benefits analysis provides an indication of the sensitivity of our results to various assumptions.***E.O. 12866 Review

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We note that the monetized co

- benefits estimates shown here do not include several important benefit categories, including exposure to SO 2 , NO X , and hazardous air pollutants HAP ( e.g ., mercury and hydrogen chloride), as well as ecosystem effects and visibility impairment. Although we do not have sufficient information or modeling available to provide monetized estimates for this rule, we i nclude a qualitative assessment of these unquantified benefits in the RIA for the final guidelines
. th is proposal
. In addition, in the RIA for the final standards th is proposal , 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 RIA for the proposed guidelines Clean Power Plan EGs , the benefits from reductions in directly emitted PM 2.5 were less than 10 percent of total monetized healt h co

- benefits across all scenarios and
years. For more information on the benefits analysis, please refer to the RIA for this rule, which is available in the rulemaking docket.

**IX. Community**  **and Environmental Justice Considerations**  In this section we provide an overview of the actions that the agency is taking to help ensure that vulnerable communities***E.O. 12866 Review

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are not disproportionately impacted by this rulemaking. As described in the Executive Summary, climate change is an environmental justice EJ issue. Low

- income communities and communities of color already overburdened with pollution are likely to be disproportionately affected by , and less resilient to, the impacts of climate change. This rulemaking will provide broad benefit to communities acr oss the nation, as its purpose is to reduce greenhouse gases GHGs , the most significant driver of climate change. While addressing climate change will provide broad benefits, it is particularly beneficial to low

- income populations and some communities of co lor (in particular, populations defined jointly by ethnic/racial characteristics and geographic location) where people are most vulnerable to the impacts of climate change (a more robust discussion of the impacts of climate change on vulnerable communities is provided in the Executive Order 12898 section XII X .J of this preamble). While climate change is a global phenomenon, the adverse effects of climate change can be very localized, as impacts such as storms, flooding, droughts, and the like are experience d in individual communities. Vulnerable communities also often receive more than their fair share of conventional air pollution, with the attendant adverse health impacts.***E.O. 12866 Review

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The changes in electricity generation that will result from this rule will further benefit communities by reducing existing air pollution that directly contributes to adverse localized health effects. Th ese air quality improvements will be achieved through th is rule because the electric generating units EGUs that emit the most greenhouse gases GHGs also have the highest emissions of conventional pollutants, such as SO 2 , NO x , fine particles , and HAP. These pollutants are known to contribute to adverse health outcomes, including the development of heart or lung diseases, such as asthma and br onchitis, increased susceptibility to respiratory and cardiac symptoms, greater numbers of emergency room visits and hospital admissions, and premature deaths
. 152 The EPA expects that the reductions in utilization of higher

- emitting units likely to occur dur ing the implementation of federal plans will produce significant reductions in emissions of conventional pollutants, particularly in those communities already overburdened by pollution, which are often low

- income communities, communities of color, and indi genous communities. These reductions will have beneficial effects on air quality and public health both locally and regionally. Further, this rulemaking complements other actions

152 Six Common Air Pollutants. http://www.epa.gov/oaqps001/urbanair/***E.O. 12866 Review

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already taken by the EPA to reduce conventional pollutant emissions and impro ve health outcomes for overburdened communities. By reducing millions of tons of CO 2 emissions that are contributing to global greenhouse gas GHG levels and providing strong leadership to encourage meaningful reductions by countries across the globe, this rule is a significant step to address health and economic impacts of climate change that will fall disproportionately on vulnerable communities. By reducing millions of tons of conventional air pollutants, this proposed rule will lead to better air quality and improved health in those communities. In the comment period for the CPP, we heard from many commenters who recognize and welcome tho se benef its. There are other ways in which the actions that result from this rulemaking may affect overburdened communities in positive or potentially adverse ways and we also heard about these from
commenters. While the agency expects overall emission decreases a s a result of this rulemaking, we recognize that some EGUs may operate more frequently . To the extent that we project increases in utilization as a result of this rulemaking, we expect these increases to occur generally in lower

- emitting NGCC units, which have minimal or no emissions of SO 2 and HAP, lower emissions of***E.O. 12866 Review

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particulate matter, and much lower emissions of NO x compared to higher

- emitting steam units. We acknowledge the concerns that have been raised on this point , but also the difficulty in anticipating prior to plan implementation where those impacts might occur. As described below, the EPA intends to conduct an assessment of whether and where emission increases may result from plan implementation and mitigate adv erse impacts, if any, in overburdened communities. In addition to the many positive anticipated health benefits of this rulemaking, it also will increase the use of clean energy and will encourage energy efficiency. EE . These changes in the electricity gene ration system, which are already occurring , but may be accelerated by this program, are expected to have other positive benefits for communities. The electricity sector is, and will continue to be, investing more in RE and EE. The construction of renewable generation and the implementation of energy efficiency EE programs such as residential weatherization will bring invest ment and employment opportunities to the communities where they take place. It is important to ensure that all communities share in these benefits. And while we estimate that the benefits of this program will greatly exceed its costs (as noted in the RIA for this rulemaking) , it is also important to ensure that to the***E.O. 12866 Review

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extent there are increases in electricity costs, that those do not fall d isproportionately on those least able to afford them. The EPA has engaged with community groups throughout this rulemaking and we received many comments on the issues outlined above from community groups, environmental justice EJ organizations, faith

- based organizations, public health organizations, and others. This input has informed this final rulemaking and prompted the EPA to consider other steps that the agency can take in the short and long term to assist states and stakehol ders to consider environmental justice EJ and impacts to communities in plan development and implementation. It has also prompted us to work with our federal partners to make sure that communities have information on federal resources available to assist t hem. We describe these resources below, as well as resources that the EPA will be providing to assist c ommunities in accessing EE/RE and financial assistance
programs. Finally, and importantly, we recognize that communities must be able to participate mea ningfully in the development of this rulemaking. In this section, we discuss the steps that the
EPA is going to be taking to assist communities in engaging with the agency throughout the comment period of this rulemaking.***E.O. 12866 Review

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A. Proximity Analysis The EPA is committed to ensuring that there is no disproportionate, adverse impact on overburdened communities as a result of this proposed rulemaking. To provide information fundamental to beginning that process, the EPA has conducted a proximity analysis for this p roposed rulemaking that summarizes demographic data on the communities located near power plants. 153 The EPA understands that, in order to prevent disproportionate ly high and adverse human health or environmental effects on these communities, both the agency and communities must have information on the communities living near facilities, including demographic data, and that accessing and using census data files requires expertise that some community groups may lack. Therefore, the EPA used census data from th e American Community Survey (ACS) 2008

- 2012 to conduct a proximity analysis that can be used by communities as they engage with the agency throughout the comment period of this rulemaking. The analysis and its results are presented in the EJ Screening Repo rt for the Clean Power Plan, which is located in the docket for this rulemaking
at EPA

- HQ

- OAR

- 2015

- 0199. The proximity analysis provides detailed demographic

153 The proximity analysis was conducted using the EPA’s environmental justice mapping and screening tool, EJSCREEN.***E.O. 12866 Review

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information on the communities located within a 3

- mile radius of each affected power plant in the United States. U.S . Included in the analysis is the breakdown by percentage of community characteristics such as income and minority status. The analysis shows a higher percentage of communities of color and low

- income communities living near power plants than national averages. It is important to note that the impacts of power plant emissions are not limited to a 3

- mile radius and the impacts of both potential increases and decreases in power plant emissions can be felt many miles away. Still, being aware of the characteristics of communities closest to power plants is a starting point in understanding how changes in the plant’s air emissions may affect the air quality experienced by some of those already experiencing environmental burdens. Although overal l there is a higher fraction of communities of color and low

- income populations living near power plants than national averages, there are differences between rural and urban power plants. There are many rural power plants that are located near small commu nities with high percentages of low

income populations and lower percentages of communities of color. In urban areas, nearby communities tend to be both low

income communities and communities of color. In light of this difference between rural and urban co mmunities proximate to***E.O. 12866 Review

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power plants and in order to adequately capture both the low

income and minority aspects central to environmental justice EJ considerations, we use the term s “vulnerable” or “overburdened” when referring to these communities. Our intent is for th e s e term s to be understood in an expansive sense, in order to capture the full scope of communities, including indigenous communities most often located in rural areas, that are centr al
to our environmental justice EJ and community considerations. As stated in the Executive Order 12898 discussion located in section XII X .J of this preamble, the EPA believes that all communities will benefit from this proposed rulemaking because this acti on 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 power plants. The EPA also believes that the information provided in the proximity analysis will promote engagement between vulnerable communities and the agency throughout the rulemaking process. In addition to pro viding the proximity analysis in the docket of this rulemaking, the EPA will make it publicly available on its Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s website ( ). W eb site ( http:// www.epa.gov/cleanpowerplan ). Furthermore, the EPA has also created an interactive mapping tool that illustrates where***E.O. 12866 Review

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power plants are located and provides information on a state level. This tool is available at:

www. http:// cleanpowerplanmaps.epa.gov/CleanPowerPlan/
. B. Community Engage ment in This Rulemaking Process The EPA has heard from vulnerable communities t hroughout the outreach process for the Clean Power Plan that it is imperative for communities to have an understanding of how rulemakings that target climate change work. They expressed a desire to know how these programs may benefit their communities and what the potential adverse impacts of the rule s may be on their communities. We intend to provide communities with the information that they need to engage with the agency throughout the comment period
. We have received feedback from communities that public hearings, webinars and in

- person meetings are the most effective ways to engage with them and to provide them with the information that they need to understand the rulemaking process. Therefore, for this rulemaking , in addition to conducting public hearings for all members of the American public (please see the dates section for information on the upcoming public hearings), the agency will hold a national webinar for communities in the early stages of the comment period. The goal of this webinar will be to walk communities through the highlights of the***E.O. 12866 Review

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preamble, so they have an understanding of how the rulemaking may potentially affect their communit ies and they will have the contextual information they need to actively engage with the agency throughout the comment period. Additionally, because we received positive feedback on the effectiveness of t he face

- to

- face meetings conducted on the regional level, each region will be offering an outreach meeting(s) for communities. The goal of these meetings is to build a level of understanding on this rulemaking to enable vulnerable communities to actively e ngage with the agency throughout the comment period. Furthermore, we will follow up on common issues raised during the outreach meetings with national conference calls, specifically targeted for vulnerable communities.
C. Providing Communities with Access to Additional Resources In section V.D
. of this preamble , we outline that we are seeking comment on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities. Furthermore, the EPA is seeking comment on how an low

- income community should be defined as eligible under this set

- aside. We also seek comment on how much of the set

- aside should be designated as targeted at over

- burdened communities. We also request comment on whether the methods of approval and***E.O. 12866 Review

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distrib ution of allowances to projects that benefit low

- income communities should differ , and if so, in what manner, from the methods that are proposed to apply to other RE projects. As discussed below, there are also many federal programs that can help low

- incom e populations access the benefits of renewable energy, energy efficiency RE , EE , and the economic benefits of a cleaner energy economy. In the coming months, the EPA will continue to provide information and resources for low

- income communities on existing federal, state, local, and other financial assistance programs to encourage EE/RE opportunities that are already available to communities. For example the EPA will provide a catalog of current or recent state and local programs that have successfully h elped communities adopt EE/RE measures. The goal of these resources is to help vulnerable communities gain the benefits of this rulemaking. The use of these RE/EE tools can also help low

- income households reduce their electricity

consum ption a nd bills. Additionally, as part of the resources that we will be providing low

- income communities, the EPA will provide information on the Adminstration’s Partnerships for Opportunity and Workforce and Economic Revitalization (POWER) Initative and other programs that specifically target economic development***E.O. 12866 Review

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assistance to communities affected by changes in the coal industry and the utility power sector. 154
D. Federal Programs and Resources Available to Communities
A. Federal Programs and Resources Available to Communities
Federal agencies have a history of bringing energy efficiency EE and renewable ene rgy RE to low

- income communities. Earlier this summer, the Administration announced a new initiative to scale up access to solar energy and cut energy bills for all Americans, in particular low

- and moderate

- income communities, and to create a more inclusive sol ar workforce. As part of this new initiative, the U.S. Department of Energy ( DOE ) , , the U.S. Department of Housing and Urban Development (HUD) , , U.S. Department of Agriculture (USDA) , , and the EPA launched a National Community Solar Partnership to unlock a ccess to solar energy for the nearly 50 percent of households and businesses that are renters or do not have adequate roof space to install solar systems, with a focus on low

- and moderate

income communities. The Administration also set a goal to install 300 megawatts ( MW ) of renewable energy RE in federally subsidized housing by 2020 and plants to provide technical assistance to make it easier to install solar energy on

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affordable housing, including clarifying how to use federal funding for energy efficien cy EE and renewable energy RE . To continue enhancing employment opportunities in the solar industry for all Americans, AmeriCorps is providing funding to deploy solar energy and create jobs in underserved communities, and DOE is working to expand solar energ y education and opportunities for job training.
These recent announcements build on the many existing federal programs and resources available to improve energy efficiency EE and accelerate the deployment of renewable energy RE in vulnerable communities. Some examples of these resources include: the Department of Energy’s DOE ’s Weatherization Assistance Program, Health and Human Service’s Low Income Home Energy Assistance Program, the Department of Agriculture’s Energy Efficiency and Conservation Loan Program, High Cost Energy Grant Program, and the Rural Housing Service’s Multi

- Family Housing Program.
HUD The U.S. Department of Housing and Urban Development supports energy efficiency EE improvements and the deployment of renewable energy RE on affordable housing through its Energy Efficient Mortgage P rogram, Multifamily Property Ass essed Clean Energy Pilot with the State of California, PowerSaver Program, and the use of Section 108 Commu nity Development Block***E.O. 12866 Review

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Grants. The Department o f Treasury provides several tax credits to support renewable energy RE development and energy efficiency EE in low

- income communities, including the New Markets Tax Credit Program and the Low

- Income Housing Tax Credit. The EPA ’s RE

- Powering America’s Land In itiative promotes the reuse of potentially contaminated lands, landfills and mine sites

– many of which are in low

- income communities

– for renewable energy RE through a combination of tailored redevelopment tools for communities and developers, as well as site

- specific technical support
. The EPA’s Green Power Partnership is increasing community use of renewable electricity across the country and in low

- income communities. The EPA partners with energy efficiency EE programs throughout the country that leverag e ENERGY STAR to deliver broad consumer
energy - saving benefits, of particular value to low

- income households who can least afford high energy bills. ENERGY STAR also works with houses of worship to reduce energy costs

– savings that can then be repurposed to their community mission, including programs and assistance to residents in low

- income communities
. The EPA will be working with these federal partners and others to ensure that states and vulnerable communities have access to information on these progra ms and their resources.***E.O. 12866 Review

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The federal government also has a number of programs to expand employment opportunities in the energy sector, including for underserved populations. Examples of these include HUD the U.S. Department of Housing and Urban Development , DOE, and the Department of Education’s “STEM, Energy, and Economic Development” program; DOE’s Diversity in Science and Technology Advances National Clean Energy in Solar (DISTANCE

- Solar) Program; Grid Engineering for Accelerated Renewable Energy Deploymen t (GEARED); the Department of Labor’s Trade Adjustment Assistance Community College and Career Training (TAACCCT), Apprenticeship USA Advancing Apprenticeships in the Energy Field, Job Corps Green Training and Greening of Centers, and YouthBuild; and the EPA’s Environmental Workforce Development and Job Training (EWDJT) program.
E. Co

- Pollutants Air quality in a given area is affected by emissions from nearby sources and may be influenced by emissions that travel hundreds of miles and mix with emissions from other sources. 155 In the Cross

- State Air Pollution Rule CSAPR the EPA used its authority to reduce emissions that significantly contribute to downwind exposures. The RIA for the final Cross

- State Air

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Pollution Rule CSAPR anticipates substantial health benefit s for the population across a wide region. Similarly, the EPA believes that, like the Cross

- State Air Pollution Rule CSAPR , this rulemaking will result in significant health benefits because it will reduce co

- pollutant emissions of SO 2 and NO x on a regional and national basis. 156 Thus, localized increases in NO x emissions may well be more than offset by NO x decreases elsewhere in the region that produce a net improvement in ozone and particulate concentrations across the area. Another effect of the final CO 2 emission standards for affected existing fossil fuel

- fired EGUs may be increased utilization of other, unmodified EGUs

- in particular , high efficiency gas

- fired EGUs

- with relatively low GHG emissions per unit of electrical output. These plants may opera te more hours during the year and could emit pollutants, including pollutants whose environmental effects would be localized and regional rather than global as is the case with GHG emissions. Changes in utilization already occur in response to energy deman ds and evolving energy sources, but the final CO 2 emission standards for affected existing fossil fuel

- fired EGUs can be expected to cause more such changes. Increased utilization of

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solid fossil fuel

- fired units generally would not increase peak
concentra tions of PM 2.5, NO x , or ozone around such EGUs to levels higher than those that are already occurring because peak hourly or daily emissions generally would not change; however, increased utilization may make periods of relatively high concentrations more frequent. It should be noted that the gas

fired sources likely to be dispatched more frequently have very low emissions of primary PM, SO 2, and HAP per unit of electrical output and that they must continue to comply with other CAA requirements that directl y address the conventional pollutants, including federal emission standards, rules included in state implementation plans SIPs , and conditions in title V operating permits, in addition to the guidelines in this final rulemaking. Therefore, local (or regiona l) air quality for these pollutants is not likely to be significantly affected. For natural gas

fired EGUs, the EPA found that regulation of HAP emissions “is not appropriate or necessary because the impacts due to HAP emissions from such units are negligi ble based on the results of the study documented in the utility RTC.” 157 Because gas

- fired EGUs emit essentially no mercury, increased utilization will not increase methyl mercury concentrations in water bodies near

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these affected EGUs. In studies done by DO E/NETL comparing cost and performance of coal

- and NGCC

- fired generation, they assumed
SO 2 , NO x , PM (and Hg) emissions to be “negligible.” Their studies predict NO x emissions from a NGCC unit to be approximately 10 times lower than a subcritical or supercritical coal

- fired boiler. 158 Many, although not all, NGCC units are also very well controlled for emissions of NO x through the application of after combustion control s such as selective catalytic reduction.
F. Assessing Impacts of Federal Plan Implementation It is important to the EPA that the implementation of federal plans be assessed in order to identify whether they cause any adverse impacts on communities already o verburdened by disproportionate environmental harms and risks . The EPA will conduct its own assessment during the implementation phase of this rulemaking to determine whether the implementation of federal plans and other air quality rules are, in fact, red ucing emissions and improving air quality in a ll areas and , or whether there are localized air quality impacts that need to be addressed under the Clean other CAA authorities
.

158 “Cost and Performance Baseline for Fossil Energy Plants Volume 1: Bituminous Coal and Natural Gas to Electricity” Rev 2a, September 2013 Revision 2, November 2010 D OE/NETL

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The EPA will provide trainings for communities on resources that they can use to assess localized impacts, especially effects of co

- pollutants, of plans on their communities. This training will include guidance in accessing the publicly available informati on that sources and states currently report that can help with ongoing assessments of federal plan impacts. For example, unit

- specific emissions data and air quality monitoring data are readily available. This information, together with the assessment that the EPA will conduct in the implementation phase of this rulemaking will enable the agency and communities to monitor any disproportionate emissions that may result in adverse impacts and address them.
G. The EPA ’s Continued Engagement The EPA is committed to helping ensure that this action will not have disproportionate adverse human health or environmental effects on vulnerable communities. Throughout the implementation phase of this rulemaking, the agency will continue to provide trainings and resources to assist communities and as they engage with the agency. The EPA, throug h its outreach efforts during the comment period, will continue to solicit feedback from communities on what they would like additional trainings and resources on. As described above, the EPA will assess the impacts of this***E.O. 12866 Review

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rulemaking during its implementation. The EPA will house this assessment, along with the proximity analysis and other information generated throughout the implementation process, on its Clean Power Plan (CPP) Commun ities Portal that will be linked to this rulemaking’s website ( ). W eb site ( http:// www.epa.gov/cleanpowerplan ). In addition, the EPA has expanded its set of resources that are being developed to help communities understand the breadth of policy options and programs that have successfully brought EE/RE to low

- income communities. The EPA is committed to continuing it s engagement with communities from the comment period of this rulemaking through federal plan implementation. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when crafting this rul emaking. 159 A more detailed discussion concerning the application of Executive Order 12898 in this rulemaking can be found in section XI X .J of this preamble. A summary of the EPA’s interactions with communities is in the EJ Screening Report for the Clean Power Plan,

159 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

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available in the docket of this rulemaking. Furthermore, the EPA’s responses to public comments, including comments received from communities, are provided in the response to comments documents located in the docket for this rulemaking.
In summary, the EPA in this proposed rulemaking has designed an integrative approach that helps to ensure that vulnerable communities are not disproportionately impacted by this rule. The proximity analysis that the agency has conducted is a central component of this approach. Not only is the proximity analysis a useful tool to help identify communities that may be impacted by this rulemaking; it will also help communities as they engage with the EPA throughout the comment period. It will help the EPA as we help low

- income communities access EE/RE and financial assistance programs. Finally, in order to continue to ensure that overburdened communities are not disproportionately impacted by this rule, the EPA will be conducting an assessment during the implementatio n phase of the effects of this and other rules on air quality.

**X. Statutory and Executive Order Reviews**  Additional information about these statutes and Executive Orders can be found at
. http:// www2.epa.gov/laws

regulations/laws

- and

- executive

- orders
.***E.O. 12866 Review

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A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review This final 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 asso ciated with this action. This analysis, which is contained in the “Regulatory Impact Analysis for Clean Power the Proposed Federal Plan Final Rule Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before Janua ry 8, 2014; Model Trading Rules; Amendments to Framework Regulations ” (EPA

- 452/R

- 15

- 003 00 6 , July 2015), is available in the docket and is briefly summarized in section XI VII I of this preamble. Consistent with Executive Order 12866 and Executive Order 135 63, the EPA estimated the costs and benefits for illustrative compliance two alternative federal plan approaches of to implementing the guidelines. proposed federal plan and model trading rules
. The final rule establishes: 1) carbon dioxide (CO 2 ) emission proposed action will achieve the same levels of emissions performance rates for two source categories of existing fossil fuel

- fired EGUs, fossil fuel

- fired electric***E.O. 12866 Review

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utility steam generating units and stationary combustion turbines, and 2) guidelines for th e development, submittal and implementation as required of state plans that implement under the CO 2 emission performance rates CAA section 111(d) EG s for the control of CO 2 . Actions taken to comply with the guidelines will also reduce the emissions of directl y - 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 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

based federal plan approaches presented in the 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 perio d, 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 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 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.***E.O. 12866 Review

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The EPA has used the social cost of carbon estimates presented in the Technical Sup port 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. In the final emission guidelines, the EPA has 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. Because of the range of choices available to states and the lack of a priori knowledge about the specific choices states will make in response to the final goals, the Regulatory Impact Analysis (RIA) for this rule analyzed two implementation scenarios designed to achieve these goals, which we term the “rate

- based” illustrative pla n approach and the “mass

- based” illustrative plan approach. It is very important to note that the differences between***E.O. 12866 Review

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the analytical results for the rate

- based and mass

- based illustrative plan approaches presented in the RIA may not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the final guidelines. Rather, the two sets of analyses are intended to illustrate two different approaches to accomplish the emission performance rates finalized in the Clean Power Plan Final 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 in all time periods in all places. The EPA estimates that, in 2020, the final guidelines proposal will yield monetized climate benefits (in 2011$) of approximately $2.8 billion for the rate

- based approach and $3.3 billion for the mass

- based 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 c o - 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 , illustrative compliance costs estimated by IPM and inclusive of de mand

- side energy efficiency 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***E.O. 12866 Review

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benefits (the difference between monet ized 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 averag e). The EPA estimates that, in 2025, the final guidelines proposal will yield monetized climate benefits (in 2011$) of approximately $10 billion for the rate

- based approach and $12 billion for the mass

- based 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 discount rate and $6.7 billion to $16 billion (2011$) for a 7 percent discount rate. For the mass

- based approach, the air p ollution 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 , illustrative compliance costs estimated by IPM and inclusive of demand side energy efficiency 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 differenc e 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 final guidelines proposal will yield monetized climate benefits (in 2011$) of approximately $20 billion for the rate

- based approach and $20 billion for the mass

- based approach (3 percent model average). For the rate

- based***E.O. 12866 Review

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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 , illustrative compliance costs estimated by IPM and inclusive of demand side energy efficiency DS

- EE program and participa nt 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 estima ted 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 [X] 18 and Table [X] 19 of this preamble provide the estimates of the climate benefits, health co

- benefits, compliance costs and net benefits of the final emission guidelines proposal for rate

- based and mass

- based illustrative federal plan approaches, respectively. **Table [X].**  **18 .**  **Summary of the Monetized Benefits, Compliance Costs, and Net Benefits for the**  **Final Guidelines Proposal**  **in 2020, 2025 and 2030**  **Under the Rate -**  **Based Illustrative**  **Federal Plan Approach [Billions**  **of 2011$] a** 
**Rate -**  **Based Approach*****E.O. 12866 Review

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**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 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***E.O. 12866 Review

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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 benefit estimates in this table are based on the average SC

- CO 2 estimate d 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 the RIA, climate benefits are also estimated using the other three SC

- CO 2 estimates (model average at 2.5 percent di scount 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 pollution health co

- benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The range reflects the use of concentration

- response functions from different epidemiology studies. 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 Clean Power Plan proposed rule. 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 par ticles, 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. d Total C osts are approximated by the illustrative compliance costs estimated using the Integrated Planning Model IPM for the final guidelines th is proposal and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and demand

- side energ y efficiency DS

- EE 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 RIA includes combined climate and health estimates based on addi tional discount rates.

**Table [X].**  **19 .**  **Summary of the Monetized Benefits, Compliance Costs, and Net Benefits for the**  **Final Guidelines Proposal**  **in 2020, 2025 and 2030** ***E.O. 12866 Review

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**Under the Mass -**  **Based Illustrative**  **Federal Plan Approach [Billions**  **of 2011$] a** 
**Mass -**  **Based Approach**  **2020 2025**  **2030 Climate**  **Benefits b**  5% discount rate $0.9 $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***E.O. 12866 Review

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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 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 the RIA, 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 pollution 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 Clean Power Plan proposed rule. The range reflects the use of concentration

- res ponse 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. d Total Costs are approximated by the illustrative compliance costs estimat ed using the Integrated Planning Model for the final guidelines this proposal and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and demand

- side energy efficiency DS

- EE program and participan t 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 RIA includes combined climate and health estimates based on additional discount rates. There are additional important benefits that the EPA could not monetize. Due to current***E.O. 12866 Review

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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 GHGs ( e.g ., nitrous oxide and methane) and co

benefits from reducing direct exposure to SO 2 , NO X , and hazardous air pollutants 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 final proposed action are substantial, and far exceed the costs. Additio nal details on benefits, costs, and net benefits estimates are provided in this th e RIA for this proposal

. B. Paperwork Reduction Act (PRA) [&&&based on preliminary analysis] 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 the EPA ICR number [ &&& placeholder for 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***E.O. 12866 Review

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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: Electr ic Utility Generating Units (79 &&&XX ( **[insert FR**  34830XXX; **number]** ; the Clean Power Plan) finalized on &&&July 31 August 3 , 2015. The information collection requirements in this proposed rule have been submit ted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The Information Collection Request ( ICR ) document prepared by the EPA has been assigned EPA ICR number &&&XX 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, t his proposed action would impose minimal new information collection burden on affected EGUs beyond what those af fected EGU s 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***E.O. 12866 Review

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pro visions 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 pro grams. 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 a gency 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 estima te 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 obl igations to respond in this period. The results of this “upper bound” estimate of federal plan burden are presented***E.O. 12866 Review

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below: Respondents/affected entities: 1,028 Respondents’s 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 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 collection of information unless it displ ays 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 a gency’s need for this information, the accuracy of the provided burden estimates and any suggested methods for minimizing respondent burden to the EPA using the docket identified at the beginning of this rule. You may also send your ICR

- related comments to OMB’s Office of Information and Regulatory Affairs via email to***E.O. 12866 Review

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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 **[insert date 30 days after date of**  **publication in the Federal Register]**  . The EPA will respond to any ICR

- related comments in the final rule.
C. Regulatory Flexibility Act (RFA) Pursuant to section 603 of the RFA , the EPA prepared an initial re gulatory flexibility analysis (IRFA) that examines the impact of the proposed rule on small entities along with regulatory alternatives that could minimize that impact
. The complete IRFA is available for review in with in the RIA in docket
EPA

- HQ

- OAR

- 2015

- 01 99 and is summarized here. [ &&& Insert summary of IRFA here ] The small entities subject to the requirements of this proposed rule may include privately

- owned and publicly

- owned entities, and rural electric cooperatives that are majority owners of affected EGUs. EPA conducted this regulatory flexibility analysis at the 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 Mo del (IPM) v.5.15, used in the RIA for this proposed rule. This analysis dr ew on parsed***E.O. 12866 Review

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unit

- level estimates using IPM results for 2030
. EPA identified 223 potentially affected EGUs owned by 74 small entities included in 2030 projections from EPA’s IPM v.5 .15 . 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 . Twenty

- four small entities are projected to have all of their potentially affected EGUs cease operation by 2030 in th is b ase c ase. EPA estimated net compliance costs for individual EGUs for the proposed rule using components for operating and annualized capital costs, fuel costs, demand

- side energy efficiency program costs, and revenue changes. This approach is consist ent with previous proposed power sector regulations, but also adds the additional component of change in demand

- side energy efficiency program costs. Investment in demand

- side energy efficiency results in lower electricity demand, and consequently fewer

em issions 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. For this analysis, EPA used the parsed unit

- level estimates to estimate three of the four components of the net compliance cost equation using IPM outputs : the change in operating and annualized capital costs, the change in fuel costs, and the change in revenue, where all***E.O. 12866 Review

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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. An a dditional analysis was performed outside of EPA’s IPM model to estimate the change in demand

- side energy efficiency program costs, based largely on I PM

- projected outputs. 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 operati on 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 t heir potentially affected EGUs from operation by 2030. Under the

mass - based federal plan approach, 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***E.O. 12866 Review

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ge neration 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. There are uncertainties and limitations in this analysis that may result in estimates that diverge from what we might see in reality. For example, a t 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 th e contiguous U.S. will be regulated under a federal plan. Another factor to consider is that e ntities 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 vie wed as likely being over

- estimates for this set of utilities. Other uncertainties and data limitations exist and are described in the complete IRFA available for review within the RIA. As discussed earlier in this preamble, the reporting, recordkeeping and other compliance requirements are most likely***E.O. 12866 Review

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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 f or affected EGUs. Owners of affected EGUs may be subject to other related rules. For example, o n 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 ma nufacturing 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.***E.O. 12866 Review

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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 regulatin g solid waste. As required by section 609(b) of the RFA, the EPA also convened a Small Business Advocacy Review (SBAR) Panel to obtain advice and recommendations from small entity representatives that potentially would be subj ect to the rule's requirements
. T he SBAR Panel evaluated the assembled materials and small

entity comments on issues related to elements of an IRFA. A copy of the full SBAR Panel R eport is available in the rulemaking docket. The EPA also considered whether the separate changes that

we are proposing to make, as explained in s ection VII of this preamble above, to the framework regulations in s ubpart B of
p art 60 of the CAA regulations would have any impacts on small entities. Since these changes only modify and enhance the procedures that the Administrator will follow in processing state plans and promulgating a federal plan, and do not alter the rules or requirements that states or regulated entities must follow, the agency does not believe that there will be economic impacts on small ent ities from this portion of this proposal.***E.O. 12866 Review

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After considering the economic impacts of the proposed changes to 40 CFR 60.27, I certify those changes will not have a significant economic impact on a substantial number of small entities.

D. Unfunded Mandates Ref orm Act (UMRA) [&&&based on preliminary analysis] This action contains a federal mandate under UMRA, 2 U.S.C. 1531

– - 1538, that may 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. Accordingly, the EPA has prepared the written statement required under section 202 of UMRA This federal plan will apply only to those EGUs located in states that do not submit approvable state plans, which is included a subset of the EGUs considered in the docket RIA for this action and briefly summarized here. [ &&& Insert a concise summary the final EGs (see RIA for f urther discussion of impacts). Because it is impossible to deter mine 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 written statement including a brief description Agency has done substantial
outr each to government entities as part of both the***E.O. 12866 Review

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intergovernmental consultation.] 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 d o additional outreach with government entities between now and the final rule. Additionally, the EPA has determined that this action may significantly or uniquely affect small governments. The EPA consulted with small governments concerning the is not subje ct to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect them **.** 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***E.O. 12866 Review

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apply section 111 of the CAA to the r egulation 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.

E. Executive Order 13132: Federalism [&&&based on preliminary analysis] Under Exec utive Order 13132, the EPA may not issue an action that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the federal government provides the fu nds necessary to pay the direct compliance costs incurred by state and local governments, or the EPA consults with state and local officials early in the process of developing the proposed action. The EPA has concluded that this action may have federalism implications, because it may imp ose substantial direct compliance costs on state or local governments, and the federal government will not provide the funds necessary to pay those costs. As discussed in the Supporting Statement found in the docket for this rulemaking, [&&& Insert text co nsistent with PRA analysis]
. The EPA The EPA believes that this proposed rule may be of significant interest to state and local governments due to its***E.O. 12866 Review

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relationship with the Clean Power Plan EGs. Therefore, the EPA has determined that consultations with s tate 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 perfo rmance 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) de scribing the most pressing issues raised in
pre - proposal and post

- proposal comments will be forthcoming with the final rule Clean Power Plan EGs , as required by section 6(b) of Executive Order 13132. In the spirit of Executive Order 13132, and consistent wi th 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.***E.O. 12866 Review

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F. Executive Order 13175: Consultation and Coordination with Indian T ribal 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 United States 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 co uld 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***E.O. 12866 Review

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plan rulemaking m ay 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 Supp lemental Proposal for Indian Country and U.S. Territories. Addtionally Add i tionally , 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 Nove mber 19, 2014, in Phoenix, Arizonia. At the public hearing the agency received oral comments from community members representing a number of tribes and a number of tribal officals. 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 Clean Power Plan rulemaking. EGs . Additionally, the EPA engaged in meaningful dialogue with tribal stakeholders to obtain their f eedback in the pre

propsal prop o sal stages of this rulemaking. We provided an update***E.O. 12866 Review

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on this proposed rulemaking on the May 28, 2015, National Tribal Air Association (NTAA) and the EPA Air Policy call. Additionally, staff attended the National Tribal Forum conference on May 20, 2015 and provided an overview of th e Clean Power Plan and explained that the agency would be proposing a fededral plan . certification is included in the docket for this action. federal plan
. Consistent with previous rulemakings impact ing 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. T he EPA specifically solicits additional fe edback 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 emission guidelines. EG s . 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 communties, communities of color, , and indigenous communities . The acti o ns that the agency will be tak ing ng tak ing

are outlined in section XI IX of this preamble.***E.O. 12866 Review

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G. 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 environm ental health or safety risks that may disproportionately affect children. The EPA believes that the CO 2 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.
H. 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 supp ly, 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 reduct ion in coal

- fired electricity generation as a result of this rule. The EPA projects that utility power sector delivered natural gas***E.O. 12866 Review

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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. The analysis is available in the RIA, which is in the public docket.
I. National Technology Transfer and Advancement Act (NTTAA) This proposed action does not involve technical standards.

J. 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 environmental justice. EJ . Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice 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 environmental justice EJ

as the fair treatment and meaningful involvement of all people regardless of race, colo r, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies. The EPA has this***E.O. 12866 Review

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goal for all communities and persons across this Nation. It will be achieved when everyone enj oys 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 b e 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 livi ng alone, and/or indigenous populations dependent on one or a few resources. See sections
XX X .F and XX X .G of 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 summarizes the strong scientific evidence in the major assessm ent reports by***E.O. 12866 Review

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the U.S. Global Change Research Program (USGCRP), , the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council (NRC) of the National Academies that the potential impacts of climate change raise environmental justi ce 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 su bsistence 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 s hifts in the range or abundance of wild species crucial to their livelihoods and well

- being. The most recent assessments continue to strengthen***E.O. 12866 Review

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scientific understanding of climate change risks to minority populations and low

- income populations in the Unit ed States U.S . 160 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 communi ties of color may be uniquely vulnerable to climate

160 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, Adaptatio n, 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

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change health impacts in the United States U.S . These reports find that certain climate change related impacts

— including heat waves, degraded air quality, and extreme weather events

— have disproportionate e ffects on low

- income populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location) , raising environmental justice 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

- be ing, and ways of life of indigenous peoples in the United States. 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 c ommunities 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 add ition to reducing CO 2 emissions, the guidelines finalized in this rulemaking would reduce other emissions from***E.O. 12866 Review

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affected EGUs that reduce generation due to higher adoption of energy efficiency EE and renewable energy RE . These emission reductions will include SO 2 and NO x , which form ambient PM 2.5 and ozone in the atmosphere, and hazardous air pollutants ( HAP ), , such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 NAAQS, 161 the EPA identified low

- income populations as being a vulnera ble population for experiencing adverse health effects related to PM exposures. Low

- income populations have been generally found to have a higher prevalence of pre

- existing diseases, limited access to medical treatment, and increased nutritional deficienci es, which can increase this population’s susceptibility to PM

- related effects. 162 I n areas where this rulemaking reduces exposure to
PM 2.5 , ozone, and methylmercury, low

- income populations will also benefit from such emissions reductions. The RIA for this

ru lemaking, included in the docket for this rulemaking, provides additional information regarding the health and ecosystem

161 “National Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013). 162 U.S. Env ironmental 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?dirEntry Id =216546 .***E.O. 12866 Review

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effects associated with these emission reductions. Additionally, as outlined in the community and environmental justice EJ considerations section IX of this 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 consulte d its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when determining what actions to take. 163 As described in the community and environmental justice EJ considerations section of this preamble the EPA al so conducted a proximity analysis, which is available in the docket of this rulemaking and is discussed in section IX
. of this preamb l e . Additionally, as outlined in sections I and IX of this preamble the EPA has engaged meaningfully with communities throughout the development of the CPP and has devised a robust outreach strategy for continual engagemen t throughout this rulemaking.

163 Guidance on Considering Environmental Justice During the Development of Regulatory Actions. http:// www. epa.gov/environmentaljustice/resources/policy/conside ring

- ej

- in

- rulemaking

- g uide

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**List of Subject in 40 CFR Part 62** Enviro nmental protection, Administrative practice and procedure, Air pollution control, Intergovernmental relations, Reporting and recordkeeping requirements.

Dated: _________________.

________________________ Gina McCarthy, Administrator.