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EO12866_CPP Federal Plan 2060 AS47 NPRM_ 20150 702 20150 7 27

**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 Rule**  **s; Amendments to Framework Regulations** 

**AGENCY:** Environmental Protection Agency (EPA)
. .
**ACTION:** Proposed Rule.
**SUMMARY:** In this action, the Enviro nmental Protection Agency (EPA) is proposing a federal plan to implement the greenhouse
gas e mission g uidelines (EGs) 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 [&&&] as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (the Clean Power Plan). This proposal presents two approaches to a federal plan for sta tes and other jurisdictions that do not adopt and submit to the EPA in a timely manner an approvable plan : a rate

- based emission trading program and a mass

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

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program. These proposals also constitute proposed model trading rule s that st ates can adopt or tailor for implementation of the 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 &&& for steam

- fired EGUs and a standard of &&& for natural gas

- fired combined cycle units , and provide guidance and criteria for the development of approvable state plans . The purpose of the proposed federal plan is to establish requirements directly applicable to a state’s affected EGUs that meet the BSER in order to achieve reductions in carb on 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 in the final EGs will be equivalent whether implemented through a state plan or a federal plan
. The EPA is also pro posing enhancements to the section 111(d) framework 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 summer 2016
. **DATES:** Comments . Comments must be received on or before **[ insert** ***E.O. 12866 Review

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**date 45**  **days** FROM DATE OF **after publication in the**  **Federal Register**  **]**
. Public Hearing . If anyone contacts the EPA by [INSERT DATE 10 DAYS FROM DATE OF PUBLICATION IN THE **FEDERAL REGISTER** ] requesting t o speak at a public hearing, the EPA will hold a public hearing on [INSERT DATE 15 DAYS FROM DATE OF PUBLICATION OF THIS PROPOSED RULE IN THE **FEDERAL REGISTER** ]. Public Hearing
. The EPA will be holding XX X [insert number of hearings he r e ] public hearings on the proposed federal plan. The hearings will be held to accept oral comment s on the proposed federal plan. The hearings will be held on XXX, 2015 , in XXX, XXX, 2015 , in XXX, and XXX, 2015 , in XXX. 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 www.regulations.gov : Follow t he 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

- 0 199
. • Mail : Send your comments to: EPA Docket Center (EPA/DC), Environmental Protection Agency, Mailcode: 28221T, 1200 Pennsylvania Ave., NW, Washington, DC 20460, Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
.***E.O. 12866 Review

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We request that a separate copy also be sent to the contact person identified below (see **FOR FURTHER INFORMATION CONTACT**  ).
• Hand Delivery : Deliver your comments to: EPA Docket Center (EPA/DC), 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 normal hours of operation (8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays) and special arrangements should be made for deliveries of boxed information. Instruction s : 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 www.regulations.gov, incl uding any personal information provided, unless the comment includes information claimed to be confidential business information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through www.regulations.gov or email. The www.regulations.gov web 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 comment. If you sen d an email comment directly to the EPA without going through www.regulations.gov, your email address will be automatically captured and included as part of the comment that is placed in***E.O. 12866 Review

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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 contact 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 fo r clarification, the EPA may not be able to consider your comment. Electronic files 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] public hearin gs 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. The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p.m. (local time). T here will be a lunch 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 hearing, please use the online registration form available at www.epa.gov/cleanpowe rplan . For questions regarding registration, please contact XXXX at (919)541

– XXXX. The last day to pre

- register to speak at the hearing will be XXX, 2015. Additionally, requests to speak will be taken the day of the hearing at the hearing registration desk , although preferences on speaking times may not be able to be fulfilled.***E.O. 12866 Review

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Please note that registration requests received before the hearing 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 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. If you require the service of a translator or special accommodations such as audio description, we ask that you pre

- register for the hearing by XXX, 2015, as we may not be able to arrange such accommodations without advance notice. Please note that any updates made to any aspect of the hearings will be posted online at http:// www.epa.gov/cleanpowerplan Public Hearing : If a public hearing is held, it will be held at [&&& XX ] . Contact Ms. Aimee St. Clair at (919) 541

- 1063 , to request a hearing, to request to speak at a public hearing or to determine if a hearing will be held. If no one contacts the EPA requesting to speak at a public hearing concerning this proposed rule by [INSERT DATE 10 DAYS FROM DATE OF PUBLICATION OF THIS PROPOSED RULE IN THE **FEDERAL REGISTER**  ], the hearing will be cancelled without further notice. . While the EPA expects the hearing to go forward as set forth above, we ask that you monitor our Web site or contact XXXX at***E.O. 12866 Review

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(919) 541

– XXXX to determine if there are any updates 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 will provide interested parties the opp ortunity 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 th e presentations at that time. 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 statements will be included in the docket for the rulemaking. The EPA plans for the hearing to run on schedule; however, due to on

- site schedule fluctuations, actual speaking times may shift slightly. Because these hearings are being held at 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 in 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 identific ation 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 build ing, 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 wil l 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 s upports 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 . , pocket knives) or drugs or drug par aphernalia ( 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 : The 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 docke t are listed in the 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 www.regulations.gov or in hard copy at the EPA Docket Center EPA/DC, EPA WJC West Building, Room 3334, 1301 Constitution Ave., NW, Washin gton, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding holidays. The telephone 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) 5 41

- 3470; email address: jones.toni@epa.gov
. **SUPPLEMENTARY INFORMATION:** Acronyms and Abbreviations
. The following acronyms 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 CAA Clean Air Act CBI Confidential Business Information CDX Central Data Exchange CFR Code of Federal Regulations CAIR Clean Air Interstate Rule CO 2 Carbon dioxide CSAPR Cross

- state Air Po llution Rule EG Emission Guidelines eGRID Emissions & Generation Resource Integrated Database EGU Electric Generating Unit EIA Energy Information Administration EJ Environmental Justice EM&V Evaluation, Measurement, and Verification EPA Environmental Protection Agency FIP Federal Implementation Plan GHG Greenhouse Gas HAP Hazardous Air Pollutants MWh Megawatt Hours NAAQS National Ambient Air Quality Standards NAICS North American Industrial Classification System NEEDS National Electric Energy Data Sys tem NTAA National Tribal Air Association***E.O. 12866 Review

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NO X Nitrogen Oxides OAP Office of Atmospheric Programs OAQPS Office of Air Quality Planning and Standards PPA Power Purchase Ag reement PRA Paperwork Reduction Act PV P hotovoltaics RFA Regulatory Flexibility Act RGG I Regional Greenhouse Gas Initiative SBA Small Business Administration SIP State Implementation Plan The Court U.S. Court of Appeals for the District of Columbia Circuit TTN Technology Transfer Network UMRA Unfunded Mandates Reform Act of 1995 WWW Worldwide 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 Should I Consider as I Prepar e my Comments? **II. Background Information** A. What is the Regulatory Development Background for this Proposed Rule? B. What is the Purpose of this Proposed Ru le? 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 Ba ckstop **III. Federal Plan Structure to Achieve Reductions** A. Overview B. Inventory of Emissions***E.O. 12866 Review

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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 with Clean Air Act A uthority **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 Penaltie s H. Emissions Monitoring and Reporting Requirements **VI. Implementation of the Federal Plan and Delegation** A. Delegation of the Federal Plan and Retained Aut horities B. Mechanisms for Transferring Authority 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.O. 12866 Review

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E. Update to Deadlines for EPA Actions F. Proposed Interpretation regardi ng 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 Communities E. Co

- Pollutants F. Assessing Impacts of Federal Plan Implementation G. The EPA’s Continued Engagement **X. Statut ory 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 (PR A) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act (UMRA) E. Executive Order 13132: Federalism F. Execut ive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks H. Executive O rder 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act (NTTAA) J. Executive Order 12898: Federal Actions to Ad dress***E.O. 12866 Review

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Environmental Justice in Minority Populations and Low

- Income Populations

**I. General Information** 
A. Executive Summary
In t he Clean Air Act , Congress created a partnership between the E nvironmental P rotection A gency EPA and the states . Under section 111(d) of the Clean Air Act ( CAA ) , t he Environmental Protection Agency ( EPA ) EPA establishes emission targets 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 the emission targets standards of performance to their sources
. that meet the BSER level of performance
. T he EPA has promulgated the se Emission Guidelines ( EGs ) under section 111(d), which sets

source - level C O 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 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***E.O. 12866 Review

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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 ap proval, or , in lieu of plans, 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 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 t o 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 stakeho lders 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.***E.O. 12866 Review

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Accordingly, the EPA proposes a federal plan under section 111(d) of the CAA for the control of CO 2 , a greenhouse gas pollutant, from certain large emitting fossil

- fuel fired power plants , in the event that some states do not adopt their own plans
. Specifically, the EPA is proposing approaches in the form of mass

- and rate

- based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs
. 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 performance as required of state plans under the EGs. The EPA will only promulgate a final 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 proposes four discrete actions : ( 1) a rate

- based fede ral plan for 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 reg ulatory text of each federal***E.O. 12866 Review

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plan and the corresponding model trading rule is identical
. , except as indicated otherwise within the text of the model rule (for instance, 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 tradin g rules in summer 2016 . The EPA will only finalize a federal plan for a given state in the event that the
state fails to does not submit an approvable plan by the deadlines specified in the final EGs and the EPA takes action finding that the state has faile d to submit a plan, or disapproving a submitted plan because it does not meet the requirements of the EGs
. 1 Indeed, states may simply choose to

1 For simplicity, at times this notice 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 approaches, th e rate

based 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 seri es of state

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), wh ere a single rule promulgated multiple FIPs.***E.O. 12866 Review

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accept a federal plan for their sources rather than undertake the development of a plan of their own by not subm itting a state plan
. Under today’s proposal this propos ed rule , 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 is strongly considering taking cur rently intends to finalize a single approach ( i.e., either the mass

based or rate

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

- based trading , should be selected if we opt to finalize a single approach. It is the EPA’s intention to give the states as much opportunity as p ossible to set their own course for carrying out the EGs. Even where a federal plan is put in place for a particular state, that 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 , states may take a full or partial delegation of administrative aspects of the federal plan in order to become the primary implementers. And as discussed in section &&&, S ection s V.E and VII.A , states may submit partial state***E.O. 12866 Review

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plans in order to take over the implementation of a portion of a federal plan. For instance, in a mass

- based trading program, the agency proposes to allow states to submit partial state plans t o replace the federal plan all owance - 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 t hat states may adopt complementary measures outside of CAA programming to facilitate compliance and lower costs that could benefit power generators and consumers, directly or indirectly.
A state program that adheres to the model trading rule provisions spe cified 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 approach described here. 2 Additionally,

2 For example, in the context of a mass

- or rate

- based trading program, a state may submit a plan a with alternative components other than those described, so long as the program includes each of the requireme nts and the state satisfactorily demonstrates in***E.O. 12866 Review

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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 federal plan. The model trading rule s serves as a mechani sm to create 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 as proposed. Thus , the proposed rule would ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented , either by the states in th e first instance, or by the EPA where needed. The agency is proposing a finding that it is necessary or appropriate to implement a section 111(d) federal plan for the affected EGUs located in Indian country. CO 2 emission performance rates for these facilit ies were finalized in the EGs. Tribes generally may seek “treatment as a state” (TAS) and submit a

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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tribal plan to implement CAA programs, including programs under 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. Therefore, as discussed in &&& S ection VI.D, we are proposing a necessary or appropria te finding. This n otice also proposes certain enhancements to the
process and timing for state submittals and EPA action in the 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 section 111(d) rules
. These changes clarify the availability of certain procedural mechanisms similar to those av ailable under 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 fo r 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 raised in the Clean Power Plan proposal regarding whether a reconstructio n or modification that***E.O. 12866 Review

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is subject to a section 111(b) standard mo ves an existing source out of a section 111(d) program. These proposed changes are discussed in &&& S ection VII. The agency intends to finalize these changes earlier than the finalization of t he 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 the reliability of the electrical grid , and , importantly,

on . The agency gave extensive consideration to impacts on vulnerable communities, particularly low

- income communities and , communities of color
. , and indigenous communities
. These considerations are generally discussed in &&§ions III, VII I, IX, and X. 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 p roposal. In section &&& X , the agency explains how it has conducted or intends to conduct all other statutory or executive order reviews that apply to this proposed action. The EPA also explains in this notice how it proposes to take into consideration the “remaining useful liv e s ” of affected EGUs in***E.O. 12866 Review

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the design of the proposed federal plan, as discussed below in section &&& III.H . The agency considered the impacts this action could have on the electricity grid and developed options for compliance that
are cost

- effective and ensure 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

- and 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

- state

- , regional

- , or national level
. As a result, compliance strategies 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 uninterru pted supply of affordable and reliable electricity. This flexibility is especially valuable 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. We also reviewed impacts that this action could have on the environment and the need to ensure environmental integrity of***E.O. 12866 Review

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the program as well as avoid unintended environmental impacts. We took m easures to ensure that the reductions in carbon emissions this plan will achieve are real, and not just 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 ei ther 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 section 111(d) program
. We consider ed whether 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 w hy 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 also 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 G uidelines, the EPA emphasized the impor tance***E.O. 12866 Review

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of state actions to ensure that in developing their respective compliance plans the states addressed the concerns and priorities of overburdened vulnerable communities
. In the process of 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 overburdened 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, this information will be useful in helping overburdened 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 overburdened vulnerable communities, which are outlined in the community and environmental justice considerations section IX.B of this preamble
. B. Organization and A pproach for t his P roposed R ule
In today’s this action, the EPA is proposing a federal plan to implement the Clean Power Plan EGs for affected fossil fuel

-***E.O. 12866 Review

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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 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 flexibil ity 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 August 31, 2016 (or later, if extensions are granted) 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 of 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 both model rule o ptions presented in today’s proposal this propos ed rule by summer 2016, prior to the deadline for state submittals. The EPA is currently considering finaliz ing only intends to finaliz e a single approach

— i.e., either a rate

- based or a***E.O. 12866 Review

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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, ensure efficient administration of the program, and simplify com pliance options for affected
EGUs. However, the EPA recognizes that W e invite comment on which approach would be appropriate to finalize for all states. Some stakeholders have suggested there could be utility in the availability of both approaches based on the unique circumstances of particular states. Therefore, we are inviting
comment on whether the agency should T he EPA recognizes that it remains potentially possible to finalize only one a different approach for all states that may become subject to the to a federal plan (and which approach that should be) , or whether a
rate

- based or mass

- based approach should be selected based on the unique in some circumstances of each state , but believes that in general, and consistent with prior federal trading programs

s uch as CSAPR, creating a single, broad program has the most advantages
. The stringency of the proposed federal plan is the same as the CO 2 emission performance rates established for affected EGUs in the EGs . As explained in the final EGs, the EPA determin ed the CO 2 emission performance rates through the application of the***E.O. 12866 Review

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best system of emission reduction (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 today’s 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, ar e presented in Table 1. [ &&& insert Table here?]These numbers are the same as those established for states in the final EGs . The emission standards that the EPA proposes to apply to each affected EGU in the federal plan are derived directly from these numb ers. 1. The Rate

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

- based emissions trading program. In a rate

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

3 The agency recognizes that the “remaining useful lives” of facilities subject to a 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 proposes to consider it, is discussed in &&§ion III.G below.***E.O. 12866 Review

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representing a zero

- emitting megawatt hour (MWh), to bring their rate of emissions into compliance. ERCs may be generat ed 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 Section IV of the Preamble. 2. The Mass

- based Approach The second approach 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 that each state according to the mass

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

– less
two three proposed allowance set

- asides

– to the affected EGUs based on their historic generation. Al lowances 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 respective emissions at the end of a given

c ompliance period. The EPA is also proposing as a part of the***E.O. 12866 Review

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mass - based approach two three set

- asi de s of allowances : one ( 1) for a Clean Energy Incentive Program; (2) to support renewable energy projects ; and the other ( 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 provisions. The mass

- based approach is explained in greater de ta il in Section V of the Preamble. 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]
. In today’s this action, the EPA is also proposing a number of changes to the framework 111(d) regulations of Subpart B of 40 CFR p art 60 , subpart B . These generally are intended to provide enhancements to the proce ss for state plan submissions and the timing of EPA actions related to state plans and the federal plan
. Specifically, the EPA proposes six changes , to include: (1) partial approval/disapproval mechanisms similar to section 110(k)(3); ( 2 ) a conditional app roval mechanism similar to section 110(k)(4 ) ; ); ( 3 ) a mechanism for the EPA to make calls for plan revisions similar to the "SIP

- call" provisions of***E.O. 12866 Review

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Section 110(k)(5); ( 4 ) an error correction mechanism similar to section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar
to section 110(k)(1) and (2); and (6) updates to the deadlines for EPA action. These proposed changes are explained in greater detail in Section &&& V II of the Preambl e. 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 section 111(d) rules. The EPA intends to finalize these changes earlier than the finalization of the model tra ding rules.
C. Who Does the Proposed Action Apply to ?
R egulated Entities. E xisting fossil fuel

- fired electric generating unit s ( affected EGU s ) covered by the final Clean Power Plan Emission Guidelines 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 EGUs are those that were in operation or had commenced construction on or before January 8, 2014 4
. The following NAICS codes could

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, and that 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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apply as shown in Tabl e 1 below: **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 op erated establishments are classified according 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 criteria in 40 CFR &&& 62. XXX to 62. XXX 6 0
. 5845 and 6 0
. 5850 of subpart MMM being proposed today 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***E.O. 12866 Review

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the final Clean Power Plan Emission Guidelines ( EGs )
. . Additionally , the applicability of the federal plan is consiste nt with the EGs , where an affected EGU subject to the federal plan is any steam generating unit, IGCC, integrated gasificatio n combined cycle unit ( IGCC ) , or stationary combustion turbine 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 or IGCC, must serve a generator capable of selling greater than 25 MW to a utility power distribution system, have a base load rating greater than 260 GJ/hr (250 MMBtu/hr) heat input of fossil fuel (eith er alone or in combination with any other fuel), and historically 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, the unit must m eet the definition of a combined cycle or combined heat and power combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, have a base

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

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

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load rating of greater than 260 GJ/h (250 MMBtu/hr), and histo rically have combusted more than 90 percent natural gas on a heat input basis on 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 federal plan ha s 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 the a Federal Register notice announcing 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

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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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 acti ons to reduce GHG emissions, and in accordance with the Presidential Memorandum 7 , as well as the benefit of providing state state s with model trading rule options to consider as they prepare their state plans, the EPA is proposing this rulemaking concurrent ly with the Administrator’s signing and promulgation of the final Clean Power Plan EGs. 40 CFR part 62 is updated only once per year. Thus, if 40 CFR part 62 does not indicate that your state has an approved and effective plan after the compliance date has passed requiring state plan submittal , you should contact your state environmental agency’s A ir D irector or your EPA Regional Office (see Table &&& XXX in section II.D of this preamble) to determine if approval occurred since publication of the most recent version of 40 CFR part 62.

7 Presidential Memorandum

— Power Sector Carbon Pollution Standards, June 25, 2013. www.whitehous e.gov/the

- press - office/2013/06/25/ presidential

- memorandum

- power - sector

- carbonpollution

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

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D. What Should I Consider as I Prepare my Comments ? Submitting CBI Do not submit information that you consider to be CBI electronically through 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. EPA, 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 information claimed as CBI must be submitted for inclusion in the public docket. Information marked as CBI will not be disclosed except in accordance with pr ocedures set forth in 40 CFR part 2. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the **FOR FURTHER INFORMATION CONTACT**  section. 2. Docket . The docket number for the proposed action (40 CFR***E.O. 12866 Review

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p art 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 through the Technology Transfer Network (TTN) web site. Following signature, the EPA will post a copy of the proposed action at http:// www.epa .gov/airtoxics/XX . The TTN provides information and technology exchange in various areas of air pollution control. Additional information is also available at the same web site.

**II. Background Information** 
A. What is the R egulatory D evelopment B ackground for this
P roposed R ule? On &&& July 31 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, 2016 , a state plan that i mplements the emission guidelines. EGs . States may also make initial plan submittals in lieu of a complete state plan , in which case extensions can be***E.O. 12866 Review

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granted (40 CFR &&& ). 8 As discussed in S ection &&& VI.D of this preamble, Indian Tribes may, but are not required to, submit Tribal plans. Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 9 section 111 of the
CAA and 40 CFR 60.27 require the EPA to develop, implement, and enforce a f ederal plan for existing EGUs located in that state . In addition, section 301(d)(2) authorizes the Administrator to treat an Indian Tribe in the same manner as a state for this EGU requirement. See 40 CFR 49.3 ; see also ‘‘Indian Tribes: Air Quality Planning and Management,’’ hereafter ‘‘Tribal Authority Rule,’’ ( 63 FR 7254, February 12, 1998 )
. As discussed in Section VI.D 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

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 p rocess 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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found to have failed to submit a plan, or had their plan disapproved by the EPA. For some states in this situation , the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of sectio n 111 of the CAA are implemented until they can get an approved plan in place
. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves as two proposed model trading rule s which
states can adopt or tailor for adoption as their state plan. The 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 scope for this action
. B. What is the Purpose of this Proposed Rule ? The purpose of this action is t wo - fold: (1) t o co - propose two appro aches 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 deve loping their own plans.***E.O. 12866 Review

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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 for existing EGUs. States with affected EGUs
are to submit state plans or make initial submittals to the EPA by August 31, 2016 that ar e at least as protective as the EG s . 10 States without a ny 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 find s 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 this federal plan , see section II.D.1 below.

10 State s may request extensions of up to two years as part of a complete initial section 111(d) submission.***E.O. 12866 Review

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2. Model Trading Rule The EPA is also proposing the fed eral 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 approaches as a final model trading rule, and a state adopts a 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 requirements are set forth in the final CPP EGs and framework regulations of 40 CFR Part 60, subpart B. For instance, they include a formal lett er 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 notice participation under 40 CFR 60.23, have been met.***E.O. 12866 Review

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In further support of state use of the model rules, 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

are 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 trading rule, so long as they still meet the requirements of the EGs. If the state chooses to tailor or modify the model trading rule

– for instance, 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 and the state would need have to be conducted. 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 scope 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 relevant only to the proposed model trading rule and not to the***E.O. 12866 Review

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federal plan as such. Recognizing the amount of time 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 it may take for some states be able to go through their decision making processes, the EPA intends to approve or “conditionally approve ” state plans that adopt one of the model trading rules as proposed . This provides states an immediate additional pathway to an ultimately approvable state plan. The condition for approval of a state plan based on one of the proposed model rules, is that t he state commit to adopt are substantially similar, but not identical to, the final model trading rule, when it is finalized, or submit materials explaining why any changes to the final rule are not being adopted, and demonstrating that rules. Ultimately, s tate plans must meet the requirements of the EGs for approvability. Thus, a conditional approval would be based on a condition that the state plan based on the proposed model trading rule continues 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 section 111(d) framework regulations. See &&& S ection VII . B . )***E.O. 12866 Review

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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, 2016. As provided in the EGs, stat es have the option of not submitting a full state plan , but rather making an initial submittal, in order to obtain an extension of two years before submitting a full state plan for EPA approval. The EPA believes it could be beneficial for coordination purp oses if a state that is interested in adopting one of the model trading rules and intends to make an initial submittal rather than submit a full plan next August were to indicate this , and which one, in their submittal. This is not an additional requiremen t beyond what the EGs require for 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 multi

- 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***E.O. 12866 Review

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integrate a range of functions that ensure an uninterrupted supply of affordable and reliable electricity

– and, for the past severa l decades, 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 performs. In addition, c onsistency of requirements benefits the affected EGUs, as well as the st ates and the EPA as administrators and implementers of a trading program. States of course remain free 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 seei ng a model state plan or trading rule prior to 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***E.O. 12866 Review

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addition, some states hav e 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 , which, again, also serves as the proposed federal plan , addresses th e s e policy interests
. The approach of proposing model trading rule s that are identical in all key respects to proposed federal plan s that may be promulgated later, is consistent with prior section 111(d) and section 110 rulemakings. For example, the NOx SIP Call mode l rule at 40 CFR part 96 (63 FR 57356; Oct. 27, 1998) was identical in all meaningful respects with the Federal NOx Budget
T rading Program at 40 CFR 97 (65 FR 2674; Jan. 18, 2000). And the Clean Air Interstate Rule (CAIR) model rule in Part 96 (70 FR 25339 ; May 12, 2005) was identical in all meaningful respects with the federal CAIR in Part 97 (71 FR 25396; April 28, 2006). 11 While these identical programs for model rules and FIPs were finalized in separate parts of the Code of Federal Regulations, the EPA d oes not see any reason that it could not just as easily propose the federal plan as the model trading rule in the same

11 We also note that historically under the section 111(d)/129 rules, the content of EGs and their corresponding federal plans have had significant overlap.***E.O. 12866 Review

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section of the CFR. 12 If a federal plan were to be finalized for a given state at a later time, this would be reflected in Part 62 by cros s - reference , along with any modifications or adjustments that may be appropriate at the time of actual promulgation of a federal plan
. **Table 3. Regional Office Contacts**

**Region Regional contact**  **Phone S**  **tates and**  **protectorates** Region I [&&&] [&&&] Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont Region II New York, New Jersey, Puerto Rico, Virgin Islands Region III Virginia, Delaware, District of Columbia, Maryland, Pennsylvania, West Virginia Region IV Florida, Georgia, North Carolina, Alabama,

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** Kentucky, Mississippi, South Carolina, Tennessee Region V Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio Region VI &&& &&& Arkansas, Louisiana, New Mexico, Oklahoma, Texas Region VII &&& &&& Iowa, Kansas, Missouri, Nebraska Region VIII &&& &&& Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming Region IX &&& &&& Arizona, California, Hawaii, Nevada, American Samoa, Guam, Northern Mariana Islands Region X &&& &&& Alaska, Idaho, Oregon, Washington***E.O. 12866 Review

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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 section 301. A f ederal Plan under CAA section 111(d) appl ies , implement s and enforce s standards of perform ance for affected EGUs
. &&& Under the Clean Power Plan EG , state plans will be due on [ August 31 , 2016]. States are also allowed to seek a two year extension for a final plan submittal , upon submitting a satisfactory initial submittal by the same deadline
. See 40 CFR 60.5755, 60.5760(b). If a state fails
to does not submit a final state plan or initial submittal, 13 or

13 Indeed, states may simply choose to accept a federal plan in lieu of undertak ing to develop 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***E.O. 12866 Review

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if either a final state plan or an initial submittal , does not meet the requirements of the EG , the agency will take the appropriate steps to finalize and implement a federal plan to 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 approval of the state p lan by the EPA , the federal plan will no longer apply to the affected EGUs covered by the state Plan. See
&&& 40 CFR 60.5720.

D. Timing of EPA Actions on the Model Trading Rules, F ederal
P lan , and other Proposed Actions Today’s 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

“primary re sponsibility” for air pollution prevention and control, CAA section 101(a)(3), states are in no way penalized for not submitting a plan under section 111(d). Rather, the EPA steps into the shoes of the state to carry out the 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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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. 14 If the EPA finalizes the model trading rules in that timeframe, the only di rect 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 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 final 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 and 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

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

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federal plans on the other (which we currently intend to do
state

- by

- state upon our taking predicate action on states’
p lans)
. 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 section 111(d) . For more detailed discussion of these changes, see &&&Section V II of th is
P reamble.
. This aspect of today’s 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 model trading rule and the federal plan
. Under the framework regulations and th e final EG s , at 40 CFR Part 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 months from the date of a state's submission to approve or disapprove that state ’s plan. The EPA will have twelve 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 months from the date of a state’s submission to notify a state that its submittal does not meet completeness criteria and constitutes a failure to submit a plan
. In the case of initial submittals under 60. 5760, 576 5 , the***E.O. 12866 Review

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EPA will have 60 days from August 31 , 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 months from the date of a state's initial submittal to promulgate a federal plan for from the affected EGUs in states 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 section 111(d)(2) and section 110(c), the EPA may promulgate a final federal plan for a state immediately upon making a finding of failure to submit a complete state plan or initial submittal, or upon making a finding of final disapproval of a state plan. Congress gave the EPA authority in section 111(d)(2), as it did in 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 Federal Implementation Plan FIP “at any time” within the two

- year limit of 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 . . .***E.O. 12866 Review

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.” Id
. Where, as here,
. , I t is essential to implement plans for the control of emission s of carbon dioxide expeditiously , and avoid unnecessary delay. Among other reasons, this will provide affected EGUs regulatory certainty , and avoid any unnecessary delay and will assist the regulated entities as well as t hose 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 plan or their plan s are found unsatisfactory
. In addition, this will assist the regulated entities as well as those authorities with responsibility for ensuring grid reli ability to have as much time as possible to plan for the 2022 compliance start date set in the EGs. It is the agency’s intention to promulgate federal plans promptly for states who do not submit plans or initial submittals by August 31 of next year. Howeve r, 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. Further, States remain free

- and EPA in fact encourages States

- to submit***E.O. 12866 Review

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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. However, in doing so, the agency and States 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 n ot 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, 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, actu ally 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 Part 62 and would be ministerial in nature . It would likely provide that the affected EGUs in each such

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 are subject to a federal plan and would then cross

reference or incorporate by reference the substantive provisions of one of the final model trading rules, two subparts proposed toda y (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. ; 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 trading rule could function well as the federally enforceable “backstop” that the EGs require to be included in “state measures” type state plans. 16 ( The proposed federal plan does not itself require a “backstop” because it relies on an “emission sta ndard s ” approach, rather than a “state measures” approach , as delineated in the final EGs .) The conditions and requirements for the

16 We are aware 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 program under 40 CFR 41.309 of the Regional Haze Rule).***E.O. 12866 Review

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federally enforceable backstop in a state measures approach are discussed in detail in the final EGs. See &&&Section VIII.C. 4.b and &&&VIII.C.4.c.2. 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 plan 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 emission guidelines EGs , and identify all necessary state administra tive 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 performa nce 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***E.O. 12866 Review

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&&& II.B 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 this 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 tradin g rules 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 a ccount for any prior emission performance 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 emissi on 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***E.O. 12866 Review

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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 w hich an emissions standard in the form of an allowable rate of emissions, or an allowance system, is imposed and federally enforceable on the affected EGUs. The EPA may also handle the administration of the trading program for states utilizing the model tr ading rule. However, even though the backstop may take the form of an EPA

- administered, federally

- enforceable trading rule , this does not mean that a federal plan has been put into effect . The state retains all of its rights and responsibilities with respect to the implementation and enforcement 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 t hey may be owners and operators of affected EGUs )
. 17 In

17 See Reno v. Condon , 528 U.S. 141, 151 (2000). State officials***E.O. 12866 Review

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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 111(d), and similar to a FIP or an approved SIP under 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. 741 3 ( a )

- ( h ) , and section 304, 42 U.S.C. 7 604
. This means that t he Administrator and the state have 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 pursuant to CAA section 304.

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 notice. These changes are discussed in Section &&&VII below. These changes are not a component of the proposed federal plan or the EGs. Although these changes do not alter the de adlines 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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**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
. In the proposed mass - based federal

- plan trading program , this would mean that affected EGUs in a state covered by the federal plan could use , as a compliance instrument, an allowance distributed in any other state covered by 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 could use , as a compliance instrument, an ERC issued in any other state cove red by 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 state covered by the
rate

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

- for

- interstate

-***E.O. 12866 Review

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

- for

- interstate

- trading plans. The EPA proposes to allow interstate trading between s ources affected EGUs in state s covered by the proposed federal plan s and sources affected EGUs in state s covered by state plans under the following conditions , which are discussed further below the list :

• 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 could can link to mass

- based trading program s only, and rate

- based trading programs could 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 )
.***E.O. 12866 Review

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The EPA proposes that interst ate ERC trading could occur both i) 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, and ii) 2 ) from sources affected EGUs in such state

plan

- covered state s to sources 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 registration, 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 tradin g c ould occur in both dir ections, i.e., from affected EGUs in state s covered by the mass

- based***E.O. 12866 Review

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

- based federal plan the EPA proposes to issue allowances in short tons , th us a condition of linkage to the federal plan is that a state plan must 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 linkages to state plans that use metric tons may include tracking system design , and stipulation of which parties convert allowance v alues and at what stage of compliance 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

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

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mass - based trading federal plan with any state that has an approved mass - based trading state plan meeting the proposed conditions for linkages and that use s an EPA

- designated allowance tracking systems system that is interoperable with an
EPA

- administered allowance tracking system. The EPA also requests comment on a registration requirement for linking to an
EPA

- designated tracking system, as noted above for the rate

based approach. 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 approvabl e for linking to other state plans . Th os e requirements include accounting adjustments for net import and export of allowances [&&& cite to final (Clean Power Plan EGs preamble section ]. VIII )
. In this proposed rule, the proposed approach to link from the mass

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

- affected emission sources. The EPA requests comment on this proposed approach. The EPA believes that a broad trading region provides greater opporunities oppor t unities for cost

- effective implementation of reductions compared to trading limited to a***E.O. 12866 Review

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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 allowance 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 ERC 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, for the rate

- based and mass

- based approaches, respectively
. 2. Interstate Effe cts and Addressing Potential Leakage
The final E mission G uidelines EGs reco gnized that emission reduction measures will likely have impacts beyond their***E.O. 12866 Review

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borders across states and across categories of generation because of the interstate nature dynamic flow of power on the regional grid ( see final emission guidelines EGs Sec. VIII. L for a detailed discussion of interstate effects and addressing potential leakage ). Interstate effects and leakage c ould interfere with meeting reduction obligations under federal and state plans, usually because of dynamics resulting from the regional grid existing in combination with differences in state

based characteristics, including the portfolio of affected EGUs within a particular state, the availability of eligible state
measures, existing policies in the state and the cost of compliance in the state. ). In the final G uidelines EG s , the EPA acknowledged that some amount of interstate movement of generation will inevitably be present and unavoidable and may affect how affecte d EGUs achieve the applicable CO 2 emission performance rates or state 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 moveement of generation should be minimized. The final guidelines also discussed how the use of the sub

- categorized uniform emission rates for steam and gas , and the state plan requirements ( particularl y their approach to***E.O. 12866 Review

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ac counting for measures that cross state boundaries ) , serve to reduce the risk of interstate effects. movement of generation should be minimized. The final guidelines The final specify the concern of leakage, which is defined in Sec. VII.D 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 standards of performa nce in the form of the subcategory

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

- based plan approaches must address leakage, because the nature of the mass goals create d differing incentive s to run for affected existing EGUs and fo r new

sources , which could result new sources running more and producing more emissions
. These circumstances are much less likely to be present under a rate

- based plan approach , where both affected EGUs and new sources face similar incentives to

run . By re quiring plan components that address leakage, the final EGs ensure that mass goals are an equivalent alternative to the subcategories CO 2 performance rates and rate

- based goals. Sec. VII.D of the final EGs details the requirement for addressing leakage and why it is needed, and Sec. VIII.J***E.O. 12866 Review

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specifies options for 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 allocation approaches to address leakage , specifically t hrough establishing an output

based allocation set

- aside and a set

- aside that encourages the installation of RE . These proposed strategies are detailed in Sec. V.D of this proposal.

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 forgone 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 perf ormance 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 situatio ns where a n affected EGU in a rate

- based state counts the MWh from measures located in a***E.O. 12866 Review

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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 counting MWh that resulted in CO 2 emission reductions in a mass

- based state. The proposed rate

based approach, in accordance with the final guidelines , requires that restricts ERC issuance for any emission re duction measures located in a mass

- based state, except for RE. RE measures 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 electricity generated is delivered with rate

- based state have contracted for the intention delivery of the RE generation that occurs in a mass

- based state to meet load in that state. a rate

- based state
. As part of this federal pla n, we are proposing that t his can be demonstrated through : 1) the provision of a power delivery contract or power purchase agreement in which an entity in the rate

- based state contracts for the supply of the MWhs in question and 2) providing documentation t hat 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***E.O. 12866 Review

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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 to reference that the MWh submitted

are achieved by an approved project located in a mass

- based
state. The EPA requests comment on this approach. megawatt

- hours 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 approach , if RE located in a mass

based state receive s mass - based set

- aside allowances for any generation , that generation is not eligible to be issued ERCs in
a rate

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

- based system: RE providers that receive mass - based set

- aside allowances for their generation are barred from having ERCs issued for that generation in a rate

- based state. Under the proposed mass - based approach, dou ble counting due to interstate effects is minimized because compliance with mass goals is based only on stack emissions . However, mass

- based states face the problem of generation shifting to unaffected sources , particularly new generation , if the plan does not include new***E.O. 12866 Review

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generation under a cap ) that operate within the state but outside of the mass cap . This is much less of a concern under rate

- based plan, and thus could mean that mass

- based goals and CO 2 performance rates (along with associated rate

- b ased goals) may not be equivalent if leakage is not addressed. Therefore, the final emission guidelines require that mass

- based plans make a demonstration that leakage to new unaffected EGUs has been sufficiently addressed. To meet this requirement in the mass - based federal plan , the EPA is proposing allocation options that mitigate leakage to new unaffected EGUs . Specifically, the EPA is proposing to implement output

- based allocation, which reserves some allowances to be allocated to affected EGUs based, in part, on their level of electricity generation in a recent period(s). Therefore, the allocation s are not fixed, but instead update over time depending on an affected EGU’s generation. Affected EGUs can increase their allowance allocation based on their generation, which incentivizes generation to remain under the mass , thereby helping to avoid leakage of generation to unaffected EGUs. Additionally, a set

- aside awarding allowances for RE generation is being proposed, which can make more RE available in states with a

mass - based federal plan, and increase the amount of low

- emitting generation available in the states. The need to address leakage and b oth of the proposed set

- asides are discussed in detail in***E.O. 12866 Review

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Sec. &&& V.D.3
. The EPA takes comment on both the s et

- aside for output

- based allocation and the set

- aside of allowances for RE generation
. The EPA requests comment on the treatment of interstate effects under both the proposed rate

- based federal plan approach and the proposed mass

- based federal plan approa ch
. , and as part of the corresponding proposed model rules
. Applicability and Inventory of Affected Units [ &&& under developments ] 3. Provisions to Encourage Early Action &&&Placeholder while this section being worked on offline&&&
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 Inventory).

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

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental***E.O. 12866 Review

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The EPA implements a separate program under 40 CFR Part 98 called the Greenhous e 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 GHGRP, this 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 commitments under the United Nations Framework Convention on Climate Change (UNFCCC). This inv entory, which includes recent trends, is organized by industrial sectors. It provides the information in Table 2 below, which presents total U.S. anthropogenic emissions and sinks 21 of GHGs, including CO 2 emissions, for the years 1990, 2005 and 2013.
**Table 2. U.S. GHG Emissions and Sinks by Sector (million metric**  **tons carbon dioxide equivalent (MMT CO 2**  **Eq.)) 22** 

Protection Agency, April 15, 2015. www.epa.gov/climatechange/ghgemissions/usinventoryreport.html 20 U.S. EPA Greenhouse Gas Reporting Program Dataset, see www.epa.gov/ghgreporting/ghgdata/reportingdatasets.html 21 Sinks are a physical unit or process that stores GHGs, such as forests or underground or deep sea reservoirs of carbon dioxide. 22 From Table ES

- 4 of “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.***E.O. 12866 Review

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

www.epa.gov/climatechange/ghgemissions/usinventoryreport.html 23 The energy sec tor 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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emissions. 24 In 2013, fossil fuel combustion by the utility power
sector

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

– - accounted for 38.3 percent of all energy

- related CO 2 emissions. 25 Table 3 below presents total CO 2 emissions from fossil fuel

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

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. www.epa.gov/climatechange/ghgemissions/usinventoryreport.html
. 25 From Table 3

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

– 2013”, Report EPA 430

- R

- 15

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

- 5 “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. 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 22.4***E.O. 12866 Review

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[&&& under development ] Compliance Schedule In accordance with the schedule set out in the Emission Guidelines, t he 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, 2029) . The final period would run from beginning of calendar year 2030 (January 1, 2030) indefinitely into the future, unless there is a need to modify later , such as future EPA action amending the EGs
. 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 calendar years). The second compliance period will be from January 1, 2025 to midn ight, December 31, 2027 (three calendar years). The third compliance period will be from January 1, 2028 to midnight, December 31, 2029 (two calendar years). Under the Emission Guidelines, 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 calendar years. Thus, the 97.5 97.9***E.O. 12866 Review

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first complia nce 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 EPA through a revision to the fed eral plan or other action. 27 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 precedent, “[t]he time over which [t he 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 Requirem ents 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 rulemaking because of the unique charac teristics 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 period in 2022,

27 This schedule would be the same under either a rate

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

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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 compliance period in 2022. The EPA requests comment on whether there is any reason to use shorter c ompliance periods than the proposed periods , and how modifying these periods could be done in a manner that is consistent with the Emission Guidelines
. T o the extent this schedule is governed by the schedule set in the final EG, the agency is not re

- opening such issues, and comments regarding the schedule finalized in the EG will be considered out of scope.

In addition to preparing the official U.S. GHG Inventory to present comprehensive total U.S. greenhouse gas emissions and comply with commitments under the UNFCCC, the EPA collects detailed GHG emissions data from the largest emitting facilities in the U.S. through its Greenhouse Gas Reporting Program (GHGRP). Data collected by the GHGRP from large stationar y 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 presents total GHG emissions in 2013 for the largest emitting industrial sectors as reported to the GHGRP. As shown in Table 3 and Table 4, respectively, CO 2 emissions from fossil fuel

- fired***E.O. 12866 Review

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EGUs are nearly three times as large as the total reported GHG emissions from the next ten largest emitting industrial sectors in the GHGRP database combined. **Table 4. Dir ect GHG Emissions Reported to GHGRP by Largest Emitting**  **Industrial Sectors (MMT CO 2**  **e) 28** 

C. Affected EGUs For the CPP EGs and this federal plan , an affected EGU is any steam generating unit, IGCC, or stationary combustion turbine that was in operation or had commenced construction as of January 8, 2014, 29 and that meets the following criteria,

28 U.S. EPA Greenhouse Gas Reporting Program Dataset as of August 18, 2014. www.ghgdata.ep a.gov/ghgp/main.do. 29 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

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

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which differ depending on the type of unit. To be an affected
EGU , such a u nit, if it is a steam generating unit 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, the unit must meet the definition of a combined cycle or combined heat and power combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, and have a base load rating of greater than 260 GJ/h (250 MMBtu/h). 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 which recovers heat from the combustion 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)
performance for new fossil fuel

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

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combustion turbine means any stat ionary combustion turbine which recovers heat from the combustion turbine engine exhaust gases to heat water or another medium, generate steam for useful purposes other than exclusively for additional electric generation, or directly uses the heat in the e xhaust gases for a useful purpose. We note that certain affected EGUs are exempt from inclusion in a state plan and this federal plan. Affected EGUs that may be excluded under the Emission Guidelines EGs are those that (1) are subject to subpart TTTT as a r esult of commencing modification or reconstruction; (2) steam generating units or IGCC units that are currently and always have been subject to a federally enforceable permit limiting net

- electric sales to one

third or less of its potential electric output or 219,000 MWh or less on an annual basis; (3) non

- fossil units ( 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 a re subject to a federally enforceable permit limiting fossil fuel use to 10 percent or less of the annual capacity factor; (4) 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 that are subject to a federally***E.O. 12866 Review

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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 elect ric output or 219,000 MWh (whichever is greater) or less; (6) serve a generator along with other steam generating unit(s), IGCC(s), or stationary combustion turbine(s) where the effective generation capacity (determined based on a prorated output of the ba se load rating of each steam generating unit, IGCC, or stationary combustion turbine) is 25 MW or less; (7) are a municipal waste combustor unit subject to subpart Eb of Part 60; or (8) are a commercial or industrial solid waste incineration unit that is s ubject to subpart CCCC of Part 60. 30 The applicability of this proposed federal plan follows the same applicability criteria as the final Emission Guidelines EGs .

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

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

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

fossil units, and certain combined heat and power units. The final 111(b) standards include applicability criteria for s imple cycle combustion turbines, for reasons relating to implementation and minimizin g emissions from all future combustion turbines.***E.O. 12866 Review

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The rationale for these criteria is provided at &&&citation to EGs. We are not reopening the c riteria or rationale here. In the federal plan Affected EGU 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 is applicable were to be promulgated for that affected EGU at any time. The EPA requests comments and updates to this list of affected units. Section VI.C of the CPP 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 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, 2029) . 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***E.O. 12866 Review

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calendar years ). The second compliance period will be from January 1, 2025 to midnight, December 31, 2027 (three calendar years). The third compliance period will be from January 1, 2028 to midnight, December 31, 2029 (two 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 calendar years. Thus, the first compliance period after 2030 would b e 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 to the federal plan or other action
. 31 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 precedent, “[t]he time over which [the compliance standards] ext end 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

31 This schedule would be the same under either a rate

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

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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 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. Prior to the beginning of the first compliance period in 2022, the agency intends to establish the infrastruct ure 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 2022. We request comment on whether it would be possible to grant , on a case - by

- case basis, small entities additional time to come into compliance, and to request additional input from the public as to the design of such flexibility that would be compatible with the emission guidelines and a federal plan that implements a trading system.
D. E. Addressing Reliability Concerns The proposed federal plan was 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 reliability. Like the EG s , the federal plan provides a long***E.O. 12866 Review

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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 without disru ption 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 re liability standards mandatory and enforceable by FERC and the North American Electric Reliability Corporation (NERC), the Electric Reliability Organization which FERC designated and oversees. Along with 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, DOE, state PUCs, ISOs/RTOs, and other pla nning authorities also consider the reliability of the electric system. There 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 n ew generating capacity, calling on demand response, and other demand

- side actions. Additionally, planning authorities and system operators***E.O. 12866 Review

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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 sophisticated. Under this approach, planning authorities plan the system to assure the availabi lity 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 elect ric system needing to operate together in 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 implement a set of plans to mitigate

32 Casazza, J. and Delea, F., Understanding Electric Power Systems: An Overview of the Technology, the Marketplace, and Governme nt Regulations , IEEE Press, at 160 (2010). 33 Id.***E.O. 12866 Review

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operating emergencies. 34 The E PA’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 years before reductions are required and an eight

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

- based trading program which will allow affected EGUs the opportunity to buy and sell emissions credits or al lowances as well as bank them. The EPA’s proposed federal plan includes two alternative approaches; a

mass - based tr ading 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 reliabil ity of the nation’s electricity supply. Such a program does not restrict unit

- level operational

34 NERC Reliability Standard EOP

- 001

- 2.1b

— Emergency Operations Planning, available at www.nerc.net/standardsreports/standardssummary.aspx
.***E.O. 12866 Review

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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 co mpliance 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 develo ping 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 any concerns or oth er 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 ability of the industry to maintain electric reliability across th e 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***E.O. 12866 Review

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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 EG s , the EPA laid out the availability of a reliability safety valve that could be used if 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 on 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 va lve for the federal plan is not needed. The EPA invites comments on this aspect of the proposed federal plan
. The EPA, DOE and FERC have agreed to coordinate efforts to help ensure continued reliable electricity generation and transmission during the imple mentation of the final EG 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 e n tation
. The three agencies will work together to monitor implementation, share information and resolve any difficulties that may be encountered.***E.O. 12866 Review

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The EPA is not proposing to include an allowance set

- aside , or similar mechanism in a rate

- based approach, to address reliability issues 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 allowan ces available in emergency 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

- asides 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 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 af fected EGUs pro rata based on the allocation approach that is detailed in section V.D. The EPA requests comment on all elements of such an approach, including what events would trigger the need for allowances from the reliability set

- aside; eligibility cri teria to receive the set

-***E.O. 12866 Review

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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 reliability “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, which was established in the EGs to reward investment in certain clean energy projects that achieve MWh results during 2020 and 2021 (see sections IV and V for the proposed approach to implement this incentive program in the rate

- based and mass

- based federal plans, respectively). Implementation of the Clean Energy Incentive Program in the federal plans would create ERCs and allowances before 2022, allowing for creation of banks that could be used in the event of an unforeseen, emergency reliability issue. The EPA requests 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.
E. F. Worker Certification In the EG EG s, the EPA suggested that to ensure that emission reductions are realized, it is important that construction, operations and oth er skilled work undertaken***E.O. 12866 Review

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pursuant to state plans is performed to specifications, and is effective, safe, and timely. The EPA asks for comments as to whether the 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) an apprenticeship program that is registered with the U.S. DOL, Office of Apprenticeship or a state apprenti ceship 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 accr editing body.
F. 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 performance 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 section 111(d)(1) with respect to state plans
. In the final Emission Guidelines E Gs , 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***E.O. 12866 Review

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determined that it was appropriate to specify that the general variance provisions in 40 CF R 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 particular, remaining useful life, do not justify a state making further adjustments to the perform ance 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 do not allow for states to deviate from state

- wide targets goals based on remaining useful li fe, the EPA does not believe such goal adjustments are necessary or appropriate in the federal plan either. Nonetheless, t his does not obviate the requirement that the EPA itself, 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 an the following anal ysis of this factor in
&&& section III.G.1
. . 35

35 We note that the preamble and supporting materials for the EGs di scuss 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 s ection 111(d)(1), and for the same reasons, believe it is distinct from the factor Congress directed the agency to consider in section***E.O. 12866 Review

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In section III.G. 2 , w e discuss a related concern raised by some stakeholders, which is whether the federal pla n could result in widespread “stranded assets” as a direct result of the rule. As explained below in &&§ion III.G. 2 , we believe this concern is distinct from the the “remaining useful liv e s ” factor Congress directed the agency to consider in section 111(d) (2)
. Nonetheless, we undertook analysis of whethe r and to what extent there may be a “stranded asset” concern . We believe our analysis demonstrates that this is not likely to be a widespread issue under the federal plan
. We request commen t on this, as well as all other aspects of this discussion. Consideration of Remaining Useful Lives Congress added the “remaining useful liv e s ” factor to 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 to the final EGs, Congress’ intent in enacting the provision was to allow for older facilties with short remaining

111(d)(2). Nonetheless, we undertook analysis in the final EGs of whether and to what extent there may be a “stranded ass et” concern. &&&citation. We believe that analysis demonstrates that this is not likely to be a widespread issue under the federal plan either.***E.O. 12866 Review

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useful lives to not be required to install capital

- intensive pollution control devices to meet emission standards that would 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 of the physical age of for facilities
. As explained below, we believe w ith 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 othe r 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 cons ider , 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***E.O. 12866 Review

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“remaining useful li ves e 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 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 affected EGUs. C ongress 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

- attainment new

source review 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). In section 111(d) Co ngress 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 provision. In the 1977 Amen dments, 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***E.O. 12866 Review

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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 haze program for many years through the BART guidelines, in Appendix Y to 40 C FR Part 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 exceed 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 ocsts costs , you should u se this shorter time period in your cost calculation. 40 CFR Part 51, App. 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 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 question.
C onsistent with legisl ative intent and past agency practice , w e propose that the f ederal Plan adequately consider s ”remaining useful lives” of affected EGU s in that the plan does
not mandate that plants with short remaining useful lives must install costly, capital

- intensive po llution control upgrades
. by***E.O. 12866 Review

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providing for trading and other flexibilities authorized in the EGs. To summarize, these include: 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

year compliance periods, and the ability to link to other federal or state plans to create larger emission s markets. T he f ederal Plan is proposed to include a Clean Energy Incentive Program as provided for in the EGs, wh ich will credit early action and ease compliance in the first 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 thei r emission standard, thereby avoid ing the need for installation of costly pollution controls at sources 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 remai ning useful liv e s of affected EGUs. It provides substantial compliance flexibility, including means of 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 facilit y. 36 The design of the federal plan as a form of emission

36 Because we believe that this is the case for all facilities***E.O. 12866 Review

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trading provides individual affected EGUs the flexibility to make co st

- conscious compliance choices. This flexibility avoids or substantially diminishes any likelihood that compliance will be a physi cal 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 that is proportionately smaller than a facility with a long remaining useful life, simply because the first

through the basic design of the federal plan, we also can confirm, in line with the Emission Guidelines, 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 sta ndard of performance have been potentially available under the application process in 40 CFR 60.27(e)(2), which incorporates the factors provided in 40 CFR 60.24(f) for states. Consistent with our view that the federal plan adequately considers remaining u seful lives, and for the same reasons, the need for facility

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

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facility woul d need to comply for fewer compliance periods and would need proportionately fewer ERCs or allowances than the second facility. Buying ERCs or allowances as a compliance method could avoid excessive up

- front capital expenditures that 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 allowances as a compliance method also would reduce the potential for stranded assets. In addition , the timing of the fe deral 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 using a step

- down approach, or following the glide path provided for in the 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 2030. Further, unlike state plans that can be more stringent under CAA section 116, the f ederal plan is no more stringent than the Emission Guidelines EGs , and , as explained in the EGs,***E.O. 12866 Review

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the Guidelines reflect a reasonable, rather than a maximum possible, implementation level for each building block in order to establish overall goals that are a chievable. As discussed in the EG, &&&cite, the BSER determined an average level of emissions achievable by collective groups of EGUs, rather than for an individual EGU. In considering the remaining 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 comply 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 usef ul 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.

37 In addition, the ability to generate ERCs for sale or to sell unneede d 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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Potential for Stranded Assets While we believe the analysis above satisfies the consideration of remaining useful liv e s in this proposed federal plan, the agency in its discretion has also considered a different, but related problem, which has been raised by some commenters and stakeho lders on the CPP EGs . This is the concern that the CPP will force or mandate the premature retirement of affected units which have extended remaining useful lives (i.e., the CPP should not result in stranded assets). For the reasons presented in this section, we do not believe these concerns are warranted with respect to the proposed federal plan. The analysis presented here is meant to demonstrate that, on the whole, the federal plan is not anticipated to force or result in widespread stranded assets. [&&& final analytics results needed here ***]

G. 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 applicable requirements that the plan places on the affected EGUs. The EPA, however, is not proposing any permitting***E.O. 12866 Review

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requirements independent of those that would be required under title V of the Clean Air Act and the regulations implementing title V, 40 CFR Parts 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 emission limitations and other conditions as necessary to assure compliance with applicable requirements of t he CAA, including the requirements of an applicable section 111(d) state plan or federal plan. CAA §§ 502(a) and 504(a), 42 U.S.C. 7661a(a) and 7661c(a). The “applicable requirements” that must be addressed in title V permits are defined in the title V reg ulations, and include requirements under section 111(d) (40 CFR 70.2 and 71.2 (definition of “applicable requirement”)). The EPA anticipates that, given the nature of the units covered by the proposed f ederal p lan, most of the sources at which they are loc ated are already or will be subject to title V permitting requirements. For sources subject to title V, the requirements applicable to them under the proposed f ederal p lan will be “applicable requirements” under title V and , therefore ,

38 Part 70 addresses requirements for Title V pr ograms implemented by state, local, and tribal governments, and Part 71 governs 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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will need to be addr essed 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

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

- based approach ) ) ) will be “applicable requirements” to be addressed 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 for purposes of determining whether a source is a major source required to obtain a title V operating permit. In accord ance with that decision, the D.C. Circuit’s amended judgment on April 10, 2015 vacated the title V regulations under review in that case (40 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 so, to und ertake to make such revisions. As the agency made clear in a memorandum to Regional Administrators last year,***E.O. 12866 Review

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“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 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 Accord ingly, 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 section 111(d) will create new “applicable requirements” in the form of an emission standard (either an emission ra te or an allowance system) and related requirements for GHGs (here, carbon dioxide) on affected
EGUs. See 40 CFR 70.2, 71.2 (definition 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 their its existing title V permit, or obtain a new permit if it does not already have one, if it becomes subject to an emission standard for carbon dioxide under a section 111(d) f ed eral p lan.

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

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

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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 fo rmal 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 per mit revision 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 revisi on 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 regulations, 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 f ederal p lan without a revision of the title V permit of any of the sources involved. As a further example of flexibility under title V, the***E.O. 12866 Review

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title V regulations allow the use of the minor permit modification procedures for permit modifications “involving the use of economic incentives, marketable per mits, emissions trading, and other 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). Therefore, 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 rul es. EPA proposes that s uch changes 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 impleme ntation, including the general approach for monitoring and reporting. The minor permit modification procedures may 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 rare infrequent . As noted 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***E.O. 12866 Review

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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 an operational a change that would violate go against any express term of the permi t, the permit must be revised to allow such a change before 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 when deciding if a minor permit modification is needed appropriate with respect to operating a trading program in the context of a title V permit. As new applicable requirements under title V, the
requ irements for covered units under the proposed f ederal p lan will need to be incorporated into covered sources’ existing title V permits either pursuant to the provisions for reopening for cause (40 CFR 70.7(f) and 40 CFR 71.7(f)) or the permit renewal provi sions (40 CFR 70.7(c) and 71.7(c). The EPA believes that the approach to permitting requirements we are proposing here, which imposes no additional permitting requirements independent of title V and provides for the use of minor permit modification procedur es, will streamline the process for sources already required to be permitted under title V and on for***E.O. 12866 Review

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permitting authorities. If there are any sources that would become newly subject to title V as a result of the requirements of this proposed f ederal p lan, the initial title V permit that would be issued pursuant to 40 CFR 70.7(a) will or 71.7(a) would address the f ederal p lan requirements, when finalized. The EPA notes that the approach to title V permitting that it is proposing today being propos ed is very 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 requir ements 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 i nvites comment on its proposed approach to incorporating applicable requirements of the federal plan into title V permits and revising those requirements, including specifically seeking comment on whether all requirements should be eligible for incorporati on into title

40 Memorandum from Anna Marie Wood, Director, Air Quality Policy Division, OAQPS, and Reid P. Harvey, Director, Clean Air Markets Division, 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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V permits via minor modification procedures or if only a specified 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 requirem ents 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 regulations define what constitutes a significant net emissions increase, and the conce pt is pollutant

- specific. In the EG 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 affected EGU to undertake a physical or operational change to improve the unit’s efficiency***E.O. 12866 Review

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that results in an increase in the unit ’s dispatch and an increase in the unit’s annual emissions. If the emissions increase associated with the unit’s changes exceeds the thresholds in the NSR regulations for one or more regulated NSR pollutants, including the netting analysis, the changes wou ld trigger NSR. We noted that while there may be instances in which an NSR permit would be required, we expect those situations to be few. The EPA believes the analysis of NSR applicability is basically the same for sources under a section 111(d) federal
p lan. 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 n increase in annual a significant 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 Ju ne of 2014, the United States 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 emissions alone cannot by law trigger the NSR requirements of the PSD***E.O. 12866 Review

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program under sec tion 165 of the CAA. On remand from the Court, the D.C. Circuit issued an amended judgment in Coalition 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 regulations . Therefore, increases in emissions of greenhouse gases 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 t o generation shift from a steam generating unit), 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 need for pre

- construction review in those circumstances. The EPA is not proposing any changes to the NSR program in this action, and the agency is not reopening or reconsidering any prior actions or determinations related to NSR in today’s this action. Any comments related solely to the NSR program will be considered out of scope of this proposed rule. 3. Interactions with Other EPA Rules Existing f ossil fuel

- fired EGUs, such as those covered in this proposal, are or will be potentially impacted by several***E.O. 12866 Review

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other rules recently finalized or proposed by the EPA rules 41
. These rules include the Mercury and Air Toxics Standards (MATS) (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; an d 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 Emission Guidelines 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.
H. I. J. Administrative Appeals Process Under either a rate

- based or mass

- based trading program,

41 We discuss other rulemakings solely for background purposes. The effort to coordinate rulemakings is not a defense to a violation of the CAA. Sources cannot defer compliance with existing requirements because of other upcoming regulations. 42 The Supreme C ourt recently reversed and remanded a D.C. Circuit Court of Appeals decision 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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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 mad e that an eligibility application by an ERC provider is denied. And, for certain set

- asides in the mass

- based program, an affected EGU may believe that its generation numbers

were allowance allocation amount was miscalculated . Similar to prior trading progr ams, the agency believes it would be efficient and potentially avoid the need for recourse to litigation, to provide an administrative appeals process. Therefore we are proposing, and requesting comment on, the use of the regulations for appeals procedures set forth in 40 CFR Part 78, to provide for the adjudication of certain disputes that may arise during the course of implementation of a federal plan under section 111(d). We also propose to revise part 78 to accommodate such appeals. The Part 78 procedur es 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 “interested person” in Part 78. The filing of an a ppeal and the exhaustion of administrative remedies under Part 78 would be a prerequisite to seeking judicial review. For purposes of judicial review, final agency***E.O. 12866 Review

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action would occur only when an agency decision under the federal plan listed as appealable under Part 78 has been issued, and the procedures of Part 78 for appealing the decision are exhausted. The actions we propose to list as appealable under the Part 78 procedures are as follows. In the case of the rate

- based federal plan: decisions on an

e ligibility 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 adminis trative compliance penalty; decisions regarding deduction or surrender of ERCs for compliance from affecte EGUs’ compliance accounts; decisions on the accreditation of independent verifiers; the use of error corrections regarding information submitted by E RC providers, affected EGUs, or other ERC account holders; and the finalization of control 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 calculation allocation of generation by***E.O. 12866 Review

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affected EGUs during allowances from set

- asides; decisions on the baseline period or comp liance periods transfer of allowances ; decisions regarding the calculation finalization of emissions data by affected EGUs during compliance periods; decisions making error corrections to information submitted by affected EGUs and other account holders; decisions that there has been excess emissions requiring a 2

- for

- 1 allowance administrative compliance penal ty; 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 types 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 Part 78
. . We also take comment on whether it would be appropriate for the EPA to finalize an administrative appeals process that differs in any
way from that offered under Part 78, or in addition to that offered under Part 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***E.O. 12866 Review

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differ from Part 78.
I. J. Consistency of Program Structure w ith Clean Air Act Authority The EPA is co

- propos ing two distinct forms of emissions trading as the mechanism for federal implementation of the standards of performance established that achieve the emission performance levels by determined by application of the Best System of Emission Reduction (BSER) in the Emission Guidelines ( 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” app roach discussed that is also available to states in the final CPP EG. EG s . The EPA has legal authority to establish either of the proposed trading systems as the a federal plan under section 111(d)(2). We discuss this topic briefly here and invite public comm ent. T he E mission Guidelines EGs discussed the role of emissions trading in the BSER, see , e.g., &&& FR XXXX (XX XXXX) (“ [ Section V ] iewed from the source

- category perspective, .A of the BSER implicitly includes an element of source

- category

- wide multi

- unit compliance, which at preamble to the level of implementation could be realized through trading of rate

- based emission credits

or mass - based emission allowances. ”)
. final EGs. The EPA regards this to be a separate issue and is not revisiting or reopening***E.O. 12866 Review

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th e discussion of the BSER or the role of trading in the BSER here. The Emission Guidelines 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 appr oaches. Id. H ere we discuss why an emissions trading program is a lawful and appropriate form of federal “implementation” of a "standard of performance" under section 111(d)(2). We invite comment on this legal discussion and the agency’s interpretation of its authority. 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

un der 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 provisions 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 prescribed under this paragraph, the Administrator shall take into consideration, among other factors, the remaining***E.O. 12866 Review

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usefu l 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 prescribe” indicates that Congress viewed the EPA’s authority to issue a federal plan for designated pollutants under 111(d) as, in some sense, co

extensive with its authority to issue a federal implementation plan FIP for NAAQS pollutants under section 110. This authority under section 111, of course, must be understood in reference to the purpose of that section ( i.e., to establish standards of performance to achieve emission reductions for designated pollutants from designated facilities), rather than in reference to the purpose of Section 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 Section 110 authority be looked to under

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 section 110) [she] was intended to do generally what the states in such cases should

43 The agency’s interpret ation of the “remaining useful lives” provision is discussed above in Section III.G.***E.O. 12866 Review

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have done, which in turn suggests that (as in 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, the courts, and the EPA, have addressed the nature and scope of section 110 authority. See, e.g., 71 FR 25328, 25338 (May 12, 2005) (CAIR final rule). In general, the EPA has broad power under section 110(c) to cure a defective state implementation plan. Thus, in promulgating a federal implementation plan ( FIP ) under section 110, the EPA may exercise its own, independent regulatory aut hority in accordance with 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 Congress' broad grant of power to the EPA as including all enforc ement 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 (1st Cir. 1974). Further, the same authority that is exercised by the states under the CAA in connection with the adoption, implementation, and enforcement of***E.O. 12866 Review

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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

a cts in place of the state pursuant to a FIP under 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 (9th Cir. 1993). Accord, South Terminal , 504 F.2d at 668 (“[T]he Administrator must promulgate promptly regulations setting forth an implementation 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 allowed by Congress to a state to accomplish Federal clean air goals. We do not adopt any such c rippling interpretation.”). By the same token, if there are clear limits to the EPA’s section 110(c) authority, those too, would arguably carry over to section 111(d)(2). For instance, section 110(c)(1) ties the EPA’s authority to promulgate a final FIP fo r a state to the EPA’s predicate action on a state implementation plan (or lack thereof): generally, either an action disapproving a plan, or a***E.O. 12866 Review

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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 any time’ within the two

- 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 section 111(d)(2) as it possesses under section 110(c). The EPA believes this authority is th e “same” in the sense described above and the case law. 44 The scope of the EPA’s action to undertake a FIP under 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 pl an under 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

44 We interpret the cross

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

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commenters who stated that the EPA cannot require states to implement the building blocks that make up t he BSER, for example, ordering re

- dispatch to natural gas

- fired units, or ordering the construction of renewable energy projects. These commenters went on to say that the EPA itself would have no authority to order these types of actions under a federal pl an. As we explain ed in the Legal Memorandum for the final EGs, and reiterate here, t he premise of these comments 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 impleme nting standards of performance in a federal plan, the agency will not, and need not, attempt to order sources to implement the measures that comprise the BSER. Rather, as set forth in the co

- proposed federal plans discussed in Sections IV and V , 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***E.O. 12866 Review

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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 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 EPA does not need to assert the authority 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 , transportation 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 n ew renewable energy 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 providing for th e implementation of federally enforceable standards of performance in the federal plan proposed in this action , the agency is ensuring that these things will happen
.***E.O. 12866 Review

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2. Use of Market Techniques to Implement Standards of Performance under the Clean Air Act
T he use of market techniques such as emission trading is well

- supported in the Clean Air Act and has many regulatory precedents. The EPA discussed this history, and the reason why trading is a supportable method of implementation of standards of performance under section 111(d) in the Emissions Guidelines. [&&&cite XX FR XXXXX]. We adopt the same reasoning here, and See Section V.A of the final EGs. Here we supplement that discussion with respect to the agency’s own authority under section 111(d)(2) to use trading as a method of implementation of a “standard of performance” in the federal plan
. The 1990 Amendments added broad authorizations for the use of ma rket 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 Section 110(a)(2)(A): “Each [state] plan shall

— include enforceable emission li mitations 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 given similar authority in the definition of a “Federal Imple mentation Plan” in section 302: “The term ‘Federal implementation plan’ means a plan (or portion***E.O. 12866 Review

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thereof) promulgated by the Administrator ... which includes enforceable emissions limitations or other control techniques (including economic incentives, such a s 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) provides the EPA “the same power to prescribe” a federal plan under section 111 as it would have to promulgate a FIP under section 110(c). Thus, the EPA believes the plain language of the statute authorizes the use of market techniques in section 111(d) federal plan s. However, even if one were to view this language as not wholly u nambiguous with respect to the scope of federal authority under section 111, the EPA believes that section 111, in conjunction with authorizations and endorsements of market techniques throughout the Act, 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 111(d ). See also 40 CFR 60.21(f) ( defin ing an “emission standard” as “a legally enforceable regulation setting forth an allowable rate of emissions into the atmosphere, establishing an allowance system, or prescribing equipment specifications for control of air pollution emissions.” ); 40 CFR 60.24(b)(1 ).***E.O. 12866 Review

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Case law throughou t 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 (6th C ir. filed 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 ( NOx SIP Call, CAIR, and CSAPR) are permanent and enforceable). Chevron, U.S.A., I nc. v. Natural Res. Def. Council, Inc. , 467 U.S. 837 (1984) (“ Chevron ”), the seminal case establishing the Supreme Court’s deferential standard of review of agency interpretations of the statutes they administer, upheld one of the EPA’s early emissions tra ding 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 t o 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 th ere is no significant net increase in emissions from the facility as a whole. In upholding this***E.O. 12866 Review

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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 ge ncy’s reasoned application of an emissions averaging approach for total pollution 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 mor e than ordinary knowledge’ of the situation, the administering agency’s construction is to be accorded ‘controlling weight unless . . . arbitrary, capricious, or manifestly contrary to the statute.’”) (quoting Chevron , 467 U.S. at 844). 45 With the increasing recognition of the utility of trading, crediting, and averaging to meet emission reduction goals efficiently , the EPA set forth a comprehensive policy on trading in 1986. Emissions Trading Policy Statement; General Principles

45 The EPA is not aware of any case since at least the Chevron decision in which a trading program under the CAA was invalidat ed simply by virtue of being 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 Act, not because it used a trading approach per se. North Carolina v. U.S. EPA , 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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for Creation, Banking and Use of Emission Reduction Credits, 51 FR 43814 (Dec. 4, 1986) (hereinafter “ERC Policy”). 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 Cl ean Air Act more quickly and inexpensively.” At the same time, based on lessons learned from 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 n on - attainment areas. The agency emphasized the requirements of enforceability, tracking (and 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 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 rev iewed 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***E.O. 12866 Review

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(April 14, 1989) (hereinafter “OLC Memo”)
. 46 The OLC was asked by OMB to opine whether a general grant of regulatory authority to the EPA to “control” CFCs was sufficient to authorize an emissions fee or an a cap - and

- trade system, including auction , of tradable allowances. The statute authorized the EPA to issue regulations “for the control of any substance, practice, 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 endanger public health.” 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 “swe eping”

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

- and

- trade program with auction for CFCs. See id. at 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 1977].”) (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

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

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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 incent ives 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. at 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. By the time of the 1990 CAA Amendments, as discussed above, Congress was comfortable enough with the efficacy of ma rket techniques that they were broadly authorized for use in state and federal implementation plans 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 “Implementation Strategy for the Clean Air Act Amendments of 1990.” 47 This Strategy included as one of nine overarching implementation principles, “Market

- based: Use of

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

- 004.***E.O. 12866 Review

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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. at 3, 9. Since the 1990 Amendments, the EPA has established three of its most robust trading programs

– the Federal NOx 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 48 208; Aug. 8, 2011), under 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 notice for the final Emission Guidelines EGs , &&&cite&&&, the EPA has instituted or authorized the use of emissions trading programs twice in the past under

48 The EPA notes that complications 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 reduction s anywhere contribute to the environmental objective of addressing climate change.***E.O. 12866 Review

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section 111(d). The EPA authorized NOx emissions averaging or trading within or between facilities under the Municipal Waste Combustors Emissio n Guidelines 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 for mercury under 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 vacated by the D.C. Circuit on grounds unrelated to the establishment of a trading system for implementatio n, before the CAMR federal plan could be finalized. New Jersey v. EPA , 517 F.3d 574 (D.C. Cir. 2008). 49 The agency believes these legal and administrative precedents for federal trading programs under the Clean Air Act going back decades amply support its decision to propose two forms of emission trading as the method of implementation of the carbon dioxide Emission Guidelines Clean Power Plan EGs in the federal plan . Notably, emissions trading is particularly

49 The CAMR program was vacated because the EPA had not made requisite findings under section 112(c)(9) in delisting EGUs with respect to emissions of a hazardous air polluta nt (HAP). No such procedural concern is present here with respect to carbon dioxide, which is not a HAP under section 112.***E.O. 12866 Review

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appropriate with respect to a global pollutant s uch as carbon dioxide that is well

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

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

- 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 needs and the possibility of economic disruption must weigh in the balance. The Clean Air Act entrusts such complex balancing to

50 We recognize that some commenters on the EGs raised concerns about the localized impacts that may occur from the potential for conc entrations of co

- pollutants associated with carbon dioxide emitted from affected EGUs. We address those concerns in the communities sections of the EGs, at &&§ion, and in this preamble in &&§ion IX below.***E.O. 12866 Review

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the EPA in the first i nstance, in combination with state regulators.”). Today’s 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 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 GHGs 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 option, rate

- based emission standards (i.e., the emission standard approach) for affected EGUs not covered by an approved state plan as specified in the EGs. The CPP EGs. 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 EGs , which included sub

- categorized CO 2 e mission p erformance

r ates for affected EGUs to meet during the plan performance***E.O. 12866 Review

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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 the 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 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 [&&&] of the CPP EGs . Under a
rate

- based federal plan, the EPA would act as the state described in s ection VIII.C.3.a of the CPP [&&&] with the EPA acting as the issuer of ERCs, and otherwise implementing and enforcing the standards of performance for affected EGUs subject to the federal plan
. This section describes how a the proposed rate

- based federal plan and model trading rule and how each would be designed and operated, and how measures consistent with the CPP EG s building blocks can generate emission guidelines
. For the federal plan, the EPA is proposing to limit the issuance of ERCs . to designated categ ories of affected EGUs and to renewable energy

resources and certain nuclear generation that are measured by a revenue quality meter, rather than the full suite of options discussed in the emission guidelines. The EPA requests comment***E.O. 12866 Review

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on these means of generating ERCs and whether to limit the scope of the federal plan in this manner, and if not, what other

sources of low

- or zero - emitting electricity not included in the building blocks in federal plan states should also be eligible to
gener ate ERCs for compliance purposes
. A For both the proposed federal plan and model rule, the EPA requests comment on which EM&V plan, M&V report , and verification report requirements should apply for each eligible resource
. F urther discussion of

non - BSER meas ures that may be able eligible to generate ERCs can be found in the CPP EGs . and section IV.C.2 of this preamble
. (The EPA is not reopening its determination of the BSER.) In th e federal plan , the EPA is proposing to apply the subcategorized emission rates to the respective affected EGUs. The EPA is proposing a rate

- based federal plan that uses the “emissions standards” option from the EG s . B. Rate Goals In the CPP EGs the EPA established the identified a rate

based “emission standards” approach as a a n approvable method of compliance for state plans , while recognizing the availability of equivalent alternative methods of compliance to implement the final EGs . In this approach the requirements for compliance rest solel y on affected EGUs in the form of federally enforceable emission standards
. As noted above, this proposed rate

- based***E.O. 12866 Review

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federal plan adopts the “emission standards” approach
. expressed as a rate of emissions of CO 2 per unit of energy output
. In the CPP EGs, 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 NGCCs NGCC units ) and fossil fuel fired steam generating units ( i.e., utility boilers and IGCC units ). ) 51
. The CO 2 emission performance rates set in the CPP EG s are reflected below in Table 4. The EPA is proposing to apply these rates in the rate

- based federal plan as the emission standards for
NGCCs NGCC units , and utility boiler/IGCC steam generating units, respectively. For a thorough discussion of affected EGU category

- specific CO 2 emission pe rformance rates and rationale , see Section VI &&& of the CPP EGs. These calculated limits standards and the premises that these limits standards are based on are not within the scope of comment in this rulemaking as they were finalized in the CPP EGs. As discussed in section III.D above , the EPA proposes to implement a compliance schedule for the rate

- based federal plan with multi

- year compliance periods as follows: A three

- year

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

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period (2022 through 2024), followed by a three

- year period (2025 through 2 027), followed by a two

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

- year compliance periods for the final period. In the CPP EGs, 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 as the emission rate standard for the respective EGUs that would become sube jct sub je ct to this proposed federal plan if finalized . The EPA is not opening for comment the determinations , made in the CPP EGs , of each subcategorized CO 2 emission performance rates . The emission rate standards for respective EGU types are provided for convenience in Table 4. **Table 4**  **.** 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 in section &&& of this preamble . In Table 4
. below the applicable standards for each interim compliance period is listed.
**Table 4**  **. Glide Path**  **Interim Performance Rates (Adjusted Output**  **** **Weighted -**  **Average Pounds of CO 2**  **Per Net MWh From All Affected Fossil Fuel**  **- Fired EGUs)** ***E.O. 12866 Review

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

Steam generating unit or integrated gasification combined cycle (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 most closely correlates provides an incentive structure, as compared to how the EPA envisions other
rate

- based approaches, that facilitates implementation of measures identified as part of the BSER to function.
. Using subcategorized rates allows for: (1) an a relatively equitable distribution of burden for emission reductions aross the
sector 52 ; and (2) free trading of fungible ERCs among all affected EGUs subject to the federal plan and within the federal trading program. The EPA broadly solicits comments on all

52 This is compared to a single rate that applies to all facilities and is, in most cases, anticipated to impart more burden on steam generating units because they will be subject to a co mparatively lower standard.***E.O. 12866 Review

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aspects of the subcategorized rate approach. The EPA solicits
comments on whether the subcategorized rate approach is the
p referred rate

- based approach for the federal plan and model trading rule
. 53 If a subcategorized approach for a rate

- based model rule and federal plan is not preferred by commenters , the EPA requests comment on the perceived benefits of an alternative
rate o r 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 ” implementation approach 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 representi ng 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

53 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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reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. Under this proposal pr oposed federal plan , ERCs will be issued by the EPA to two three categories of entities: (1) affected EGUs that perform at a rate below the applicable emission rate limit ; and (2) RE providers that develop
RE standard ; (2) affected NGCC units for all generation (represents shifting generation from steam generating units to NGCC units , as anticipated under Building Block 2 ); and ( 3 ) new nuclear units and capacity uprates at existing nuclear units, and RE providers that develop metered projects and programs whose results, in MWh, are quantified and verified according to EM&V criteria as described below in section &&& IV.D.6 of this preamble . We are also discussing in this preamble and , taking
comment on for the federal plan, and proposing for the model trading rule a potential third fourth category: other low

- and

zero - emitting non - BSER measures that are described in section
IV. C.2 of this preamble [ &&& ]. The concept of using an ERC as crediting mechanism to meet compliance obligations is consisten t with the CPP EGs and is being adopted in this federal plan 54
.

54 The use of ERCs and definition as a compliance mechanism to meet the BSER emission performance rates is established in the CPP EGs section IV.A.5.a. [&&&]***E.O. 12866 Review

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EGU Based ERC Generation 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 differenc e of the limit the EGU is subject to minus the CO 2 stack emission rate of the EGU subtracted from the standard the EGU is subject to , and then this value is subsequently divided by the limit 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 energy electricity output from the EGU at that the EGU is applying the limit to. emission rate
. This can be generically expressed as:

ERC MWh ERCs

= ( EGU limit

− EGU operating rate ) EGU limit ( 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 , and, ; conversely, a negative value indicates how many ERCs will need to surrendered be acquired to meet the unit’s emission rate f or that compliance***E.O. 12866 Review

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period
. ERCs will be issued on an annual basis to ERC providers ( i.e ., entities generating ERCs via the ERC approval and issuance 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 &&& of this preamble
. As an example, assume a steam EGU operating in the second interim compliance period is subject to a rate standard of 1, 465 500 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 365,188 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., generation , here, 1 million MWh ), such that 2 billion pounds of CO 2 (total emissions), divided by total generation ( i.e., in this case, 1, 365,188 333,334 MWh) equals the emission rate for compliance (1, 465 500 lbs/MWh). The needed quantity of ERCs for any given amount of generation can be easily calculated by dividing the total emissions of the affected EGU by the applicable emission rate limit, and then subtracting the generation of the affected EGU.***E.O. 12866 Review

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To incentivize The discussion in this subsection builds on and capture applies the definition, benefits, use, and determination of using ERCs from the CPP EGs S ection VIII &&& . 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 desc ribed in the
CPP EGs . Comments that solely relate to determinations finalized in the EGs will be considered out of scope. 2. Incremental NGCC ERCs Building Block 2 (BB2) of the BSER determination in the CPP EGs describes shifting generation from steam generating units 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 most NGCC units are being called to increase annual generation from 2012 baseline emissions. For every hour of electricity generated by an NGCC beyond its 2012 baseline ( i.e., incremental generation) , there is a corresponding emission reduction in the
power system. 55 The EPA is proposing to reflect th e emission reductions of Building Block 2 of the CPP EGs, the EPA proposes

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

- fir ed steam EGU generation.***E.O. 12866 Review

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in the federal plan that NGCC generation has the capability to generate ERCs BB2 by crediting all NGCC generation on a pro - rata basis reflecting that reflects expected incremental NGCC generation . Incremental to 75 percent capacity
. This means that for every hour that an NGCC operation is generates electricity, it will also generate a credit associated with the relationship of an affected EGUs operation compared to the baseline yea r of 2012, used in setting the CO 2 emission performance rates. Through Building B lock 2 there is a call
to generation shift generation from fossil steam EGUs to NGCCs because NGCCs generate electricity at a lower carbon intensity and, thus, reduces CO 2 emis sions for the same level of generat ion 56
. To account for incremental generation the federal plan will use expected incremental operation of a NGCC in Building Block 2 of 75% to allow a NGCC to to NGCC units. The NGCC will generate ERCs for operation in relation to the incremental generation detailed in Building Block 2. a 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 emissi on reductions of incremental NGCC generation on an hourly basis can be found at the end of

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

- fired steam EGU generation.***E.O. 12866 Review

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this subsection.
A ll NGCC generation will be credited , with ERCs, by a factor that represents the described emission reductions from incremental generation; ERCs cr edited in this way will be designated as BB2 G as Shift ERC s (GS

- ERCs) for clarity 57
. T he collective sum of the BB2 GS

- ERC s generated realizes the amount of emission reductions described in B uilding B lock 2 BB 2 when 75
per cent capacity is achieved
. This incentive is not a requirement, however. If NGCC s NGCC units do not collectively meet the increase to 75 percent capacity , the missed emission reductions or above , the lost opportunity for ERC generation simply will need to be achieved through other mea ns ( e.g., emissions performance improvements at affected EGUs or additional RE generation). The amount of BB2 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
NGCCs NGCC units collectively will need to would generate to reach at the level described in B uilding B lock 2 BB 2 ( i.e., reaching 75 percent capacity ). ) and the associated emission

57 A GS

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

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reductions
. This means that fractional BB2 GS

- ERC s are generated for every NGC C 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 summer time capacity factor there will be the an amount of BB2 GS

- ERC s equating that correlates to the emission reductions calculated in building block 2 reductions anticipated under BB 2 of the BSER. NGCCs NGCC units are expected to be incentivized to reach this level of generation because of in part due to market demand for them. BB2 ERCs will GS

- ERCs . Thus, GS

- ERC s have the potential to play a large a n important role in the sector meeting compliance obligations. The BB2 ERC generating 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 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 standard used as reference here is as described above in section IV.B and established in the BSER determination from the EGs of the least stringent region 58 ( i.e., the region with the

58 The regions that are used in the CPP EGs and for this proposal***E.O. 12866 Review

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highest calculated emission rate standard for steam generating units). T he GS

- ERC Emission Factor is expressed 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 Factor. 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 additional MWh MWh beyond the 2012 baseline needed for the corresponding region to reach 75 percent NGCC generation capacity and dividing it by the the MWh that is 75 percent NGCC generation capacity, giving a f actor. This factor is the rate at which BB2 ERCs are generated for every MWh of energy from an NGCC. This can also be expressed in summarized by the following equation expression :
Incremental Generation Factor = 1

− Regional 2012 NGCC Baseline 75 % NGCC Regiona l Capacity The Incremental Generation Factor is a factor that the EPA will

are the Eastern Interconnect, Western Interconnect, and Electric Reliability Cou ncil of Texas (ERCOT).***E.O. 12866 Review

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calculate and will be calculated for every compliance period based on the least stingent 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). 59 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 fe deral plan
. The calculations for determinating the least stringent regional Incremental Generation Factor can be found in the &&&
TSD. Table 5 . below are the proposed values that would apply for all NGCC units to calculate the amount of issued GS

- ERCs.
**Tab le**  **5 . Incremental Generation Factors for Interim and Final**  **Compliance 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 BBBB 2 EEEEEE GGGGGGGGGGGGGGGGGGGG FF FF FF = NN GGGGGG BBBB 2 ( MMMM h )

− NN GGGGGG

. 2012 ( MMMM h ) NN GGGGGG BBBB 2 ( MMMM h )

59 Note that per the discussion in Section VI of the CPP 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, resulting in a higher “incremental generation factor” and more ERCs for the same amount of NGCC generation.***E.O. 12866 Review

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The EPA has calculated this factor rate to be [&&&] 0.09 BB2 ERCs/MWh. BB2 ERCs are generated at this rate by an NGCC for any level of annual generation to the grid. The calculation of BB2 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 * Incremental 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 total 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 reasons. This approach has the benefit of allowing NGCC units to bid into the electricity market without having to adjust bids based on a***E.O. 12866 Review

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projection of whether or not the NGCC will have generation incremental to its baseline in a given year . The proposed method 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 earning per MWh. The proposed method also promotes and incentivizes all NGCC units, regardless of historical
g eneration, to continue to operate at a greater capacity to replace steam generation. The EPA believes that this will allow for more fluidity in the market and flexibility for greater NGCC generation. In the CPP EGs the BSER determination for subcategory ra tes is calculated by using the least stringent region and applying the standards from that region on a national level. The determination 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 calculation at a national level ( i.e., applying the GS

- ERC calculation components that generate the most GS

- ERC s for every MWh). The EPA solicits comment on applying the least stringent regional factor for all affected NGCC units subject to***E.O. 12866 Review

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the federal plan and model rule on a national level. The EPA also requests comment on applying, for each region , its own regio nal 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 F actor 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 wo uld not reward the better performing NGCC units within the subcategory. In the &&& 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 the Eastern Interconnect and is 0.08 GS

- ERCs/MWh. So for every MWh that an NGCC generates it would be issued 0.08 GS

- ERCs and , if this were the approach EPA proposed, this would apply to every NGCC that***E.O. 12866 Review

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would be subject to the fede ral plan. In the &&&& 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 indiv idual NGCC’s emission 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 the NGCC its assigned emission standard for every MWh generated, but still be generating BB2 GS

- ERC s. BB2 GS

- ERC s may only be used to
meet fossil steam generation units’ compliance obligations. In the following example the EPA has taken the average NGCC operation in the Eastern Interconnect and divided it by the 75% of Building Block 2 to calculate an ERC generating factor for Building Block 2 of 0.09. This factor can be applied to every hour of operation of an NGCC to account for the effects of incremental operati on of NGCC units across the system. The ERCs that are then generated can be used by any affected EGU that is subject to the sub

- categorized steam EGU CO 2 emission performance
rate. In this As an example, an NGCC is connected to the grid and generates 1 mill ion MWh of electric output for the first year of***E.O. 12866 Review

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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 780 7 71 lbs CO 2 /MWh. Since the NGCC is always subject to its NGCC emission rate limit standard of 780 7 71 lbs/MWh and it is operating at a rate above that limit standard it will owe non GS

ERCs for all generation
. its own compliance
. The ERCs owed are calculated by solving for th e number of ERC MWh the NGCC will need to adjust its rate down to its emission rate limit. This is shown in the following equation:

850 , 000 , 000 llllll CC 2 lbs CO 2 / [ 1 , 000 , 000 MMMM h + EEEEEE MMMM h ]

= 780 llllll CC 2 [ 1 , 000 , 000 MWh + ERC MWh ] = 771 lbs CO 2 / MMMM h MWh When that equation is solved for the number of ERC MWh needed, the NGCC would need to acquire 89,74 4 102,464 ERCs to adjust its emission rate to its emission rate standard. Additionally, the BB2 ERC generation GS

- ERC Emission Factor for this NGCC is calc ulated by using 771 lbs CO 2 /MWh for the NGCC emission rate , as determined by the [ref &&&] and 1,404 lbs CO 2 /MWh for the steam generating unit emission standard in the equation described 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.***E.O. 12866 Review

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This is only an example. Because the Incremental Generation Factor is calculated by the EPA, is 0.09 BB2 ERCs/MWh of NGCC generation. Using this value the quantity of BB2 ERCs generated it can b e calculated by the following equation: found in the &&& 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. NN GGGGGGGGGGGGGGGG GG ∗ BBBB 2 EEEEEE GGGGGGGGGGGGGGGG GG = BBBB 2 EEEEEE And to solve the equation for this example:
0

. 45 ∗ 0

. 26 ∗ 1 , 000 , 000 MMMM h ∗ 0

. 09 BBBB 2 EEEEEE MMMM h = BBBB 2 EEEEEE = GS

- ERC
The calculation results in 90 117 thousand BB2 GS

- ERCs being generated. Because an NGCC cannot use the BB2 GS

- ERC s it generates to meet its compliance obligations, this NGCC will both generate ERCs ( 90 117 ,000 BB2 ERCs for its incremental generation GS

- ERC s ) and owe ERCs ( 89,744 102,464 non - BB2 GS

- ERC s against NGCC limit standard ). This NGCC may sell (or otherwise transfer) or bank its BB2 GS

- ERC s. If a BB2 GS

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

- BB2 GS

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

- ERC may not be used to meet an NGCC’s compliance obligation because they ar e generated to reflect incremental***E.O. 12866 Review

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NGCC generation replacing a steam generating unit’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 this the proposed approach and requests comment and suggestions on other approaches for existing NGCCs NGCC units to generate GS

- ERCs at all times. The EPA is considering this methodology that BB2 GS

- ERC s are generated for all NGCC generation because it en sure s that all existing NGCCs NGCC units are encouraged to run at a greater capacity. The EPA is requesting comment on alternative methods
to account for NGCCs to generate BB2 NGCC units generat ing GS

ERC s. Specifically, the EPA solicits comment on NGCCs NGCC units generating BB2 GS

- ERC s once a threshold of electric generation for the year is achieved. exceeded
. This threshold is based on emissions from 2012 for as a baseline and any NGCC generation beyond this threshold would be considered incremental generation. There are two different options to evaluate against a b aseline. The first is on an a unit level, if an a NGCC generates more than it did in 2012, all generation above the 2012 level ( i.e, incremental generation) is eligible to be credited with BB2 GS

- ERC s. The other threshold option is to use***E.O. 12866 Review

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a percentage thresh old. This Evaluated on a regional level, the 2012 baseline capacity percentage is the 2012 regional NGCC generation of total NGCC regional capacity in 2012. This percentage for NGCC units in the least stringent region is applied at the unit level and to all generation by the NGCC that units . Each unit is considered to be incrementally generating after it exceeds that percent the capacity at the NGCC is eligible to percent and will be credited with BB2 GS

- ERCs accordingly
. The BB2 GS

- ERC s in these instances are calculated by the following equation: BB2 ERCs GS

- ERC

= ( Steam standard

− NGCC operating rate ) Steam standard ( Steam standard

− NGCC emission rate ) Steam standard

∗ Incremental NGCC generation This equation quantifies the reductions of the ge neration shift from fossil steam to NGCCs NGCC units by the NGCC operating rate being evaluated against the fossil steam standard. For all incremental NGCC generation the NGCC operating rate is compared against two different standards: (1) the NGCC standard against which ERC generation is evaluated; and (2) the steam standard against which BB2 GS

- ERC generation is evaluated. An evaluation against each standard is independent of one another and BB2 GS

ERC s, in this situation, are only available for fossil ste am***E.O. 12866 Review

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compliance purposes. While having a baseline threshold for EGU generation to credit BB2 GS

- ERC s against closely resembles the EPA’s BSER determination, it enables a system in which BB2 GS

- ERC s can be generated by displacing replacing NGCC generation from one unit with other NGCC generation
. from another
. In this situation there is not necessarily any additional NGCC generation as a subcategory, but a shift in which NGCC units are generating electricity and to what degree
. This allows for a situation i n which BB2 GS

- ERC s can be generated without necessarily corresponding to achieving the CO 2 reductions anticipated by the BSER. Another aspect that reductions in CO 2 emissions
. The EPA considered is proposing to use a a pro

- rata approach for generating BB2 also requests comment on whether a distinct type of ERC that comes with the proposed restrictions (i.e., GS

- ERCs ) is that this allows NGCCs to bid into the electricity market without h aving to adjust bids based on projecting whether or not the NGCC will generate beyond a threshold. This discussion builds on and applies the definition, benefits, use, and determination of using ERCs from the CPP EGs S ection VIII . We invite comment on thi s approach as a method necessary to maintain the integrity of implementation of a***E.O. 12866 Review

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federal plan and a model the rate

- based trading rule. proposal.
. Comments regarding this section that solely relate to determinations finalized in the EGs will be considered out of
scope. 1. 3. Other Eligible Emission Reduction Measures of for ERC Generation Under the rate

- based federal plan, the EPA is proposing to specify zero - and low

- emitting emission reductions measures used to adjust an emission rate that are eligible for ERC issuance
. under the federal plan
. Specifically, the EPA is proposing that
RE capacity incremental to 2012 implementing generation that meets the requirements for eligible resources in the emission guidelines , all other requirements related to ERC issuance in the emission guidelines and this proposal, and falls into one of the following specific categories of RE measure types resources (as specified in final guidelines Sec.V.E.) are eligible for
rate

- based cred iting to be issued ERCs : on
- shore w ind, solar photovoltaics (PV), concentrated solar power, geothermal power, and hydropower. 60 Further, the EPA is proposing that new nuclear

60 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 approach co

- proposed in Section V as the federal plan, and all proposed aspects of the eligible measure***E.O. 12866 Review

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units and capacity uprates at existing nuclear units that meet the requirements for eligible resources in the emission guidelines (as specified in the final emission guidelines Sec.VIII.K.) and all other requirements related to ERC issuance in the emission guidelines and this proposal
. Further, these RE and nuclear measures must have the capacity ability to provide data from a revenue quality meter , a requirement which is further discussed in Sec. IV.G.4 Evaluation, Measurement, and Verification , provided below. This treatment for eligible measure types is also proposed for the set

- aside for RE that is part of the proposed mass

- based implementation approach, 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. The s et

- aside method IV.D.8 and the use of this eligibility treatment within it are specified in Sec. &&&. Sec. IV.G.4below. The EPA is proposing the inclusion of these measure types for the following reasons. These technologies , with the

types described in this section and the requests for comment included below also apply in the mass

- based set

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

- aside. The set

aside method and the use of this eligibility treatment within it are specified in Sec. &&&.***E.O. 12866 Review

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exception of nuclear, are part of the quantification of renewable energy 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 unde r the federal plan, see the final guidelines for details on the treatment of these measures in BSER (see Sec. V.E.). These technologies are also expected to be able to deploy on an economic basis during the compliance period, as discussed in the final EGs (see Sec. V.E.6). These technologies also provide the simplest and most timely path for evaluation, measurement, and verification ( EM&V ) implementation under a federal plan, as they can use their existing metering infrastructure to quantify generation and submit it for ERC issuance
. This EM&V approach is allowable under the EM&V requirements in this proposal, outlined in Sec. &&&, and is consistent with the requirements outlined in the final guidelines (see Sec. VIII.&&&). A unique concern to federal plan implementation is the need for an ERC issuance 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 eligibility to measures that can be directly metered, a feasible federal plan process for ERC issuance across a potentially large number of***E.O. 12866 Review

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jurisdictions is ensured. This approach would allow for easier determinations of compliance with the requi rements for EM&V proposed in Section IV.&&& below (see also Sec tion VIII.&&& of the EGs ). The agency requests comment on the inclusion of other zero and low

- emitting emission reduction measures as eligible for ERC issuance under the rate

- based federal pl an , and comments on how to assure suggested sources can be validated to assure reductions of CO 2 . 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 offering for
comment various treatment options for different types of biomass fuels, see below. The E PA requests comment on the inclusion of various types of demand

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

- based demand

- side EE, state building codes, state appliance standards, and conservation voltage reduction. The agen cy also requests comment on the inclusion of combined heat and power (CHP) as an eligible

measure. The EPA requests comment on the inclusion of any other

zero - or low

- emitting measure types emission reduction measure s beyond those mentioned here, as long a s they meet the***E.O. 12866 Review

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eligibility requirements outlined in the final EGs for rate

based crediting. For all 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. &&&, and within the requir ements outlined in the final guidelines (see Sec. VIII.G.5). 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 incremen tal to 2012. The EPA acknowledges that as new technologies mature, there should be an avenue to add new technologies to this specified set of eligible measures. The agency is requesting comment on appropriate processes through which the EPA and/or stakehol ders 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 ERC issuance under the federal plan. As mentioned above, the EPA is requesting comment on the inclusion of biomass as an eligible measure for rate

- based***E.O. 12866 Review

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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 guid elines, the EPA recognizes that the use of some biomass

- derived fuels can play an important role in controlling or reducing the contribution of
CO 2 emissions to the atmosphere (see Sec. &&&). increases of CO 2 levels in the atmosphere (see Sec. I.2.c ). 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 if biomass feedstocks are sourced responsibly and attributes of the carbon cycle related to the biomass feedstock are taken into account. Many states have already recognized the importance of waste

- derived feedstocks via mandatory and volu ntary programs supporting such efforts. 61 Many states have also recognized the importance of

61 Types of waste

- derived biogenic feedstocks may include: landfill gas generated through the decomposition of 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 wat er, due to the anaerobic decomposition of biological materials; livestock waste; and the biogenic fraction of MSW at waste

- to

- energy facilities (as discussed in section VIII.G.1.b(3)(c) of the final emissions guidelines).***E.O. 12866 Review

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forests and other lands for climate resilience and mitigation, and have developed a variety of sustainable forestry policies, biomass

- related renewable energy incen tives and standards, and GHG accounting procedures. 62 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 bi omass fuels. In November 2014, the agency released a second draft of the technical report, Framework for Assessing Biogenic Carbon Dioxide for Stationary
Sources . The revised Framework, and the EPA’s Science Advisory Board (SAB) peer review of the 2011 Dra ft Framework , finds that it is not scientifically valid to assume that all biogenic feedstocks are “carbon neutral” and that the net biogenic CO 2 atmospheric contribution of different biogenic feedstocks

62 Some states, for example Oregon and California, have programs that recognize 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 Regulat ions, support sustained production of high

- 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, w hich, among other requirements, limits old growth forest harvests.***E.O. 12866 Review

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generally depends on various factors related to feed stock characteristics, production, processing and combustion practices, and, in some cases, what would happen to that feedstock and the related biogenic emissions if not used for energy production. 63 The EPA is engaging in a second round of targeted peer re view with the SAB in 2015. 64 Information in the revised Framework and the second SAB peer review process, including stakeholder comments, will assist the EPA in assessing potential qualifying biomass feedstocks in federal plan applications. Provided for co mment below are options 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 , which include:
.

• A list of specific acceptable biomass fuels

• General principles an d/or specific criteria regarding biomass fuel production, processing and use for energy

63 www.epa.gov/climatechange/ghgemissions/biogenic

- emissions.html
. 64 www.epa.gov/sab
.***E.O. 12866 Review

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• A combination of the above options. The first Th is option offered for comment is to specify a list of specific pre - approved acceptable qualified biomass fuels. For examp le, the EPA could recognize the biogenic CO 2 emissions and climate policy benefits of waste

- derived ( e.g., landfill gas) and certain industrial byproduct feedstocks (such as black liquor or other forestry and agricultural industrial byproducts with no alte rnative markets ), based on the conclusions supported by a variety of technical studies. The ). As another example, the EPA could also recognize feedstocks from sustainably managed forests lands, provided that these feedstocks meet certain requirements. The pre - approved qualified feedstocks list could be amended in the future as the science related to biogenic CO 2 emissions assessments evolves
. Also, The EPA asks for comment on whether to include a provision could be included 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 biomass fuels and related CO 2 benefits
. The second option offered for comment would be to establish general principles and/or specific criteria concerning the production, processing and use of biomass fuels. These***E.O. 12866 Review

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principles or criteria would refl ect sustainability and sustainable practices that enhance carbon sequestration and storage in a manner consistent with widely accepted principles. For example, general principles for forest

- and agriculture

derived biomass fuels could include efforts to: p rotect, sustain, and enhance ecosystem health and vitality; maintain and enhance carbon sequestration and storage; ensure long term forest and landscape productivity and economic viability; protect culturally and environmentally sensitive areas; and employ rigorous monitoring and verification of carbon stock levels. Under this option, the EPA could specify criteria for the production, processing and use of forest

- and agriculture

derived biomass fuels that could also include the preservation of, and/or limiting or restricting the use of biomass fuels from, natural and old growth forests, peatlands, wetlands, high conservation value areas, biodiverse areas, protected lands and other sensitive lands. Examples of other potential criteria include:

• Improved m anagement to increase carbon sequestration benefits and protect forest health, including the retention of recommended levels of slash, woody debris, crop and other biogenic materials from harvest/related activities.***E.O. 12866 Review

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• L imitations on deforestation and targete d land use change, especially of high carbon and/or otherwise ecologically sensitive areas for the production of bioenergy feedstocks.

• Employment of sustainable management practices which promote production levels that can continue at a given intensity of management consistent with required environmental protection and which is professionally planned to achieve over time the desired balance between growth and removals on the landscape.

• Maintain soil and water quality and minimizing the amount of fertilizers and chemicals used on biomass fuel

- producing lands through integrated pest and fuel management activities.

• Use of the best scientific information and systems available to assess landscape health , carbon stock attributes and net carbon emissions attributable to production harvesting and use of biomass for combustion, and to continually refine and update inventories of these attributes.

• Monitor and verify implementation of sustainable production and best management practices, including credible records and other evidence of management, monitoring and***E.O. 12866 Review

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verification activities.

• Ensure forest and landscape productivity, and economic viability, including primary and secondary products. For example, if the biomass fuel is an industr ial process residuals 65 , then the primary uses of sourced material (i.e.

non - energy products) and related land use and industry practices remain intact. The third option offered for comment is a combination of the specific acceptable feedstock list and , fo r feedstocks not included on that list, general and/or specific criteria that reflect sustainability and sustainable practices considered in a manner consistent with widely accepted principles. The EPA also requests comment on options for demonstrating

com pliance with the options listed above that include criteria that reflect sustainability and sustainable that feedstocks meet the requirements to be accepted as a pre

- approved qualified feedstocks. These requirements could include demonstration of certifica tion or verification of practices that are additional
to the other monitoring , reporting and EM&V requirements

65 Industrial process r esidu al s can be considered as substance s that are not the primary end product that a production process is in place specifically to produce. Residual materials are not a primary aim of the production process and the process has not been delib erately modified to produce it.***E.O. 12866 Review

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discussed in section &&& above. These options for demonstration of compliance with criteria are described below. The first option offered for comment would require this proposal , such as provision of sufficient credible evidence, such as monitoring records and metrics showing that the forest/agricultural feedstock sources meet the criteria listed above and any others that might be adopted , and are at low risk of non

- compliance. The second option offered for comment would require the provision of approved analysis of carbon benefits, third party verification and/or certification entities or programs to demonstrate comp liance with established sustainability criteria. Biomass that is acknowledged as sustainable and certified under a verification body and/or third party scheme [(e.g., Forest Stewardship Council, Programme for the Endorsement of Forest Certification , Sustai nable Forest Initiative ], that is deemed or determined to be acceptable is at low risk of non

- compliance with the criteria offered for comment. These third party verifications can include demonstration of sustainable origin of feedstock (via chain of custo dy verification), mass balance calculations and/or other performance

- based metrics. The EPA requests comment on what considerations, if any, to take into account when including acceptable certification programs or***E.O. 12866 Review

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criteria. The third option offered for comment allows for the

use of any other verification programs or entities to demonstrate compliance which are not pre

- approved but can be proven to employ generally accepted sustainability metrics . For example, this would include verification programs that reflect sustainable production practices and responsible land use resource management, are performance based, and are at low risk of non

- compliance may be used . Entities that use verification programs that are not pre

- approved may be required to provide ad ditional forms of records and metrics to verify feedstock sustainability
. The fourth option offered for comment requires , or a determination of the biogenic emissions and sequestration related to the production, processing and use of the biomass fuel, wit h supporting records. A potential calculation method is the application of an assessment framework like that provided in the 2014 Framework for Assessing Biogenic Carbon Dioxide for Stationary Sources that assesses the extent to which the production, proce ssing, and use of biogenic material results in a net atmospheric contribution of net biogenic CO 2 emissions. This type of method could use the actual measured (and verified) net biogenic CO 2 emissions and sequestration values or biomass fuel

- specific defau lt values to calculate the carbon intensity***E.O. 12866 Review

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of the biomass fuel effects related to the production, processing and use of the feedstock
. It is possible that compliance options could be implemented in isolation or simultaneously (e.g., use of certification

a nd/or verification entities and determination of biogenic emissions). The calculated carbon intensity of the biomass feedstock could then be applied to calculations relevant to meeting rate

based and mass

- based obligations through co

- firing of biomass. The EPA is taking comment on the following options. The carbon intensity of the feedstock in question could be used to determine the net emissions of biomass used as a co

- fired fuel at an affected EGU. As is outlined in the final EGs (see Sec. &&&) , an aff ected EGU using qualifying biomass as a fuel must monitor and report both its overall CO 2 emissions and its biogenic CO 2 emissions. In a rate

- based context, the biogenic emissions can be included in the calculation of the fossil rate at the affected EGU fo r the purpose of determining whether the affected EGU has met its obligation under a rate

- based federal plan. In a mass

- based context, the affected EGUs that are co

firing would be required to hold allowance equivalent to those calculated biogenic emission s. T he eligibility requirements discussed in this section meet***E.O. 12866 Review

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the requirements outlined in the final EGs (See Fina l Emission Guidelines preamble section VIII.G.1.b: Actions taken to adjust the CO 2 emission rate of an affected EGU ). We take broad comment

o n 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 the associated biogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the final model rule related to biomass. Specifically, 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. We take c omment on any other requirements that should be included in the final model rule regarding EM&V for qualifying biomass. Discussion of the biomass EM&V requirements in the rate

- based model rule can be found in Sec. IV.D.8 below
. T he eligibility requirements for ERC resources discussed in this S ection meet the requirements outlined in the final EGs (See Fina l EGs preamble section VIII.G.1.b). The agency in this proposal is including in the regulatory text for the model rule language r elated to the crediting of these other potential ERC resources, even though they are not being proposed as a part of the federal plan. This is in order to provide states further direction through the model rule on how states may include this***E.O. 12866 Review

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broader set of ERC

- generating 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 rela ted to those resources, are not applicable in the case of a federal plan. Rather they are proposed as part of the model trading rule only. However, again, the agency is requesting comment on the inclusion of these resources in the federal plan.
D. ERC Tracki ng 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 b e 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 part of , including affected EGUs that are under a ready

- for

- interstate

trading ready state plan ), deduction of ERCs for compliance
pur poses, and transfers of ERCs between accounts. The primary***E.O. 12866 Review

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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 limits standar ds . The ATCS would also provide data to the ERCs market and the public, including a 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 web site and in annual progress reports. The ATCS and the EPA provide all required elements of a qualified ERC tracking system as described in section VIII of the CPP EGs
. In the subsections that follow, the mechanisms by which a
rate

- based trading program is would be implemented and administered are detailed. This section elabrorates on this proposal, which implements through specific provisions the requirements for rate

- bas ed trading programs in the EGs. The EPA requests comment 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
comments comment on means to expedite the process of issuing ERCs and , any minimum and maximum periods for which ERCs should be issued ( e.g ., monthly, quarterly, annually), and any means to***E.O. 12866 Review

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insure the integrity that the ERCs issued meet the requirements of the ERCs that may be issued
. emission guidelines 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 success ful implementation of similar
programs . 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. Th ese sections would also describe the designated 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 would be patterned after 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 operat ors of each***E.O. 12866 Review

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affected EGU in matters pertaining to the rate

- based trading program. One alternate designated representative could be selected to act on behalf of, and legally bind, the designated representative and, thus, the owners and operators. Because th e 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 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 t he Administrator, would include: specified identifying information for the covered source and covered electric generating units 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 and 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***E.O. 12866 Review

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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 oper ators of the affected EGU 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 de signated representative ( e.g., in circumstances where the designated representative might be unavailable), additional 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 previously

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

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

- based***E.O. 12866 Review

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trading program. 2. ERC Tracking and Compliance Syst em 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 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 BB2 a GS

- ERC or not) . ERC 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 price information than is the EPA. For example, because not all ERC transfers are immediately reported to the 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***E.O. 12866 Review

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state plans fufill the criteria set forth in the fin al 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 E GU and “retired” or “cancelled” by the Administrator or administering state regulatory body), to ensure they are only used once to meet a regulatory obligation. This is addressed through specified requirements for tracking system account holders, ERC issua nce, ERC transfers among accounts, compliance true

- up for affected EGUs, 66 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 is sued ERCs back to the program or project for which they were issued. The EPA received a number of comments from states and stakeholders in the CPP EGs about the value of the EPA’s support in developing and/or administering tracking systems to support state administration of rate

- based emission trading systems. As

66 “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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described above in section III.A , the EPA is proposing , as part of both types of model tradi ng 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. 3. 4. Compli ance and General Accounts This section describes two types of ATCS accounts: compliance accounts, one of which 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 application 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 ha ve to be held
. until retired for compliance
. General accounts could be used by any person 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 an d 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 certificate of***E.O. 12866 Review

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representation. The application would include, i n 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 n ame for the account; the names of all persons with an ownership interest with the respect to allowances held in the account; and certification language and signatures of the authorized account representative and alternate. The authorized account representa tive and alternate would be authorized upon receipt of the application by the 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 o wnership interest with respect to ERCs, and for delegating authority to make electronic submissions would be analogous to those applicable to comparable matters for designated representatives and alternates. The EPA requests
comment on these compliance mechanisms. Averaging 4. 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***E.O. 12866 Review

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affec ted EGU to meet its compliance obligations its average stack emission 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 applic able rate standard. An EGU ’s average emission rate over the compliance period will be calculated based on submitted data to ATCS. The compliance period average would be calculated by taking the total Measured CO 2 mass in units of pounds of CO 2 emitted (lbs) summed over the compliance period for an affected EGU and dividing it by the total net MWh of energy output over the compliance period for that affected EGU produced. in units of MWh
. 67 This averaged emission rate will be compared to the emissions standards that the EGU is subject to during the corresponding interim compliance period or final goal.
. Accordingly , and if necessary, the appropriate number of ERCs will be deducted 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 of this preamble.

67 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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5. 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

- year compliance period, for instance, there would be three points at which the agency issues
ERCs. After each calendar year , the EPA will calculate the ERCs generate d 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 Notice of Data Availability (NODA) with a 30 day comm ent 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 entities without compliance accounts, the EPA will issu e 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 dif ferent intervals ( e.g., quarterly, biannually, or other time frames). The EPA requests justification along with corresponding comments regarding issuance of ERC intervals. regardingERC

- issuance intervals. We request comment on how reporting and recordkeeping requirements could be minimized for small entities to the extent possible***E.O. 12866 Review

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under the statute and existing regulations.

a. Issuance of ERCs to Affected EGUs Following the determination of the number of ERCs an affect ed EGU is eligible to receive, based on an affected EGU’s reported CO 2 emission rate compared to a specified reference
rate 68 , the EPA will issue those ERCs into the affected EGU’s compliance account in ATCS
. The issuance will occur annually through the NOD A 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 RE, Demand

- Side EE and Other 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 RE and other measures used to adjust an emission rate that seeks
to provide the necessary rigor and transparency while being efficie nt 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 proposi ng a two

- step application process to the

68 As described in section IV.C.1.***E.O. 12866 Review

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federal plan tracking systems for RE ERCs. 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 b een quantified and verified, while still assuring a rigorous approval process
. For the first step in the ERC issuance application process, the EPA proposes that RE and nuclear generation providers submit a project to the
EPA a n eligibility application for EPA approval to EPA , 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 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 to 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 considered eligible under the final guidelines. The following are proposed required components of the project eligibility application , as specified for these measures in the final emission guidelin es : (1) The EPA proposes that the federal plan will require that providers must show that the generation they would***E.O. 12866 Review

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be providing to the federal plan system for ERC issuance

are is only being credited in the federal framework plan , and will not be submitted for ERC issuance in any other
rate

- based crediting system in any other state. As discussed in Section &&& IV.C. above, it is proposed that states with rate

- based emission standards plans that have eligibility and EM&V requirement s compatible with the federal plan will have the opportunity to participate in the federal plan trading systems, and create a shared pool of creditable 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 Sec. &&& Sec tion IV.C of this rule. (3) The provider must show that the project has an EM&V protocol p lan that meets the federal plan requirements. Proposed requirements specific to the federal plan are proposed in Sec. &&& IV.D.6 of this rule. As specified in Sec. IV.D.8, w e take comment on whether nuclear energy resources should be subject to the same EM&V re quirements as renewable energy resources, and if not, we take***E.O. 12866 Review

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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 state 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 electricity load in a state with a
rate

- based plan . The EPA is proposing that an RE provider can make this demonstration by providing documentation of a power purchase agreement (PPA) or delivery contract from the rate

- based state
. The EPA is proposing and show that there is no other geographic limitation on the location of measure was treated as a generation resource used to serve regional load that included the providers of
RE. 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

r equirement and the justification for its inclusion is further discussed in Sec .&&& . III.A. on Interstate Effects and also discussed in the Interstate Effects section of the final guidelines (Sec. VIII.G.2). VIII. L ). The EPA is proposing that there is no other geographic limitation on***E.O. 12866 Review

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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 review and approval of the eligibility requirements, as is re flected in EM&V requirements for the final guidelines, and specified as part of proposed federal plan EM&V requirements below in Sec. IV.D.6 of this rule
.
We request comment on each criteri on of the eligibility application described herein and in the propo sed 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 mode l 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 complementary tracking system for administering the rule that provides 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 ERC transfers and the activities of accredited third party verifiers (third party verifiers are***E.O. 12866 Review

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further discussed below in S ec. IV.D.6 of this rule ) , as part of Evaluation, Measurement and Verification)
. well for the public to be able to generate reports based on this information
. The agency is proposing that these 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 periodic a n annual basis. The agency requests comment on whether a quarterly or semi

- annual bi annual application process is more appropriate. These applications will be accepted through the entirety of all compliance 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 RE providers submit an application for ERC issuance M&V report to the EPA , or its designated 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.***E.O. 12866 Review

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The followi ng are proposed required components of the credit ERC issuance application: (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 t heir creation. This needs to meet the federal plan EM&V requirements outlined in Sec. &&&. (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. This can be shown through a finding from a third

- party verifier that meets federal plan requirements. (3) Documentation that the MWh resulted from RE or incremental nuclear capacity eligible for crediting under the federal plan requirements and in accordance with final EGs . emission guidelines
. This documentation should note if the MWh are from an RE project located in a state with a mass - based state plan , and show if the generation is approved to be eligible for ERC issuance under the federal plan. See Section III.A.2 &&& for specifics on the required demonstration for this type of RE generation. As discussed in that section, this option is proposed to not***E.O. 12866 Review

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be available to incremental nuclear capacity located in a state with a mass

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

- party verifier , submitted after the verifier ’s review and approval of all components of the application. the eligibility application , as is reflected in EM&V requirements for t he 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 EPA or its designated agent, ERCs will be issued to the provider by EPA through the federal plan credit tracking system 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 pro cess 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 the proponent to register for a general account in the EPA tracking system where the ERCs would be recorded. See section 62.16515 for the requirements to establish a general account. While EPA is proposing to allow eligible resources to use a***E.O. 12866 Review

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general account to receive any ERCs issued under this section, EPA requests comme nt on extending the designated representative provisions in section 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 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 integrit y of an ERC that it represents the actual MWh of energy generated or saved that it purports to represent, and as required in the emission guidelines for state plans, the federal plan and model rule include provisions to address error correction (mechanisms to adjust the number of ERCs issued 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 that provide th at, 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***E.O. 12866 Review

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ERCs) and independent verifiers (fr om 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 Section III.I above , we propose to use the administrative appeals process set forth 40 C.F.R. Part 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 t he 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 qualifi cation status of an eligible resource or independent verifier. The agency is proposing that ERC issuance eligibility applications will be accepted after starting before the beginning of the first compliance period , as soon as the agency is able to establish (January 1, 2022) , through an application process , and the agency will establish and administer (unless delegated or taken over through a partial state plan) , and that applications will be accepted on a periodic a n annual basis , either quarterly or semi

- a nnually.
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These applications will be accepted through the entirety of all compliance periods. The EPA will review and approve eligibility application application s , and may designate an agent to coordinate and assist with credit issuance ERC eligibility appli cations. The EPA is proposing that ERC issuance it will issue ERC s for each compliance a given year will be available a maximum of no later than 6 months after the end of the relevant year , to allow for . This amount of time may be necessary to accommodate the ERC issuance process , including necessary EM&V documentation
. . . The overall proposed schedule for trading and true

- up has been constructed to allow for this period of time for EM&V after the performance compliance period. The EPA proposes that certain pre

- compliance measures are eligible for crediting reductions during compliance , in accordance with what is allowable under the final emissions guidelines (Sec. &&&)
. Specifically, RE capacity installed after 2012 is eligible for ERC issuance for all of its
ge neration during the performance periods 2022

- 2030
. This corresponds with treatment in the final emission guidelines, and ensures access to the RE generation assumed in CO 2 emission performance rates and goals. Additionally, affected EGUs in jurisdictions subject to***E.O. 12866 Review

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the federal plan will be able to use rate

- based ERCs or mass

based allowances available from the clean energy investment pool, which rewards early action on implementing RE and demand

- side EE. The cle an energy investment pool is specified in the final guidelines (see Sec.&&&). &&&Placeholder for language on provisions to encourage early action that is being worked on offline&&& 7. Independent Verifiers The EPA has determined in the final EGs that inde pendent 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 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 reports 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 included in st ate GHG emission budget trading
programs.***E.O. 12866 Review

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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 it uses to provide verificati on 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 approved or “accredited” by the EPA may provide verification services related to ERC issuance, in the same way that only verifiers approved by a state may be eligible to perform verification services pursuant to a state plan
. 69 In addition, v erifiers must have sufficient knowledge of the rate

- based emission trading program rules, technica l expertise, and knowledge of auditing, accounting, and information management practices , in order to perform

69 In this section, the term “verifier” is used interchangeably to refer to both a “verification body” ( i.e ., a verification company or organization) 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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verifcation services related to the Clean Power Plan . Accredited verifiers must be independent. Accredited verifiers may not provide verification services for any eligible resource for which they have a financial, management, or other interest. 70 Such relationships constitute a conflict of interest (COI). COI

70 Accredited verification bodies and individual verifiers may not have any direct or indire ct 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 follow ing specific requirements also apply. Accredited verifiers 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 mus t 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 proje ct 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 appro val, ERC issuance, or the number of ERCs issued. Accredited 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 verifier that it assessed potential COI related to an ERC provider and adequately addressed any identified COI.***E.O. 12866 Review

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situations may also arise as a result of personal relationships among individuals representi ng 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 accredited verification body or any individual verifier has a COI. Accredited verification bodies must h ave management protocols in place to identify and remedy any COI prior to provision of verification services. that 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 verifie rs 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 de monstrates that federal plan requirements are met. 71 The EPA requests comment on the proposed necessary requirements for an

71 An example is ANSI accreditation under ISO 14065:2013 for GHG validation and verificati on bodies. More information is available at https://www.ansica.org/wwwversion2/outside/GHGgeneral.asp?menuID =200.***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 t he level of detail that we should include in the final model rule regarding all requirements for indepenent verifiers, and all aspects of verification. 6. 8. Evaluation, Measurement, and Verification (EM&V) Plans, Monitoring and Verification (M&V) Reports, and Verification Reports The EPA is proposing that issuance of ERCs to credit eligible measures requires the implementation and documentation of sufficient EM&V 72 . Such EM&V requirements, which reflect and are generally consistent with prevailing industry

- stan dard practices, are specified in the final emissions guidelines (see Sec. VII.&&&). The EPA is proposing that the EM&V required for

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

side EE , and the reby 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 comment on EM&V for demand

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

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issuance of ERCs under the federal plan meet the requirements specified in the final guidelines, with the following addition al proposed requirements and specification of final emission guideline requirements. Section VIII.G.5.f of the final guidelines provides specific requirements for the provision of RE data as part of an EM&V demonstration, and all those requirements will ne ed to be satisfied under a federal plan. The following proposed federal plan requirements are drawn from that section. P roposed eligible measures for ERC issuance must all have the capacity to provide data from a revenue quality meter that meets the applic able ANSI C

- 12 standard or equivalent, which is the typical requirement for settlements with RTO and other control

- area operators. These data can then be submitted to the federal plan tracking system.
In t his proposal we are requesting comment on the inclusion of other RE measures and demand

- side EE measures as eligible measures under the federal rule. EM&V requirements for such

measures are specified in detail in the final guidelines preamble Sec. VIII.G.5. For commenters T hi s 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***E.O. 12866 Review

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generate ERCs or otherwise adjust an emission rate. 73 Only a subset of the potentially creditable ERC resour ces 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

resou rces are presented only for the purpose of comment in the context of the federal plan , but are actually proposed 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 power, hydropower , new nuclear units and capacity uprates at existing nuclear units, and 2) they can provide quantified generati on data from a revenue quality meter . The language pertaining to all other measures ( e.g ., demand

- side EE) is proposed only for the model rule. While they are currently being

73 EM&V is defin ed here as the set of procedures, methods, and analytic approaches 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 comment on EM&V for demand

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

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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
comments comment on how the EPA could implement across applicable jurisdictions a rigorous, straightforward , and widely demonstrated set of EM&V methodology methods, procedures, and approaches that could be implemented in the time frame allowed by the federal plan and that also meets meet the requirements outlined in the final guidelines. To the extent proposed for inclusion in the model trading rule, w e also invite comment on these requirements in the context of state implementation as part of a proposed model trading rule for states to use. 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. The EGs set minimum requirements for rate

based programs, including ERC EM&V. Thus comments Comments that suggest an approach not authorized by the EGs may will likely be considered out of scope of this action to that extent.
. The final EGs provide requirements for independent verifiers , including standards for accreditation and eliminating***E.O. 12866 Review

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conflict of interest (see Sec. VIII.&&&). The EPA request comment on the specific requirements that third party verifiers should meet prior to participating in the federal plan ERC issuance process. Additionally, with 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, procedures, and approaches as specified, or may submit alternative EM&V that is functionally equivalent to the industry best

- practices described as presumptively approvable. 74 As discussed in section IV.C.3 , quantified and v erified MWh of RE generation and other means of generating ERCs may be used to adjust a CO 2 emission rate when demonstrating compliance with the emission guidelines. Providers other than affected EGUs who seek to earn ERCs must develop EM& V plans outlining how they

74 The EPA recognizes that EM&V is routinely evolving to reflect changes in markets, technologies and data availabilit y, and expects to update its EM&V guidance over time. Therefore the agency expects that alternative quantification approaches will emerge that can be approved for use, provided that such approaches are functionally equivalent to the provisions for EM&V out lined in this section.***E.O. 12866 Review

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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 appr oval. 75

a. Overall A pproach and Measure

- S peci fic R equ irements The proposed CPP EGs 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 proposal and associated “State Plans Considerations” TSD 76 suggested that such EM&V requirements would leverage existing industry practices, protocols, and tracking 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, re fining , and enhancing their evaluation

75 A full discussion of applicable requirements for the establishment and functioning of the rate

- based trading system is provided above, in section &&&. 76 See discussion beginning on p. 34 of the State Plan 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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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 maj ority of 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 consistent 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 results with the associated costs of EM&V . Another objective for the EPA’s proposed EM&V is to avoid excessive interference with existing practi ces that 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
. Th ese submittals are described in section &&& VIII.K.2 of the***E.O. 12866 Review

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CPP 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 EPA, respectively, an EM& V plan 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) reports 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 usi ng projections or other ex

- ante quantification approaches. Each EM&V plan submitted in support of an eligibility application must identify the eligible resource covered by the plan, and provide specific EM&V criteria that specify the manner in which the e nergy 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 spec ific 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
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Each M&V report submitted in support of th e issuance of ERCs to a specific eligible 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

- s aving measures were installed or implemented 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 EM&V pla n 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 th e eligible resource during the period 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 eligibi lity 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***E.O. 12866 Review

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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 ver ification report submitted by an independent 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 ver ifier, based on an assessment of all relevant requirements, information and data, including an 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 mee ts 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 the verification report. Each verification report included as part of a M&V report must

a lso 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***E.O. 12866 Review

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or electricity savings during the period covered by the report,

as w ell as all supporting information and 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 qu ality control check of the data); that 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 the verification 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 (an d 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 resemble 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 track ing for RE that are broadly applied in the state and***E.O. 12866 Review

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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 EP A’s requirements presume that the quantification of RE generation can leverage the infrastructure and documentation associated with the establishment of renewable energy certificate (RECs) and registration of such certificates in REC registries . These regi stries 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 identified 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***E.O. 12866 Review

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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, adjusted 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 capacity or less may estimate the facility’s output if the sta te where it is located explicitly allows estimates to be used and provides rules for when it will be allowed. In the latter case, calculations of system output must be based on the RE unit’s capacity, estimated capacity factors, and an assessment of the lo cal conditions that affect generation 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 shou ld 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
pr oposed requirement for quantifying 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***E.O. 12866 Review

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the ERC registry by an independent third party, or may be self

reported. Third

- party and self

- reported generation data must be reported on a n annual basis. All such data must be verified for reasonableness by the Agency, state or the REC registry. For reporting purposes, RE generation may be aggregated from mult iple 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, the aggregated RE units coll ectively have nameplate generating 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 estimating 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 identif ied 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

- side EE.***E.O. 12866 Review

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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 r equirements included in this subsection, includuing the app ropriateness of their use for each type of renewable energy resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Clean Power Plan c ompliance.
For renewable energy resource s with a nameplate cap acity of 10 kW or more and for renewable energy resource s with a nameplate capacity of less than 10 kW for which metered data are available , we take comment on the appropriateness of the requir ement to use a revenue quality meter for monitoring 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 is th e appropriate threshold, under which 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 resources of all sizes and means of monitori ng, we take comment on the appropriate requirements for allowing generation data to b e aggregated, including comment on***E.O. 12866 Review

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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 characteristics, 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 res ource 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 thresholds for the aggregated of individual units ( e.g .,
n ameplate capacity of less than 150 kW 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, we take comment on whether the final model rule should specify the speci fic estimating software 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 r equest comment on a ny other requirements that should be included in the final model rule regarding EM&V of renewable
energy resources.***E.O. 12866 Review

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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, 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 comment on whether generation data should go through a control area settlement p rocess 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 co llection 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 requirements associated with quantify ing 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***E.O. 12866 Review

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section. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection, includuing the appropriateness of their use for each type of renewable 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 resources, and 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 fol low the requirements for RE discussed in the preceding section, including metering requirements, special treatment for units of less than 10 kw, 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***E.O. 12866 Review

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electrical output associated with the CHP unit. 77 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 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. 78 The monitoring requirements are standard methods

77 The applicable CO 2 emission limit rate depends on the type of state plan being implemented. Where a state plan includes a single 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 affect ed EGUs, the applicable rate is the rate that applies to affected NGCC EGUs. 78 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***E.O. 12866 Review

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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 79 with electric generating capacity 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. For non

- affe cted 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 acceptable. Th e 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 resource). We take comment on whether a CHP unit should be subject to the same EM&V requirements as renewable energy

resource s, and we take comment on any additional EM&V requirements to which CHP units should be subject. Specifically, we take comment on specifying in the final model rule that if a combined heat and power unit has an electric generating capacity

titled ‘ EM&V requirements that apply to biomass RE facilities.’ 79 A CHP facility may consist of one or more electric generators.***E.O. 12866 Review

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greater than 25 MW, its EM&V plan must specify that it will meet the requirements that apply to an affected EGU under § 6 2.16540 of this subpart. We also take commen t on specifying in the final model rule that if a combined heat and power 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 emission monitoring and reporting me thodology in 40 CFR 75. We take comment on any alternatives to these measurement methodologies that should be specified in the 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 98 (§§ 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 pl an that addresses biomass RE must follow the requirements for monitoring and reporting biogenic CO 2 emissions from the facility that were approved by the EPA in connection with the specific state plan.***E.O. 12866 Review

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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 biomass. We take broad comment on the types of qualifying biomass feedstocks that should be specified in the final mod el rule, if any. We take 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 final model rule related to b iomass. We take comment on a ny other requirements that should be included in the final model rule regarding EM&V for qualifying biomass
. Detailed discussion on the role of qualifying biomass feedstocks can be found in Sec. IV. C.3
. 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 98 (§§ 98.3(c), 98.36(b)

- (d), 98.43(b), and 98.46) in its plan submission, those requirements are presumptively approvable. The EPA may approve other requirements of similar rigor, at its discretion. An EM&V plan***E.O. 12866 Review

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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 the facility that were approved by the EPA in co nnection with the specific state plan. As discussed in the final CPP EGs (see Sec. VIII.K.1 ) , only the portion of electric generation at a waste

- to

- energy facility that is due to the biogenic 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 this subsection with respect to WTE, including the appropriateness of the ir use for WTE. We take comment on whether a waste

- to

- energy resource should be subject to the same EM&V as renewable energy

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 presumptively approvable
EM&V provisions that may be included in state regulations***E.O. 12866 Review

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governing how EE is quantified by EE providers and is verified by independent entities acting on behalf of the state. These provisions apply to all demand

- side EE used to adjust an emission rate. For all demand

- side EE used to generate ERCs , the metric is MWh of electricity savings, which is quantified on an ex

- post basis and defined as a reduction in facility

- or premises

- lev el electricity consumption due to a n EE program , project , or

measures . (1) Common Practice Baseline Based on public input and assessments of industry best

p ractice protocols and procedure s, the EPA has determined that a presumptively approvable EM&V provisio n is quantif ying EE saving 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

– or that a typical consumer or building owner would have continued using

– 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 what would commonly have happened in the absence of the EE intervention. The applicable CPB depends on a number of factors, such as***E.O. 12866 Review

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characteristics of the EE measure, the delivery mechanism to implement the EE measure, local consumer and market ch aracteristics, and the applicable building energy codes and product standards (C&S), including the C&S compliance rate. Examples of app ropriate CPB s to apply in specific contexts, with consideration of these factors, can be found in the EPA’s draft EM&V gu idance. EE providers must document the selected CPB in their EM&V plans , a long with clear documentation and discussion of the rationale, applicability, and relevant data sources, protocols, and other supporting information. 80 Monitoring and verification rep orts must refer to the EM&V plan and confirm that the CPB was applied. (2) M etho ds U sed to Q uantify S avings from Energy Efficiency Programs and P rojects This section discusses 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. During the CPP EG’s public comment period, the EPA received input indicating that state PUCs

80 For one source of applicable baselines, see Table 7.1. State and Local Energy Efficiency Action Networ k. 2012. Energy Efficiency Program Impact Evaluation Guide . Prepared by Steven R. Schiller, Schiller Consulting, Inc., www.seeaction.energy.gov. Or current version.***E.O. 12866 Review

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typically allow utilities and other EE provid ers 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 offe r 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 proj ect or measure in order to ensure accurate and reliable savings values. To be considered presumptively approvable, EE providers must conduct apply the above methods at a minimum of four year intervals for building energy codes and product standards; every one, two or three years for publicly or rate

- payer funded EE programs, depending on the program type, magnitude of savings, and experience with the program; and annually for large individual commercial and industrial projects , unless the EE provider can cr edibly demonstrate why this is not possible and how the accuracy and***E.O. 12866 Review

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reliability of savings values will be maintained . For all demand

- side EE used to adjust an emissions rate, the selected method, associated assumptions, and data sources must be identified and described in EM&V plans. For comparison group approaches, 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 and the U.S. DOE’s Uniform Methods Protocols (UMP) project. Where feasible, the EPA seeks to encourage the use of RCT methods , which determine savings on the basis of energy consumption differences between a treatment group and a comparison group, 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 presumptively approvable provisions are that deemed values (a) b e documented in a publicly available database (also known as a Technical Reference Manual) that is accessible on a public website, or is otherwise readily accessible ; (b)

s pecify the conditions for which each deemed value can be
ap plied, including but not limited to climate zone, building type, and EE implementation mechanism ; and (c) b e updated at a***E.O. 12866 Review

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minimum of every 3 years to reflect the per

- measure MWh savings documented in ex

- post EM&V studies apply measurement and verification or comparison group methods
. For M&V methods, the presumptively approvable provision is that industry best

- practice protocols must be followed. These include the International Performance Measurement and Verification Protocol (IPMVP) , 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. EE providers can consult the EPA’s EM&V guidance to assess the applicabil ity of such protocols and guidelines to the EE program s and projects generating savings, and must document how these will be applied in EM&V plans (along with clear documentation and discussion of the rationale, applicability, and relevant data sources, an d other supporting information). Monitoring and verification reports must refer to the EM&V plan and confirm th at the relevant protocol was applied. (3) Quantifying S avings Regardless of the approach used to quantify and verify MWh savings, EM& V plans must describe how they will address the following presumptively approvable provisions :

• How major changes in independent variable conditions***E.O. 12866 Review

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(weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be a nalyzed. The 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 instal lation of EE will be verified for EE program categories that involve the installation of identifiable measures ( e.g ., most

consumer - funded EE programs and project

- based EE are evaluated site

- by

- site). Verification is required within the first year of progr am implementation. All 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 program, verificat ion can be performed using a sample of projects to represent the full program population.

• How avoided T&D system losses 81 will be quantified and

81 T&D losses are defined as the difference between the quantified***E.O. 12866 Review

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applied to EE savings determined at the customer facility or premises . Demand

- side EE programs (other than T&D efficiency measures such as CVR and volt/VAR optimization 82 ) may adjust reported savings by using a
T&D adder . If such an adder is applied, the presumptively approvable appraoch 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) State Electricity Profile. 83

• How the duration of EE program or project electricity savings will be determined. This must b e determined using industry best

- practice protocols and procedures

EGU generation required t o serve a customer’s load (measured at the EGU bus bar) and the customer’s actual electricity consumption (measured at the customer meter). 82 More information about these technologies is in section VIII. F .1 above
. 83 Estimated losses in MWh, total electric supply, and direct electricity use values 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 elec tricity generated at facilities that is not put onto the electricity grid, and therefore does not contribute to T&D losses.***E.O. 12866 Review

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such as annual verification assessments, industry

standard persistence studies, deemed estimates of effective useful life (EUL), or a combination of all three.

• How the accuracy and reliabi lity of quantifying MWh savings values will be assessed, and the rigor 84 of the 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 derived from sa mpling 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 electricity savi ngs 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

84 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 activities are both accurate and precise.***E.O. 12866 Review

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draft EM&V guidance. (4) Use of Energy Efficiency EM&V P rotocols
In 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 b est

- practice protocols and procedures for demand

- side
EE. A p resumptively approvable provision for EM&V plans is that they must include a clear description and documentation of how the relevant protocols will be applied, as well as after

- the

fact documenta tion in EM&V reports of how they 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 interest expressed through the CPP EG rulemaking process in ac counting methods for quantified and verified MWh savings from DS

- EE in state plans . Consistent with these perspectives, the EPA position is that any demand

side EE program and project that results in MWh savings may be potentially eligible to states, including under this proposed model trading rule , provided that it meets the presumptiv ely approvable provisions for eligibility described in section &&& ,***E.O. 12866 Review

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and that supporting EM&V is rigorous, complete and fulfills the requirements provided in the emission guidelines and the state plan. Common demand

- side EE programs and project types inclu de:

• Publicly or consumer - payer funded customer

- funded demand

- side management 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 buildi ngs and industrial facilities

• State and local government building energy code and compliance programs

• State and local government incremental product energy standards The EPA’s EM&V guidance contains supplemental information about applicable protocols, meth ods, and other key considerations for quantifying and verifying savings from the above

- listed EE activities in an accurate and reliable manner. 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***E.O. 12866 Review

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any such programs can similarly be considered if they meet the requirements of the emission guidelines
. (6) Requests for Comment on Energy Efficiency EM&V We take broad comment on each EE EM&V criteria 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 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 simultaneously with this proposed rulemaking should instead be in cluded in the final model rule, instead of in guidance. 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 included 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 activity, project, program, or measure. We take broad comment on what constitute EE best practices protoc ols for every type of EE activity, project, program, or measure. We take broad comment on how common practice baselines***E.O. 12866 Review

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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 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 and quasi

- experimental 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 ). If deemed s avings 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 an d frequency for their determination
. We further take comment on the presumptively approvable provision for public access and input to the development of the TRMs used to house the applicable deemed***E.O. 12866 Review

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savings values. We take comment on the minimum and maximu m intervals (in years) over which electricity savings must be quantified , including those time intervals 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 programs in place today, and we would expect them to build off of these programs if they incorporated EE into a rate

- based trading scheme with ERCs, it is theor etically possible that an ERC could be issued in one state that would not have been issued in another, even if both states have rate

- based programs in place that meet all of the emission guidelines. 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, project, program, measure in one state reflects the same 1 MWh of energy or electricity save d 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 (whether from EE or energy generation) from forum shopping, in an effor t to find a state***E.O. 12866 Review

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with standards for ERC issuance that it deems 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 factors may include the effect of changes in independent factors , effective useful li fe (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 po tential 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 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 ens ure the accuracy and reliability of electricity***E.O. 12866 Review

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savings results, including the necessary rigor of the method selected to evaluate the electricity savings, the methods used to control all relevant types of bias and to minimize the potential for systematic a nd random 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 confidence and precision. We take comment on the pre sumptively 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 the transmissio n and distribution loss based on the lesser of 6 percent of the site

- level electricity savings 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 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 loss factors m ay be used in calculating the electricity savings. We take comment on a ny additional criteria that we should***E.O. 12866 Review

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include in the final model rule regarding EE EM&V
. h. Skill C ertification S tandards Using a skilled workforce to implement demand

- side EE 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 commenters pointed out that ski ll 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
presump tive 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 o f demand side EE and existing EGU performance will be certified by a third party entity that:

• Develops a training or competency based program***E.O. 12866 Review

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aligned with a job task analysis and/or certification scheme;

• Engages with subject matter experts in the developm ent of the job task 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 job task analysis and/or certification schemes,

co vering such elements 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 t he Department of Energy’s (DOE) 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 Apprenticeship; 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 o ther carbon emission reduction***E.O. 12866 Review

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measures . 7. 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 that are regulated under the rate

based federal plan would use ERCs as a compliance instrument, not allowances . To register to participate in the ATCS an affected EGU must submit designated representative information. More information on the designated representatives is described below in section IV.E.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 consistent with Part 75
. 85 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 January through March of 2024). The data

85 See section IV.D.11 for more information.***E.O. 12866 Review

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that are posted online would be publicly avai lable.
Non

- EGU ERC generating sources are required to submit generation data annually (see &&& Section IV.F of this preamble for a comprehensive discussion of non

- EGU ERC generating sources). The data must follow the EM&V procedures delineated in Section IV.F.4 of this preamble. Because of the 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 p rocess and be submitted to the EPA no later than &&& June 1, 2025). After receiving all emission and generation data from ERC generating sources and affected EGUs, the EPA will issue ERCs through a NODA as described in section IV.E.4 in this preamble. The EPA is proposing to issue ERCs annually. ERCs are acquired and traded throughout the compliance period. An affected EGU is responsible to hold sufficient ERCs that qualify for CPP compliance in its ATCS compliance account by November 1 at midnight of the y ear following the conclusion of the compliance period
. 86 The process for transferring ERCs from one account to another is quite simple. A transfer would be submitted

86 This true

- up process is further described in section IV.D.8 of this preamble***E.O. 12866 Review

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providing, in a format prescribed by the agency , the account numbers of the accounts invo lved, 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 submitted to the EPA and, when the Administrator attempted to record the 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 account within 5 bu siness days of the receipt of the transfer form. 8. 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 compliance period

com prises the three years 2022, 2023, and 2024, then the ERC transfer deadline 87 for that first compliance period (after which

87 The “ERC transfer deadline” is the deadline for transferring allowances that can be used for compliance in the previous compliance period to a source’s compliance account.***E.O. 12866 Review

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point the EPA would evaluate compliance) would be on November 1, 2025. The agency also requests comment on an earlier allowance
trans fer 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 energy with zero CO 2 emissio ns 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 could identify specific ERCs to be applied, but, in the absence of such identification or in the case of a partial identification, t he 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. This account available for the public to view. The EPA promotes transparency throughout the entire process. 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***E.O. 12866 Review

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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 a ccount 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 numbe r of zero

- emitting MWh ( i.e., ERCs) that would need to be added to the total MWh of the EGU to make the adjusted emission rate equal to the emission standard. AAAAAAAA AA EEEE = MM oo CC 2 ( llllll ) GGGGGGGG ( MMMM h ) + MMMM h EEEEEE This equation can be rearranged to:
MMMM h EEEEEE = MM oo CC 2 ( llllll ) AAAAAAAA AA EEEE ( llllll MMMM h ) − GGGGGGGGGGGGGGGG GG ( MMMM h )

If an affected EGU fails to hold sufficien t ERCs to comply with its emission standard then , 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***E.O. 12866 Review

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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 Sec tions 113 (a)

– (h) or Section 304 of the Clean Air Act . 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 an ongoing obligation to comply in the current period. Failure to surrender these re placement 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 offset th is 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 than co mpliance. This is consistent with other***E.O. 12866 Review

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existing trading programs
. 9. 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 consistent 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 information in the su bmission, 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 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.
10. 12. Banking of ERCs The EPA is allowing proposing to allow unlimited banking or ERCs within and between the i nterim 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***E.O. 12866 Review

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requests comment on whether an ERC should be eligible to be banked between the interim and final compliance periods. Th e EPA is also proposing that ERCs will not expire after any duration of time. The EPA requests comment on the shelf

- life of an ERC. ERC “borrowing” is a flexibility that the EPA is not proposing, but is soliciting comment on. ERC borrowing is the 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 complian ce obligations. The EPA also has reservations due to the fact that future ERC generation is not guaranteed. 11. 13. Emissions Monitoring and Reporting The EPA would require that ERC emission and generation data be reported to the EPA quarterly starting on April 30 , 2022 , and continuing every three 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 program 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***E.O. 12866 Review

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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 Part 75.60. The use of Part 75 certified monitoring methodologies would be required. Many affected EGUs that might be covered by the proposed federal plan s will generally have no changes to their monitoring and reporting requirements and will continue to monitor and submit reports under Part 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 EGUs, that would not otherwise be subject to the Acid Rain Program, will have to purchase and install addit ional CEMS and data handling systems or upgrade existing equipment in order to meet the monitoring and reporting requirements of this program. Several of the affected EGUs not otherwise subject to the Acid Rain Program are subject to the Mercury and Air To xics Standards ( MATS ) program and therefore will have already installed stack flow rate and / or CO 2 monitors in order to comply with the MATS 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***E.O. 12866 Review

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m onitors. The same CO 2 and stack gas flow rate monitored data used in conjunction with Hg 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 al l 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 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 that 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 programs and will have minimal additional monitoring and reporting requiremen ts. 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

— compliance with the requirement to hold allowances an enforceable emission standard would commence on the compliance***E.O. 12866 Review

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period schedule that is detailed in section IV.E.3.
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 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 surro unding the trading program. In addition, the EPA proposes, consistent with the provision for

“ presumptively approvable 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 subj ect to the federal plan and rate

- based EGUs in presumptively approvable ready

- for

- interstate

- trading state plans will be able to trade ERCs seamlessly across jurisdictional borders because of the assurances of being presumptively approvable
. Presumptively a pprovable Ready

- for

interstate

- trading states must submit information that lists all affected EGUs and the EGU type to the Administrator to be able***E.O. 12866 Review

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to trade within the federal trading program. To be able to trade in the federal trading program a n affected E GU that is subject
to a presumptively approvable ready

- for

- interstate

- trading state plan must: (1) certify and authoriz e a designated representative per Section &&& IV.E.1 of this preamble; and (2) register a general account in the federal trading program, ATCS , in order to have a means of 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 unde r the 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 fede ral 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 sta te’s program will have the capability to interact with the federal trading program and software, ATCS, for transferring ERCs if the state is presumptively approvable
. ready

- for

- interstate

- trading
. A state’s program can be tailored to meet its needs while st ill providing a platform***E.O. 12866 Review

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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 program. The EPA requests comment on a broader approach that would allow all affected EGUs that are located in states with approved
rate

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

- plan linkage to rate

- based programs that are not set up to be

“ presumptively approvable ,” or which use a set of emission rates for affected EGUs that are different from the national uniform subcategorized rates. We request comment specifically on what conditions or requirements would be need ed in these cases in order to participate in the federal plan trading program in a way that is administratively feasible and maintains the integrity of all of the linked programs . Although the agency has serious concerns about the administrative complexity of this approach, we also request comment on the feasibility and potential mechanism of allowing EGUs in states with approved***E.O. 12866 Review

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mass - based state plans to participate in a federal rate

- based trading plan. 2. Treatment of States Entering or Exiting the Trading 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 conclustion 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 p lace to do so while ensuring the integrity of both the federal plan and the state plan and while enabling the affected EGUs covered by the plans to understand and meet their compliance requirements
. If a state subject to the federal plan transitions to a s tate plan, any affected EGU impacted by the 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 VIII.D and VIII.E
.
**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 program , 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 program 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,

an d constitute, the emissions budget or the aggregated emissions limit expressed in terms of metric short tons of emissions
. T he EPA is proposing that allowances be issued in metric short tons for the federal plan , and also requesting comment on the issuance o f allowances in short tons
. . 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 compliance period. A***E.O. 12866 Review

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facility with affected EGU s may buy allowances from, or transfer

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 compliance strategies. In the proposed mass

- based tr ading 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 linking states for interstate allowance trading is d etailed in section III.A.1 ; 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 o f controls compared to a smaller region. Therefore , the agency proposes that a n affected EGU in any state covered by the proposed mass

- based trading federal plan may use for compliance an allowance distributed in any other state covered by the mass based t rading 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 , above ) , and affected EGUs and other entities in any state covered by the***E.O. 12866 Review

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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 maxi mizing compliance flexibility available to individual affected EGUs
. Further, allowance banking in such a program creates an incentive to make reductions earlier than required. M ass - based trading programs are relatively simple to operate , which reduces adm inistrative 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 SO 2 trading program, the NO X Budget Trading Program, the Clean Air Interstate Rule, and the
Cross

- S tate Air Pollution Rule. In the proposed mass

- based trading program federal plans, the emissions limit s in each state would be the mass goals th at 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 stat e 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 distribute allowances in a state if the state does not choose to do so , as detailed below
. Each allowance would authorize the emission of one metric short ton of CO 2 during the complia nce period applicable to the allowance’s vintage year or a later compliance period
. The proposed approach to distribute allowances, including two three types of allowance set

- asides, is discussed in section V.D. , 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 ] 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 compliance 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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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

- distribution provisions with its o wn 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 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 period 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 discusses an approach on which the EPA requests comment on the inclusion of biomass as an eligible measure and on a proposed option where the agency would***E.O. 12866 Review

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identify qualifying biomass and provide a methodology for the treatment of biomass feedstocks (i.e., biomass feedstock s that

are demonstrated to assign zero or partial emissions be a method
to qualifying biomass ) , 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 after reflecting less the zero or partial emissions attributed to the co

- fired qualified biomass ; such an approach would reduce the number 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 , 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

year compliance period in the Interim P eriod, and succ essive***E.O. 12866 Review

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two

- year periods in the Final P eriod. In the Clean Power Plan EGs, t he EPA established mass goals for all 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
open ing 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 ___ .

**Table ___ Statewide**  **Mass -**  **based Emission Goals**  **(“ Mass**  **Goals ”)**  **(metric tons) (**  **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***E.O. 12866 Review

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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 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***E.O. 12866 Review

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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 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 )***E.O. 12866 Review

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in multi

- year periods . A multi

- year compliance period provides greater flexibility to affected EGUs and reduces administrative burden, compared to a single

- year compliance period . The EPA seeks to strike a reasonable balance between providing flexibility and reducing burden 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

- year compliance period (2022 through 2024), a second three

- year compliance period (2025 through 2027), and then a two

- 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

- year compliance periods commencing in 2030
. The EPA would evaluate compliance only after the end of

a compliance period in the mass

- based t rading federal plan , e.g., if a compliance period is three 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 mass

- based trading programs ( i.e., emissions budget trading programs) use m ulti

- year compliance periods
. T he Regional Greenhouse Gas Initiative***E.O. 12866 Review

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(RGGI) uses three

- year compliance period s, along with interim intervening compliance period s . requirements
. The RGGI interim intervening compliance period is a requirement for is that

sources to must hold allowances to cover 50 percent of emissions for the first two calendar years of each three

- year compliance period ; at the end of each three

- year compliance period sources must hold allowances to cover 100 percent of emissions for the period and allowances already deducted for the interim period intervening requirement are subtracted from the three

- year obligation
. 88 Th e California Air Resources Board (CARB) Cap

- and

Trade Program also use s three

- year compliance periods , along with interim intervening compliance periods requirements
. The CARB interim compliance period e valuates intervening requirement is to

e valuate compliance on 30 percent of each source’s previous year’s emissions every year, and evaluat es evaluat e compliance for the remainder of emissions every three year s. 89 The EPA proposes to evaluate compliance after each multi

- year compliance period and is not proposing to implement intervening compliance

88 RGGI, Summary of RGGI Model Rule changes: February 2013. www.rggi.org/docs/ProgramReview/_FinalProgramRevi ewMaterials/Mod el_Rule_Summary.pdf Accessed June 9, 2015. 89 Overview of ARB Emissions Trading Program. www.arb.ca.gov/cc/capandtrade/guidance/cap_trade_overview.pdf Accessed June 9, 2015.***E.O. 12866 Review

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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 in this rulemakin g 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 m onth.” 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 Limiting Potential to Emit through SIP and §112 Rules and General Permits. The EPA determined that the longer co mpliance 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 perfo rmance 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***E.O. 12866 Review

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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 flexib ility wherein allowances from a future compliance period may be “brought forward” and used for compliance in an earlier compliance period (thus reducing the amount of allowances available for the future period) . The EPA notes that the proposed multi

- year c ompliance periods inherently provide the flexibility to emit at relatively higher amounts in earlier
years of a given compliance period by using allowance 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 across compliance periods in the mass

- based trading federal plans ; h owever the agency is requesti ng 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 a pproved state plan . First, in order for borrowing to occur , the EPA would have to make allowances from future compliance periods available early so that sources could use these future allowances in earlier compliance period s.***E.O. 12866 Review

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T he EPA proposes to record all owances 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 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 compli ance 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 opportunitie s for
state s to take over implementation (or implementation of the allowance

- distribution ). If allowance borrowing from a future compliance period 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 t he 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***E.O. 12866 Review

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inflation of the allowable emissions at affected EGUs in the remaining states subject to the federal plans (to “repay” the borrowed allowances)
. To avoid disruption to sources already subject to the mass

- based trading federal plan , the EPA is not proposing to allow allowance borrowing across compliance periods
. Although not proposing 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, ho w 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 allowances 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 s ources to demonstrate compliance, i.e., allowance true

- up, on November 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 ,***E.O. 12866 Review

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2023, and 2024, then the allowance transfer de adline 90 for that first compliance period (after which point the EPA would evaluate compliance ) would be on November May 1 , 202 5
. The agency also requests comment on an earlier or later allowance transfer deadline , such as June 1 or March 1, of the year after the last year in the compliance period
. The EPA proposes to evaluate compliance ( i.e., allowance
true

- up) at the facility level , not at the individual unit affected

- EGU leve l
. , in the mass

- based trading program
. Facility

- le vel compliance eases may ease implementation compared
to unit

- level compliance ; each facility has a single compliance account in which to hold allowances to cover emissions from all its affected EGUs rather than having individual unit

- level compliance accounts . Fe wer accounts makes may make it easier for the designated representat ives to manage their allowances. This also eliminat es the potential for a facility that held sufficient allowances to mistak enly hold them in the wrong unit

level compliance accounts , which puts the unit out of compliance. T he EPA has adopted facility

- level compliance in

90 The “allowance transfer deadline” is the deadline for 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.***E.O. 12866 Review

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previous emissions budget

- trading programs including the Acid Rain Program (70 FR 25162 ) , Clean Air Interstate Rule (70 FR 25162) , and Cross

- state Air Pollution Rule (76 FR 48208)
. The
EPA would continue to track unit

- level emissions

– while evaluating compliance at the facility level

– allowing us to track increases and decreases of pollutants at indivi dual EGUs .
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 own 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 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 . The EPA believes that s tates should have the opportunity to make decision s about allowance distribution and 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

-***E.O. 12866 Review

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distribution approach
. The EPA is requesting comment on all of these, and any other, approach approach es to distribute allowances. The initial allowance allocation ap proach that is based on historic data does not affect the environmental results of the
program or generation patterns ; regardless of the 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 to acquire as desired to authorize e missions 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***E.O. 12866 Review

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fair and reasonable in light of this consideration and the overall purpose of 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 reasonable basis for an initial allowance a llocation 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 projections . 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 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 st ate covered by a final mass

based trading federal plan , with set

- aside s for a percentage portion of allowances (discussed in more detail below) . For each compliance period , the agency would distribute***E.O. 12866 Review

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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 years long, the EPA would aggregate and distribute allowances for all three years at the same time
. T he agency is not proposing to allocate allowances to new EGUs , which do not have a compliance obligation under this proposed federal plan
. Within each covered state , for each year o f the program, the agency proposes to allocate &&& 98 percent of the allowances to affected EGUs . Of this 98 percent that EPA proposes to allocate directly to affected EGUs, the agency proposes to allocate most of the allowances using a historic

- generation based approach and to distribute a percentage (the percentage varies by state, as detailed in section V.D.3) using an updating output

- based allowance set

- aside , . As explained below, this proposed updating output

- based set

- aside is intended to prevent or mitigate potential emissions leakage to new fossil

- fueled units not covered by the mass

- based plan. The EPA proposes to distribute the remaining &&& two percent of allowances to a set

- aside pool of allowances for renewable energy projects , as described below
. Within each covered state , for each year of the program, the agency proposes to allocate most of the allowances directly***E.O. 12866 Review

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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 category sub category level. In develop ing the Clean Power Plan EGs, the agency conducted analysis of emission reduction potential in the two affected EG U source categories sub categories , i.e., electric utility steam generating units (steam generating units) 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 by into source sub categor ies based on analysis done in developing the sou rce 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 may prefer different 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***E.O. 12866 Review

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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 as detailed later in this section
. The EPA proposes that a state could choose its own method for distribut ing allowances for any compliance period includ ing 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 detailed in section V.E . The following sections 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, two 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 or allocations to l oad

- serving entities

– that the EPA or states might adopt. The***E.O. 12866 Review

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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 , while setting . The EPA also
proposes three allowance set

- asides. The first would set aside a percentage portion of allowances to be allocated in each state from the first compliance period only; this set

- aside is for a proposed Clean Energy Incentive Program that is detailed in section V.D.4. The second would set aside a portion of allowances in each compliance period except for the first period (the si ze of this set

- aside would vary by state as detailed in section V.D.3) ; EPA would distribute allowances from this set

aside to affected EGUs via an updating output

- based set

- aside (the size of the set

- aside would vary by state) , and setting aside two approa ch. The third would set aside five percent of allowances in each state , in all compliance periods, to be distributed to renewable energy projects
. as detailed in section V.D.3
. In the first compliance year summary , the EPA would allocate &&& 98 percent of allowances using the historic

- data based approach (i.e., all except two percent for the RE set

aside in each state ) , because the EPA does not propose to***E.O. 12866 Review

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proposed set

- asides include the output

- based set

- aside in the first compliance period. Th e EPA proposes to include the output

based : (1) Clean Energy Incentive Program. This set

- aside starting with the second compliance period. The EPA proposes that the size (number of allowances) would be of a state’s output

- based set

- aside would remain the s ame across each first compliance period ; the allowances only. (2) Output

- based allocation set

- aside. This set

- aside share would increase relative to the total allowances in a state as the mass goals decrease with the steps in the Interim Period
. The proposed set

- asides are detailed in section V.D.3. would start in the second compliance period and continue for each compliance period. (3) Renewable energy set

- aside. This set

- aside would be implemented 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***E.O. 12866 Review

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data) in every state . Further detail on this p roposed allocation approach is provided in the Allowance Allocation Proposed Rule TSD in the docket. The affected

- EGU

- level allocations resulting from this proposed historic

- generation

- based approach are provided in the docket in an appendix to the TSD
. Th e agency requests comment on the proposed historic

- generation based allocation approach and on other allocation approaches. The EPA proposes to allocate the historic

- generation

- based portion of the allowances ( i.e., the mass goal minus the two
set

- asides 91 ) to individual affected EGUs based on each affected EGU ’s share of the state ’s historic generation , using a 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 assumptions incorporated in the data adjustments , e.g., assumed capacity factor for “under

91 In the first compliance period this would be the mass goal minus the Clean Energy Incentive Program set

- aside and the RE set

aside. In all other co mpliance 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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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 EGU a value of

zero. 92 (See step 2, below, for how zero v alues would be treated in the calculations.)
The EPA proposes to use a three

- 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 th e most recent data year (in that case, 2012) to inform the establishment of category

- wide emission guidelines EGs (as opposed to individu al, unit

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;

92 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 20 12 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 factor for steam units.***E.O. 12866 Review

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notwithstanding that these allowance allocations do not impose any unit

- level compliance requirements in and of thems elves, the EPA finds it reasonable to consider a multi

- year data period to 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 generation 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 u nits; 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.***E.O. 12866 Review

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3. In each state , sum the average generation values from all affected EGUs to ob tain 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 affected EGU ’s share of the state’s total average historic generation.
5. Multiply ea ch 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

- aside for output

- based allocations, and minus the set

- aside for renewable energy projects asides ) to determine that affected EGU ’s allocation
. For the first compliance period, the historic

- generation

allocation portion of the state’s mass goal would comprise the mass goal minus on ly the set

- aside for renewable
energy, a s the output

- based set

- aside would not commence until the second compliance period.
The agency believes that this propose d historic

- generation

based allocation approach is a reasonable approach for several***E.O. 12866 Review

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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 als o placed the proposed affected

- 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 d ata compiled using a methodology similar to the Emissions & Generation Resource Integrated Database (eGRID) methodology. The proposed calculation approach is described further below and in the Allowance Allocation Proposed Rule TSD in the docket. The histo ric

- data methodology is described in the [&&&reference to Baseline &&& CO 2 Emission Performance Rate and Goal Computation TSD from final EGs]. 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 Part 75 and to the Energy Information Administration (EIA) on forms EIA

- 860 and***E.O. 12866 Review

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EIA

- 923. The EPA believes these are the best data available to the agenc y 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

co mpliance planning. The proposed approach is transparent, based on reliable data, and, like the approaches used in the NO X SIP Call, Acid Rain Program, and Cross

- S tate Air Pollution Rule, based on historic data. For all these reasons, the agency believes that it is appropriate to use a historic

- generation

- based allocation methodology 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 g enerally 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 wi ll be based on the relative efficiency (cost of production) of available plants. The relevant measure of this efficiency is the marginal cost of generation, which for a***E.O. 12866 Review

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particular power plant would be the sum of the cost of additional fuel to generate an a dditional MWh, additional maintenance costs to increase output 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 price 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. The same concept applies to any other cost of electricity production. For example, a coal

- fired electric generating unit operator would account fo r the cost of consuming coal to produce generation whether 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 lo nger be sold). Similarly, the approach taken to distribute 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 allowan ce when it emits an***E.O. 12866 Review

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additional ton. Because a firm loses 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 margin al cost of emitting under the mass

- 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 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, wh ich 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***E.O. 12866 Review

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allocations that do not change based on future activity (such as allocations under the proposed historic

- generation based approach) do not affect the distribution of emissions under the program. This proposed rule is expected to achieve significant emission reductions across the electric power sector; see section IX for discussion of anticipated broad benefits to

commun ities. In addition to the proposed historic

- 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 allocate s allowances based on historic generation . Ho wever, this alternative approach would divide the total number of allowances from a state ’s mass goal (minus the set

- asides) by 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 categor y 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***E.O. 12866 Review

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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 cannot 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 ca tegory

- specific CO 2 emissions performance rate , and multiply historic NGCC

- unit generation by the NGCC

- unit source category

- specific CO 2 emissions performance
rate . The EPA promulgated would do th ese calculation s for each of the compliance periods in the Interim Period using the glide
p ath interim p erformance r ates , and for the Final Period using the final performance rates. These performance rates are shown in Table s &&& and &&& in section IV.B , above
. The EPA established the source category

- specific CO 2 emissions performance rates in the Clean Power Plan EGs [&&& cite to (see section VI in the 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)***E.O. 12866 Review

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by into affected

- EGU source category 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 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. are 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 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 historic 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***E.O. 12866 Review

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most fuel or generated the most electricity
. 93 Alternatively , allocations could be distributed based on projected or observed future activity ( e.g., generation, heat input, or emissions ); for the reasons stated above in the description of the histo ric

generation

- based allocation approach, the EPA believes the approach is reasonable. )
. 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
stat e for distribution using an updating output

- based approach as detailed in section V.D.3. The EPA requests comment on the use of other updating allocation approaches. 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

93 Tools of the Trade, A Guide to Designing and Operating a Cap and Trade Program fo r Pollution Control, EPA, 2003.***E.O. 12866 Review

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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 no tes 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 measures intended to help reduce elec tricity rate impacts and overall program costs, as well as targeted investments in overburdened low

- income communities
. The EPA believes that if it conducted allowance auctions, any revenue from such auctions received by the a gency must be deposited in the U.S. Treasury under federal law. 94 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
.

94 The EPA believes authority to conduct auctions is located in section 111 alone, as well as by its reference to section 110(c) FIPs. The statutory definition of a FIP authorizes “techniques (including economic incentives, s uch as marketable permits or auctions of emissions allowances).” 42 U.S.C. 7602(y).***E.O. 12866 Review

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The EPA requests One comment on an alternative approach, which is allocating [ &&& ]% a portion of the allowances to load

serving entities (LSEs) rather than to affected EGUs
. LSEs are the entities responsible for delivering power to retail

consumers. LSEs include entities that are investor

- owned, publicly owned, owned by rural electric cooperatives, as wel l as other entities. 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 as condition of receiving an allocation of allowances , this approach can mitigate the impact of electricity bill increases on consumers that might otherwise result 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
. Economic theory indicates that direct allocation to generators could result in profits to generators that, despite receiving allowances free of charge, include in the price of a marginal unit of electricity sold some or all of the opportunity cost of having to surrender an allowance (which has an economic value) to cover emissions associated with producing***E.O. 12866 Review

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that marginal unit of electricity
. The EPA could apply this approach by condition ing the receipt of allowances by LSEs on the pass through to consumers of any allowance value
. In addition, most LSEs are regulated by state public utility commissions that would have authority to ensure that the value of allowances directly allocated to LSEs be passed through to ratepayers. Other LSEs that are publicly owned or are electric cooperatives have governing structures that could ensure that allowance value be passed thr ough to ratepayers. 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 th rough of allowance value and verification of such pass

- through, whether it would be appropriate to identify any conditions related to equitable distribution of allowance value among ratepayer categories, as well as the EPA’s legal authority to apply any su ch conditions. Some existing mass

- based GHG emission programs allocate allowances to load

- serving entities. For example, California’s GHG emissions program allocates allowances for free to distribution utilities on behalf of electricity ratepayers, with the goal of***E.O. 12866 Review

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prote cting electricity ratepayers
. 95 California’s regulations stipulate a uction proceeds and allowance value obtained by an electrical distribution utility from these direct allocations

“ shall be used exclusively for the benefit of retail ratepayers of each elec trical distribution utility
... and may not be used for the benefit of entities or persons other than such ratepayers. ” 96 Each distribution utility that receives an allowance allocation must submit an annual report describing how they complied with this provisio n in the ir disposition of any auction proceeds and allowance value received for the prior calendar year. 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. Finally, Also, EP A requests comment

95 17 CCR § 95892
. 96 Id.***E.O. 12866 Review

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on the form by which 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 number of allowances should be distributed to L SEs and what monitoring and reporting requirements may be necessary to support an effective program. The EPA recognizes that allocation to LSEs , by reducing rate impacts, could reduce incentives for socially efficient demand response, including potential investment in energy efficiency. The EPA solicits comment on the magnitude of this effect, relative to alternative allocation options, and design options that could help mitigate this effect
. The EPA requests comment on the proposed historic

generation based allocation approach, the alternative approach that divides total allowances from a mass goal by into source category subcategories before allocating to individual affected EGUs within each source category based on historic generation, and on the other alternative approaches described in this section
. The agency also requests comment on the two proposed allowances allowance set

- asides, which are detailed below. The agency requests comment on allocation approaches that may minimize the impact of this proposed rule on small entities. The EPA also requests comment on any other approaches to distribute***E.O. 12866 Review

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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. 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 two set

- asides aside allowances

– is

a one - time determination that is not updated. The allocations resulting from this approach would be determined prior to the

s tart 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 allowance s 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 , the EPA proposes to allow a state to replace the federal plan with its own approved state plan , for a compliance period for which allowances have not yet been recorded (the***E.O. 12866 Review

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proposed schedule for allowance recordation is detailed below ) )
. T he EPA also proposes that a state could choose to replace the federal

- plan allocations to its affected EGUs (and other entities) with it s own allocations approach, for a compliance period for which allowances have not yet been recorded as detailed in section V.E
. The agency proposes to record allowances for the mass

- based trading program in accounts of affected EGUs seven months prior
to t he start of each compliance period . For example, if compliance periods are three 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 June1 June 1 , 2021
. The EPA req uests comment on the proposed approach of recording allowances seven months prior to the start of each compliance period , and on an alternative of recording allowances 13 months prior to the start of each compliance period
. See section V.D.3 for timing of recordation of allowances from the proposed set

asides. 3. Allowance Set

- asides to Address Leakage to New Sources In addition to the general allocation method proposed above, the EPA is proposing two additional components of allowance allocat ion under a mas s - based federal plan. These two
set

- asides are being proposed to satisfy the requirement in the***E.O. 12866 Review

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final guidelines that mass

- based plan s demonstrate that they have addressed the risk of leakage to new unaffected units, as specified below. 97 The final emission guideline outline concerns regarding leakage, which is specified as the risk of increased emissions that can be caused when generation shifts over time from affected
EGUs unde r the rule to unaffected EGUs (see Sec.VII.C). The final guide lines also acknowledge that there are shifts in generation across affected sources that could lead to greater or lesser emissions , and in fact the rule is premised on the shifting of emissions from higher

- emitting to lower

- emitting affected EGUs. The fina l guidelines also specify requirements for the implementation of rate

- based and mass

- based plans that minimize the risk of increased emissions from these generation shifts across affected sources
. However, there is still a key concern that under mass

- base d plans, generation may move from existing affect ed EGUs to new sources that are not affected by the final guidelines. This risk is not present for existing EGUs under a rate

- based plan , because CO 2 emission performance rates and rate

- based goals provide an

97 The EPA is also proposing a third set

- aside, for a Clean Energy Incentive Program, which is detailed in section V.D.4, below.***E.O. 12866 Review

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incentive for low

- emitting existing sources to maximize their utilization, and flexibilities under rate

- based plans enable those unit to increase utilization by allowing those units to increase their emissions under the rate. This characteristic of rate

- based plans also minimizes the concern of leakage from mass

- based existing EGUs to existing EGUs in neighboring rate

- based states, because the lower

- emitting units in rate

- based states will already be incented to maximize their utilization, and thus will not have as much opportunity to increase their output to replace generation from existing units in mass

- based states. But new units in rate

based and mass

- based states are more likely to have the opportunity to increase their utilization in order to replac e generation from

mass - based existing sources, and the mass

- based a ffected EGUs

w on’t have the incentive to maximize utilization and they don’t have the oppo rtunit y to increase their emissions in the same way
as rate

- based existing EGUs . Therefore, leakage to new sources is a unique risk for mass

- based plans and must be addressed in order to assure equivalency between CO 2 emission performance rates (as well as rate

- based goals) and mass

- based goals. The final guidelines require that jurisdictions implementi ng a mass - based option make a demonstration that leakage has been addressed in their plan (See Sec.VIII.L) . The options for making that demonstration include The final emission***E.O. 12866 Review

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guideline s , in Sec.VII.D, specif y leakage to be 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 standards of performance in the form of the subcategory

- spe cif ic emission performance rates
. 98 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 incentive s to existing affected EGUs and new unaffected sources, unlike under a rate

- based approach. This provides an increased potential for leakage under 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 BSER in CO 2 emission perform ance rates. The refore, the final guidelines require 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

98 Section VII.D of the final guidelines is incorporated by reference in this proposal.***E.O. 12866 Review

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sources, implementing allocation strategies that address leakage, or justify justify ing why leakage is not a concern for the jurisdiction because of existing policy or unique characteristics. We are proposing under the federal plan and model rule to address leakage through the use of allocations strateg ies , specifically through the use of a combination of an output

- based allocation set

- aside and a set

- aside that encourages the installation of RE. In the section below, the EPA discusses why we have chosen If a state were to adopt allowance set

- aside allocation strategies provisions exactly as t he approach to address leakage. they are outlined in the finalized model rule, they could be considered presumptively approvable. Sec. VIII.J of the final guidelines provides a discussion of how set

- asides can effectively address leakage in a mass

based pl an 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 also describes why t he allowance allocation alternative for addressing leakage must be chosen for t he 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***E.O. 12866 Review

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fuel

- fired sources under CAA section 111(d), and therefore we cannot include new sources under 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

- aside s we are proposing

– described in detail below

- would establish a pool of allowances that would be allocated to affected EGUS or other entitie s, and would be allocated based upon different criteria in order to support parti cular program goals
. , in particular addressing leakage
.
These set

- aside s 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 inc entive to address leakage make it appropriate here. 99 The EPA believes th ese set

- aside program s are both authorized and consistent with the purpose of the Clean Power Plan under section 111(d) and the specific requirements

99 In designing a federal plan under section 111(d), the EPA recognizes its authority as being, in some sense, the same as that available under section 110(c), where the u se 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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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 remains the same.
T he EPA is aware of the successful use of set

- asides and similar programs in other emissions trading programs. The f ollowing 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 section 110 of the Clean Air A ct. 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 in 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 growth in the electric utility sector consistent with the EPA’s modelin g, 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***E.O. 12866 Review

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drivers. 100 As between a choice of requiring these new units to purch ase 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 allocation out of the new unit set

- aside, the EPA chose the latter. As part of the Acid Rain Program 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 fo r every 500 MWh of energy saved through DS

- EE savings or RE generation. In the first years of the program, 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

100 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 are looking for opportunities everywhere.” 101 The
reserve program was nonetheless undersubscribed, and the EPA and other parties have learned from this c ase 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 t ries to minimize the administrative burden associated with participation in the
set

- aside. 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 NOx Budget Trading Rule that allocates a portion of a state’s trading program budget to implementers of energy efficiency and renewable energy projects that reduce energy

- related NOx emissions durin g the ozone
season.” See 63 FR 57356, 57438 (Oct. 27, 1998). A number of states created RE and demand

- side EE set

- asides in their SIPs in response, and later, for the implementation of CAIR. A “roundtable” meeting with 25 states in 2006 indicated that
stat es that had established these programs were generally having

101 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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success with them, and provided a forum for exchanges of ideas on how to handle a variety of implementation issues, such as

over - and under

- subscription, application issues, compliance and verifi cation, the appropriate size of a set

- aside account, how to garner public input on which projects are selected, and other issues. 102 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
. 103

102 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 www.epa.gov/statelocalclimate/documents/pdf/summary_paper_nox_al lowance_6

- 6

- 2006.pdf
. 103 The agency has extensive 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 199 9), available at 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 the Administrative and Quantitative Elements (April 2000), available at www.epa.gov/statelocalclimate/documents/pdf/ee

- re_set

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***E.O. 12866 Review

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Below, the EPA describes two potential allowance set

asides. First, the EPA proposes a set

- aside for allowances distrib uted 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 the risk of increased emissions due to movement of generation to existing sources in neighboring states that adopt
rate

- based approaches , though the risk of potential for that that is minimized by the incentives present under a rate

- based plan
. Second, the EPA proposes a set

- aside for electricity generation from qualifyi ng 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 t he program
. , in particular addressing leakage , including a set

- aside that provides an incentive for demand

- side EE
. The EPA seeks comment on all aspects of the set

aside options specified in this section. This includes the inclusion of a set

- aside, the met hod for allocation of allowances to set

- asides, the size of the set

- asides, the

Energy Efficiency and Renewable Energy Actions (July 2007), available at www.epa.gov/statelocalclimate/documents/pdf/ee

re _set

- asides_vol3.pdf
.***E.O. 12866 Review

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requirements for the process of distribution, eligibility requirements for receiving set

- aside allowances, the proposed process for redistribution of undistributed allowances f rom 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

- based allocation , which provides targeted allocations of a limited portion of allowances to existing NGCC units as a means of mitigating emissions leakage to new units or existing units covered by a rate

- based plan in a neighboring state
. . The
EPA believes that this propo sed set

- aside would help ensure the environmental integrity of a mass

- based plan , and could potentially reduce costs , and 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 of the total allowances within each mass - based
state are allocated to existing NGCC units based, in part, on their level of electricity generation in a recent period. T he allocation to an eligible EGU is not fixed, but instead depend depend s on its generation
. E ach eligible EGU may would get a larger allowance allocation if it generates more such that***E.O. 12866 Review

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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, t his allocation approach will not exceed the overall emission goal ; instead, 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 thei r generation in order to increase their allocation of allowances. This incentive helps align the generation incentives for eligible EGUs in mass

- based states with new EGUs within mass

- based states that are not subject to the mass

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

- aside: 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 electricity prices, the reduction in their production costs will place downward pressure on the electricity price. In the specific situati on where eligible EGUs are in cost

- of

- service regions, the effect on electricity prices would depend on the***E.O. 12866 Review

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relative cost of producing electricity from these EGUs relative to the cost of procuring power from EGUs subject to emission rate standards
. It is important that the output

- based allocation approach be designed to avoid unintended consequences. In particular, the design should reflect avoid, to the fact that its application may reduce the extent possible, reduction in incentives to invest in

new zero - or low

- emitting generation as a result of the downward
pressure it 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 a large a number of allowances for each MWh of generation this could incentivize generation that is high cost, exclusive of the cost associated with obtaining the mass

- based emission limit, and disincentiviz e low er - cost generation subject to emission rate standards . This could raise the total cost of achieving overall emission levels***E.O. 12866 Review

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with relativ ely little environmental benefit . The output

- based allocation set

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

- based allocation approach used f or 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, the allocation rate(s), and the size of the set

aside
. The EPA solicits comment on what other key parameters may be relevant for design of an appropriate output

- based set

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

- based allocation from the set

- aside. The EPA proposes that only NGCC unit s subject to the final emissions guidelines 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 improved by targeting which units receive thi s additional incentive. In particular, this approach can most effectively address emission leakage if targeted to those affected EGUs that face the greatest difference in their incentive to generate relative to otherwise similar EGUs subject to emission ra te standards. As noted in the discussion of the allocation rate***E.O. 12866 Review

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below, new combustion turbines would be expected to generate more absent this set

- aside. Therefore, t he difference in generation incentives between affected stationary combustion turbines unde r mass - based implementation and otherwise similar new stationary combustion turbines subject to the 111(b) standards is likely one of the most salient deviations in production incentives to address. As discussed further below, under this proposal other aff ected EGUs , and EGUs not subject to the emissions guidelines, would not receive output

- based allocations from this set

- aside
. Below we also take request comment on whether sources other than combustion turbines sources 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
set

- aside only to eligible EGUs that exceed a certain average 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 i s intended to incentivize marginal generation and not generation that would have otherwise occurred absent the output

- based allocation from the set

- aside
.***E.O. 12866 Review

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Under this approach, eligible affected EGUs would receive no allowances from this set

- aside for gener ation below this average capacity factor ( although all affected EGUs will still receive allowances through the default allocation historic

- generation

based approach and any applicable set

- aside detailed above ) . This approach avoids incentivizing production a t lower levels of generation from an eligible source , and therefore avoids discouraging a relatively inefficient or infrequently used EGU from retiring. 104 The EPA proposes an approach under which each existing NGCC that each EGU is eligible for the set

- aside receiv e output

- based allocation at the allocation rate only if its
average capacity factor in the compliance period is above 50 percent on a net

- basis [&&& check net]
. . Furthermore, we propose that each eligible EGU receives allowances at the allocation rate for all generation above a n average capacity factor of 50 percent . That is, there would be no “maximum” average capacity

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

- based allocations to sources with low capacity

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

- based allocation than it is when the entire allocation to the source may be forfeit through retirement.***E.O. 12866 Review

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factor above which output

- based allocations are not earned by an
EGU eligible to receive them
. 105 This is to maintai n the marginal incentive to generate from the affected EGU. (The total number of allowances available in the set

- aside is limited, however, as described below.) The EPA requests comment on implications of this approach for the operation and efficiency of e lectricity markets. Next, 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 current 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 pe riod’s allocation, affected EGUs can receive additional allowances in a given future period, based on their additional generation in the
current compliance period. Both approaches create an incentive to increase generation in the current compliance period to secure additional allowances ; the difference is in when those allowances may be

105 Effectively, the allocation r ate of output

- based allocation is zero up until this average capacity factor.***E.O. 12866 Review

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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 su fficient allowances to cover their emissions or will have to buy allowances , because their total allocation will not be fixed until the end of the period when their cumulative generation is known. Therefore, a n advantage of allocating allowances from a future compliance period is that affected EGUs will know ex

- ante how many allowances they will be allocated in a given period. However, if there is an expectation that the federal plan will be replaced by a state plan in the future compliance period, th e incentive to respond to output

- based allocations is potentially diminished. The longer the lag between the eligible generation and the output

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

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

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

- aside allowances for the second compliance period***E.O. 12866 Review

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(2025 thr ough 2027) based on data from 2022 through 2024. In the first 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. Further , w e request The EPA request s comment on options for the allocation rate under this approach. The allocation rate is the emissions

- equivalent number of allowances that the affected EGU receives per one net MWh of generation eligible for the set

aside
. In particular, we request comment on setting The EPA
propose s to set the allocation rate equal to t he emission rate standard (on a net

- basis) for new stationary combustion turbines 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 [ &&& REF]. (&&&cite to 111(b) rule)
. Specifically, an additional MWh of eligible generation would earn the affected EGU allowances equal to the level of emissions permitted per MWh of net generation under the 111(b) new source sta ndard , which is &&&___lb/MWh

- net . 1,030 lb/MWh

- net . The EPA requests comments on other values for the allocation rate (or, potentially,***E.O. 12866 Review

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allocation rates ). F or example the allocation rate may be the expected net emissions rate of newly constructed NGCC units, the historic average emissions rate from NGCC units, or the NGCC or fossil steam uniform rates under the Clean Power Plan EGs ( see section VI in the EGs )
.

The EPA proposes to calculate allo cations to NGCC units from the output

- based set

- aside using data from the preceding compliance period. For example, the EPA would calculate set

- aside allowances for the second compliance period (2025 through 2027) based on data from 2022 through 2024. Each NGCC

- unit affected EGU with an average capacity factor above 50 percent in the preceding compliance period would earn set

- aside allowances. The EPA proposes to calculate a n NGCC unit’s capacity factor based on the previous compliance period’s net generat ion 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). 106 The EPA proposes 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;

106 The EPA proposes to make the reported generation data available to the public on the agency’s website.***E.O. 12866 Review

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we would add EGU

- level net summer capacity 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 section V.G. The EPA requests comment on the relative efficiency of obtaining net summer capacity from data reported to EIA or of adding net summer capacity as a required data field on the certifica te of registration. 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 the 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 ot her approaches to the calculation
. 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 generat ion 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.) 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 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 the same year and record the allocations in the source accounts at that time. The EPA requests comment on other approaches to providing notice of the data and allocations. The EPA requests comment on all aspects of the proposed approach to calculate output

- based set

- aside allocations. Further details of the proposed approach are in the Allowance Allocation Proposed Rule TSD in the docket. The EPA proposes a particular to determine the size of the
set

- aside that is based on the total allocation allowances in each state , the allocation rate , the capacity factor above which eligible generation may receive the output

- based allocations,***E.O. 12866 Review

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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 eligible for the set aside in the state above

a n average capacity factor of 50 percent and below a n average capacity factor of 70 60 percent , based on 2014 2012 data as detailed below
. The 50 percent average capacity factor is the capacity factor above which eligible generation may receive the output

- based allocations. The 70 60 percent capacity factor limits the s ize of this set

- aside, which increases the share of the allowances allocated based on his toric

- generation [&&&

sec tion V.D.1 ]
. (as detailed above)
. Maintaining a relatively large share of allowances allocated based on historic generation provides all EGUs subject to the mass

- based plan certainty in their allowance allocation . Furthermore , limiting the size of the set

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

- based
set

- aside for each state using 2012 baseline data reported to EIA for the year 2014. from the Clean Power Plan EGs (&&&cite to
EGs baseline TSD )
. The EPA would calculate the size of the set

-***E.O. 12866 Review

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aside as the su m of net generation from N GCC

- unit affected EGUs that operated above 50 10 percent and below 70 percent of the NGCC capacity factor in 2014 the state 107 multiplied by the 111(b) hours in a year (8,760 hours) multiplied by the allocation rate standard for NGCC units of &&&___ 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 for which there would be no output

- based set

- aside. Although the size of the set

- aside would remain the same for each compliance period , as the mass goals de crease with each step in the Interim Period and to the Final Period, the set

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

- 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.

107 The sum of net summer capacity for affected NGCC units in the 2012 ba seline for the Clean Power Plan EGs (&&&cite to EGs baseline TSD).***E.O. 12866 Review

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**Table &&&. Proposed Size of Output**  **- based Set**  **- aside**  **for the Second Compliance Period and Later**  **( Metric**  **Short Tons)** 

**State Allowances in output**  **** **based set -**  **aside** Alabama 4,176,474 Arizona 4,197,813 Arkansas 2,102,538 California 8,434,153 Colorado 1,314,351 Connecticut 1,090,811 Delaware 649,190 Florida 12,091,409 Georgia 3,589,270 Idaho 246,638 Illinois 1,341,194 Indiana 1,106,150 Iowa 502,344 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 Maine 563,925 Maryland 103,762 Massachusetts 2,436,833 Michigan 2,110,658 Minnesota 909,724 Mississippi 3,400,197 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 3,817,411***E.O. 12866 Review

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North Carolina 2,120,178 North Dakota 0 Ohio 1,757,326 Oklahoma 3,153,604 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 15,998,146 Utah 825,586 Virginia 3,025,345 Washington 1,383,060 West Virginia 0 Wisconsin 1,181,175 Wyoming 45,114 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 requests comment on this approach. Given the proposed limit on the tot al 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***E.O. 12866 Review

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aside than can be earned at the allocation rate . The EPA proposes that, i f the amount of total generation eligib le for the set aside multiplied by the allocation rate exceeds the size of this set

- aside , then the allowances in this set

- aside would be allocated to eligible generation on a pro

- rata basis. We propose 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 o n extending output

- based allocation from this set aside to affected utility boiler
. 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 utility steam generating units would incentivize generation from relatively high

- emitting EGUs, thereby leading to high which would likely increase allowance prices , which then counteract s as other emission reductions are made to respect the overarching mass limit. This approach would thus counteract the intended effect of lowering***E.O. 12866 Review

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the cost of production of 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 comm ent 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 as part of the mass

- based trading program , , if it is fin alized . The agency is also taking comment on whether distribution should extend to demand

- side energy efficiency (DS

- EE) and combined heat and power (CHP)***E.O. 12866 Review

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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 emission guidelines
. EGs . First, the set

- aside may will address leakage 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 cost 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 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***E.O. 12866 Review

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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 recognize d that such investment is a means to reduce the potential 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. The 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 reduces the demand f or CO 2 allowances, and thus reduces allowance prices within the RGGI market. 108 Under the RGGI program, more than 90 percent of CO 2 allowances are distributed through auction, and more than 60 percent of cumulative investment of auction proceeds has been dir ected to DS

- EE. 109 While not a set

-

108 RGGI, Potential Emissions Leakage and the Regional Greenhouse Gas Initiative (RGGI), Final Report (March 2008), available at www.rggi.org/docs/20080331leakage.pdf
. 109 RGGI, “Second Control Period CO 2 Allowance Allocation,” March***E.O. 12866 Review

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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 purpose 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. The allowances in each set

- aside would be reserved fr om 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 from the allocation for each state for the purpose of the set

- aside. We are also req uesting comment

on options 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

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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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 TSD
. We
note that, u nder 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 do es not affect the overall stringe ncy of the program. In Sec. &&& V.D.4 , &&&, 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 m ethodology under the 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

- dist ribution methodology. The allowance distribution methodology must still contain an allocation strategy to address leakage, unless the jurisdiction can make the justification that leakage is already addressed by existing policy or , by unique characteristics of the jurisdiction or by some other aspect of their state plan
.***E.O. 12866 Review

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We are proposing that a project is eligible to receive set

aside allowances if it is renewable energy (RE) that meets the eligibility requirements for rate

- based ER C issuance as specified in this proposal Sec. &&& and IV.C and the final guidelines Sec. VIII
. &&& . . K . 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 add itional 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 set

- aside, and assures that the entities eligi ble to receive set

- aside allowances are those subject to the federal plan. The EPA is proposing that eligible RE capacity must meet the following conditions regarding geographic eligibility. 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 actions r esulting generation for which an entity receives allowances from the set

- aside would not be eligible to be counted as credits for ERC issuance in rate

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

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As specified in section IV. F.2 C of this preamble , the EPA is proposing that the same RE meas ures are eligible to receive
set

- aside allowances under a mass

- based federal plan as would be eligible for ERC issuance under a rate

- based federal plan. Specificall y, the following RE measures are eligible: on - shore

w ind, solar photovoltaics (PV), concentr ated 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. All New nuclear units and capacity uprates at existing nuclear units are not proposed to be eligible to receive set

- 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 leakage to new sources during the performance period, due to unique costs and development timelines for incremental nuclear power
. All other proposed aspects of the eligible measure types described in section IV. F.2 C of this preamble and the requests for comment includ ed within that section also apply in the mass

- based set

aside context. For example, we are requesting comment on the inclusion of other RE measures, incremental nuclear, demand

- side EE measures, CHP and any other technologies as eligible measures
to receive set

- aside allowance s . We particularly request comment***E.O. 12866 Review

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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 the inclusion of such techn ologies 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 comment on the appropriate ness of the biomass eligibility options offered in Sec. IV.F.2 in a mass

- based set

- aside context . We also request comment on possible avenues to add new technologies to this specified set of measures to address leakage . We also request
comment on appropria te processes through which 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, 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 annual megawatt

- hour generation for an RE project. The EPA must approve the***E.O. 12866 Review

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documentation of eligibility and the projection of megawatt

hour s before the project becomes eligible for a d istribution of the set

- aside allowances. In addition, the proponent must register for a general account in the EPA tracking system where the allowances may be deposited. In addition, the proponent must register for a general account in the EPA tracking syst em where the allowances would be recorded. See section 62.16320 for the requirements to establish a general account. While EPA is proposing to allow eligible resources to use a general account to receive any allowances allocated under this section, EPA

re quests comment on extending the designated representative provisions in section 62.16290 to eligible resources instead of the general account provisions. Requiring eligible resources to submit information similar to that collected in the certificate of rep resentation in section 62.16305 and to appoint a designated representative to act on behalf of all owners/operators for all projects requesting allowances may improve the EM &V process by making the eligible resources more accountable. The EPA requests co mment on what documentation would be required if other measure types were considered eligible to receive set

- aside allowances. The EM&V requirements for the mass

- based set

- aside differ from those for rate

- based ERC issuance, particularly because it***E.O. 12866 Review

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is base d 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 enables the distribution of set

- aside allowances prior to the relevant compliance year while during which the generation occurs
. The EPA feels this still provides sufficient rigor because the set

- aside does not affecting directly affect program stringency. The reason that stringency is not affected is because of key differences between issuance of credits and distribution of set

- aside allowances. Under rate

- based implementation, each decision to recognize issue an ERC based on a quantification of RE with
ERCs generation affects the ultim ate amount of allowable CO 2 emissions ; , because the number of ERCs is determined by the amount of MWhs approved as eligible for ERC issuance. Thus the amount of ERCs that are issued can affect the stringency of the rule. A s a result, the EPA has laid out s pecific requirements (including EM&V procedures) in the final CPP, and in this proposed federal plan and model rule , to assure the environmental reliability of measures qualifying for ERC recognition under rate

- based implementation. In contrast, any decisi on to recognize RE with set

- aside allowance allocations under a mass

- based approach does not affect the CO 2 emissions***E.O. 12866 Review

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outcome because the ultimate amount of allowable CO 2 emissions is determined by the total number of allowances initially created (regardle ss of how they are distributed). As a result, while the EPA believes it is reasonable to consider a minimum set of 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 significantly affected by the robustness of whatever eligibility requirements the EPA ultimately sets for RE recognition through allocation from these
set

- asides. This being s aid, the agency is proposing to require robust demonstrations of the eligibility and EM&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 d elivery of RE as a result of the
set

- aside. The EPA proposes that the projections of megawatt

- hours provided will be the basis of the distribution of set

- aside allowances. A satisfactory demonstration of the future RE generation from an eligible project mu st 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***E.O. 12866 Review

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methods, assumptions and data sources must be spec ified in documentation accompanying the projections. These projections and supporting documentation should all be provided in the set

aside project application, and that application must be approved by a third

- party verifier. The EPA invites comment on the se proposed requirements for projections. We also take comment on whether set

- asides should be based on actual MWh megawatt

- hours provided by the installation in a prior year or compliance period, or another form of historical generation data. The EPA is pr oposing 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 age nt to be approved as eligible to receive
set

- aside allowances in their state. This application must include all the requirements outlined above, including projections of expected megawatt

- hours of generation. The EPA is proposing to accept RE set

- aside project application s up to a deadline of June 1 in the year prior to the compliance year in question. 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 ent ered into the pool of projects that will receive set

- asides in any compliance period
.***E.O. 12866 Review

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If approved, the number of projected megawatt

- hours in each compliance 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 compliance generation years, these projections must be received by June 1 of the year prior to the compliance generation year in question. On Decemb er 1 of the year prior to each year of the compliance period 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 provider according to the percentage of total approved RE MWHs megawatt

- hours for that state that the approved MWHs from their project represent. This method is proposed because it treats all eligible RE pro jects equally in the distribution of set

- aside allowance. It also inherently provides a more significant incentive in state s with less eligible RE generation, but will become less significant as RE generation increases. We would also like to take comment o n whether to restrict projects to a maximum number of allowances they can receive per megawatt

- hour of generation, such as 1***E.O. 12866 Review

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allowance per megawatt

- hour. After each compliance generation year, RE providers receiving allowances will have to provide an M&V report with the megawatt

- hours 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 thi rd party verifier. As discussed in the rate

- based approach EM&V section above, th ese data should be readily available from existing metering. The EPA requests comment on the process for submitting
M&V reports with actual generation reports . If the project or program does not reach the megawatt

- hours projected in a particular compliance generation year, the unfulfilled megawatt

- hours will be subtracted from that RE provider ’s MWhs megawatt

- hours eligible for the set

- aside in the
next compliance 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 th eir projections for future years. If such deficits continue through all three years of the
any compliance performance period in which they participate , the provider will be disqualified from receiving future set

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for the following compliance period
. . We also take comment on whether a 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 pri or to the compliance generation year in question. The EPA requests comment on this approach. The EPA is also seeking comment on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities. This benefit could be in the form of MWh provided to the low

- income community, financial proceeds from the project primarily benefiting the low

- income community, or the project lowering utility costs of low

- income rate

- payers. 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***E.O. 12866 Review

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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 on all aspects of this proposed RE allowance set

- aside program, including whether it should be included a s 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. Provisions to Encourage Early A ction
& &&Placeholder while this section is being worked on offline&&& 4. 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 , starting in the fifth year after the first year of non

- operation, would be allocated to the renewable energy set

- aside for the state in***E.O. 12866 Review

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which the retired unit is located
. 110 In other words, the retired unit would continue to receive allocations for four years after it ceases operation
. Continuing allocations to non

- operating units for a period of time reduc es the incentive 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 lo nger 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 t he renewable energy set

- aside s to grow over time. The agency requests comment on this approach. The EPA proposes to record allowances for each year of a multi

- year compliance period at once , seven 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

110 This is similar to the approach taken in CSAPR of continuing allocations to retired units for four years and then allocating the allowances to a set

- aside; in CSAPR the set

- aside is for new units.***E.O. 12866 Review

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that would otherwise have been all ocated to the unit would be allocated to the renewable energy set

- aside. As a result, the 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

- 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 e nergy set

- aside

— in other words the unit would receive allocations f or three years of non

- operation
. As a further example, if an affected EGU does not operate for both calendar years of a two

- year compliance period, then starting with the compliance perio d after the next compliance period the allowances would be allocated to the renewable energy
set

- aside

— in other words the unit would receive allocations for four years of non

- operation. The agency requests comment on this approach for treatment of alloca tions to affected EGUs that retire, 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***E.O. 12866 Review

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as the initial allocations were made) , instead of allocating such allowances to the state ’s renewable energy set

- aside
. The agency requests co mment on a further alternative 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 an affected EGU a u nit is modified or reconstructed such that it is no longer an affected EGU in the mass

- based trading federal plan , then starting with the next compliance period for which allowances have not yet been recorded , the allowances that would otherwise have been allocated to that unit, starting in the first year after the year the unit is modified or reconstructed, the unit would be allocated to the renewable energy set

- aside for the state in which the unit is located [&&&will confirm
. The EPA requests comment on this language based on final decision on
treatment proposed approach , including on the number of modified/reconstructed units in EGs ]
. The EPA years for which a unit would continue to receive***E.O. 12866 Review

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allocations . The agency also requests comment on an alternative of distributing 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 set

- aside . The agency requests comment on a further alternative approach, which 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

- plan allowance

- distribution provisions in the

mass - based trading program with state

- developed allowance

distribution provisions. In this way, a state c ould choose how
t o 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 particular state priorities, whether they are protecting low

- income consumers, supporting local industries, or other goals. The EPA anticipates that a state would have gr eat***E.O. 12866 Review

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flexibility in its allowance distribution approach and could take advantage of allocation 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 mandat ing that the value be passed through to vulnerable consumers. The EPA believes that this the state

- determined allocation approach offers significant advantages and solicits comment on how to ease its application by states. This is similar to the approach ta ken in the Cross

- state Air Pollution Rule (CSAPR) and Clean Air Interstate Rule (CAIR) where the EPA adopted a rule rule s allowing states to submit state implementation plans (SIPs) with provisions replacing the allowance

- distribution provisions in the CSAP R or CAIR FIPs , respectively, while remaining in the CSAPR trading programs under the CSAPR 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 allowance

- 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 abbreviated***E.O. 12866 Review

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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 allocation 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 federal plan authority.) I n 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 implements 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***E.O. 12866 Review

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leakage , and the EGs provide several options for doing so (Clean Power Plan EGs, section VIII.L) . One of the options provided in the EGs is to address leakage through a n 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 allowance
set

- asides, one for output based allocatio n and one for renewable energy projects, as detailed in section V.D.3. 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 al lowance

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

- asides detailed in section V.D.3, 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 approaches for doing

so . The EGs provide an additional option for state plans to addres s 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 characteristics of the state (Clean Power Plan EGs , section***E.O. 12866 Review

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VIII.L) . 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 Clean Power Plan EGs provide for a Clean Energy Incentive Program ( section VIII in EGs). The EPA proposes that a
state allowance

- distribution methodology, which would replace the federal

- plan allocation provisions, must also include a Clean Energy Incentive Program. Under the proposed approach of providing for states to determined determine their allowance distribution appr oaches 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 dist ribution 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 &&& 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 if the EPA finalizes a t hree

- year compliance period
. . The EPA proposes that a state submitting a state allowance

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 years in a t hree

- 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

- distribution methodology . In the state allowance distribution methodology , the state could distribute allowances to a ffected EGUs or other entities (such as renewable energy 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 require ments. The provisions would have to address leakage as discussed above. T he provisions would have to provide that, for each year for which the state allowance

- distribution provisions would apply, the***E.O. 12866 Review

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total amount of allowances distributed could not exceed the 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
. 111 The EPA proposes that a state’s allowance

- distribution provisions would replace the EPA’s allocation provisions 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 impl ement the remainder of its allocations. Additionally, the EPA proposes that a state allowance

- distribution methodology would have to must provide for allowances to be issued in metric tons if EPA finalizes the proposed approach of issuing federal plan allow ances in metric tons; the EPA proposes that a state allowance

- distribution methodology would have to provide for allowances to be issued in short tons if the EPA finalizes the alternative of issuing federal plan allowances in short tons . The allocation (or auction) of allowances would be final

111 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 less than the applicable mass goal, pursuant to the reserved autho rity to states to set emission standards more stringent than federal standards under CAA section 116.***E.O. 12866 Review

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and could not be subject to modification. Additionally , the
state ’s provisions could not change any other 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. In order for a state allowance

- distribution methodology’s provisions to replace the EPA’s allowance

- distribution
pro visions 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 e lectronic format by a deadline that would provide sufficient time to record the unit

- by

- unit allowances in source
accounts . The EPA believes that about twelve 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 &&& , for submission to the a gency of state allowance

- distribution methodologies and unit

- level allowances , and for EPA the EPA ’s recordation of allowances, for each compliance period
. The EPA***E.O. 12866 Review

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would review and approve state allowance

- distribution methodologies in the twelve months between the proposed deadline for state s to submit their methodologies and the proposed deadline for state s to submit unit

- level allowance tables. The proposed deadline for submission of allowance tables is three months before the proposed deadline for the agency to record allowances in source accounts. The EPA proposes to record allowances in source accounts by the recordation deadlines.

**Table** &&&. **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

- 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 EGs. 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***E.O. 12866 Review

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plan allocations only in the absence of an approved state plan or approved state allowance

- distribution methodology. Th e 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 not to wait until the allowance recordation deadline to do so. In section V.D.2 , th e EPA proposes the allowance recordation deadline seven 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 months prior to the start of the compliance period ( i.e ., December 1 of the year two years before the compliance period starts). If the EPA adopted the earlier recordation deadline on which it requests comment, then we would adjust the deadlines for submission of state allowance

- distribution 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 reasons that the agency pro poses that a state may not replace a

mass - based trading federal plan by with a state plan for a future compliance period for which allowances have already been recorded, as discussed below in section V.F .***E.O. 12866 Review

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The agency requests comment on the proposed approach to allow state s to determine allocations via state allowance

distribution methodologies and replace the federal

- plan allowance

- distribution provisions. The EPA requests comment on 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 . 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 pro vide for a partial delegation of the federal plan

– limited to the allowance

- distribution provisions***E.O. 12866 Review

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– 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 partial delegation ) . The agency requests comment on whether the partial delegation approach would provide sufficient flexibility for a state to choose any method t o distribute its allowances including approaches that the EPA is n o t proposing here. See further discussion of delegations in section VI in this preamble.
F. Treatment of State s Entering or Exiting the Trading P rogram If the EPA implements 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 could 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

- year compliance period comprises 2022, 2023, and 2024, the EPA would record allowances in source acc ounts 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***E.O. 12866 Review

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commencing in 2025. The EPA is prop osing 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 federal plan. Without this stipulation, a
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 remov e 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 specified in the Clean Power Plan EGs. The EPA believes it is more reasonable to

avo id 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 st ate. The EPA requests comment on other approaches to provide a smooth transition from federal

- plan implementation to implementation by state plans, and on its proposed approach of not replacing a federal plan for any compliance period for which allowances were already recorded. The agency requests comment on an alternative of providing***E.O. 12866 Review

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for a state to give notice to the EPA of its intent to submit a state plan to replace the federal plan (or a state allowance

distribution methodology to replace federal

- plan allocations) , and for the agency to delay recording federal

- plan allocations 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 federa l

- 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 perations , 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 (CSAPR) and the Acid Rain Pro gram (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 E GUs 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***E.O. 12866 Review

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( i.e., a fac ility level acco unt 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 between 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 trading 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, buy er and seller information, serial numbers of allowances transferred, emissions, and compliance information. This information would be publicly available on the EPA’s web site and in annual progress reports. 1. Designated Representatives and Alternate Designat ed Representatives Sections XX.XX through XX.XX This s ection would establish the procedures for certifying and authorizing 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***E.O. 12866 Review

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designated representative’s and alternate designated representative’s responsibilities and the process through which he or she c ould 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 desi gnated representative would be the individual authorized to represent the owners and operators of each affected EGU in matters pertaining 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 representative and alternate would legally bind the owners and operators, the designated representative and alternate would have to su bmit a certificate 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***E.O. 12866 Review

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for the affected EGU and for the designated representative and alternate; the name of every own er and operator of the affected EGU ; and certification language and signatures of the designated representative and alternate. All submissions ( e.g., monitoring plans, monitoring system certifications, and allowance transfers) for a n affected EGU would hav e 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 each facility with an 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 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 t o act for the designated representative ( e.g., in circumstances where the designated representative might be unavailable), additional flexibility would be provided by***E.O. 12866 Review

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allowing the designated representative and alternate to delegate authority to make electr onic submissions on his or her behalf. The designated representative and alternate could designate agents to submit electronically certain specified documents. The previously

- described requirements for designated representatives and alternates would provid e regulated entities with flexibility in assigning responsibilities under the mass

- based trading program, while ensuring accountability 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 operating the Allowance Tracking and Compliance System (which is the electronic data system through which the Administrator w ould handle allowance allocation, holding, transfer, and deduction), and for determining compliance with the allowance

- holding requirements 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

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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 allowance price information than is the EPA. For example, because not all 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 the transfers would reflect current market prices. 3. Compliance and General Accounts This section describes two types of A llowance 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 cou ld 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 emissions 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

- level accounts, would provid e owners and operators more flexibility in managing their***E.O. 12866 Review

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allowances for compliance, without jeopardizing the environmental goals of the mass

- based trading program, because the facility

- level approach would avoid situations where an EGU would hold insuffic ient allowances and would be in violation of 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 compliance would also be consistent with ot her EPA

- administered mass - based trading programs. [citations needed] 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 certificate of
repr esentation. 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 alternate authorized ac count representative; an identifying name for the account; the names of all persons with an ownership interest with the respect to allowances held in the account; and***E.O. 12866 Review

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certification language and signatures of the authorized account representative and altern ate. The authorized account representative and alternate would be authorized upon receipt of the application by the 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 allowances, and for delegating authority to make electronic submissions would be analogous to those applicable to comparable matters for designated representatives and alternates. 4. Recordation of Allowance Allocations and Transfers By J une 1, 2021 , the Administrator would record allowance allocations for electric generating units 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. Th e process for transferring allowances from one account to***E.O. 12866 Review

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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 allowance s involved, and the name and signature of the 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 the 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 transfe r 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 period 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 November May 1 , 2025 (the EPA is also requesting comment on an earlier or later allowance transfer deadline of June 1 or March 1 deadline s )
. Each allowance issued***E.O. 12866 Review

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in the proposed mass

- based trading program would authorize emission of one t on of CO 2 and so would be usable for co mpliance, 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 allowance transfer deadline

– - need , to have in its facility compliance account, or to have a properly submitted transfer 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 ident ify specific allowances to be deducted, 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. Deducting allowances may have tax and accounting implications, so h aving a default deduction method provi des the representatives 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 n affected EGU 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 dedu ction by the***E.O. 12866 Review

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Administrator, two allowances allocated for the co mpliance 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 pri or period is an ongoing obligation until compliance is achieved, and there is an ongoing obligation to comply in the current period. In addition, the the se owners and operators would be subject to civil penalties for each violation in accordance with the Clean Air Act , 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 failed 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 avoi ded, regardless of any explanation provided by the owners and operators for their failure, would 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 including the Clean Air***E.O. 12866 Review

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Interstate Rule , 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 the Allowance Tracking and Compliance System. In addition, the Administrator could revi ew 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 programs administered by the EPA including the Acid Rain Program 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 prog ram 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 state s 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***E.O. 12866 Review

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the quarter. The reporting would be in accordance with Part 75.60. The use of Part 75 certified monitoring methodologi es 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 Part 75 as they have under existing prog rams. The EPA anticipates fewer than 50 affected EGUs that would not otherwise be subject to the Acid Rain Program 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 40 gas and oil fired units will qualify for an excepted monitoring methodology)
. Several of the units not otherwise subject to the Acid Rain Pr ogram are subject to the Mercury and Air Toxics Standards ( MATS ) program and , therefore , will have already installed stack flow rate and / or CO 2 monitors 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 and other CEMS to calculate a toxic pollutan t emission rate may***E.O. 12866 Review

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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 e missions 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 that may be used for different purposes for multiple regulatory programs. The majority of the units covered by this rule are already affected by the Acid Rain a nd / or Regional Greenhouse Gas Initiative 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 co mpliance period begins, i.e., to commence January 1, 2021. Only the monitoring and reporting would be required in 2021

— compliance with the requirement to hold allowances would commence on the compliance period schedule that is detailed in section [&&& V. C ].
. The EPA also solicits comment on measures that could monitor***E.O. 12866 Review

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the environmental integrity of a federal plan. As discussed previously in [ &&& x], differences in generation incentives could lead to artificially increased generation by new EGUs or EGUs in neighboring states that are subject to different emission standards. Earlier sections discussed allocation options and other design strategies to address potential emissions leakage in a federal plan [ &&& citation]. These efforts could be complemented by

an emission and generation monitoring program that would help track key trends, suggest further design opportunities to support environmental integrity, and inform any related future decisions or policies. In particular, the EPA notes that the Regional Gree nhouse Gas Initiative, in its founding MOU, specifically directed efforts to study this potential concern and provided recommendations to monitor emissions leakage . RGGI’s recommendations included producing detailed, periodic monitoring reports that tracke d generation and its related environmental attributes, both for generation inside the RGGI region and generation located outside the RGGI region but serving load in the RGGI region
. 112 These monitoring reports rely on information collected and tracked by ind ependent system operators in generator attribute tracking

112 http://www.rggi.org/docs/il_report_final_3_14_07.pdf
.***E.O. 12866 Review

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systems. Part of RGGI’s recommendations included exploring necessary improvements to existing generator attribute tracking systems in order to support their ability to: determine how much electricit y is being used in areas subject to RGGI (including supply by generation from within and outside of the RGGI region); determine and track the environmental attributes associated with those sources of generation, ideally reflecting the specific generation u nit but alternatively based on applicable system

average attributes; identify units within the RGGI region and track their regulatory status; and other attributes. The EPA solicits comment on including a monitoring system to track program integrity as par t of the federal plan. In particular, the EPA solicits comment on the agency’s legal authority to undertake relevant measures to develop and apply an appropriate monitoring program as part of the federal plan. The EPA also requests comment on the proper de sign of a program. Such a monitoring system could be used to track overall electricity consumed and generated in

- state. It could also be designed to track the demand that is being met by different categories of units serving load in

- state: (1) in

- state uni ts covered by the federal plan; (2) in

- state uncovered units; and (3) out

- of

- state units. At the same time, it would monitor the environmental attributes of electricity supply, either by developing systems to track the CO 2***E.O. 12866 Review

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emissions performance associated with individual identified units, or by developing system

- average emission rates for each of the three different categories of units serving in

- state load. This type of program could monitor environmental integrity by tracking changes in the CO 2 emissions from generation not covered by the federal plan, i.e., uncovered in

- state units or imports from neighboring states covered by different plans . One possible method would be to compare t he change in emissions totals derived by multiplying the marginal incre ase in load served in

- state by generation not subject to the federal plan by its applicable CO 2 emission attributes compared to their historic or projected baseline generation . The EPA solicits comment on the existing availability of data on key indicators , options for acquiring and tracking any key data that is not yet widely available , and methods for analyzing that information to assess any potential change in environmental performance of a federal plan due to artificial differences in generation incenti ves .
**VI. Implementation of the**  **F ederal**  **P lan**  **and Delegation** Background of Authority Under section 111(d) of the CAA, the EPA adopts Emission Guidelines (EG) that are then implemented when the EPA approves***E.O. 12866 Review

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a state or tribal 113 plan or promulgates a federal plan t hat implements and enforces the EG for affected EGUS in states not or areas of Indian country 114 without an approved state or tribal plan. Congress has determined that the primary responsibility for air pollution prevention and control rests with state and lo cal agencies, while also recognizing that “Federal ... leadership is essential for the development of cooperative Federal, State, regional, and local programs to prevent and control air pollution.” (See section 101(a)(3) and (4) of the CAA.) Congress has als o provided for Indian tribes meeting specified eligibility criteria to implement the Clean Air Act 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 section 111(d), states and eligible tribes may still seek a delegation of authority from the EPA to implement a federal plan, similar

113 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) implementing the EG, but are not required to do so. 114 As discussed i n detail in (citation), in adopting a federal plan implementing the EG 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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to the ability to take delegated auth ority under other CAA programs. The EPA encourages states and eligible tribes that do not submit approvable plans to request delegation 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 circumstances 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 source may have to the EPA under a federally promulgated standard b ecome obligations to a state or tribe (except for functions that the EPA retains for itself) upon delegation. 115 116 Delegation of the federal plan and Retained Authorities

115 If the Administrator cho oses to retain certain authorities under a standard, those authorities cannot be delegated, e.g., the authority to allow alternative methods of demonstrating compliance. 116 We note that issuance of a title V permit is not equivalent to the approval of a sta te plan or delegation of a Federal Plan. This has been discussed in prior rulemakings, see , 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 5751 8, 57535; Oct. 3, 2003).***E.O. 12866 Review

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A. Delegation of the F ederal P lan and Retained Authorities If a state or tribe 117 intends to take delegation of the 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 generall y “Good Practices Manual for Delegation of NSPS and NESHAP” (EPA, February 1983). The letter requesting delegation of authority to implement the federal plan should: (1) demonstrate that the state or tribe has adequate resources, as well as the legal and e nforcement 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 f or state or tribal progress reports to the EPA, (3) certify that a public hearing is 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 cond itions of the delegation, the effective date of the agreement and the mechanism to transfer authority. Upon

117 A tribe interested in taking delegation of the federal plan must also apply, and be approved by EPA, for TAS eligibility for that purpose. 40 CFR part 49.***E.O. 12866 Review

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signature of the agreement, the appropriate EPA Regional Office would publish an approval notice in the **Federal Register** , thereby incorporating the delegation of authority into the appropriate subpart of 40 CFR part 62. See also EPA’s Delegations Manual, Delegation 7

- 139, “Implementation and Enforcement of 111(d)(2) and 111(d)(2)/129(b)(3) federal plans.” (A copy of this delegation manual has been pla ced 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 implem entation and enforcement of that portion. The EPA will continue to hold inspection, information gathering, enforcement , and other parallel authorit ies along with the state or tribe even when a state or tribe has received delegation of the federal plan. In all cases where the federal plan is delegated, the EPA will retain and will not transfer authority to a state or tribe to approve the following items promulgated in the 2015 section 111(d) Clean Power Plan: (1) [&&& DO WE HAVE A LIST OF ITEMS FOR WHICH EPA PREFERS TO MAINTAIN AUTHORITY?]***E.O. 12866 Review

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Today’s 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 appropria te state.
B. Mechanisms for Transferring Authority 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 stat e or tribe does not submit or obtain approval 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. 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 su bmit a plan to the EPA. If the EPA determines 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***E.O. 12866 Review

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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 w ith states and eligible tribes to attempt to reconcile areas of the plan that are unapprovable
. Upon the effective date of a 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 enforce the state or tribal plan in lieu of the federal plan. The timing of effectiveness of a an approved state or tribal plan in this circumstance may depend in part on the need to ensure a smooth transition and m aintain regulatory certainty. Thus, for example, 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 including 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***E.O. 12866 Review

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indicate such approval , as well as the timing of its effectiveness
. As discussed elsewhere in this Notice, the EPA may also in
cert ain circumstances approve a partial state or tribal 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 mass

- based trading program, as discussed in section &&& above. 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 Part 60 Subpart B and the EG 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 handle 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.***E.O. 12866 Review

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2. 2. St ate or Tribe Takes Delegation of the F ederal plan F lan The EPA, in its discretion, may delegate to state or tribal air agencies the authority to implement this federal plan. As discussed above, the EPA believes that it is advantageous and the best use of re sources 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 reque sts delegation, the EPA will generally 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, and 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 authorities 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 t o the***E.O. 12866 Review

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appropriate Regional Administrator. Section II.C. of this preamble includes Table [&&&] that lists names and addresses of the EPA Regional Office contacts and the states they cover. With respect to the administration of a federal trading program in a ny 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 section 111(d)(2) a uthority. 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 t ribal plans to implement the Emission Guidelines
. (EG)
. Section 301(d )(2) authorizes ) of the Clean Air Act and 40 CFR part 49 authorize the Administrator to treat an Indian t ribe in the same
manner as a state for this EGU requirement (TAS)
. (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 comments from any tribes with EGU in their area of Indian country
to comment on the affected tribes whether they are interested level of their interest, if any, in developing their***E.O. 12866 Review

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own plan plans
. The EPA is proposing in today’s action to find that it is
necessary and or appropriate to regulate affected EGUs in each of the three areas of Indian c ountry that have affec ted EGUs under the proposed federal plan. The EPA is authorized to directly implement the CAA EG in Indian country when it determines pursuant to finds, consistent with the authority of section 301 (d) and which EPA has exercised in 40 CFR 49.11 , that it is necessary or appropriate to do so. In the final Emission Guidelines, the EPA finalized performance goals for the four facilities located in three areas of Indian country with affected EGUs: lands of the Navajo Nation Nation ’s reservation , lands of the Ute Tribe of the Uintah and Ouray Reservation, and lands of the Fort Mojave Tribe. Tribe ’s reservation
. [&&&citation to final EGs]. The EPA proposed carbon pollution emission guidelines for EGUs in these areas and U.S. Territories in a Supplemental N otice of Proposed Rulemaking. See 79 FR 65482 (Nov. 4, 2014). The four facilities with affected EGUs located in Indian country that the EPA identified in the Supplemental Notice are: the South Point Energy Center, in on the Fort Mojave Indian country Reserva tion geographically located within Arizona; the Navajo Generating Station, in on the Navajo Indian country Reservation geographically located within Arizona; the***E.O. 12866 Review

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Four Corners Power Plant, in on the Navajo Indian country Reservation geographically located withi n New Mexico; and the Bonanza Power Plant, in Ute on the Uintah and Ouray Indian country Reservation geographically located within 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 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 Indian 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 continenta l United States, 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 Trib e is in an area of Indian country located within the continental United States, 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***E.O. 12866 Review

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in an area of Indian country located within the continental United States, is interconnected with the western electricity grid, and is owned and operated by an entity that generates and provides electri city to customers in several states. To date, none of the three tribes on whose areas of Indian countr y the four power plants are located has ha ve expressed a clear intent to develop and seek approval of a tribal implementation plan. Absent Thus, a bsent a f ederal plan, the significant emissions from these four power plants would c ould 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 potentially 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 pants p l ants to ach ieve 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 provid ing the***E.O. 12866 Review

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ability to participate in a rate

- or mass - based trading program is in the interest of these four power plants located in areas of Indian country
. . We believe that this together with the facts that, 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 fede ral plans on the same schedule as other affected EGU strongly 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 administ er aspects of the any applicable federal plan
. that is ultimately promulgated
. In the event a federal plan is needed, proposing a necessary or appropriate determination finding at this time will allow EPA to expeditiously promulgate a final federal plan for one or all of these power plants in the future to allow trading to occur. We will continue to consult with the governments of the Navajo Nation, Fort Mojave Indian Tribe, and the Ute Tribe***E.O. 12866 Review

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of the Uintah and Ouray Reservation during the comment period for
t his proposal, and prior to taking any action to finalize a necessary or appropriate determination and/or a federal plan finding and/or a federal plan. Comments on the appropriateness of the proposed finding, should be submitted within the comment period spe cified in 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 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 section 111(d) state plans under Subp art B of 40 CFR Part 60. These changes would be applicable to any future section 111(d) rules going forward, not just the Clean Power Plan EGs. The EPA proposes six changes to the 111(d) process in the framework regulations to include: (1) partial approval /disapproval mechanisms similar to section 110(k)(3); ( 2 ) a conditional approval mechanism similar to section 110(k)(4); ( 3) a mechanism for the EPA to make calls for plan revisions similar to the "SIP

- call" provisions of Section 110(k)(5); ( 4 ) an error correction mechanism similar to***E.O. 12866 Review

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section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar
to section 110(k)(1) and (2); and (6) updates to the deadlines for EPA action the EPA ac tion. In addition, in this s ection, the agency is proposing an interpretation regarding the effect under section 111 if an existing facility subject to section 111(d) modifies or reconstructs. We believe these changes will significantly streamline the stat e plan review and approval process, be more respectful 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 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 1 11(d) plans. Notably, the CAA does not require the 111(d) procedures to be identical to those the EPA uses under section 110 for SIPs. 118 Therefore, the EPA interprets 111(d) to provide the EPA flexibility in designing procedures that reflect

118 See Webster’s II New Riverside University Dictionary (Riverside 1988) (d efining “similar” to mean “resembling though not completely identical”).***E.O. 12866 Review

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the structure o f those used under section 110 for implementation plans, without requiring the EPA to exactly track SIP procedures when acting on 111(d) plans. As a general matter these proposed changes would simply update the section 111(d) framework regulations to inclu de several new, more flexible procedural tools that Congress introduced into section 110 in the 1990 Clean Air Act Amendments. The basic procedures in the 111(d) framework regulations were promulgated in 1975 based on the structure of section 110 as Congre ss 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 original 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, while maintaining consistency with CAA requirements. Congress resp onded in 1990 and enhanced the procedural mechanisms the EPA has to act on SIPs. The EPA is proposing correspondingly to update the 111(d) regulations in a similar fashion . Currently, the EPA’s framework regulations for submittal and adoption of section 11 1(d) state plans do not explicitly provide for the EPA to use some of the same***E.O. 12866 Review

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procedures for approving or disapproving state plans Congress introduced into the SIP program in the 1990 Clean Air Act Amendments. The EPA is proposing to amend the procedures for approval or disapproval of section 111(d) state plans to reflect the enhancements Congress included in CAA section 110 for agency actions on SIPs. These proposed amendments are discussed in more detail below.
A. Partial Approvals/Disapprovals First , the E PA proposes to add authority similar to that under section 110(k)(3) to partially approve or disapprove a plan. 119 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 smal l, 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

119 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 sub mission 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 enh ancement will resolve any ambiguity that partial approvals/disapprovals are an acceptable mechanism under section 111(d).***E.O. 12866 Review

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approvable. Another valuable functi on for this approvable T his mechanism are those situations where the state wishes to take over a discrete part of a federal plan. For instance, in today’s 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, an d 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 will also authorize the EPA to accept and review a state plan that is only partial in nature, if identified b y 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 when 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 the 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 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 mecha nism under the framework regulations for 111(d) will enable the EPA to approve a state to implement as much of its program as is consistent with a section 111(d) guideline and may reduce the scope of any federal plan that would be necessary.
B. Conditional Ap provals The second mechanism is the authority under section 110(k)(4) to conditionally approve a plan. Where a state has submitted a plan that substantially meets the requirements of a 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 plan. The Governor or her designee must submit to the EPA a commitment that specifies the amendments to be adopted a nd submitted to the EPA by no later than one 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. Incorporating this mechanism under the framework regulat ions for***E.O. 12866 Review

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section 111(d) will enable the EPA to approve a state to begin to administer a substantially complete program that requires only specific changes to be fully approvable. For example, in today’s this action, we are proposing to conditionally approve state plans that adopt the proposed model trading 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

com plete and approvable program to begin implementing it, while promptly amending the program to ensure it fully complies with section 111(d).
C. Calls for Plan Revisions
CAA s ection 110(k)(5) authorizes the EPA to find that a
state implementation plan 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 wil l be implemented over many years multiple decades. Under decad Under the Clean Power Plan EGs , state s ha ve many years 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. Throughout this period, the EPA and the states will be***E.O. 12866 Review

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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 inaccurate 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 section 111(d) similar to the so

- called “SIP call” mechanism in 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 secti on 110(k)(5) under which the EPA may find that a state’s 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 section 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 finding and notice to the state available to the public. 120

120 Consistent with the agency’s practice under section 110(k)(5),***E.O. 12866 Review

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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 section 111(d)(2)(A), the EPA has authority to issue a federal plan for a state th at misses its deadline to correct its plan. In effect, the finding of plan inadequacy establishes a plan submittal deadline subject to the provisions of 111(d)(2)(A). A finding of failure to meet that new deadline triggers the EPA’s authority to issue a fe deral 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 state or states, and ultimatel y, an improved and more effective 111(d) plan. Error Corrections The EPA is also proposing that the a gency can call for a plan revision in circumstances where a state is not implementing
the EPA anticipates that a call for plan revisions under 111(d) will be done via notice and comment rulemaking.***E.O. 12866 Review

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its approved state plan and , therefore , the state plan is substantial ly inadequate to provide for the implementation of section 111(d) standards of performance
. As discussed above, the Act directs the EPA to develop a procedure for state plans under section 111(d) similar to section 110 SIP procedures. Calling a plan that i s 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 mechanisms available in the SIP program t o provide a similar process that assures effective state plan implementation under section 111(d). Under section 110(k)(5), the EPA may call for a revision of a state plan “[w]henever the Administrator finds that the . . . plan . . . is substantially inade quate 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 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” (emphasis added). If, after the EPA has approved a plan, a state fails to implement that plan, the plan has become substantially***E.O. 12866 Review

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inadequate to comply with this requirement of the Act. Under this proposal, the EPA’s remedy would be to find the plan is substantially inadequate, which triggers the state’s o bligation 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 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 section 111, this authority translates into the EPA calling a state plan when the a gency finds tha t 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 t o 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 requirements. Error Corr ections The fourth mechanism is the error correction authority under section 110(k)(6). Where the EPA concludes that it has***E.O. 12866 Review

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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 section 110(a)(2) requires the state to provide notice and a public hearing on each new SIP submittal. Incorporating th is mechanism into the 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 burden of providing notice and a public hearing as required under the 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 such submission. When su bmittals 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 determination is ministerial in nature and requires no exercise of discretion or***E.O. 12866 Review

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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 materials provided by the state as its submittal against the required criteria to determine whet her the plan is complete or not. In the case of SIPs under section 110(k)(1), the EPA promulgated completeness criteria in 1990 at Appendix V to Part 51 (55 FR 5830; Feb. 16, 1990). The EPA proposes to adopt criteria similar to the criteria set out at sect ion 2.0 of Appendix V for determining the completeness of submissions under section 111(d). The completeness criteria can be grouped into : (1) administrative materials ; and (2) technical support. The EPA proposes that the administrative materials requireme nt both
groups would apply for to all section 111(d) rules going forward. We propose technical

- support The agency notes that the addition of completeness criteria that will only be applicable to state plans in the framework regulations does not alter any of th e submission requirements states already have under the Clean Power Plan EGs , at subpart UUUU. The EPA may in the future propose technical support criteria that are specific to future 111(d) rules.
. For administrative materials, the EPA is proposing completeness criteria that mirror 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 s ubmittal under section 111(d) must include: (a (1 ) a formal letter of submittal from the Governor or her designee requesting EPA approval of the plan or revision thereof; (b ( 2 ) e vidence that the state has adopted the plan in the state code or body of regu lations
. ( 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 ; (c .) ; (3 ) Evidence that the state has the necessary legal authority under state law to adopt and implement the plan; (d and (4 ) a copy of the actual regulation, or document submitted 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 effective 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***E.O. 12866 Review

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redline/strikethrough) to the approved plan; (e ( 5 ) e vidence that the state followed all of the procedural requirements of the state's laws and co nstitution in conducting and completing the adoption/issuance of the plan; (f ( 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 notic e; (g ( 7 ) c ertification that public hearing(s) were held in accordance with the information provided 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 (h ( 8 ) c ompilation of public comments and the state's response thereto. These criteria, as proposed, are intended to be generic to all section 111(d) plans going forward
. , with the proviso that specific emission guidelines may provide otherwise
. The technical supp ort completeness criteria that the EPA proposes today are specific will also be generic to the CPP EG s at subpart UUUU. With respect to this set of completeness criteria, and c onsistent all section 111(d) rules , with the structure of the CPP Emission G uidel ine s , EPA is organizing the proposed***E.O. 12866 Review

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completeness criteria for technical support materials in to three parts: components required for all CPP state plans; components required for the emission standards approach; and components required for the state measure s approach. same proviso
. The EPA proposes that the technical support required for all plans must include each of the following: (a (1 ) d escription of the plan approach and geographic
scope ; (b ; (2 ) i dentification of state CO 2 interim period goal ( each designated facility , identification of emission standards for 2022

- 2029), interim steps (interim step 1 for 2022

- 2024; interim step 2 for 2025

- 2027; interim step the designated facilties , and monitoring, recordkeeping , and reporting requirements that will determine compliance by each designated facility ; ( 3 for 2028

- 2029) and final steps of 2030 and beyond; (c ) i dentification of compliance schedules and/or increments of progress; ( 4 ) d emonstration that the state plan sub mittal is projected to achieve the state’s CO 2 emission goal; and (d 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
. The EPA proposes that the technical support required for plans using the emission standards approach must include each of***E.O. 12866 Review

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the following: (a) Identification of each affected EGU, identification of federally enforceable emission standards for the affected EGUs, and monitorin g, recordkeeping and reporting requirements that will determine compliance by each affected EGU; and (b) Demonstrations ; and ( 6 ) d emonstration that each emission standard is quantifiable, non

- duplicative, permanent, verifiable, and enforceable. The EPA proposes that the technical support required for plans using the state measures approach must include each of the following: (a) Identification of each affected EGU; identification of federally enforceable emission standards for affected EGUs (if applicab le); identification of backstop of federally enforceable emission standards; monitoring, recordkeeping and reporting requirements; and (b) Identification of each state measure, demonstration that each state measure is quantifiable, non

- duplicative,
permane nt, 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 Part 51 to make completeness determinations. Similar to section 110(k)(1)(C), under this proposal, where the EPA determines that***E.O. 12866 Review

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a state submission r equired under section 111(d) does not meet the minimum completeness criteria we are proposing to establish, the state will be considered to have not made the submission. The EPA further proposes that, similar to 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 ] after 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 mini mum criteria. 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 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 comment rulemaking. In the completeness process, the EPA will confirm that a state’s submittal appears to have addressed the criteria for a complete su bmittal and, therefore, the submittal is sufficient to trigger the EPA’s obligation to act on it. But in***E.O. 12866 Review

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the completeness process the agency will not assess the content of those submissions to determine if they are approvable. Accordingly, even when the EP A affirmatively determines that a submittal is complete, it does not prevent the agency from later finding that the state plan does not meet the requirements of the Emission G uideline s EGs , including finding that the submittal failed to address a required e lement and must be disapproved. Similarly, when a submittal is determined to be complete by operation of law after [ six 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 EPA’s review, whether or not the state has actually addre ssed all the required elements. Accordingly, if the agency determines that a stat e has failed to address a required element in its submittal once the EPA begins review of the state plan that is complete 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 cannot simply find the plan incomplete and return it to the state at that point . But the finding of completeness by***E.O. 12866 Review

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operation of law in n o way prevents the EPA from subsequently concluding that the state’s submission is missing a required element of the program and making that finding as part of a disapproval of the plan. As described in the final rulemaking notice for the 111(d) Emission G uideline s EGs , a state will submit all 111(d) plans electronically. If the EPA determines that any submission fails to meet the completeness criteria discussed below , the agency
may return the plan to the state and request corrections, identifying the comp onents 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 id entified in its incompleteness determination. The EPA is also proposing to include an exception to the criteria for complete administrative 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 EPA the EPA ’s comments 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***E.O. 12866 Review

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regulation. The EPA would only finalize the action if the state adopts a final plan that is legally effective 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 would not be able to meet all the criteria for administrative completeness, and the EPA proposes to adjus t 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 evaluat e and comment on the EPA’s proposed action. Finally, the EPA proposes that, in the case of an initial submittal under the CPP Emission Guidelines Clean Power Plan EGs , the requirements set 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 submission 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 Finally, T he EPA proposes to update the deadlines for acting***E.O. 12866 Review

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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 section 110(c) and 110(k) adopted in 1990. The framework regulations for section 111(d) state plans currently are parallel to the prior version of 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 CFR 60.27(b). The regulations then require the EPA to issue a proposed federal plan in certain circumstances after consideration of any st ate 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 Emission Guidelines EGs for Electric Utility Generating Units (EGUs) have already adjusted the deadline in 60.27(b) to require the EPA to act on a state plan under those Emission Guidelines EGs within 12 months (rather than 4 months) after the date required for submission of a pl an. See 40 CFR 60.5715. However, the CPP Emission Guidelines 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 submittal s of all plans***E.O. 12866 Review

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or plan revisions under 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 required Fd required to approve or disapprove the submittal, which inclu de 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 the issuance of a final rule approving or disapproving the plan or pl an 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 submitta l 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. The EPA also proposes slight modifications to the provision related to issuing a proposed federal plan in 60.27(c); changing the six month deadline for issuing a final federal plan in 60.27(d) to one year 121 ; and, similar to the change in timing for

121 As under 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 section 111(d), that failure does not thereb y obviate or in any way remove the EPA’s authority***E.O. 12866 Review

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60.27(b) above, setting the deadline for promulgation of a federal plan to run from the date of the EPA's action o n a state submittal, rather than from the original deadline for a state submittal. The EPA believes it is appropriate to modify these timing requirements for several reasons. First, the EPA notes that under section 111(d)(2), Congress gave the EPA the "same" authority to prescribe a federal plan under 111(d) as it would have under 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 section 111(d)(1) (discussed above). As with the

use of the term “similar,” the EPA believes it is authorized by this language to follow the timing provisions of section 110(c) as currently enacted. Second, as a general matter, the timing requirements of current 60.27(c) and (d), which effectively require t he EPA to propose and finalize a federal plan within six months of the deadline for state submittals, may be outdated and unrealistic with respect to the timelines for review of

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 sta nd 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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state plans and the time periods for action, particularly as informed by the a gency's experience with section 110 SIPs (which led to the extension of the timelines and other changes to 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 months of the initial deadline for state plans is therefore inconsistent with this provision. Fourt h, existing 60.27(c) tracks the prior version of section 110(c) with respect to the issuance of a proposed federal plan. This relatively prescriptive language is no longer present in section 110(c). The procedural requirements for rulemakings under both se ction 110 and 111(d) are set out in section 307(d) of the Act, and the EPA believes those provisions are appropriate and adequate to guide its rulemaking process for 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 section 111(d) regulations, not just those under the Clean Power Plan at Subpart UUUU.***E.O. 12866 Review

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F. Proposed Interpretation reg arding Existing Sources that Modify
or Reconstruct In the proposed rulemaking for the CPP, the EPA proposed the interpretation that if an existing source is subject to a section 111(d) state plan, and then undertakes a modification or reconstruction, the s ource remains subject to the state plan, while also becoming 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 a nd take comment on this issue through this federal plan rulemaking. 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 c oncerns potential obligations or impacts after an existing source has already become subject to the requirements of a state plan. The EPA intends to finalize its position on this issue through this rulemaking, which will be well in advance of the plan perf ormance 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 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***E.O. 12866 Review

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interpretation to fill in the gaps where the statute is silent. In the proposal for the CPP, we proposed to disallow existing
sources to leave the 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 111(d). We then asked for comment on “whether this inte rpretation 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

a lternative 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 is, when section 111(d) emission guidelines are initially promulgat ed for existing stationary sources in response to corresponding section 111(b) standards of per formance for the same pollutant, the statute prevents new , modified or reconstructed sources (including under those particular 111(b) standards of performance an d as those terms are applied in the relevant NSPS) from simultaneously being subject to state plans under those particular 111(d) emission guidelines. This***E.O. 12866 Review

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interpretation gives meaning to the definition of “existing source” in section 111(a)(6) and is cons istent 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 section 111 program. The EPA notes the concerns it noted in the proposal supporting why t he 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 nstructi on 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 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 section 111(d)
program G. Separate Finalization of these Changes The a gency intends to finalize these procedural changes and interpretation sooner than it finalizes the rest of this
propo sed 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 other stakeholders,***E.O. 12866 Review

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and will improve the overall efficacy of the program. We believe it is impor tant to finalize these changes to the framework regulations relatively quickly in order to provide states and other stakeholders predictability in how the EPA intends to process state plans and submissions under 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 A ct Consistent with the requirements of section 7(a)(2) of the Endangered Species Act (ESA), the EPA has also 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 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 Wildlife Service (FWS) and/or the National Marine Fisheries Service, to en sure 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***E.O. 12866 Review

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the destruction or adverse modification of designated critical habitat of such speci es. 16 U.S.C. 1536(a)(2). Under relevant implementing regulations, section 7(a)(2) applies only to actions where there is discretionary federal involvement or control. 50 CFR 402.03. 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 act ion and determines whether consultation is required. See 51 FR 19926, 19949 (June 3, 1986). Effects of an action include both the direct and indirect effects that will be added to the environmental baseline. 50 CFR 402.02. Direct effects are the direct or immediate effects of an action on a listed species or its habitat. 122 Indirect 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

122 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 un it and destroying the habitat of a listed species).***E.O. 12866 Review

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causal connect ion between the federal action, the effect in question, and the listed species, 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 section 7(a)(2) consul tation. The EPA notes that the projected environmental effects of this proposal are, like the Emission Guidelines 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
. 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 net positive environmental effect by virtue of reducing emissions of certain ai r pollutants does not address whether the rule may affect any listed species or designated 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 affect any listed species in its habitat or the designated critical habitat of such species within the meaning of ESA section***E.O. 12866 Review

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7(a)(2) or the implementing regulations or require ESA consultation. The EPA has considered various types of potential effects in considering 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 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 view that the best scientific data available were insufficient to draw a causal connection between GHG emissions and effects on the species in its habitat. 123 The DOI Solicitor conclu ded that where the effect at issue is climate change, proposed actions involving GHG emissions cannot pass the “may affect” test of the section 7 regulations and , thus , are not subject to ESA consultation. The EPA has also previously considered issues rel ating to GHG

123 See, e.g., 73 FR 28212, 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 Consul tation Requirements to Proposed Actions Involving the Emission of Greenhouse Gases” (Oct. 3, 2008).***E.O. 12866 Review

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emissions in connection with the requirements of ESA section 7(a)(2). EPA discussed this In the proposed Emissions Guidelines,

see 79 FR 34933

- 34, noting final EGs, the agency noted that ,
a lthough the GHG emission reductions projected for the E missions Guidelines were are large ( the highest estimate is estimated reductions of 555 MMT about 415 million short tons of CO 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. EPA concluded there that it knew of “ There the agency projected emission reductions over the lifetimes of the model years in question , 124 which are roughly five to six times those projected above and, based on air quality modeling of potential environmental effects, concluded that “EPA knows of no modeling tool which can link these small, time

- attenuated changes in global metrics 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 mo deling capabilities.” EPA, Light Duty Vehicle Greenhouse Gas Standards and Corporate Average Fuel Economy Standards, Response to Comment Document for Joint

124 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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Rulemaking at 4

- 102 (Docket EPA

- OAR

- HQ

- 2009

- 4782 ); see also 79 FR 34934. The EPA believes that the same conclusions apply to the present proposal, given that the federal plan will implement only a subset of the reductions projected from the Emission Guidelines as a whole (i.e., for affected EGUs in states without a pproved plans), and the projected CO 2 emission reductions from the Emission Guidelines are less than those projected for either of the light duty vehicle rules. ). The EPA reached this conclusion after evaluating issues relating to potential improvements

r elevant to both temperature and oceanographic pH outputs. The EPA's ultimate finding was that “any potential for a specific impact on listed species in their habitats associated with these very small changes in average global temperature and ocean pH is
to o 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, 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 likelihood of jeopardy to a species from a federal action is extremely remote, ESA does not require consultation). The EPA’s proposed conclusion is entirely consistent with DOI’s analysis regarding ESA re quirements in the context of federal actions involving GHG emissions. With regard to non

- GHG air emissions, the EPA is also***E.O. 12866 Review

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projecting substantial reductions of SOX SO 2 and NO x as a collateral consequence of this proposal (which will be, as stated above, on ly a subset of the total reductions from the Emissions Guidelines). However, CAA section 111(d) cannot directly control emissions of criteria pollutants. And furthermore, a federal plan under section 111(d)(2) does no more than prescribe emissions standard s of the same stringency as the corresponding Emission Guidelines. 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 poll utant emissions. Section 7(a)(2) consultation thus is not required with respect to the projected 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 pollutant controls that it did not require

-- and likely lacked authority to require

-- in a federal implementation plan for regio nal haze controls under section 169A of the CAA.). Finally, EPA considered whether any other relevant effects (beyond reduction in air pollutants) may result from the establishment of standards of performance for existing affected***E.O. 12866 Review

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EGUs and implementing an d enforcing those standards. In this respect, this proposal is different from the Emissions Guidelines in that it would set in place a federal plan that will set standards of performance and provide for their implementation and enforcement for affected EGU s not covered by
state plans. In the Emissions Guidelines proposal, EPA recognized that “there are substantial questions as to whether any potential for relevant effects results from any element of the proposed rule or would result instead from the separat e actions of states establishing standards of performance for existing sources and implementing and enforcing those standards.” See 79 FR 34934. Under a federal plan , it is EPA that would implement a 111(d) plan. and likely lacked authority to require

-- i n 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 air pollutants) and whether any 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 exist whether decisions such as increased utilizati on of solar or wind power could have effects on listed species. The EPA received comments on the EGs asserting***E.O. 12866 Review

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that because potential increased reliance on wind or solar power may be an element of Building Block 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 doc uments. The EPA does not believe that the effects of potential future changes in the energy sector

– including increased reliance on wind or solar power as a result of future potential actions by states or other implementing entities

– or any potential alt erations in the operations of any particular facility would, at the time of promulgation of a federal plan, be sufficiently certain to occur so as to require ESA consultation on the rule. The EPA appreciates that the ESA regulations call for consultation w here actions authorized, funded, or carried out by federal agencies may have indirect effects on listed species or designated critical habitat. However, as noted above, indirect effects must be caused by the action at issue and must be reasonably certain t o occur. Under a federal plan , it is the EPA that would implement a 111(d) plan. The EPA believes that even with this proposed federal plan , any effects on listed species or designated habitat are too uncertain to require consultation under section 7. This is so for***E.O. 12866 Review

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at least two reasons . First, : (1) the EPA cannot know with any certainty at this state 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 . Second, ; and (2) , the 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 pollutant at historical rates so long as the affected EGU holds sufficient credits or allowances. At this stage, 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 section 7(a)(2) was not intended to preclude federal actions based on potential future speculative effects. 125 Thes e are

125 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 Environmental Policy Act, as opposed to a substantive provision***E.O. 12866 Review

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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 action. 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 for the utility power sector. 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

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 act ivity 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, obligation of venture capital, or initiation of contracts; and n oting 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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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 r espo nse to the final goals, the Regulatory Impact Analysis ( RIA ) for this final action presents two scenarios designed to achieve these goals, which we term the “rate

- based” illustrative plan approach and the “mass

- based” illustrative plan approach. 126 Under th e rate

- based approach, when compared to 2005, CO 2 emissions are projected to be reduced by approximately 22 percent 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 projected to result in substantial co

benefits through reductions of SO 2 , NO X and PM 2.5 that will have direct p ublic health benefits by lowering ambient levels of

126 It is important to note that the differences between 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. If one approach performs differently than the other o n a given metric during a given time period, this does not imply this will apply in all instances.***E.O. 12866 Review

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these pollutants and ozone. Table [X] and Table [X] show s expected CO 2 and other air pollutant emission s in the base case and reductions under the final guidelines for 2020, 2025, and 2030 for both rate

- b ased and mass

- based approaches
. **Table [X]**  **. Summary of CO 2**  **and Other Air Pollutant Emission Reductions**  **from the Base Case under Rate -**  **based Illustrative Plan Approach**  **CO 2**  **(millions short tons)**  **SO 2**  **(thousand short tons)**  **NO X**  **(thousand**

**short tons) 2020**  **Final Guidelines** Base Case 2,155 1,311 1,333 Final Guidelines 2,085 1,297 1,282 Emissions Reductions 69 14 50 **2025 Final Guidelines** Base Case 2,165 1,275 1,302 Final Guidelines 1,933 1,097 1,138 Emissions Reductions 232 178 165 **2030 Final Guidelines**  Base Case 2,227 1,314 1,293 Final Guidelines 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]**  **. Summary of CO 2**  **and Other Air Pollutant Emission Reductions**  **from the Base Case under Mass -**  **based Illustrative Plan Approach**  **CO 2**  **(million short tons)**  **SO 2**  **(thousand short tons)**  **NO X**  **(thousand short tons)**  **2020 Final Guidelines*****E.O. 12866 Review

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Base Case 2,155 1,311 1,333 Final Guidelines 2,073 1,257 1,272 Emissions Reductions 81 54 60 **2025 Final Guidelines** Base Case 2,165 1,275 1,302 Final Guidelines 1,901 1,090 1,100 Emissions Reductions 265 185 203 **2030 Final Guidelines** Base Case 2,227 1,314 1,293 Final Guidelines 1,814 1,034 1,015 Emissions Reductions 413 280 278 [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE]
S ource: Integrated Planning Model, 201 5
. Note: Emissions may not sum due to rounding.
The reductions in Tables [X] and [X] do not account for reductions in hazardous air pollutants ( HAPs ) 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 have important energy market implications. Table [X] presents a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate

based and mass

- based illustrative plan approaches.
**Table [X]**  **. Summary Table of Important Energy Market Impacts**  **for Rate**  **- based and Mass**  **- based Illustrative Plan Approaches**  **(Percent*****E.O. 12866 Review

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**Change from Base Case) Rate**  **- Based**  **Mass -**  **Based 2020**  **2025 2030**  **2020 2025**  **2030** Retail electricity prices 3% 1% 1% 3% 2% 0%
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% [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE]

These figures reflect the EPA’s illustrative modeling that presumes policies that lead to generation shifts and growing use of demand

- side energy efficiency and renewable electricity
gener ation out to 2029. If states make different policy choices, impacts 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 included in the BSER calculation or compliance***E.O. 12866 Review

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modeling, such as nuclear uprates, transmission system improvements, use of energy storage technologies or retrofit CCS, could also mitigate gas pric e 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 ? [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE] The compliance costs of this final 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 th e base case to meet the terms of the final 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 ill ustrative 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***E.O. 12866 Review

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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 plans. The incremental cost is the projected additional cost of complying with the guidelines in the year analyzed and includes the amortized cost of capital investment, needed new capacity, shifts between or amongst various fuels, deployment of demand

side energy efficiency programs, and other actions associated with compliance. These important dynamics are discussed in more detail in the RIA in the rulemakin g docket
. The EPA estimates the annual incremental compliance cost for the rate

- based 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, reporti ng, and recordkeeping (MR&R)
. 127 The EPA estimates the annual incremental compliance cost for the mass

- based 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 .

127 The MR&R costs estimates are $65 million in 2020, $15 million in 2025 and $15 million in 2030 and are assumed to be the same for both rate

- based and mass - based illustrative plan approaches.***E.O. 12866 Review

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More detailed cost estimates are available in the RIA included in the rulemaking docket.
E. What are the Economic and Employment Impacts ? [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE] The final standards are projected to result in certain changes to power system operation as a compliance with the standards
. See Table [X] above for a variety of important energy market impa cts for 2020, 2025, and 2030 under both the rate

based and mass

- based illus trative plan approaches. 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 finan cial liability associated with carbon emissions into their long term capacity planning that would further influence business decisions to replace these aging assets with modern, 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 expected to increase such that they achieve a bout a 7.8 percent reduction on overall***E.O. 12866 Review

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electricity demand levels in 2030 under the final guidelines
. Changes in price or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inpu ts in the production process or supply those sectors. Changes in the cost of production may result in changes in price s, quantities produced, and profitability of affected firms. The EPA recognizes that these guidelines provide significant flexibilities an d 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 as a result of states implementing the guidelines can result in shif ts 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 and employment. According to the Executive Order, “our regulatory syste m 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 science
. ” (Executive Order 13563, 2011) Although standard benefit

- cost analyses have not typically included a separate analysis of regulation

- induced employment impacts, we typically***E.O. 12866 Review

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conduct employment analyses. D uring the current economic
recovery, employment impacts are of particular concern and questions may arise about t heir 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 plan approaches for these guidelines for the electric power industry, coal and natural gas production, and demand

- side energy efficienc y 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 could result in a net decrease of approximately 25, 0 00 job

- years in 2025 for the final guidelines under the rate

- based illustrative 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, 00 0 under the rate

- based approach and 3 4 , 0 00 under the mass

- based approach. The Agency is also offering an illustrative calculation of potential employment effects due to***E.O. 12866 Review

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demand

- side energy ef ficiency programs. Employment impacts from demand

- side energy efficiency programs in 2030 could range from approximately 52,000 to 83,000 jobs under the final guidelines
. By its nature, demand

- side energy efficiency reduces overall demand for electric power. The EPA recognizes as more efficiency is built into 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 f ossil

- fuel fired EGU construction and operation than would otherwise have been expected. The EPA also recognizes 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 employed in new jobs in these sectors may have been previously employed elsewhere. Therefore, the employment estimates reported in these sectors may inc lude 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
reasons, the numbers reported here should not be interpreted as a net national employment impact.***E.O. 12866 Review

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F. What are the Benefits of the Proposed Action ? Implementing the final standards 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 the Mercury and Air Toxics Standards rule. The health and welfare benefits from reducing air pollution are considered co

- benefi ts for these standards. For this rulemaking, we were only able to quantify the climate benefits from reduced emissions 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 no t able to quantify, leading to an underestimate of monetized benefits. In summary, we estimate the total combined climate benefits and health co

benefits for the rate

- based 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

- benefits for the mass

- based approach are estimated to be $5.3 to $8.1 billion in 2020, $19 to $29 billion in 2025, and $32 to $48 billion in 2030 (3 percen t discount rate, 2011$). A summary of the emission reductions and monetized***E.O. 12866 Review

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benefits estimated for this rule at all discount rates is provided in Tables [X] through [X] of this preamble.
**Table [**  **&&& ]**  **. Summary of the Monetized Global Climate Benefits for**  **the Final Guidelines**  **(billions of 2011 $**  **) a**  **Discount Rate (Statistic)**  **Monetized Climate Benefits**
**YEAR 2020**  **2025 2030**  **Rate -**  **based 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 Approach**

**CO 2**  **Reductions (million**  **short tons)** 8 1 26 5 413

5 percent (average SC

- CO 2 ) $0.94 $3.6 $6.4 3 percent (average SC

- CO 2 ) $3.3 $12 $20***E.O. 12866 Review

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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]**  **. Summary of the Monetized Health Co -**  **Benefits in the U.S.**  **for the Final Guidelines, Rate -**  **based Approach (billions of**  **2011 $**  **) a** 

**Pollutant National**  **Emission Reductions**  **(th ousands**  **of short tons)**  **Monetized Health Co**  **** **benefits Monetized**  **Health Co**   ** benefits** **(3 percent discount)**  **(7 percent discount)**  **Final Guidelines, Rate**  **- based 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 **Total Monetized Health Co -**  **benefits** $0.70 to $1.8 $0.64 to $1.7***E.O. 12866 Review

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**Total Monetized Health Co -**  **benefits combined wi**  **th Monetized Climate Benefits**  **d** $3.5 to $4.6 $3.5 to $4.5
**Final Guidelines, Rate**  **- based 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
**Final Guidelines, Rate -**  **based 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 monetized co

- benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to***E.O. 12866 Review

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mercury, ecosystem 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 bas ed on the analyses conducted for the proposed rule. 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 estimates 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 o f 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 same 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 benefits associa ted with the model average at 3 percent discount rate, however we emphasize the importance and value of***E.O. 12866 Review

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considering the full range of social cost of carbon values. We provide combined climate and health estimates based on additional discount rates in the RIA.

**Table [X]**  **. Summary of the Monetized Health Co -**  **Benefits in the U.S.**  **for the Final Guidelines, Mass -**  **based 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) Final Guidelines,**  **Mass -**  **based 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
**Final Guidelines, Mass**  **- based 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 **Ozone precursor c** ***E.O. 12866 Review

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**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
**Final Guidelines ,**  **Mass -**  **based 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 [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE]

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***E.O. 12866 Review

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emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed rule. 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 estimates 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 concentra tion

- 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 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 incr ease 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 values. We provide comb ined 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***E.O. 12866 Review

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Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May 2013, Revised June 2015) ( “current TSD ” ) to analyze CO 2 climate impacts of this rulemaking. 128 We refer to these estimates, 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 climate impacts, such as net changes in agricultural productivity and human health, property damage from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. It is typically used to assess the avoided damages as a result of regulatory actions (i.e.,

128 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 Car bon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, Nati onal 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

- final

- july

- 2015.pdf.***E.O. 12866 Review

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benefits of rulemakings that lead to an incremental reduction in 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 and recommended four global values for use in regulatory analyses. The SC

- CO 2 estimates were first re leased in February 2010 and updated in 2013 using new versions of each IAM. The 2010 SC

- CO 2 Technical Support Document (2010 TSD ) 129 provides a complete discussion of the methods used to develop these estimates and the current TSD

129 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 Adviser s, 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 Managemen t and Budget, Office of Science and Technology Policy, and Department of Treasury (February 2010). Also available at: http://www.whiteh ouse.gov/sites/default/files/omb/inforeg/for

agencies/Social

- Cost

- of

- Carbon

- for

- RIA.pdf
.***E.O. 12866 Review

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presents and discusses the 2013 update (including two recent minor corrections to the estimates )
. 130 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 rulemaki ng. Commenters also provided constructive recommendations for potential opportunities to improve the SC

- CO 2 estimates in future updates. Many of these comments were similar to those that OMB’s Office of Information and Regulatory Affairs received in

130 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 EP A

- 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 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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respon se to a separate request for public comment on the 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 i n regulatory impact analysis
. 131 With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the National Academ ies of Sciences , Engineering, and Medicine ( Academies ) to ensure that the SC

- CO 2 estimates continue to reflect the best available scientific and economic informa tion on climate change. The Academies review will be informed by the public comments received and focus on the technical merits and challenges of potential approaches to impro ving the SC

- CO 2 estimates in future updates. See th e EPA Response to Comments document for the complete response to comments received on SC

- CO 2 as part of this rulemaking. Concurrent with OMB’s publication of the response to
comments on SC

- CO 2 and announc ement 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 inadvertent omission of climate change damages in

131 See https://www.whitehouse.gov/omb/oira/social

- cost

- of

- carbon for additional det ails, including the OMB Response to Comments and the SC

- CO 2 TSDs.***E.O. 12866 Review

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the last year of analysis (2300) in one model and the second 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 the November 2013 revision to the May 2013 TSD. The change in the estimates asso ciated 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 was affected by the indexing

error. The EPA, as a member of the IWG on the SC

- CO2, 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. Additionally, the EPA has carefully examined and evaluated all comments received reg arding the SC

- CO2 through this rulemaking process. The EPA concurs with the IWG’s conclusion that it is reasonable, and scientifically appropriate, to use the current SC

- CO2 estimates for purposes of regulatory impact analysis, including for this proceedin g. The four SC

- CO 2 estimates are as follows: $1 2 , $4 0 , $6 0 , and $1 20 per short ton of CO 2 emissions in the year 2020 (2011 $ ). 132

132 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, respectiv ely. 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 cont ext (where costs and benefits are incurred by different 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 distribution (representing less likely, but potentially catastrophic, outcomes). Th ere are limitations in the estimates of the benefits from the final emission guidelines, including the omission of climate and other CO 2 related benefits that could not be monetized. The 2010 TSD discusses a number of limitations to the SC

- CO 2 analysis, in cluding the incomplete way in which the IAMs capture catastrophic and non

- catastrophic impacts, their incomplete

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.***E.O. 12866 Review

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treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding r isk aversion. Current ly, 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 i mpacts 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 in form the benefit

- cost analysis. As previously noted, the IWG plans to seek independent expert advice on technical opportunities to improve the SC

- C O 2 estimates from the Academies
. The Academies process will help to ensure t hat the SC

- C O 2 estimates used by the federal government continue to reflect the best available science and methodologies. Additional details a re 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 the illustrative compliance strategy for the final standards. Unlike the global SC

- CO 2 estimates, the air pollution health co

-***E.O. 12866 Review

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benefits are estimated for the contiguous U .S. only. W e used a “benefit

- 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 to convert precursor emissions into changes in ambient PM 2.5 and ozone concentrations
. We then used these air quality modeling results in BenMAP 133 to calculate
average regional benefit

- per - ton estimates using the health impact a ssumptions used in the PM NAAQS RIA 134 and Ozone NAAQS
RIAs. 135 , 136 The three regions were the Eastern U.S., Western U.S.,

133 http://www.epa.gov/airqu ality/benmap/index.html 134 U.S. Environmental Protection Agency (U.S. EPA). 2012. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter
. Research Triangle Park, NC: Office of Air Quality Plan ning and Standards, Health and Environmental Impacts Division. (EPA document number EPA

- 452/R

- 12

- 003, December). Available at: <http://www.epa.gov/pm/2012/finalria.pdf>. 135 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/n cea/cfm/recordisplay.cfm?deid=194645>. 136 U.S. Environmental Protection Agency (U.S. EPA). 2010. Section 3: Re

- analysis of the Benefits of Attaining Alternative Ozone***E.O. 12866 Review

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and California. To calculate the co

- benefits for the final standards, we multiplied the regional benefit

- per - ton estimates generated from modeling of the proposed standards by the

corres ponding regional emission reductions for the final standards
. 137 All benefit

- per - ton estimates reflect the geographic distribution of the modeled emissions for the proposed standards , which may not exactly match the emission reductions in this final rulemaki ng, 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 - ton estima tes is available in the RIA.
PM benefit

- per - ton values are generated us ing two

Standards to Incorporate Current Methods. Available at: <http://www.epa.gov/ttnecas1/regda ta/RIAs/s3

- supplemental_analysis

- updated_benefits11

- 5.09.pdf>. 137 U.S. Environmental 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_Apportionmen t_BPT_TSD_1_31_13.pdf>.***E.O. 12866 Review

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concentration

- response functions, Krewski et al. (2009) 138 and Lepeule et al. (2012) 139
. 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 equivalent 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 dri ven 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 (Kre wski et al, 2009) and one based on the extended Six Cities cohort study

138 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. 139 Lepeule, J.; F. Laden; D. Dock ery; J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow

- Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspective, 120(7), July, pp. 965

- 970.***E.O. 12866 Review

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(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

- response functions from these two epide miology 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 using benefit

- per - ton estimates ba sed

on expert judgments of the effect of PM 2.5 on premature mortality (Roman et al., 2008) 140 as a characterization of uncertainty regarding the PM 2.5 - mortality relationship. For the ozone co - benefits, we present the results as 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) 141 and the upper end based on a benefit

- per - t on estimate using the function from Levy et al.

140 Roman, H., et al. 2008. “Expert Judgment Ass essment 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. 141 Bell, M.L., et al. 2004. “Ozone and Short

- Term Mortality in 95 U.S. Urban Communitie s, 1987

- 2000.” Journal of the American Medical Association, 292(19), pp. 2372

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(2005)
. 142 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 t hat the health impact function for fine particles is without a threshold. This is based on the conclusions of EPA’s Integrated Science Assessment for Particulate Matter, 143 which evaluated the substantial body of published scientific literature, reflecting t housands 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 assessment, which was twice reviewed by the EPA’s inde pendent Science Advisory Board, concluded that the scientific literature consistently finds that a no

- threshold model most adequately portrays the PM

- mortality concentration

- response relationship. In general, we are more confident in the magnitude of the

142 Levy, 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. 143 U.S. Environ mental 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: ht tp://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546
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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 simulate d 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, 144 and thus, we are unable to estimate the percentage 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 s urrogate 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 f or the proposed guidelines used to calculate 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. (2012) study, 46 percent of the population is exposed above the

144 In addition, site

- specific emission reductions will depend upon how states implement the guidelines.***E.O. 12866 Review

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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. Every benefit analysis examining the potential effects of a change in environment al 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 uncertain ties, 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 under a set of reasonable assu mptions. This analysis does not include the type of detailed uncertainty assessment found in the 2012 PM 2.5 National Ambient Air Quality Standard (NAAQS) RIA (U.S. EPA, 2012) because we lack the necessary air quality input and monitoring data to conduct a complete benefits assessment. In addition, using a benefit

- per - ton approach adds another important source of uncertainty to the benefits estimates. The 2012 PM 2.5 NAAQS benefits analysis provides an indication of the sensitivity of our results to various

a ssumptions. We note that the monetized co

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do not include several important benefit categories, including exposure to SO 2 , NO X , and hazardous air pollutants ( 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 include a qualitative assessment of these
unqua ntified benefits in the RIA for the final guidelines . In addition, in the RIA for the final standards , 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 , the benefits from reductions in directly emitted
PM 2.5 were less than 10 percent of total monetized health co

benefits across all scenarios and years. For more information on the benefits analysis, ple ase refer to the RIA for this rule, which is available in the rulemaking docket.

**IX. Community**  **Considerations 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 are not disproportionately impacted by this rulemaking. As described in the Executive Summary, climate change is an***E.O. 12866 Review

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environmental justice 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 across the nation, as its purpose is to reduce greenhouse gases, the most significant driver of cl imate change. While addressing climate change will provide broad benefits, it is particularly beneficial to low

- income populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic loc ation) where people are most vulnerable to the impacts of climate change (a more robust discussion of the impacts of climate change on overburdened vulnerable communities is provided in the Executive Order 12898 section XII.J of this preamble). While climat e 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 experienced in in dividual communities. This rule will bring other important benefits to communiti es across the nation. Vulnerable communities also often receive more than their fair share of conventional air pollution, with the attendant adverse health impacts. The changes in electricity generation that will result from***E.O. 12866 Review

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this rule will further benefit communities by reducing existing air pollution that directly contributes to adverse localized health effects. This benefit Th ese air quality improvements will be achieved through the rulemaking th is rule because t he electric generating units that emit the most greenhouse gases also have the highe st emission s of conventional pollutants , such as SO 2 , NOx , fine particles , and HA P. These pollutants are known to contribute to adverse health outcomes, including the development of heart or lung diseases, such as asthma and bronchitis, increased susceptibility to respiratory and cardiac symptoms, greater numbers of emergency room visits and hospital admissions, and premature deaths
. 145 The EPA expects that the reductions in utilization of higher

- em itting units likely to occur during the implementation of federal plans will produce significant reductions in emissions of conventional pollutants, particularly in overburdened communities. those communities already overburdened by pollution, which are oft en low

- income communities, communities of color, and indigenous communities. These reductions will have beneficial effects on air quality and public health both locally and regionally. Further, t his rulemaking complements other actions already taken by the EPA to

145 Six Common Air Pollutants. www.epa.gov/oaqps001/urbanair/***E.O. 12866 Review

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reduce conventional pollutant emissions and improve health outcomes for overburdened communities. By reducing millions of tons of CO 2 emissions that are contributing to global greenhouse gas 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 f rom many commenters who recognize and welcome tho se benefits. 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
commente rs. While the agency expects overall emission decreases as a result of this rulemaking, we recognize that certain 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 particulate matter, and much lower emissions of NOx***E.O. 12866 Review

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compared to higher

- emitting steam units. We acknowledge the concerns that h ave 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 assess any emissions conduct an assessment of whether and where emission increases th at may result from plan implementation and mitigate adverse 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 ener gy efficiency. These changes in the electricity generation 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, invest ing more in RE and EE. The construction of renewable generation and the implementation of energy efficiency programs such as residential weatherization will bring invest 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 t his rulemaking ) ) , it is also important to ensure that to the extent that there are increases***E.O. 12866 Review

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in electricity costs, that those do not fall disproportionately on those least able to afford them. The EPA has engaged with community groups throughout this rule making and we received many comments on the issues outlined above from community groups, environmental justice organizations, faith

- based organizations, public health organizations, and others. In This input has informed this proposed final rulemaking we add ress many of and prompted the

concerns EPA to consider other steps that were raised. One example is that commenters are concerned about the health, economic, and agency can take in the short and long term to assist states and stakeholders to consider environ mental justice and impacts of climate change, but also want to ensure that the benefits of this rulemaking are shared fairly and that low income to communities are not adversely affected by the increased costs of electricity. In this section, we respond to these

concerns. in plan development and implementation. We are working It has also prompted us to work with our federal partners to make sure that communities have information on federal resources available to assist them. 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.***E.O. 12866 Review

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Finally, and importantly, we recognize that communities must be able to participate meaningful ly 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.
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 an a proximity analysis for this proposed rulemaking that summarizes demographic data on the communities located near power plants , which we refer to as a proximity analysis
. 146 The EPA understands that, in order to prevent disproportionate, 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 experti se that some community groups may lack. Therefore, the EPA used census data from the American Community

146 The proximity analysis was conducted using data that are used to update the EPA’s environmental justice mapping and screening tool, EJSCREEN).***E.O. 12866 Review

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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 t his rulemaking. The analysis and its results are presented in the EJ Screening Report 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 information on the communities located within a 3

- mile radius of each affected power plant in the United States. Included in the analysis is the breakdown by percentage of community characteristics such as income and minority status. The analysis shows a higher percenta ge 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 emis sions are not limited to a 3

- mile radius and the impacts of both potential increases and decr eases 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 experience d by some of those already experiencing environmental burdens
. Although overall there is a higher fraction of communities of color and low

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than national averages, there are differences between rural and urban po wer plants. There are many rural power plants that are located near small communities 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 a nd communities of color. In light of this difference between rural and urban communities proximate to power plants and in order to adequately capture both the low

income and minority aspects central to environmental justice considerations, we will use the term term s “vulnerable” or “overburdened” when referring to these communities. Our intent is for this term th e s e term s to be understood in an expansive sense, in order to capture the full scope of communities, including tribal indigenous communities most often located in rural areas, which that are central to our environmental justice and community considerations. As stated in the Executive Order 12898 discussion located in section XII.J of this preamble, the EPA believes that all communit ies will benefit from this proposed rulemaking because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 emission guidelines standards for existing affected fossil fuel

- fired power plants. The EPA also believes that the information***E.O. 12866 Review

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provided in the proximity analysis will promote engagement between overburdened vulnerable communities and the agency throughout the rulemaking process. In add ition to providing the proximity analysis in the docket of this rulemaking, the EPA will make it publicly available on its EPA Community Climate Protection Portal of the Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s web site ( www.epa.gov/cleanpowerplan Website. ). Furthermore, the EPA has also created an interactive mapping tool that illustrates where power plants are l ocated and provides information on a state level. This t ool is available at: http:// www. cleanpowerplanmaps.epa.gov/CleanPowerPlan/
. B. Community Engagement in This Rulemaking Process The EPA has heard from overburdened vulnerable communities
t hroughout the outreach process for the Clean Power Plan that it is imperative for overburdened communities to have an understanding of how rulemakings that target climate change work. They expressed a desire to know how these rulemakings programs may benefit their communities and what the potential adverse impacts of the r ulemaking rule s may be on their communities. It is important We intend to the EPA that the agency provides overburdened provide communities with the information that they need to engage with the agency throughout the comment***E.O. 12866 Review

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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 th is 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 affected communities in the early st ages of the comment period. The goal of this webinar will be to walk overburdened communities through the highlights of the preamble, so they have an understanding of how the rulemaking may potentially impact affect their community 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 the face

- to

- face meetings conducted on the regional level, each region will be offering an outreach meeting(s) for overburdened communities. The goal of these meetings is to build a level of understanding on this rulemaking to enable overburdened vulnerable communities to actively engage with the agency throughout the comment period. Furthermore, we***E.O. 12866 Review

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will follow up on common issues raised during the outreach meetings with national conference calls, specifically targeted for overburdened 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, t he 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 distribution 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 overburdened low

- income populations access the benefits of renewable energy, energy efficiency, and the economic benefits of a cleaner energy economy. In the coming months, the EPA will continue to provide information and resources for overburdened low

- income communities on existing federal, state, local, and other financial assistance programs to encourage EE/RE opportunities that are***E.O. 12866 Review

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already available to communities. For example the EPA will also 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 overburdened vulnerable communities gain the benefits of this rulemaking. The use of these RE/EE tools can also overburdened help low

- income households reduce their electricity consumption a nd bills. Additionally, as part of the resources that we will be providing overburdened low

- income communities, the EPA will provide information on the White House’s Adminstration’s Partnerships for Opportunity and Workforce and Economic Revitalization ( POWER Initiative ) Initative and other programs that specifically target economic development assistance to communities affected by changes in the coal industry and the utility power sector. 147
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 and renewable ene rgy to low

- income communities

. Some examples of feder al programs that offer resources for low

- income communities
. Earlier this summer, the Administration announced a new initiative to

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scale up access to solar energy and c ut energy bills for all Americans, in particular low

- and moderate

- income communities , and to create a more inclusive solar 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 access to solar energy for the nearly 50 percent of households and business es that are renters or do not have adequate roof space to instal l 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 in federally subsidized housing by 2020 and plants to provide technical assistance to make it easie r to install solar energy on affordable housing, including clarifying how to use federal funding for energy efficiency and renewable energy. To continue enhancing employment opportunities in the solar industry for all Americans, AmeriCorps is providing fun ding to deploy solar energy and create jobs in underserved communities , and DOE is working to expand solar energy education and opportunities for job training.
These recent announcements build on the many existing federal***E.O. 12866 Review

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programs and resources available to improve energy efficiency and accelerate the deployment of renewable energy in vulnerable communities. Some examples of these resources include: the Department of Energy’s Weatherization Assistance Program, Health and Human Service’s Low Income Home Ene rgy Assistance Program, the Department of Housing and Urban Development’s goal (under the President’s Climate Action Plan) of installing 100 megawatts of RE across federally subsidized housing by 2020, the Department of Agriculture’s Energy Efficiency and Conservation Loan Program, and the Environmental Protection Agency’s RE

- Powering America’s Land Initiative. The EPA will be working with these federal partners and others to ensure that overburdened communities have access to information on these programs and their resources Agriculture’s Energy Efficiency and Conservation Loan Program, High Cost Energy Grant Program, and the Rural Housing Service’s Multi

- Family Housing Program
. HUD supports energy efficiency improvements and the deployment of renewable ener gy 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
Grants. The Department of Trea sury provides several tax credits to support renewable energy development and energy efficiency in***E.O. 12866 Review

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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 Initiative promotes the reuse of potentially contaminated lands, landfills and mine sites

– many of which are in low

- income communities

– for renewable energy through a combination of tailored redevelopment tools for communities and developers, as well as site

- specif ic 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 programs throughout the country that leverage 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

comm unity 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 programs and their resources. 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, DOE,***E.O. 12866 Review

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and the Department of Education’s “STEM, Energy, and Economi c Development” program; DOE’s Diversity in Science and Technology Advances National Clean Energy in Solar (DISTANCE

- Solar) Program; Grid Engineering for Accelerated Renewable Energy Deployment (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. 148 In the Cross

- State Air Pollution Rule the EPA use d its authority to reduce emissions that significantly contribute to downwind exposures. The RIA for the final Cross

- State Air Pollution Rule anticipates substantial health benefits for the population across a wide region. Similarly, the EPA believes that, like the
Cross

- State Air Pollution Rule, this rulemaking will result in significant health benefits because it will reduce co

- pollutant

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emissions of SO2 and NOx on a regional and national basis. 149 Thus, localized increases in NOx emissions may well be more than offset by NOx 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 guidelines 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 operate more hours duri ng the year and could emit pollutants, including pollutants whose environmental effects would be localized / and

or regional rather than global as is the case with GHG emissions. Changes in utilization already occur in response to energy demands and evolvin g energy sources, but the final CO 2 emission guidelines standards for affected existing fossil fuel

fired EGUs can be expected to cause more such changes. Increased utilization of solid fossil fuel

- fired units generally would not increase peak concentration s of PM 2.5, NOx, or ozone around such EGUs to levels higher than those that are already occurring because peak hourly or daily emissions generally would not

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change; however, increased utilization may make periods of relatively high concentrations more freq uent. 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 directly ad dress the conventional pollutants, including federal emission standards, rules included in state implementation plans, and conditions in title V operating permits, in addition to the guidelines in this final rulemaking. Therefore, local (or regional) air q uality 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 negligible base d on the results of the study documented in the utility RTC.” 150 Because
gas - fired EGUs emit essentially no mercury, increased utilization will n ot increase methyl mercury concentrations in water bodies near these affected EGUs. In studies done by DOE/NETL c omparing cost and performance of coal

- and NGCC

- fired generation, they assumed SO 2 , NOx , PM (and Hg) emissions to be “negligible.” Their studies predict NOx emissions from a NGCC

150 65 FR 79831.***E.O. 12866 Review

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unit to be approximately 10 times lower than a subcritical or supercritical coal

- fired boiler. 151 Many, although not all, NGCC units are also very well controlled for emissions of NOx through the application of after combus tion 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 communities 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, i n fact, reducing 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
. 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

151 “Cost and Performance Baseline for Fossil Energy Plants Volume 1: Bitum inous Coal and Natural Gas to Electricity” Rev 2a, September 2013 Revision 2, November 2010 DOE/NETL

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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. EPA The EPA ’s Continued Engagement The EPA is commit ted to helping ensure that this action will not have disproportionate adverse human health or environmental effects on overburdened vulnerable communities. Throughout the implementation phase of this rulemaking, the agency will continue to provide trainings and resources to assist overburdened 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 overburdened communities on what they would like additional traini ngs and

resources on. As described above, the EPA will assess the impacts of this rulemaking during its implementation. The EPA will house this assessment, along with the proximity analysis and other***E.O. 12866 Review

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information generated throughout the implementation process, on its EPA Commun ity Climate Protection Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s website ( www.epa.gov/cleanpowerplan ). In addition, the EPA has expanded its set of resources that are being developed to help overburdened communities understand the breadth of policy options and programs that have successfully brought EE/RE to overburdened low

- income communities. The EPA is committed to continuing its 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 , w hen crafting this rulemaking. 152 A more detailed discussion concerning the application of Executive Order 12898 in this rulemaking can be found in section XI.J of this preamble. A summary of the EPA’s interactions with communities is in the EJ Screening Report for the Clean Power Plan,

av ailable in the docket of this rulemaking. Furthermore, the EPA’s responses to public comments, including comments received

152 Guidance on Considering Environmental Justice During the Development of Regulatory Actions. www.epa.gov/environmentaljustice/resources/policy/considering

e j

- in

- rulemaking

- guide

- final.pdf . May 2015.***E.O. 12866 Review

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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 implementation 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 www2.epa.gov/laws

- regulations/laws

- and

executive

- orders o rders.
.***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 [ &&&based on preliminary analysis ] This final action is an economically significant regulatory action that was submitted to the Office of Management and Budget ( 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 benefi ts associated with this action. This analysis, “[ &&& insert title of document] , ” This analysis, which is contained in the “ Regulatory Impact Analysis for Clean Power Plan Final Rule ” (EPA

- 452/R

- 15

- 003, July 2015), is available in the docket
. and is briefly summarized in section XI of this preamble. Consistent with EO Executive Order 12866 and EO Executive Order 13563, the EPA estimated the costs and benefits for illustrative compliance approaches of implementing the model trading guidelines. The final rule establishes: 1) carbon dioxide (CO 2 ) emission performance rates for two source categories of existing fossil fuel

- fired EGUs, fossil fuel

- fired electric utility steam generating units and federal stationary combustion turbines, and 2) guidelines for the dev elopment, submittal and implementation of state plans that implement the CO 2 emission***E.O. 12866 Review

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performance rates. Actions taken to comply with the guidelines will also reduce the emissions of directly

- emitted PM 2.5 , SO 2 and NO X . The benefits associated with these P M 2.5 , SO 2 and NO X reductions are referred to as co

- benefits, as these reductions are not the primary objective of this rule. The EPA has used the social cost of carbon estimates presented in the Technical Support Document: Technical Update of the Social Co st 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 perce nt discount rate. In the final emission guidelines, the EPA has translated the source category

- specific CO 2 emission performance rates into***E.O. 12866 Review

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equivalent state

- level rate

- based and mass

- based CO 2 goals in order to maximize the range of choices that states wi ll 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 analyze d two implementation scenarios designed to achieve these goals, which we term the “rate

- based” illustrative plan approach and the “mass

- based” illustrative plan approach
. It is very important to note that the differences between 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 analy ses 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 per iod, 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 will yield monetized climate benefits (in 2011$) of***E.O. 12866 Review

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approximately $2.8 billion for the rate

- based approach an d $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 co

- benefits in 2020 are estimated to be $2.0 billion to $4.8 billion (2011$) for a 3 percent discount rate and $1.8 billion to $4.4 billion (2011$) for

a 7 percent discount rate. The annual, illustrative compliance costs estimated by IPM and inclusive of demand

side energy efficiency program and participant costs and MRR costs in 2020, are approximately $2.5 billion for the
rate

- based approach and $1.4 bill ion for the mass

- based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2020 are estimated to range from $1.0 billion to $2.1 billion (2011$) for the rate

- based approach and from $3.9 billion to 6.7 billion (2011$) for the mass

- based approach, using a 3 percent discount rate (model average). The EPA estimates that, in 2025, the final guidelines will yield monetized climate benefits (in 2011$) of approximately $10***E.O. 12866 Review

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billion for the rate

- based app roach 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 pollution health co

- benefits in 2025 are estimated to be $7.1 billion to $17 billion (2011$) for a 3 percent discount rate and $6.5 billion to $16 billion (2011$) for a 7 percent discount rate. The annual, illustrative compliance costs estimated by IPM and inclusive of demand side energy efficiency program and participant costs and MRR costs in 2025, are approximately $1.0 billion for the rate

- based approach and $3.0 bi llion for the mass

- based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2025 are estimated to range from $ 17 billion to $ 27 billion (2011$) for the rate

- based approach and $16 billion to $2 6 billion (2011$) for the mass

- based approach, using a 3 percent discount rate (model average). The EPA estimates that, in 2030, the final guidelines 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

-***E.O. 12866 Review

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based approa ch, 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 healt h 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 dem and side energy efficiency program and participant costs and MRR costs in 2030, are approximately $8.4 billion for the rate

- based approach and $5.1 billion for the

mass - based approach (2011$). The quantified net benefits (the difference between monetized b enefits and compliance costs) in 2030 are estimated to range from $ 26 billion to $ 45 billion (2011$) for the rate

- based approach and from $26 billion to $43 billion (2011$) for the mass

- based approach, using a 3 percent discount rate (model average). Table [X] and Table [X] provide the estimates of the climate benefits, health co

- benefits, compliance costs and net benefits of the final emission guidelines for rate

- based and

mass - based illustrative plan approaches, respectively. **Table [X]. Summary of the Mon etized Benefits, Compliance Costs,**  **and Net Benefits for the Final Guidelines in 2020, 2025 and 2030*****E.O. 12866 Review

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**Under the Rate -**  **Based Illustrative Plan Approach [Billions of 2011$]**  **a**
**Rate -**  **Based Approach 2020**  **2025 2030**  **Climate Benefits**  **b** 5% discount rate $0.80 $3.1 $6.4 3% discount rate $2.8 $10 $20
2.5% discount rate $4.1 $15 $29

95th percentile at 3% discount rate $8.2 $31 $61

Air Quality Co

- benefits Discount Rate
3% 7% 3% 7% 3% 7% **Air Quality Health Co**  **** **benefits c**  $0.70 to $1.8 $0.64 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 **Compliance Costs**  **d** $2.5 $1.0 $8.4
**Net Benefits**  **e** $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

**Non**   ** Monetized** **Benefits** Non

- monetized climate benefits Reductions in exposure to ambient NO 2 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 impairment

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non

- CO 2 GHG emissions. Also, different discount rates are applied to SC

- CO 2 than to the other estimates because CO 2 em issions 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 o f 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 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 proposed rule. The redu ction 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 mortali ty 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 estimated using the Integrated Planning Model for the final guidelin es and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and demand

- side energy efficiency program and participant costs.***E.O. 12866 Review

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e The estimates of net benefits in this summary table are calculated u sing 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.

**Table [X]. Summary of the Monetized Benefits, Compliance Costs, and Net Benefits for the Final**  **Guidelines in 2020, 2025 and 2030 Under the Mass**  **- Based Illustrative 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***E.O. 12866 Review

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**Compliance Costs**  **d** $1.4 $3.0 $5.1
**Net Benefits**  **e** $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

**Non**   ** Monetized** **Benefits** Non

- monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non

- CO 2 GHG emissions. Also, different discount rates are applied to SC

- CO 2 than to the other estimates because CO 2 em issions 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 o f 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 an d 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 proposed rule. The range reflects the use of concentration

- response functions from different epidemiology studies. The reduction in premature fatal ities 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***E.O. 12866 Review

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causing premature mortality because the scientifi c evidence is not yet sufficient to allow differentiation of effect estimates by particle type.
d Total costs are approximated by the illustrative compliance costs estimated using the Integrated Planning Model for the final guidelines and a discount rate o f approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and demand

- side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC

- CO 2 a t 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 data and modeling limitations, o ur 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 ( e.g ., nitrous oxide and methane) and

co - benefits from reducing direct exposure to SO 2 , NO X and hazardous air pollutants ( 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 action are substantial, and far exceed the costs. Additional details on benefits, costs, and net benefits estimates are provided in this RIA.***E.O. 12866 Review

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B. Paperwork Reduction Act (PRA) [&&&based o n 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] . You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until approved by
OMB. This rule does not directly impose specific requirements on state and U.S. territory governments with affected EGUs. The rule also does not impose specific requirements on tribal governments that have affected EGUs located in their area of Indian country
. This rule does impose specific requirements on EGUs located in states, U.S. territories or areas of Indian country . The information collection activities in this proposed rule are consistent with those activities defined under the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electr ic Utility Generating Units (79 &&&XX FR 34830XXX; the Clean Power Plan) finalized on &&&July 31, 2015. The information collection requirements in this proposed rule have been***E.O. 12866 Review

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submitted 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 . You can find a copy of the ICR in the docket for t his rule, and it is briefly summarized here. This proposed action would impose minimal new information collection burden on affected EGUs beyond what those affected EGU s would already be subject to under the authorities of CAA parts 75 and 98. OMB has pre viously approved the information collection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbe rs 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 standa rds, there are no new information collection costs, as the information required by this proposed rule is already collected and reported by other regulatory programs. The recordkeeping and reporting requirements are specifically authorized by CAA section 11 4 (42 U.S.C. 7414). All information submitted to the EPA pursuant to***E.O. 12866 Review

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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. 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 I CR

- related comments to OMB’s Office of Information and Regulatory Affairs via email to oria_submissions@omb.eop.gov , Attention: Desk Officer for the EPA. Since OMB is required to make a decision concerning the ICR between 30 and 60 days after receipt, OMB must receive comments no later than **[insert date 30 days after 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 regulatory 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 the docket and is summarized here. [ &&& Insert summary of IRFA here ]***E.O. 12866 Review

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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 Section VII above, to the framework regulations in Subpart B of Part 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 entities from this portion of this proposal. 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 numbe r of small entities.
D. Unfunded Mandates Reform Act (UMRA) [&&&based on preliminary analysis]***E.O. 12866 Review

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This action contains a federal mandate under UMRA, 2 U.S.C. 1531

– 1538, that may result in expenditures of $100 million or more for state, local and tribal governm ents, 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 that is included in the docket for this action and briefly summarized here. [ &&& Insert a concise summa ry of the written statement including a brief description of the intergovernmental consultation.] This action may significantly or uniquely affect small governments. The EPA consulted with small governments concerning the regulatory requirements that might significantly or uniquely affect them **.** E. Executive Order 13132: Federalism [&&&based on preliminary analysis] Under Executive 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 developin g the proposed action. The EPA has concluded that this action may have***E.O. 12866 Review

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federalism implications, because it may impose 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 consistent with PRA analysis]
. The EPA consulted with state and local officials early in the p rocess of developing the Clean Power Plan emissio n guidelines EGs to permit them to have meaningful and tim ely input into its development. As described in the Federalism discussion in the preamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501, January 8, 2014), the E PA consulted with state and local o fficials in the process of developing the proposed standards for newly constructed EGUs. A detailed Federalism Summary Impact Statement (FSIS) describing the most pressing issues raised in pre

- proposal and post

proposal comments will be forthcoming with the final rule, as required by section 6(b) of Executive Order 13132. In the spirit of Executive Order 13132, and consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA specifically solicits comment on this proposed action from s tate and local officials.***E.O. 12866 Review

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F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments This proposed action has tribal implications. However, it will neither impose substantial direct compliance costs on federally recognized tribal governments, nor preempt tribal law. The units EGU potentially impacted by this proposed rulemaking located on tribal lands Indian reservations are primarily owned by priv ate entities, and in one case, partially owned by an agency of the United States 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 rulemak ing 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 u nit EGU . A tribal government could also incur costs in the event that it seeks and is given delegated authority to enforce the federal plan proposed in this rulemaking. The EP A 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, EPA received feedback from a number of tribes regarding the potent ial overall economic impact that***E.O. 12866 Review

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both the proposed Clean Power Plan and that a pr oposed federal plan rulemaking may have on them. In these instances, the EPA has reached out to these tribes and as part of the consultation on the Clean Power Plan engaged with them on their conc erns regarding a potential federal plan. The EPA has conduc ted 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 b efore the agency issued its Supplemental Proposal for Indian Country and U.S. Territories. Addtionally, the EPA held consultations for tribes shortly following the release of its the supplemental proposal. The agency also held its a public hearing on the sup plemental proposal on November 19, 2014, in Phoenix, Arizonia. At this time 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 w ith 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. Additionally, the EPA engaged in meaningful dialogue with***E.O. 12866 Review

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tribal stakeholders to obtain their feedback in the pre

- propsal stages of this the rulemaking. We provided an update on this proposed rulemaking on the May 28, 2015, National Tribal Air Association (NTAA) and the EPA Air Policy call. Additionally, staff attende d 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
. As required by section 7(a), the EPA’s Tribal Consultation Official has certified that the requirements of Executive Order 13175 have been met in a meaningful and timely manner. A copy of the certification is included in the docket for this action. Consistent with previous rulemakings impacting the power
sector , there is significant tribal interest in these rulemakings because of the potential indirect impacts that rules such as the Clean Power Plan and this proposed federal plan may have on tribes. In sections II.A, III.F and VI.E of this rulemaking the T he EPA references tribes and specifically solicits additional feedback from tribal officials w e invite comments from any on all aspects of this proposed rulemaking, including whether tribes whose areas of the Indian country contain affected tribes whether they EGU(s ) are interested in developing their own plan
. implementing the final emission guidelines. Additionally, tribal stakeholders will be included***E.O. 12866 Review

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in the outreach that the agency will be conducting with those communities already overburdened communities, that i s 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 are outlined in VI.E section XI of this preamble. 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 pot ential to influence the regulation. This action is not subject to EO 13045 because it does not involve decisions on environmental health or safety risks that may disproportionately affect children. The EPA believes that the CO 2 emission reductions resultin g 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 U se
[PLACEHOLDER: RESPONSE TO BE BASED ON ANALYSIS FOR 111D FINAL***E.O. 12866 Review

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RULE] This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepared a Stat ement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction in coal

- fired electricity generation as a result of this ru le. The EPA projects that utility power sector delivered natural gas prices will increase by up to 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal. The analysis is

av ailable 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: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations Executive Order 12898 (59 FR 7629; February 16, 1994)***E.O. 12866 Review

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establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and a dverse 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 as the fair treatment and meaningful involvement of all people reg ardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies. The EPA has this goal for all communities and persons across this Nation. It will be achie ved when everyone enjoys the same degree of protection from environmental and health hazards and equal access to the decision

- making process to have a healthy environment in which to live, learn, and work. Leading up to this rulemaking the EPA summarized t he public health and welfare effects of GHG emissions in its 2009 Endangerment Finding. As part of the Endangerment Finding, the Administrator considered climate change risks to minority populations and low

- income populations, finding that certain parts of the population may be especially vulnerable based on***E.O. 12866 Review

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their characteristics or circumstances. Populations that were found to be particularly vulnerable to climate change risks include the poor, the elderly, the very young, those already in poor health, the disabled, those living alone, and/or indigenous populations dependent on one or a few resources. See sections XX and XX, above, where the EPA discusses Consultation and Coordination with Tribal Governments and Protection of Children. The Administrator pla ced weight on the fact that certain groups, including children, the elderly, and the poor, are most vulnerable to climate

- related health effects. The record for the 2009 Endangerment Finding summarizes the strong scientific evidence in the major assessment reports by the U.S. Global Change Research Program (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 justice i ssues. 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 suppli es. In addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those impacted by degradation of natural and cultural resources***E.O. 12866 Review

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within established reservation boundaries and threats to traditional subsiste nce 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 Endan germent Finding record also specifically noted that Southwest native cultures are especially vulnerable to water quality and availability impacts. Native Alaskan communities are already experiencing disruptive impacts, including coastal erosion and shifts in the range or abundance of wild species crucial to their livelihoods and well

- being. The most recent assessments continue to strengthen scientific understanding of climate change risks to minority populations and low

- income populations in the United Sta tes. 153

153 Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program, 841 pp.
IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. D okken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S.***E.O. 12866 Review

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The new assessment literature provides more detailed findings regarding these populations’ vulnerabilities and projected impacts they may experience. In addition, the most recent assessment reports provide new information on how some communities of c olor may be uniquely vulnerable to climate change health impacts in the United States. These reports find that certain climate change related impacts

— including heat waves, degraded air quality, and extreme weather events

— have disproportionate effects on lo w - income populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location) , raising environmental justice concerns. Existing health disparities and other inequities in these communities increase their vulnerability to the health effects of climate change. In

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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addition, assessment reports also find that climate change poses partic ular threats to health, well

- being, and ways of life of indigenous peoples in the United States. As the scientific literature presented above and as the 2009 Endangerment Finding illustrates, low income populations and some communities of color are especi ally vulnerable to the health and other adverse impacts of climate change. The EPA believes that communities will benefit from this proposed federal plan because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 emission guidelines standards for existing affected fossil fuel

- fired EGUs. In addition to reducing CO 2 emissions, the guidelines finalized in this rulemaking would reduce other emissions from affected EGUs that reduce generation due to higher adoption of energy efficiency and renewable energy. These emission reductions will include SO 2 and NOx, which form ambient PM 2.5 and ozone in the atmosphere, and hazardous air pollutants (HAP), such as mercury and hydrochloric acid. In the fi nal rule revising the annual PM 2.5 NAAQS, 154 the EPA identified low

- income populations as being a vulnerable population for experiencing

154 “National Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013).***E.O. 12866 Review

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adverse health effects related to PM exposures. Low

- income populations have been generally found to have a higher prevale nce of pre

- existing diseases, limited access to medical treatment, and increased nutritional deficiencies, which can increase this population’s risk susceptibility to PM

- related and

ozone - related effects. 155 Therefore, 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 rulemaking, included in the docket for this rulemaking, provides additional information regarding the health and ecosyste m effects associated with these emission reductions. Additionally, as outlined in the community and environmental justice considerations section IX of this preamble, the agency believes EPA has taken a number of actions to help ensure that all communities, including overburdened communities will benefit from this rulemaking because of the direct health benefits associated with the CO 2 and conventional pollutant reductions. Furthermore, this action will complement EPA actions already in place to address

155 U.S. Environmental Protection Agency (U.S. EPA). 2009. Integrated Science Assessment for Particulate Matter (Final Report) . EPA

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- R

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- 139F. National Center for Environmental Assessment

– RTP Division. December. Available on the Internet at www.cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546
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conv entional pollutant emissions and will result in further positive health benefits for overburden communities. To help in the identification of those communities overburden ed by this rulemaking as noted in section IX.A of this preamble, the EPA has conducted a proximity analysis for this rulemaking, which is located in the docket
. not have potential disproportionately high and adverse human health or environmental effects on vu lnerable communities. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when crafting this rulemaking. determining what actions to take
. 156 As described in the community and environmental justice considerations section of this preamble the EPA also conducted a proximity analysis, which is available in the docket of this rulemaking and is discussed in section IX. Additionally, as outlined in sections I and IX of this preamb le 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.

156 Guidance on Considering Environmental Justice During the Development of Regulatory Actions. http://epa.gov/environmentaljustice/resources/policy/considering

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**List of Subject in 40 CFR Part 62** Environmental protection, Administrative practice and procedure, Air pollution control, Intergovernmental relations, Reporting and recordkeeping requirements.

Dated: _________________.

________________________ Gina McCarthy, Administrator.***E.O. 12866 Review

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