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EO12866_CPP Federal Plan 2060 AS47 NPRM_20150 7 31

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

**RIN 2060**  **- A**  **S4 7** 
**F ederal**  **P lan**  **Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before**  **January 8, 2014 ; Model Trading Rule**  **s; Amendments to Framework Regulations** 

**AGENCY:** Environmental Protection Agency.

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

fired electric generating units (EGUs) under the Clean Air Act (CAA)
. The EGs we re proposed in June 2014 and finalized on August 3, 2015 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units ( also known as the Clean Power Plan or EGs ). This proposal presents two approaches to a federal plan for states and other jurisdictions that do not submit an approvable plan to the EPA : a rate

- based emission trading program and a mass

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

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trading program. These proposals also constitute proposed model trading rule s that states can adopt or tailor for implementation of the fi nal EGs. T he federal plan is an i mportant measure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented. The proposed federal plan is related to but separate fr om 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 carbon dioxide ( CO 2 ) emission performance rate for steam

- fired EGUs and

a CO 2 emission performance rate for natural gas

- fired combined cycle units , and provide guidance and criteria for the development of approvable state plans . The purpose of the proposed federal plan is to establish requirements directly applicable to a state’s affected EGUs that meet these em ission performance levels, or the equivalent statewide goal, in order to achieve reductions in CO 2 emissions in the case where a state or other jurisdiction does not submit an approvable plan
. The stringency of the emission performance levels established i n the final EGs will be the same whether implemented through a state plan or a federal plan
. The EPA is also proposing enhancements to the CAA 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***E.O. 12866 Review

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

- HQ

- OAR

- 2015

- 0199 , by one of the followi ng methods:

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

and

- R

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

- HQ

OAR

- 2015

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

- 9744, Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. • Mail : Send your comments to: Environmental Protection Agency, EPA Docket Center (EPA/DC), Mailcode : 28221T, 1200 Pennsylvania Ave., NW, Washington, DC 20460, Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. In a ddition, please mail a copy of your comments on the information collection provisions to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attn: Desk Officer for EPA, 725 17th Street NW., Washington, DC 20503
. • Hand Delivery : Deliver your comments to: EPA Docket Center, Room 3334, EPA WJC West Building, 1301 Constitution Ave., NW, Washington, DC, 20004,***E.O. 12866 Review

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Attention Doc ket ID No. EPA

- HQ

- OAR

- 2015

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

- HQ

- OAR

- 2015

- 0199. The EPA’s policy is that all comments received will be included in the public docket and may be made available online
at http: // www.regulations.gov , including any personal information provided, unless the comment includes information claimed to be confidential business 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 http:// www.regulations.gov or email. The http:// www.regulations.gov W eb site is an “anonymous access” system, which means the EPA will not know your identity or contact information unless you provide i t in the body of your comment. If you send an email comment directly to the EPA without going through http:// www.regulations.gov , your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, the EPA recommends that you include your name and other contact***E.O. 12866 Review

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information in the body of your comment and with any disk or
CD

- ROM you submit. If the EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, the EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption and be free of any defects or viruses. Public Hearing : **[insert number of hearings here**  **]** public hearings will be held to accept oral comments on the proposed federal plan. The hearings will be held on **[insert number of, dates and locations of hearings here]**  **.** The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p.m. (local time). There will be a 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 to speak at

a hearing, please use the online registration form available
at : http:// www.epa.gov/c leanpowerplan . For questions regarding registration, please contact **[insert name]** at (919) 541 **– [insert**  **number]** . The last day to pre

- register to speak at the hearing s will be **[insert date]** , 2015. Additionally, requests to speak will be taken the day of each hearing at the hearing registration desk, although preferences on speaking times may not be able to be fulfilled. Please note that registration requests received before each hearing will be confirmed by the EPA via email. We cannot guarantee that we can accommodate all***E.O. 12866 Review

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timing requests and will provide r equestors with the next available speaking time, in the event that the ir requested time is taken. Please note that th e time outlined in the confirmation email received will be the time the one will be sched uled to speak
. Again, depending on the flow of the day, times may fluctuate
. If you require the service of a translator or special accommodations such as audio description, we ask that you pre

register for the hearing s by **[insert date]** , 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
. While the EPA expe cts the hearing s to go forward as set forth above, we ask that you monitor our Web site or contact **[insert name]**  at (919) 541

– **[insert number]** to determine if there are any updates to the information on the hearings. The EPA does not intend to publish a not ice in the Federal Register announcing any such updates. The hearing s will provide interested parties the opportunity to present data, views, or arguments concerning the proposed action. The EPA will make every effort to accommodate all speakers who arrive and register. The EPA may ask clarifying questions during the oral p resentations, but will not respond to the presentations at that time. Written statements and supporting information submitted during the***E.O. 12866 Review

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comment period will be considered with the same weight as oral comments and supporting information presented at the pub lic hearing. Verbatim transcripts of the hearing and written statements will be included in the docket for the rulemaking. The EPA plans for the hearing s to run on schedule; however, due
to on

- site schedule fluctuations, actual speaking times may shift sli ghtly. Because these hearings are being held at United States ( 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 ro om. 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, Louisiana, Maine, Massachusetts, Minnesota, Mon tana, 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 license s , and military identification cards. In addition, you will need to obtain a property pass for any personal belongings you bring with you. Upon leaving the building, you will be required to return this property pass to the security desk. No large signs wil l be allowed***E.O. 12866 Review

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in the building, cameras may only be used outside of the building , and demonstrations will not be allowed on federal property for security reasons.
A ttendees will be asked to go through metal detectors. To help facilitate this process , please be advised that you will be asked to remove all items from all pockets and place in provided bins for screening; remove laptops, phones , or other electronic devices from their carrying case and place in provided bins for screening; avoid shoes with metal shanks, toe guards, or supports as a part of their construction; remove any metal belts, metal belt buckles, large jewelry, watches ; and follow the instructions of the guard if identified for secondary screening. Additionally, no weapons ( e.g . , pock et knives) or drugs or drug paraphernalia ( e.g . , marijuana) will be allowed in the building. We recommend 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 http:// www.regulations.gov index. Although listed in the index, some information is not***E.O. 12866 Review

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publicly available, e.g. , CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy form. Publicly available docket materials are available either electronically at http:// www.regulations.gov or in hard copy at the EPA Docket Center EPA/DC, EPA WJC West Building, Room 3334, 1301 Constitution Av e., NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding holidays. The 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 Park, North Carolina 27711; telephone number: (919) 541

- 0316; fax n umber: (919) 541

- 3470; email address: jones.toni@epa.gov
. **SUPPLEMENTARY INFORMATION:** Acronyms and Abbreviations
. The following acronyms and abbreviations are used in this document.
ANSI American National Standards Institute ARP Acid Rain Program BSER Best s ystem of e mission r eduction CAA Clean Air Act CAIR Clean Air Interstate Rule***E.O. 12866 Review

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CARB California Air Resources Board CBI Confidential Business Information CEMS Continuous e missions m onitoring s ystem CFCs C hlorofluorocarbons CISWI Commercial Industrial So lid Waste Incinerators CFR Code of Federal Regulations CHP Combined h eat and p ower CO 2 Carbon dioxide CO 2 Carbon d ioxide e quivalent CSAPR Cross

- state Air Pollution Rule DOE Department of Energy EE Energy e fficiency EG s Emission Guidelines EGU Electric g enerating u nit EIA Energy Information Administration EJ Environmental j ustice EM&V Evaluation, m easurement, and v erification EPA Environmental Protection Agency EO Executive Order FERC Federal Energy Regulatory Commission FIP Federal i mplementation p lan FR Federal Register GHG Greenhouse g as GHGRP Greenhouse Gas Reporting Program GJ/h Gigajoule per h our HAP Hazardous a ir p ollutants ICR Information c ollection r equest IGCC I ntegrated g asification c ombined c ycle u nit IPM Integrated Planning Model IPCC Intergovernmental Panel on Climate Change ISO/RTO Independent System Operator/Regional Transmission Organization lbs Pounds LML L owest m easured PM 2.5 l evels MATS Mercury and Air Toxics Standards***E.O. 12866 Review

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M&V Measurement a nd v erification MMBtu /h M illion B ritish Thermal u nits per h our MSW Municipal s olid w aste MW Megawatt s MWh Megawatt

- h ours NAAQS National Ambient Air Quality Standards NAICS North American Industrial Classification System NERC North American Electric Reliability Corporation NSPS New s ource p erformance s tandards NSR New Source Review NTTAA National Technology Transfer and Advancement Act NO X Nitrogen o xides OAP Office of Atmospheric Programs OAQPS Office of Air Quality Planning and Standards PRA Paperwork Reduction Act PUC Public Utility Commission RE Renewable e nergy REC Renewable Energy Certificate RFA Regulatory Flexibility Act RGGI Regional Greenhouse Gas Initiative RIA Regulatory i mpact a nalysis SCT Stationary c ombustion t urbine SGU Steam g enerating u nit SIP State i mplementation p lan SO 2 S ulfur d ioxide TSD Technical support document The Court U.S. Court of Appeals for the District of Columbia Circuit TTN Technology Transfer Network UMRA Unfunded Mandates Reform Act UNFCCC United Nations Framework Convention on Climate Change U.S. Unite d States WWW World W ide Web***E.O. 12866 Review

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Organization of This Document . The following outline is provided to aid in locating information in this preamble. **I. General Information** A. Executive Summary B. Organization and Approach for this Proposed Rule C. Who Does the Proposed Action Apply to? D. What Sho uld I Consider as I Prepare my Comments? **II. Background Information** A. What is the Regulatory Development Background for this Proposed Rule? B. What is the Purpose of this Proposed Rule? C. Legal Authority D. Timing of EPA Actions on the Model Trading Rules, Federal Plan, and other Proposed Actions E. Use of the Model Trading Rule as a Backstop **III. Federal Plan Structure to Achieve Reductions** A. Overview B. Inventory of Emissions C . Affected EGUs D. Compliance Schedule E. Addressing Reliability Concerns F. Worker Certification G. Remaining Useful Lives and Potential for “Stranded Assets” H. Implications for Other EPA Programs and Rules I. Administrative Appeals Process J. Consistency of Program Structure wi th Clean Air Act Authority **IV. Rate -**  **based Implementation Approach** A. Overview B. Rate Goals C. Crediting Mechanism D. ERC Tracking and Compliance Operations E. Federal Plan and State Plan Interactions **V. Mass -**  **based Implementation Approach** A. Trad ing Program Overview***E.O. 12866 Review

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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 Penalties H. Emissions Monitoring and Reporting Requirements **VI. Implementation of the Federal Plan and Delegation** A. Delegation of the Federal Plan and Reta ined Authorities 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. Update to Deadlines for EPA Actions F. Proposed Interpretation regarding Existing Sources that Modify or Reconstruct G. Separate Finalization of these Changes **VIII. Impacts of this Action** A. Endangered Species Act B. What are the Air Impacts? C. What are the Energy Impacts? D. What are the Compliance Costs? E. What are the Economic and Employment Impacts? F. What are the Benefits of the Proposed Action? **IX. Community and Environmental Justice Considerations**  A. Proximity Analysis B. Community Engagement in This Rulemaking Process C. Providing Communities with Access to Additional Resources D. Federal Programs and Resources Available to Communities***E.O. 12866 Review

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E. Co

- Pollutants F. Assessing Impacts of Federal Plan Implementation G. The EPA’s Continued Engagement **X. Statutory and Executive Order Reviews**  A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act (PRA) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act (UMRA) E. Executive Order 13132: Federalism F. Executive Order 13175: Consult ation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks H. Executive Order 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 Address Environmental Just ice in Minority Populations and Low

- Income Populations

**I. General Information** 
A. Executive Summary
In t he CAA , Congress created a partnership between the EPA and the states . Under section 111(d) of the CAA , t he EPA establishes emission performance levels based on its determination of the BSER for existing sources of air pollution and provides guidelines for state plans to apply standards of performance to their sources that meet the BSER level of***E.O. 12866 Review

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performance
. T he EPA has promulgated the s e EGs under CAA section 111(d), which sets source

- level CO 2 emission performance rates for the E GUs at certain large fossil fuel

- fired power plants (“ affected EGUs”) , which the states then apply to their sources through implementation of state plans. At this point, the responsibility shifts to the states who can submit plans to achieve these emission performance levels for EPA approval, or initial submittals, by September 6 , 2016. The amount of reductions in CO 2 that the EPA determined to be achievable for these sources is based on its determination of what constitutes the BSER. This determination is finalized in the EGs, which

are designed to maximize the flexibility of both states and affected EGUs in meeting CO 2 emissions performance rates . While

s tates may impose the emission rates directly on their affected EGUs, states also have the option of submitting more tailored plans that meet state

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

state compliance options. 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 i n this program. However, if a state does not submit an approvable plan***E.O. 12866 Review

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under section 111(d) of the CAA , the EPA will develop, implement , and enforce a federal plan to reduce CO 2 from the fossil fuel

- fired power plants in that state. This is wholly consistent with the “cooperative federalism” structure of the
CAA and many of our nation’s other environmental laws
. In addition, we have heard from states and other stakeholders that it would be helpful for the agency to present model desi gns for state plans, and a federal plan would be an appropriate means of doing that. Accordingly, the EPA proposes a federal plan under section 111(d) of the CAA for the control of CO 2 , a GHG pollutant, from certain 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 pr oposed 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.***E.O. 12866 Review

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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 document proposes four discrete actions : ( 1) A rate

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

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

- based and mass

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

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EGs . 1 Indeed, states may simply choose to accept a federal plan for their sources rathe r than undertake the development of a plan of their own by not submitting a state plan
. Under 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 trad ing rule. The EPA currently 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 , given the benefits of a broad trading program, as discussed in the following sect ion of this preamble
. We invite comment on which approach , i.e., either mass - based or rate

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

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

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

bas ed approach and the mass

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

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

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

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

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It is the EPA’s intention to give the states as much opportunity as possible to set their own course for carrying out the EGs. Even where a federal plan is put in place for a particular state, 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 add ition, as discussed in s ection
VI.A of this preamble , states may take delegation of administrative aspects of the federal plan in order to become the primary implementers. And as discussed in s ection s V.E and
VII.A of this preamble , states may submit parti al state 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 allowance

- distribution prov isions with their own allowance

- distribution provisions, similar to the approach we have taken in prior trading programs. Finally, even in states in which the affected EGUs are operating under a federal plan, the agency recognizes that states may adopt

com plementary 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 specified in this rulemakin g would be presumptively***E.O. 12866 Review

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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, 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 serve as a mechani sm to facilitate larger trading markets since consistency with the federal plan allows trading across both the state and federal programs. The EPA expects a larger trading region is likely to result in lower overall costs. These and other aspects of the mo del trading rules and federal plan provide additional support for this rule as proposed. Thus , the proposed rule would ensure that congressionally mandated

2 For example, in the context of a mass

- or rate

- based trading program, a state may submit a plan with alternative components other than those described, so long as the program includes each of the requirements and the state satisfactorily demonstrates in t he 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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emission standards under authority of section 111 of the CAA are implemented , either by the states i n the first instance, or by the EPA where needed. The agency is proposing a finding that it is necessary or appropriate to implement a CAA section 111(d) federal plan for the affected EGUs located in Indian country. CO 2 emission performance rates for these facilities were finalized in the EGs. Tribes generally may seek “treatment as a state” (TAS) and submit a tribal plan to implement CAA programs, including programs under CAA section 111(d), and this proposed finding does not preclude tribes from doing tha t. 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 of this preamble , we are proposin g a necessary or appropriate finding. This document also proposes certain enhancements to the
process and timing for state submittals and EPA action in the
CAA section 111(d) framework regulations of 40 CFR part 60 ,
s ubpart B ( these proposal s are not a part of the federal plan or model trading rules)
. These changes, if finalized, would be applicable under the Clean Power Plan an d other CAA section 111(d) rules
. These changes clarify the availability of certain***E.O. 12866 Review

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procedural mechanisms similar to thos e available under CAA section 110 (such as calls for plan revisions and the availability of “conditional approvals,” etc.). They also extend the deadlines for EPA action, in part to conform with the timelines in the EGs. These changes do not alter the time lines for state action under the EGs and do not alter the submission requirements established in the EGs. Finally, the agency proposes to clarify and request comment on an interpretive issue raised in the Clean Power Plan proposal regarding whether a

recon struction or modification that is subject to a CAA section 111(b) standard mo ves an existing source out of a CAA section 111(d) program. These proposed changes are discussed in s ection
VII of this preamble . The agency intends to finalize these changes earl ier than the finalization of the model trading rules. In proposing a federal plan, the EPA considered a variety of potential impacts that its action might have on the environment, on businesses, particularly in the energy sector, and on the reliability of the electrical grid
. The agency gave extensive consideration to impacts on vulnerable communities, particularly low

- income communities , communities of color , and indigenous communities
. These considerations are discussed in

s ections III, VIII, IX, and X of this preamble
.***E.O. 12866 Review

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

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

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

- , state

- , multi

- state

- , regional

- , or national level
. As a result, compliance strategies***E.O. 12866 Review

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can mirror, or be integrated with, the ongoing operations of the current electricity grid as it continues to serve its primary critical function of ensuring an uninterrupted supply of affordable and reliable electricity. This flexibility is especially valuable whenever t he need to address specific reliability concerns arises
. I t allows owners and operators of reliability

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

- side energy efficiency ( EE ) projects implemented in low

income communities , that generate MWh or reduce end

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

- based or mass

- based federal plan. We also reviewed impacts that this action could have on the environment and the need to ensu environmental integrity of the program as well as avoid unintended environmental impacts. We took measures to ensure that the reductions in carbon emissions this p lan will achieve are real, and not just apparent. As in the EGs, i n both the rate

- and mass

- based approaches , the EPA***E.O. 12866 Review

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has incorporated components to address the concern that the dynamics of either a rate

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

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

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

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

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

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

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

— a rate

- based trading approach and a mass

- based trading approach. While estab lish ing emission standards for affected***E.O. 12866 Review

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EGUs that would be directly enforceable against the owners and operators of the source , both approaches would grant EGUs substantial flexibility 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 September 6 , 2016 (or upon making an initial submittal, until September 6, 2018 ) to submit state plans, and the EPA does not inten d to finaliz e and implement the federal plan for any states prior to the agency’s action of determining a failure to submit a state plan or disapproving a state plan. At the same time, in order to support st ates’ 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 options presented in this
propos ed rule by summer 2016, prior to the deadline for state submittals. The EPA currently intends to finaliz e a single approach

— i.e. , either a rate

- based or a mass - based approach

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

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comp liance options for affected EGUs. The EPA recognizes that the mass

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

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

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

- administered mass

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

– mass - based or rate

- based trading

– is preferred for the federal plan. Some stakeholders have suggested there could be utility in the availability of both approaches based on the unique circumstances of particular states. T he EPA recognizes that it remains pote ntially possible to finalize a different approach to a federal plan in some circumstances, but believes that in general, and consistent with prior federal trading programs such as CSAPR, creating a single, broad program has the most advantages. The string ency of the proposed federal plan is the same as the CO 2 emission performance rates established for affected EGUs***E.O. 12866 Review

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in the EGs . As explained in the final EGs, the EPA determined the CO 2 emission performance rates through the application of the
BSER. In the EGs , the EPA has taken final action on the BSER for
CO 2 emissions from existing fossil fuel

- fired EGUs. Any comments

on this proposed rule relating to the BSER, its stringency, rationale, or legal basis, will not be considered as, by definition, they will be beyond the scope of this action. 3 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 megawatt hour (lbs/MWh). If sources emit above their assigned rate, they must acquire a sufficient number of emission rate credits (ERC), each representing a zero

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

- or low

emitting electricity resources to the grid through an approval and recognition process that the EPA will administer. ERCs may

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

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be bought and sold , or banked for use in later years . The rate

based approach is explained in greater detail in s ection IV of th is p reamble. 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 each state , consistent with the mass goals established in the EGs . The EPA would initially distribute the allowances within each state budget

– less three proposed allowance set

- asides

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

- based approach thr ee set

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

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

- plan allocation provisions with***E.O. 12866 Review

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its own allowance allocation provisions. The mass

- based approach is explained in greater de ta il in s ection V of th is p reamble. 3. Other Proposed Actions
T he EPA is proposing in this action a finding that it is necessary or appropriate to regulate affected EGUs in certain parts of Indian country via a federal plan. This is discussed in section V I . D of this preamble
. In this action, the EPA is also proposing a number of changes to the framework CAA section 111(d) regulations of 40
CFR p art 60 , subpart B . These generally are intended to provide enhancements to the process for state plan submissions and the timing of EPA actions related to state plans and the federal plan
. Specifically, the EPA pr oposes six changes , to include: (1) P artial approval/disapproval mechanisms similar to CAA section 110(k)(3); ( 2 ) a conditional approval mechanism similar
to CAA section 110(k)(4); ( 3 ) a mechanism for the EPA to make calls for plan revisions similar to the "SIP

- call" provisions of
CAA s ection 110(k)(5); ( 4 ) an error correction mechanism similar
to CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar to CAA section 110(k)(1) and (2); and (6) updates to the deadlines for EPA action. These proposed changes are explained in greater detail in s ection V II of th is p reamble.***E.O. 12866 Review

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They are not a component of the proposed federal plan, or changes in the EGs. If these changes are finalized, they will be applicable to other CAA section 111(d) rules. The EPA intends to finalize these changes earlier than the finalization of the model trading rules.
C. Who Does the Proposed Action Apply to ?
R egulated Ent ities. E xisting fossil fuel

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

- approved state plan are potentially subject to th is proposed action Affected EGUs are those that were in operation , or had commenced construction , on or before January 8, 2014 4
. The following North American Industrial Classification System ( NAICS ) codes apply as shown in Table 1 of this preamble : **Table 1**  **. Examples of Potentially Regulated Entities**  a
**Category NAICS**  **Code Examples of potentially**  **regulated entities** Industry 221112 a Fossil fuel electric power generating units

4 An affected EGU is any fossil fuel

- fired EGU that was in operation or had commenced construction as of January 8, 2014, and is therefore an “existing source” for purposes of CAA section 111, but in all other respects wou ld meet the applicability criteria for coverage under the GHG standards for new fossil fuel

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

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**Category NAICS**  **Code Examples of potentially**  **regulated entities** State/Local Government 221112 b Fossil fuel electric power generating units owned by municipalities

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

- owned and operated establishments are classified accord ing to the activity in which they are engaged. This table is not intended to be exhaustive, but rather provides a general guide for identifying entities likely to be affected by the proposed action. W hether a n affected EGU is affected by this action is described in the applicability criteria in 40 CFR 6 0
. 5845 and 6 0
. 5850 of subpart UUUU . Q uestions regarding the applicability of this action to a particular entity should be directed to the person listed in the preceding **FOR FURTHER INFORMATION CONTACT** sect ion. 1. What is an Affected Electric Utility Generating Unit ? For the federal plan , the definition of an affected EGU is identical to the definition in the final Clean Power Plan. 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 (SGU) , integrated gasification combined cycle unit ( IGCC ) , or stationary***E.O. 12866 Review

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combustion turbine (SCT) that was in operation or had commenced construction as of January 8, 2014, 5 an d 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 SGU or IGCC, must serve a generator capable of selling greater than 25 MW (Megawatts) to a utility power distribution system, have a base load rating greater than 260 GJ/h (250 MMBtu/h) heat input of fossil fuel (either alone or in combination with any other fuel), and historically have supplied more than 1/3 of its potential electric outp ut and 219,000 MWh as net

- electric sales on any 3 calendar year basis. If a unit is a SCC , the unit must meet the definition of a combined cycle or combined heat and
power (CHP) combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, have a base load rating of greater than 260 GJ/h (250 MMBtu/h), and historically have combusted more than 90 percent natural gas on a heat input basis on an annual basis.

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

- fired EGUs were published in the Federal Register (79 FR 1 430).***E.O. 12866 Review

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2. How to D etermine if a U nit is C overed by an A p proved 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 has been put in place in a state, but is later replaced by a n EPA

- approved state plan, the affected EGUs would become subject to the state plan as of the effective date specified in a Federal Register notice regarding the EPA’s approval of the state plan. The EPA is not expecting state plans to be submitted by the states that submit negative declarations. However, in the event that there are later dete rmined 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

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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of Title 40 of the CFR identifies the status of approval and promulgation of CAA section 111(d) state plans for designated facilities in each state. Recognizing the urgent need for actions to reduce GHG emissions, and in accordance with the Presidential Me morandum 7 , as well as the benefit of providing
state s with model trading rule options to consider as they prepare their state plans, the EPA is proposing this rulemaking concurrently with the Administrator’s signing and promulgation of the final Clean Powe r Plan EGs. 40 CFR part 62 is updated only once per year. Thus, if 40 CFR part 62 does not indicate that your state has an approved and effective plan after the compliance date has passed requiring state plan submittal , you should contact your state enviro nmental agency’s A ir D irector or your EPA Regional Office (see Table 2 in section II. B of this preamble) to determine if approval occurred since publication of the most recent version of 40 CFR part 62.
D. What Should I Consider as I Prepare my Comments ?
Do n ot submit information that you consider to be CBI electronically through http:// www.regulations.gov or email. Send

7 Presidential Memorandum

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

- press office/2013/06/25/presidential

- memorandum

- power - sector

- carbon

pollution

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

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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
C D

- 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 contai n 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 procedures set forth in 40 CFR part 2. If you have any questions about CBI or the procedures fo r 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 part 62, subpart MMM) is Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. 3. World Wide Web (WWW) . In addition to being available in the docket, an electronic copy of the proposed action is available on the Internet through the EPA’s Technology Transfer Network***E.O. 12866 Review

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(TTN) W eb site , a forum for information and technology exchange in various areas of air pol lution control . Following signature by the EPA Administrator , the EPA will post a copy of the proposed action at http:// www 2 .epa.gov/ cleanpowerplan / regulatory

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

**II. Background Information** 
A. What is the R egulatory D evelopment B ackground for this
P roposed R ule? On August 3 , 2015 , the EPA finalized the Clean Power Plan
EG s for existing fossil

- fuel fired EGUs (40 CFR part 60 , subpart UUUU) under authority of section 111 of the CAA (79 FR 34950). The Guidelines apply to existing fossil

- fuel fired EGUs, i.e. , those that were in operation or had commenced construction before January 8, 2014. S tates with existing EGUs subject to the guidelines are required to submit to the EPA by September 6 , 2016 , a state plan that implements the EGs . States may also make initial plan submittals in lieu of a complete state plan , in which case extensions will be granted until September 6, 2018***E.O. 12866 Review

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(40 CFR Supbart UUUU ). 8 As discussed in s ection VI.D of this preamble, Indian Tribes may, but are not required to, submit
t ribal plans. Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 9 section 111 of the
CAA and 40 CFR 60.27 require the EPA to develop, implement, and enforce a f ederal plan for existing EGUs located in that state . In addition, CAA section 301(d)(2) authorizes the Administrator to treat an Indian Tribe in the same manner as a state for this
EGU requirement. See 40 CFR 49.3 ; see also “ Indian Tribes: Air Quality Planning and Management, ” hereafter “ Tribal Authority Rule, ” ( 63 FR 7254, February 12, 1998 )
. As discussed in s ection
VI.D of this preamble, the agency in this action is proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these affected EGUs. The agency believes it is appropriate to propose the fed eral 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 process for review and action on state plans and promulgation of federal plans. 9 If a state has submitted a complete plan, then the EPA will go through a public notice and comment process to fully or partially approve or disapprove the state plan.***E.O. 12866 Review

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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 congress ionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an approved plan in place
. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves as two proposed model trading 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 side the scope for this proposed rule
. B. What is the Purpose of t his Proposed Rule ? The purpose of this action is t wo - fold: (1) T o co - propose two approaches to a federal plan to implement the Clean Power Plan EGs for affected EGUs operating in any state lacking an approved state plan by the relevant deadlines ; and (2) to propose these same approaches as model trading rule s for states to consider in developing their own plans.***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 s for existing EGUs. States with affected EGUs
are to submit state plans or make initial submittals to the EPA by September 6 , 2016 pursuant to the EG s . 10 States without any existing EGU s are directed to submit to the Administrator a letter of negative declaration certifying that there are no affected EGUs in the state. No plan is required for states that do not have a ny affected EGUs . Affected EGUs located in states that mistakenly submit a letter of negative declaration will become subject to the federal plan until a state plan covering those EGUs becomes approved. The EPA intends to finalize the federal plan only for those states that the EPA finds failed to submit plans or whose plans the EPA disapproves. For more information on the timing and mechanics of EPA action on state plans and finalization of this federal plan , see section II.D of this preamble below.

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

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2. Mod el Trading Rule The EPA is also proposing the federal plan approaches as two forms of a model trading rule ( mass - based and rate

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

wo uld 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 Clean Power Plan and framework regulations of 40 CFR p art 60, subpart B. For instanc e, they include a formal letter of submittal from the Governor or his or her designee, evidence that the rule has been adopted into state law and that the state has necessary legal authority to implement and enforce the rule, and evidence that procedural

r equirements, including public participation under 40 CFR 60.23,***E.O. 12866 Review

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have been met. 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 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 such as by expanding the scope of eligibility of projects that may generate ERC s in a rate

- based trading program , t he 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 have to demonstrate to the EPA’s satisfact ion that its alternative provisions are as stringent as the presum ptively 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***E.O. 12866 Review

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and not to the federal plan as such ( i.e. , those ERC resources discussed in section I V .C.3 of this preamble are applicable to the model rule and only metered RE and applicable nuclear are applicable to the federal plan)
. The EPA’s approval of a state plan, including a plan that adopts the model trading rule, will be the result of an independent notice

- and

- comment rulemaking process. Without prejudging the outcome of that process, the EPA recognizes that it may be able to a pprove or “conditionally approve” state plans that are substantially similar, but not identical to, the final model trading rules. Ultimately, state plans must meet the requirements of the EGs for approvability. Thus, a conditional approval would be based on a condition that the state take such actions as may be necessary by a date certain to meet the requirements of the EGs. ( The EPA is proposing to explicitly provide for conditional approvals in the CAA section 111(d) framework regulations. See s ection VI I . B of this preamble
. ) In accordance with the EGs, the process for review and approval (or disapproval) of state plans, whether based on the model trading rules or otherwise, would occur once the states have made their submissions by September 6 , 2016. As provided in the EGs, states have the option of not submitting a full state plan , but rather making an initial submittal, in order to obtain***E.O. 12866 Review

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an extension of 2 years before submitting a full state plan for EPA approval. I t could be beneficial for coordination purposes if a state that is interested in adopting one of the model trading rules but intends to make an initial submittal next year
were to indicate which model trading rule they intend to adopt
. This is not an additional requirement beyond w hat 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 integrate a range of functions that ensure an uninterrupted supply of affordable and reliable electricity while also , for the past several decades, maintaining compliance with air pollution control programs. Since , as a practical matter under both the EGs and any federal plan , emissions reduction s must occur at the affected EGUs, a broad

- scale emissions trading
program would be p articularly effective in allowing EGUs to***E.O. 12866 Review

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operate in a way that achieves pollution control without disturbing the overall system of which they are a part and the critical functions that this system performs. In addition,

c onsistency of requirements benefit s the affected EGUs, as well as the states and the EPA in their roles as administrators and implementers of a trading program. States of course remain free 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 pro posed EG s that there is a strong interest in seeing 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 addition, some states have indicated that they may prefer to rely on a federal plan , either temporarily or permanently, rather than develop a plan of their own. This prop osal of a model trading rule addresses th e s e policy interests
. The approach of proposing model trading rule s that are identical in all key respects to proposed federal plan s that may***E.O. 12866 Review

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be promulgated later, is consistent with prior CAA section 111(d) and CAA section 110 rulemakings. For example, the NO x state implementation plan ( SIP ) Call model rule at 40 CFR part 96 (63 FR 57356; Oct. 27, 1998) was identical in all meaningful respects with the Federal NO x Budget T rading Program at 40 CFR part 97 (65 FR 2674; Jan. 18, 2000). And the CAIR model rule in 40 CFR p art 96 (70 FR 25339; May 12, 2005) was identical in all meaningful respects with the federal CAIR in 40 CFR p art 97 (71 FR 25396; April 28, 2006). 11 While these identical programs for model rules and Federal Implementation Plans ( FIPs ) were finalized in separate parts of the C FR , the EPA does not see any

reason that it could not just as easily propose the federal plan as the model trading rule in the same section of the CFR. 12 If a federal pla n were to be finalized for a given state at a later time, this would be reflected in 40 CFR p art 62 by cross

reference , along with any modifications or adjustments that may be appropriate at the time of actual promulgation of a federal plan
.

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

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**Table 2**  **. Regional Office Contacts** 

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

- 918

- 1078 Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont Region II Gavin Lau lau.gavin@epa.gov 212

- 637

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

- 814

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

- 562

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

- 886

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

- 665

- 6580 Arkansas, Louisiana, New***E.O. 12866 Review

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**Region Regional contact**  **Phone S**  **tates and**  **protectorates** Mexico, Oklahoma, Texas Region VII Ward Burns burns.ward@epa.gov 913

- 551

- 7960 Iowa, Kansas, Missouri, Nebraska Region VIII Laura Farris farris.laura@epa.gov 303

- 312

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

- 972

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

- 553

- 2117 Alaska, Idaho, Oregon, Washington

C. Legal Authority
S ection 111(d)(2) of the CAA, 42 U.S.C. 74 1 1 (d)(2) provides the EPA the same authority to prescribe a plan for a state in cases where the state fails to submit a satisfactory plan as the

a gency would have under CAA section 110(c) in the case of failure to submit an implementation plan. In addition, t he EPA has authority under CAA section 111(d)(1) to prescribe***E.O. 12866 Review

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regulations that establish procedures similar to CAA section 110 with respect to the submission of state plans, and the EPA also has general rulemaking authority as necessary to implement the
CAA under CAA section 301. A f ederal p lan under CAA section 111(d) appl ies , implement s and enforce s standards of performance for affected EGUs . U nder the Clean Power Plan EG s , state plans will be due on September 6 , 2016 , but s tates are also allowed to seek a two year extension for a final plan submittal , upon a satisfactory initial plan submittal by the same deadline
. See 40 CFR 60.5755, 60.5760(b). If a state does not submit a final
state plan or initial plan submittal, 13 or if either a final state plan or an initial plan submittal does not meet the requirements of the EG , the agency will take the appropriate steps to fina lize and implement a federal plan for that state’s

13 Indeed, states may simply choose to accept a federal plan in lieu of undertaking 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 “primary responsibility” for air pollution prevention and control, CAA section 101(a)(3), states are in no way penalized for not submitting a plan under CAA section 111(d). Rather, the EPA steps into the shoes of the state to carry out the CAA section 111(d) program in its stead. To the extent states may be interested in accepting a federal plan, the EPA would be interested in hearing that through the comment process on this proposal.***E.O. 12866 Review

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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 p lan. See 40 CFR 60.5720.

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

- proposes two approaches to the federal plan , both of which also constitute proposed model trading rules that states could adopt as state plans for EPA approval. The EPA currently intends to finalize one or both of the model trading rules by next summer so that they may be available to states as soon as possible to help inform their state plan development efforts prior to the initial submittal deadline of September 6 , 2016 , and two years before the states’ final plan deadline of September 6, 2018
. 14 If the EPA finalizes the model trading rules

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

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in that timeframe, the only direct consequence will be to provide t he states certainty as to one or two particular approaches to the design of their state plan that the EPA will approve if adopted in full. The finalization of a 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 publi c 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 summe r 2016 ) , and finalizing federal plans on the other (which we currently intend to do
state

- by

- state upon our taking predicate action on states’ plans)
. In this action, the EPA is also proposing enhancements to the process for agency action on s tate submitta ls and promulgation of a federal plan under CAA section 111(d) . For more detailed discussion of these changes, see s ection V II of this preamble
. This aspect of this proposal is separate from the***E.O. 12866 Review

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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 the final EG s , at 40
CFR p art 60.27 and 60.5715 and 5760, respectively, the initial timelines for EPA action on state submittals and, potentially, the promulgation of a federal plan will b e as follows: the EPA will have 12 months from the date of a state's submission to
approve or disapprove that state ’s plan. The EPA will have 12 months from the date of its action on a state submission to promulgate the federal plan for the EGUs in that state. The EPA will have 6 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 60.576 5 , the EPA will have 60 days from September 6 , 2016 to notify a state that its initial submittal does not meet the r equirements of 60.5760(a). As with state plans, the EPA will have 12 months to promulgate a federal plan from the date of its finding that a state failed to submit

a complete and approvable initial submittal. (Formally, such a finding would be that the sta te failed to submit a state plan.) The timeframes stated in the previous paragraph reflect the maximum time allow ed for EPA action. We note that u nder CAA***E.O. 12866 Review

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

- year limit of CAA section 110(c) “that begins the moment EPA determines a SIP to be inadequate.” EME Homer City v. EPA , 134 S. Ct. 1584, 160 1 (2014). “EPA is not obliged to wait two years or postpone its action even a single day . . . .” Id. I t is essential to implement plans for the control of emission s of CO 2 expeditiously and avoid unnecessary delay. Among other reasons, this will provide affected EGUs regulatory certainty and will assist the regulated entities as well as those authorities with

r esponsibility 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
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It is the agency’s intention to promulgate federal plans promptly for states who do not submit plans or initial submittals by September 6 , 2016 . However, the effect of putting the federal plan in place at that time would ultimately be limited in impact upon states. Because the EPA would implement the federal plan, its promulgation does not obligate state officials to take any actions themselves. Further, s tates remain free

- and the EPA in fact encourages s tates

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

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

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

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

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

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

- based or rate

- based model trading rule coul d function well as the federally enforceable “backstop” that the EGs require to be included in “state measures” type state

15 The minimum contents of a notice of proposed rulema king 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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plans. 16 ( The proposed federal plan does not itself require a “backstop” because it relies on an “emission standard s ” approach, rather than a “state measures” approach , as delineated in the final EGs .) The conditions and requirements for the federally enforceable backstop in a state measures approach are discussed in detail in the final EGs. See s ection VIII.C. 3 .b and
VIII.C. 6 .c of the final EGs . To summarize those provisions, without reopening them for comment, the federally enforceable backstop must fully achieve the CO 2 emission performance rates or the state’s interim and final CO 2 emission goal if the state plan fails to ach ieve 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 t hat apply in the context of an emission standard s approach, identify a schedule and trigger for implementation of the backstop that is consistent with the requirements in the
EGs , and identify all necessary state administrative and

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. E PA , 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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technical procedures for implementing the backstop ( e.g. , how and when the state would notify affected EGUs that the backstop has been triggered)
. In addition, t he backstop emission standards must make up for any shortfall in CO 2 emission performance during a prior plan performance period that led to triggering of the backstop.
T he EGs explicitly recognized that the backstop emission standards could be based on one of the model trading rules that the EPA is proposing in this action. As discussed in s ection
II.B of this pr eamble 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 trading rul es 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 accoun t for any prior emission performance***E.O. 12866 Review

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

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

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

administered, federally

- enforceable trading rule , this does no t mean that a federal plan has been put into effect . The state retains all of its rights and responsibilities with respect to***E.O. 12866 Review

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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 o f those affected EGUs. See 40 CFR 62.13. No obligation fall s on states or state officials (except to the extent they may be owners and operators of affected EGUs )
. 17 In the event of noncompliance, the provisions in the federal plan are federally enforceable against an affected EGU, in the same manner as the provisions of an approved state plan under CAA section 111(d), and similar to a FIP or an approved SIP under CAA section 110. See CAA section 111(d)(2)(B), 42 U.S.C.

17 See Reno v. Condon , 528 U.S. 141, 151 (2000). State officials responsible for developing state plans, however, should be aware of the procedural enhancements being proposed to the framework regulations of 40 CFR part 60, subpart B, in this rulemaking document. These changes are discussed in section VI I of this preamble below. These changes are not a component of the proposed federal plan or the EGs. Although these changes do not alter the deadlines 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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7411(d)(2)(B) (power to enforce state and federal plans) , section 113(a)

– (h), 42 U.S.C. 7413(a)

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

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

**III. F**  **ederal P**  **lan Structure to Achieve Reductions** 
A. Overview 1. Interactions with State Plans and Scope of Trading The EPA intends to set up and administer a program to track trading programs

– both rate

- based and mass

- based

– that will be available for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs in any other state covered by a federal plan or a state plan meeting the conditions for linkage to the federal plan
. In the proposed mass - based federal

- plan trading program , th is would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use , as a compliance instrument, an allowance distributed in any other***E.O. 12866 Review

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state covered by the federal plan or a st ate meeting the conditions for linkage to the federal plan
. Similarly, in the proposed rate

- based federal

- plan trading program approach, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use , as a compliance instrument, an ERC issued in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan
. 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

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

- for

- interstate

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

- for

- intersta te

trading
. The EPA proposes to allow interstate trading between affected EGUs in state s covered by the proposed federal plan s and affected EGUs in state s covered by state plans (referred to below as “linking” states, or “linkages”) under the following

con ditions , which are discussed further below the list :

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

- based trading program s only, and
rate

- based trading programs can link to rate

- based trading
programs only
.

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

• The state plan must be approved as a ready

- for

- interstate

trading plan
.

• The state plan must use an EPA

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

- designated tracking system that is interoperable with an EPA

- administered system , as detailed below )
.

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

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

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

- for

interstate

- trading” that were finalized in the EG) , and 2 ) from affected EGUs in such state

- plan

- covered state s to affected EGUs in federal

- plan

- covered state s . The EPA also requests comment on***E.O. 12866 Review

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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 p lan 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 trading c ould occur in both dir ections, i.e., from affected EGUs in state s covered by the mass

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

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

- plan

- covered
state s to sources in federal

- plan

- covered state s . The EPA proposes that a condition of link age between a state plan and the federal plan is the use of an identical compliance instrument . In the mass

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proposes to issue allowances in short tons ; as a result, the EPA is proposing in this rule that linkage for the mass

- based federal plan is limited to state plan s that issue 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 state plan allowance s denominated in metric tons to allowances denominated in short tons 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 tha t issue allowances in metric tons. 18 The EPA also requests comment on expanding the scope of interstate trading to include linking state s covered by the

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

- designated allowance tracking system that is interoperable with an EPA

administered allowance tracking system. The EPA also takes

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

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comment on allowing a state that has an approved mass - based tradin g state plan meeting the proposed conditions for linkages and that uses an EPA

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

- affected EGU emission sources , to provide the opportunity for such a state plan to be potentially approvable for linking to other state plans ( see Clean Power Plan EGs , section VIII )
. In this proposed rule, the proposed approach to link from the mass

- based trading federal plan to state plans could 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 oppor t unities for cost

- effective implementation of reductions compared to trading limited to a smaller region. The proposed approach to interstat e 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 l inkages in the federal plans.***E.O. 12866 Review

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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 of this preamble , for the rate

- bas ed and mass

based approaches, respectively. A transparent and well

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

- based or rate

- based trading program. EPA has over 20 years of experience implementing emissions trading programs for th e power sector and based on that experience, believes the potential or likelihood of mark et manipulation is fairly low. Nonetheless, the EPA is evaluating the options for providing oversight of the allowance or ERC markets that may be established through t he final EGs and federal plans. This could include engaging with other federal and state agencies as appropriate, and potentially with third***E.O. 12866 Review

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parties, in conducting market oversight. The agency requests comment on appropriate market monitoring activities, w hich may include tracking ownership of allowances or ERCs, oversight of the creation and verification of credits, and tracking market activity (e.g., transaction volumes and prices). 2. Addressing Potential Leakage and Interstate Effects The final EGs specif y the concern of leakage, which is defined in s ec tion VII.D of the final EGs as the potential of an alternative form of implementation (e.g., the rate

- based and

mass - based state goals) to create a larger incentive for affected EGUs to shift generation to n ew fossil fuel

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

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

- based plan approaches must address leakage, because the form of the mass goals may ultimately impact the relative incentives to generate and emit at affected EGUs as opposed to shifting generation to new sources, with potential implications for whether the mass goal implements or is consistent with the BSER and overall emissions from the sector
. These circumstances are much less likely to be present under a rate

- based plan approach , where the form of the goal ensures sufficient incentive to affected existin g EGUs to***E.O. 12866 Review

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generate and thus avoid leakage, similar to the CO 2 emission performance rates . By requiring mass - based plan components that address leakage, the final EGs ensure that mass goals are equivalent to the CO 2 emission performance rates and are thus an equivalent expression of the BSER
. S ection VII.D of the final EGs details the requirement for addressing leakage and why it is needed, and section VIII.J of the final EGs specifies options for mass - based state plan compon ents that address leakage. We are proposing, as part of the mass

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

- based allocation set

- aside and a set

- aside tha t encourages the installation of RE . These proposed strategies are detailed in section V.D of this preamble
.
In t he final EG s , the EPA also discussed the concern that
CO 2 emissions reductions would be eroded in situations where a n affected EGU in a rate

- b ased state counts the MWh from measures located in a mass

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

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

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

- based state. The***E.O. 12866 Review

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proposed rate

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

- based state, e xcept 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 rate

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

based state to meet load in a rate

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

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

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

- based state . Once the project is approved, subsequent application s for issuance of credit to the EPA will need to reference that the MWh submitted

are associated with that contractual arrangement with the mass

based RE provider
. The EPA requests comment on this approach. It should also be noted that we are proposing that u nder the***E.O. 12866 Review

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proposed mass - b ased 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.
The EPA requests comment on the proposed treatment of leakage and of interstate effects under both the proposed rate

based federal plan approach and the proposed mass

- based federal plan approach , and as part of the corresponding proposed model rules
. 3. Provisions to Encourage Early Action The EPA outlined and initiated the C lean Energy Incentive Program (CEIP) in the final EGs (see section VIII.B.2 of the final EGs). The program is designed to incentivize investment in certain types of RE projects, as well as demand

- side energy efficiency (EE) projects implemented in low

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

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

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implemented in low

- income communities. The EPA proposes to appl y the CEIP in all states subject to either a rate

- based or mass

based federal plan. The EPA’s proposed approaches to implementing the program in the rate

- based and mass

- based federal plans are detailed in sections IV and V of this preamble, respectively.
B. I nventory of Emissions Fossil fuel

- fired 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 descri bes 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). The EPA implements a separate program under 40 CFR p art 98 called the Greenhouse Gas Reportin g Program 20 (GHGRP) that requires emitting facilities over threshold amounts of GHGs to report their

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

– 2013”, Report EPA 430

- R

- 15

- 004, U nited States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport. html 20 U.S. EPA Greenhouse Gas Reporting Program Dataset, see http:// www.epa.gov/ghgreporting/ghgdata/reportingdatasets.html***E.O. 12866 Review

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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 emissio ns 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 inventory, which includes recent trends, is organized by industrial sectors. It provides the information in Table 3 of this preamble , which presents total U.S. anthropogenic emissions and sinks 21 of GHGs, including CO 2 emissions, for the years 1990, 2005 , and 2013.
**Table 3**  **. U.S. GHG Emissions and Sinks by Sector ( M**  **illion Metric**  **Tons Carbon Dioxide E quivalent (MMT CO**  **2 Eq.))**  **22**

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

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

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

– 2013”, Report EPA 430

- R

- 15

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

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Industrial Processes and Product Use Agriculture 448.7 494.5 515.7
Land Use, Land

- Use Change and Forestry 13.8 25.5 23.3

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

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

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

– - entities that burn fossil fuel and whose primary business

24 From Table ES

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

– 2013”, Report EPA 430

- R

- 15

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

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is the generation of electricity

– - accounted for 38.3 percent of all energy

- related CO 2 emissions. 25 Table 4 of this preamble present s total CO 2 emissions from fossil fuel

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

In addition to preparing the official U.S. GHG Inventory , which re present s comprehensive total U.S. GHG emissions and

25 From Table 3

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

– 2013”, Report EPA 430

- R

- 15

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

Total CO 2 from fossil fuel

fired EGUs 1,820.8 2,400.9 2,039.8

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

- from natural gas 175.3 318.8 441.9

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

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compl ies with commitments under the UNFCCC, the EPA collects detailed GHG emissions data from the largest emitting facilities in the U.S. through its GHGRP. Data collected by the GHGRP from large stationa ry sources in the industrial sector show that the utility power sector emits far greater CO 2 emissions than any other industrial sector. Table 5 of this preamble presents total GHG emissions in 2013 for the largest emitting industrial sectors as reported to the GHGRP. As shown in Table 4 and Table 5 of this preamble , respectively, CO 2 emissions from fossil fuel

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

27 U.S. EPA Greenhouse Gas Reporting Program Dataset as of August 18, 2014. http://ghgdata.epa.gov/ghgp/main.do.

**Industrial s**  **ector 2013**  Petroleum Refineries 176.7 Onshore Oil & Gas Production 94.8 Municipal Solid Waste Landfills 93.0 Iron & Steel Production 84.2 Cement Production 62.8 Natural Gas Processing Plants 59.0 Petrochemical Production 52.7 Hydrogen Production 41.9 Underground Coal Mines 39.8***E.O. 12866 Review

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

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

- fired EGUs were published in the Federal Register (79 FR 1 430).

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

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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 SCT 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. CHP combustion turbine means any SCT which recovers heat from the combustion turbine engine exhaust gases to heat water or another medium, generate s steam for useful purposes other than exclusively for additional electric generation, or directly uses the heat in the exhaust gases for a useful purpose. We note that certain affected EGUs are exempt from inclusion in a state plan and this federal plan. A ffected EGUs that may be excluded under the EGs are those that (1) A re subject to subpart TTTT as a result of commencing modification or reconstruction; (2) are SGU s or IGCC units that are currently and always have been subject to a federally enforceable p ermit 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) are non - fossil units ( i.e., units that are capable of combusting 50 percent or more non

- fossil fuel) that have historical ly limited the use of fossil fuels to 10 percent or***E.O. 12866 Review

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less of the annual capacity factor or are subject to a federally enforceable permit limiting fossil fuel use to 10 percent or less of the annual capacity factor; (4) are stationary combustion turbines tha t are not capable of combusting natural gas ( i.e., not connected to a natural gas pipeline); (5) are
CHP unit s that are subject to a federally enforceable permit limiting, or have historically limited, annual net electric sales to a utility power distribu tion system to the product of the design efficiency and the potential electric output or 219,000 MWh (whichever is greater) or less; (6) serve a generator along with other SGU (s), IGCC(s), or stationary combustion turbine(s) where the effective generation capacity (determined based on a prorated output of the base load rating of each SGU , IGCC, or stationary combustion turbine) is 25 MW or less; (7) are a municipal waste combustor unit subject to subpart Eb of 40 CFR p art 60; or (8) are a commercial or indu strial solid waste incineration unit that is subject to subpart CCCC of 40 CFR p art 60. 29

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

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

- fired EGUs being promulgated under CAA section 11 1(b). However, we are finalizing in the EGs that states need not include***E.O. 12866 Review

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The EPA is also taking comment on an alternative compliance pathway that could be available to units under a mass based approach. The ways that the approach could be i mplemented are further outlined in the Alternative Compliance Pathway for Units that Agree to Retire Before a Certain Date TSD. Under this approach, two basic requirements would need to be met. The first is that the unit would have to take a commitment tha t it would retire on a date on or before December 31, 2029. The second is that the unit would have to demonstrate that it will take an enforceable emission limitation that would assure that the overall state emission goal is met. The TSD explores ways that this approach could be implemented, including ways that the enforceable emission limitation could be calculated and implemented. The EPA requests comment on whether this approach should be available for all units or limited to small units (e.g. less than 100 MW nameplate capacity). EPA is also taking comment on whether and how such an approach could be included

certain units that would otherwise meet the CAA section 111(b) applicability in this CAA section 111(d) EGs. These include simple cycle turbines, certain non

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

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under a rate

- based approach. The applicability of this proposed federal plan follows the same applicability criteria as the final EGs . The ration ale for these criteria is provided in section IV.D of the Clean Power Plan . We are not reopening the criteria or rationale here. In the federal plan Affected EGU Technical Support Document ( TSD ) , the EPA lists all applicable affected EGUs according to

our records from the National Electric Energy Data System (NEEDS), Energy Information Administration (EIA), and comments from the CPP. In this TSD, each affected EGU is assigned its proposed applicable standards if a federal plan were to be promulgated for th at affected EGU at any time. The EPA requests comments and updates to this list of affected units. Section VI.C of the final EGs describes the data used in setting the standards and how an inventory of affected units has been compiled.
D. Compliance Schedule In accordance with the schedule set out in the EGs , t he 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***E.O. 12866 Review

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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 ca lendar year. The first compliance period will be from January 1, 2022 to midnight, December 31, 2024 ( 3 calendar years). The second compliance period will be from January 1, 2025 to midnight, December 31, 2027 ( 3 calendar years). The third compliance period will be from January 1, 2028 to midnight, December 31, 2029 ( 2 calendar years). Under the EGs , midnight, December 31, 2029 marks the end of the interim period, and the beginning of the final period. The EPA proposes that the compliance periods in th e final period will each be 2 calendar years. Thus, the first compliance period after 2030 would be from January 1, 2030 to midnight, December 31, 2031 . The second compliance period would be from January 1, 2032 to midnight, December 31, 2033. This would r epeat accordingly unless changed by the EPA through a revision to the federal plan or other action. 30 The EPA recognizes that the compliance periods provided for in this rulemaking are longer than those historically and typically specified in CAA rulemaking s. As reflected in long

standing CAA precedent, “[t]he time over which [the compliance

30 This schedule would be the same u nder either a rate

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

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standards] extend should be as short term as possible and should generally not exceed one month.” See e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 Guidance on Enforceability Requirements for 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. Prior to the beginning of the first compliance period in 2022, the agency intends to establish the infrastructure for operating a federal trading program and to work closely with affected EGUs in the sta tes 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, certain affected EGUs, particularly small entities , additional time t o come into compliance, and to request additional input from the public as to the design of such flexibility that would be compatible with the EG s and a federal plan that implements a trading system.
T he EPA recognizes that it is important to ensure a degree***E.O. 12866 Review

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of liquidity in compliance instruments in either of the proposed trading approaches, while also maintaining the stringency required by the final EGs. A number of aspects of the rate

- based and mass

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

E. Addressing Reliability Concerns The proposed federal plan h as been designed to ensure that, to the greatest extent possible, implementation would not in ter fere with the power sector ’ s ability to maintain electric reliability. 31 Like the EG s , the federal plan provides a long planning horizon and implementation period. In addition the federal plan allows affected EGUs to obtain tradable allowance s and credits to meet obligations which assures that reliability

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

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can be maintained without disruption to the electricity system
. The re are many features of the electricity system that

ensur e that electric system reliability will be maintained. For example, in the Energy Policy Act of 2005, Congress added a section to the Federal Power Act to make reliability standards mandatory and enforceable by the Federal Energy Regulatory Commission ( 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, Department of Energy ( DOE ) , state public utility commissions ( PUCs ) , independent system operators and regional transmission organizations ( ISOs/RTOs ) , and other planning 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, in stallation of new 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 availability of sufficient generation, transmission, and distribution capacity to meet system needs in a way that minimizes the likelihood of equipment failure. 32 Long

- term system planning happens at both the local and regional levels with all segments of the electric system needing to operate together in 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 Government Regulations , IEEE Press, at 160 (2010). 33 Id.***E.O. 12866 Review

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operating emergencies. 34 The EPA’s approa ch 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 electricit y supply. First , t he federal plan , like the EG, provides more than 6 years before reductions are required and an 8

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

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

mass - based trading program and a rate

- based trading program. Trading programs of both types have many positive attributes. Among them is that they help to ensure that imposition of the federal plan will not interfere with the industry’s ability to maintain the reliability of the nat ion’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 http://www.nerc.net/standardsreports/standardssummary.aspx
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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 uni t level operational flexibility to facilitate the maintenance of reliability and makes the program enormously resilient
. If a unit finds it needs to run more than anticipated, the market

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

cons ult wit h 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 other feedback on the federal plan from those entitie s. This mee ting 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 the country as we finalize the federal plan
. It will give the planning authorities an opportunity to hear directly from the EPA how the federal plan is designed and gives the planning authorities an opportunity to***E.O. 12866 Review

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vo ice concerns and ask questions. This will help inform comments that planning authori t ies may submit to the docket.
In t he final CPP 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 valve for the federal plan is not needed. The EPA invites comments on this aspect of the proposed federal plan
. The EPA, Department of Energy ( DOE ) and FERC have agreed to coordinate efforts to help ensure continued reliable electricity generation and transmission during the implementation of the final EG s and the final federal plan in any state that does not have an approved state plan
. The three ag encies have developed a coordination strategy that reflects their joint understanding of how they will work together to monitor implem en tation
. The three agencies will work together to monitor implementation, share information and resolve any difficulties that may be***E.O. 12866 Review

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encountered. 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 allowances available in emergency circumstances in which an affected EGU was compelled to provide reliability critical generatio n 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 sta te 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 unfore seen, emergency reliability event. If there were unused allowances remaining in the set

- aside , then the EPA would distribute them to affected EGUs pro rata based on the allocation approach that is detailed in section V.D of this preamble . The EPA requests comment on all elements of such an approach, including what events would trigger the need for***E.O. 12866 Review

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allowances from the reliability set

- aside; eligibility criteria to receive the set

- aside allowances; the size of the set

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

aside. Additionally, the EPA requests comment on how a 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 imp lement a CEIP , 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 of this preamble 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.

F. Worker Certifica tion In the EG s, the EPA suggested that to ensure that emission***E.O. 12866 Review

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reductions are realized, it is important that construction, operations and other skilled work undertaken pursuant to state plans is performed to specifications, and is effective, safe, and tim ely. 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) A n apprenticeship program that is registered with the U.S. DOL, Office of Apprenticeship or a state apprenticeship prog ram approved by the DOL; ( 2) a skill certification aligned with the U.S. DOE Better Building Workforce Guidelines and validated by a third party accrediting body recognized by DOE; or ( 3) other skill certification validated by a third party accrediting bod y. 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 facto rs, remaining useful lives of the sources in the category of sources to which such standard applies.” 42 U.S.C. 7411(d)(2). This language tracks similar language in CAA section 111(d)(1) with respect to state plans
. In the final EGs ,
we explained how the G uidelines permit states in applying a***E.O. 12866 Review

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standard of performance in their state plans to consider the remaining useful life of a facilit y . We determined that it was appropriate to specify that the general variance provisions in 40 CFR 60.24(f) should not apply to the class of affected facilities covered by the se Guidelines. We concluded that facility

- specific factors and in particular, remaining useful life, do not justify a state making further adjustments to the performance rates or aggregate emiss i on go al 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 goals based on remaining useful life, the EPA does not believe such goal adjustmen ts 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 the following anal ysis of this factor
. 35

35 We note that the preamble and supporting materials for the EGs discuss a related concern raised by some stakeholders, which is whether the EGs could result in widespread “stranded assets” as a direct result of the rule. As explained there, we believe this concern is distinct from the “remaining useful lives” factor i n***E.O. 12866 Review

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Congress added the “remaining useful liv e s ” factor to CAA section 111(d)(2) in the 1977 CAA Amendments. Congress did not provide in the statute any direction on how or to what degree “remai ning 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 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

CAA section 111(d)(1), and for the same reasons, believe it is distinct from the factor Congress directed the agency to consider in CAA section 111(d)(2). Nonetheless, we undertook analysis in the final EGs of whether and to what extent there may be a “s tranded asset” concern. See memorandum to Clean Power Plan Docket EPA

- HQ

OAR

- 2013

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

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“remaining useful lives” as a consideration for facilities with relatively little remaining useful life
. W e are co nfident the proposed federal plan will not force costly pollution control investments at older pl ants with short remaining useful lives. Further, t he statute provides that this factor is one “among other factors” that the agency is to consider in promulgating a standard of performance. Congress provided no guidance in the statute as to what those other factors could be.
T he inclusion of unspecified factors that the agency may determine for itself to consider , along with the use of the term “consider , ” highlights that Congress intended to give the agency a substantial degree of di scretion in determining how the “remaining useful li ves ” factor is considered. T he statute does not require, and Congress did not intend , that this consideration mandate the agency to prevent all premature 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. Congress knew h ow 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 (NSR) program, see CAA section 165(a). And in CAA***E.O. 12866 Review

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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 CAA section 111(d) Congre ss 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 Amendmen ts, Congress listed “remaining useful life” as a factor for consideration in the visibility program under section 169A. 42 USC 7491. The “remaining useful life of the source” is one of several enumerated factors that the state or the EPA is to consider in determining the best available retrofit technology (BART) for a particular source. Consistent with congressional purpose, the EPA has implemented this factor in the regional haze program for many years through the BART guidelines, in

a ppendix Y to 40 CFR p art 51. The BART Guidelines provide: The “remaining useful life” of a source, if it represents a relatively short time period, may affect the annualized costs of retrofit controls. ... If the remaining useful life will clearly 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 costs , you should use this s horter time period in your cost calculation.***E.O. 12866 Review

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40 CFR p art 51, a pp endix Y, section IV.D.4.k. In the agency’s view, this approach to “remaining useful life” aligns with congressional intent and informs our view of how the “remaining useful lives” factor shou ld be considered under this CAA section 111(d) federal plan. T he key consideration is whether the time period associated with amortizable costs of compliance will exceed the remaining useful lives of the source s in question.
C onsistent with legislative int ent and past agency practice , w e propose that the f ederal Plan adequately consider s ”remaining useful lives” of affected EGU s by providing for trading and other flexibilities authorized in the EGs. To summarize, these 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 p lan is proposed to include a Clean Energy Incentive Program as provided for in the EGs, which will credit early action and ease compliance in the initial years of the program. T hese tools will create economic incentives that reward over

- performance of some aff ected EGUs , and allow others to simply acquire credits or allowances to comply with their emission standard, thereby avoid ing the need for installation of costly pollution controls***E.O. 12866 Review

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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 remaining 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 facility. 36 The design of the federal plan as a form of emission 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

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

- specific variances from an otherwise applicable standard of performance have been potentially available under the application process in 40 CFR 60.27(e)(2), which incorporates the factors provided in 40 CFR 60.2 4(f) for states. Consistent with our view that the federal plan adequately considers remaining useful lives, and for the same reasons, the need for facility

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

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be a physical impossibility or result in unreasonable costs. By relying on either rate

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

- based techniq ues. In effect, under a trading program with repeating compliance periods, a facility with a short remaining useful life has a total outlay that is proportionately smaller than a facility with a long remai ning useful life, simply because the first facility would need to comply for fewer compliance periods and would need proportionately fewer ERCs or allowances than the second facility. Buying ERCs or allowances as a compliance method could avoid excessive u p - 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 potentia l for stranded assets. In addition , the timing of the federal plan limits the immediate costs of compliance, particularly for facilities that have useful liv e s ending before 2022, but also for facilities that have useful liv e s ending before 2030. There are no compliance obligations for affected EGUs under this federal plan until 2022, when the first compliance period begins. At that point, the agency is following the glide path provided for in***E.O. 12866 Review

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the EGs , which begins with relatively higher emission targets th at 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 und er CAA section 116, the federal plan is no more stringent than the EGs , and , as explained in the EGs, the Guidelines reflect a reasonable, rather than a maximum possible, implementation level for each building block in order to establish overall goals that are achievable. As discussed in the
EG , the BSER determined an average level of emissions achievable by 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

37 In addition, the ability to generate ERCs for sale or to sell***E.O. 12866 Review

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For these reasons, the federal plan adequately considers “remaining useful liv e s .” We invite comment on our consideration of facilities’ “remaining useful liv e s ” in the federal plan.

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

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

re quirements independent of those that would be required under title V of the C AA and the regulations implementing title V, 40
CFR p arts 70 and 71. 38 All major stationary sources of air pollution and certain other sources are required to apply for title V ope ratin g permits that include emission limitations and other conditions as necessary to assure compliance with

unneeded emission allowances (depending on whether in a rate

- or mass - based system) may give some affected EGUs an economic incentive to take measures to reduce em issions that otherwise would have been uneconomical. 38 Part 70 addresses requirements for title V programs implemented by state, local, and tribal governments, and part 71 governs the title V program implemented by the EPA or delegate agencies in areas und er federal jurisdiction, such as Indian country.***E.O. 12866 Review

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applicable requirements of the CAA, including the requirements of an applicable CAA section 111(d) state plan or federal plan.
CAA sections 502(a) and 504(a), 42 U.S.C. 7661a(a) and 7661c(a). The “applicable requirements” that must be addressed in title V permits are defined in the title V regulations, and include requirements under CAA section 111(d) (40 CFR 70.2 and 71.2 (definition of “applicable requirement”)). The EPA anticipates that, given the nature of the units covered by the proposed f ederal p lan, most of the sources at which they are located are already or will be subject to title V permitting requirements. For sources subject to title V, t he requirements applicable to them under the proposed f ederal p lan will be “applicable requirements” under title V and , therefore , will need to be addressed in the title V permits. For example, requirements under the proposed f ederal p lan concerning designated representatives, monitoring, reporting, and recordkeeping, the requirement to either meet an emission rate (including through holding ERCs (rate

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

- based approach) will be “applicable requirements” to be 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***E.O. 12866 Review

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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 accordance with that decision, the D.C. Circuit’s amended judgment on April 10, 2015 vacated the title V regulations under review in that case (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. Circu it 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 undertake to make such revisions. As the agency made clear in a memorandum to Regional Administrators last year,

“ While the EPA will no longer apply or enforce the requirement that a source obtain a title V permit solely because it emits or has the potential to emit GHGs above major source thresholds, the agency does not read the Supreme Court decision to affect other grounds on which a title V permit may be required or the applicable requirements that must be addressed in title V permits.” 39 Accordingly, while the emission of GHGs alone cannot

39 Memorandum from Janet McCabe, Acting Assistant Administrator, Office of Air and Radiation, and Cynthia Giles, Assistant***E.O. 12866 Review

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trigger the need for a title V permit under UARG , the EPA believes a final f ederal plan under CAA section 111(d) will create new “applicable requirements” in the form of an emission standard (either an emission rate or an allowance system) and related requirements for GHGs (here, CO 2 ) on affected EGUs. See 40 CFR 70.2, 71.2 (defin ition of “applicable requirement” includes “any standard or other requirement under section 111 of the Act, including section 111(d) ”) (emphasis added). Thus, an affected EGU may be required to modify its existing title V permit, or obtain a new permit if it does not already have one, if it becomes subject to an emission standard for CO 2 under a CAA section 111(d) f ederal p lan. The title V permits program is structured to provide flexibility for market

- based approaches, such as allowance trading programs und er the f ederal p lan, including flexibility to make changes under such programs without necessarily requiring a formal permit revision
. For example, the title V regulations provide that a permit issued under title V shall include, for any “approved * * * em issions trading or other similar programs or processes” applicable to the source, a provision stating that no permit revision is required “for
Administrator, to Regional Administrators, Regions 1

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

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changes that are provided for in the permit.” 40 CFR 70.6(a)(8) and 71.6(a)(8). Consistent with this provision in the title V regulations, the proposed f ederal p lan regulations include a provision stating that no permit revision shall be required for the allocation, holding, deduction, or transfer of allowances once the requirements applicable to such allocations, ho ldings, 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 title V regulations allow the use of the minor permit modification procedures for permit modifications “involving the use of economic incentives, marketable pe rmits, 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***E.O. 12866 Review

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to a trading program under the federal p lan may be made using the minor permit modification procedures of the title V ru les. The 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 im plementation, including the general approach for monitoring and reporting. The minor permit modification procedures could also be used for any subsequent changes to permit terms that may be needed with respect to the trading program, although we expect suc h changes to be 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 be already ad dressed and allowed by the permit (“provided for in the permit”) and provided the changes do not conflict with any existing terms of the permit. If a sources wishes to make a change that would go against any express term of the permit, the permit must be r evised 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 princi ple***E.O. 12866 Review

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is important to keep in mind when deciding if a minor permit modification is appropriate with respect to operating a trading program in the context of a title V permit. The EPA believes that the approach to permitting requirements we are proposing here , which imposes no additional permitting requirements independent of title V and provides for the use of minor permit modification procedures, will streamline the process for sources already required to be permitted under title V and for permitting authori ties. 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) or 71.7(a) would address the f ederal p lan re quirements, when finalized. The EPA notes that the approach to title V permitting that is being propos ed is somewhat similar to the approach adopted in the final CSAPR. See 76 FR 48299

- 30 (Aug. 8, 2011). The agency recently issued guidance to assist permit ting authorities and sources subject to CSAPR in incorporating CSAPR requirements into title V permits. 40 The EPA invites comment on its proposed

40 Memo randum from Anna Marie Wood, Director, Air Quality Policy Division, Office of Air Quality Planning and Standards (OAQPS),***E.O. 12866 Review

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approach to permitting requirements for the f ederal p lan , including whether it would be of use to develop guida nce similar to the guidance developed for permitting under CSAPR. The EPA invites comment on its proposed approach to incorporating applicable requirements of the federal plan into title V permits and revising those requirements, including specifically see king comment on whether all requirements should be eligible for incorporation into title 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 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

and Reid P. Harvey, Director, Clean Air Markets Division, Office of Atmospheric Programs (OAP), to Regional Air Division Directors, 1

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

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

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modifications of existing major sourc es. Generally, a source triggers these permitting requirements as a result of a modification when it undertakes a physical or operational change that results in a significant emission increase and a net emissions increase. NSR regulations define what const itutes a significant net emissions increase, and the concept is pollutant

- specific. In the final EG s , 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 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 regulation s for one or more regulated NSR pollutants, including the netting analysis, the changes would trigger NSR. We noted that while there may be instances in which an NSR permit would be required, we expect those situations to be few. The EPA believes the analy sis of NSR applicability is basically the same for sources under a CAA section 111(d) federal plan. That is, it is conceivable that a source under a federal plan may choose, as a means of compliance with either a
rate

- based or mass

- based approach, to under take a physical or***E.O. 12866 Review

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operational change to improve an affected EGU’s efficiency that results in 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 wi ll be few. After the proposal for the Clean Power Plan was published in June of 2014, the U.S. Supreme Court issued its opinion in
UARG v EPA , 134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that an increase in GHG emissions alone cannot by law tri gger the NSR requirements of the PSD program under section 165 of the CAA. On remand from the Court, the D.C. Circuit issued an amended judgment in Coalition 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 GHGs alone, including those that may occur through actions taken at sources to comply with the proposed f ederal
p lan (such as may occur when a n NGCC unit increases its operations due to generation shift from a SGU ), cannot trigger
NSR. The EPA will invite comment on potential scenarios in which affected EGUs, particularly small entities , could be subject to the requirements of the NSR program as a result of taking compliance measures under the federal plan, and any ideas for harmonizing or streamlining the permitting process for such sources that are cons istent with judicial precedent. How ever, the EPA is not proposing any changes to the NSR program in this***E.O. 12866 Review

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action, and the agency is not reopening or reconsidering any prior actions or determinations related to NSR in this action. Any comments related solely to the NSR program will be conside red out side the scope of this proposed rule. 3. Interactions with Other EPA Rules Existing fossil fuel

- fired EGUs, such as those covered in this proposal, are or will be potentially impacted by several other rules recently finalized or proposed by the EPA . 41 These rules include the Mercury and Air Toxics Standards (MATS) (77 FR 9304; Feb. 16, 2012) ; 42 the CSAPR; Requirements for Cooling Water Intake Structures at Power Plants (79 FR 48300; Aug. 15, 2014); Disposal of Coal Combustion Residuals from Electric U tilities, issued on December 19, 2014; and the proposed Steam Electric Effluent Limitation Guidelines and Standards (78 FR 34432; June 7, 2013). These rules are discussed in more detail in the final
EGs along with steps the EPA is taking to enable complian ce with obligations under other power sector rules as efficiently as possible. We solicit comment on whether there are specific things the EPA can do in the design and implementation of the

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 Court 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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f ederal p lan that further this objective.
I. Administrative Appeals Process Under either a rate

- based or mass

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

- based plan, a determination may be made that a n eligibility application by an ERC provider is denied. And, for set

- asides in the mass

- based program, an affected EGU may believe that its allowance allocation amount was miscalculated . Similar to prior trading programs, the agency believes it would be ef ficient 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 p art 78, to provide for the adjudication of certain disputes that may arise during the course of implementation of a federal plan under CAA section 111(d). We also propose to revise part 78 to accommodate such appeals. The p art 78 procedures cover prior CAA emission trading programs and were specifically designed with these types of disputes in mind. The persons eligible to file such appeals would be similar to the existing definition of an “interested person” in p art 78. The filing of an appeal and the exhaustion of administ rative***E.O. 12866 Review

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remedies under p art 78 would be a prerequisite to seeking judicial review. For purposes of judicial review, final agency action would occur only when an agency decision under the federal plan listed as appealable under p art 78 has been issued, and t he procedures of p art 78 for appealing the decision are exhausted. The actions we propose to list as appealable under the p art 78 procedures are as follows. In the case of the rate

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

- for

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

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

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

asides; decisions on the transfer of allowances ; decisions regarding the finalization of emissions data by affected EGUs dur ing 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 penalty; and decisions re garding 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 p art 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 p art 78, or in addition to that offered under p art 78. If so, we request comment broadly on all aspects of the alternative or additional adminsitrative appeals process, including with respect to any structural, procedural, subtantive, and timing requirements it should include, who should have access to it and in what manner, and how it would***E.O. 12866 Review

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differ from p art 78. Finally, we request comment on whether, similar to other programs identified in 40 CFR 78.1(a)(1), the agency should make the procedures of p art 78 available to any actions of the Administrator under the comparable state regulations approved as a part of a state plan under the EGs . J. Consistency of Program Structure w ith Clean Air Act Authority The EPA is co

- proposing two distinct forms of emissions trading as the mechanism for federal implementat ion of standards of performance that achieve the emission performance levels by determined by application of the BSER in the Clean Power Plan EGs . Both proposals are “emission standard” approaches as defined in the EGs , and t he EPA is not proposing an appr oach like the “state measures” approach that is also available to
states in the final EGs . The EPA has legal authority to establish either of the proposed trading systems as a federal plan under CAA section 111(d)(2). We discuss this topic briefly here and invite public comment. T he EGs discussed the role of emissions trading in the BSER, see , e.g., s ection V.A of the preamble to the final EGs . The EPA regards this to be a separate issue and is not revisiting or reopening th e discussion of the BSER or the role of trading in the BSER here. The EGs recognize and provide ample opportunity for states to establish standards of performance that allow the use of emissions trading or other***E.O. 12866 Review

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multi

- unit compliance approaches. H ere we discuss why an emissions t rading program is a lawful and appropriate form of federal “implementation” of a “ standard of performance ” under CAA section 111(d)(2). We invite comment on this legal discussion and the agency’s interpretation of its authority. 1. General Section 111(d)(2) A uthority Section 111(d)(2) provides as follows: The Administrator shall have the same authority

— (A) to prescribe a plan for a State in cases where the State fails to submit a satisfactory plan as he would have under section 7410(c) of this title [CAA section 110(c)] in the case of failure to submit an implementation plan, and (B) to enforce the prov isions of such plan in cases where the State fails to enforce them as he would have under sections 7413 and 7414 of this title [CAA sections 113 and 114] with respect to an implementation plan. In promulgating a standard of performance under a plan
prescr ibed under this paragraph, the Administrator shall take into consideration, among other factors, the remaining useful lives of the sources in the category of sources to which such standard applies.***E.O. 12866 Review

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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 CAA section 111(d) as, in some
sense, co - extensive with its authority to issue a FIP for National Ambient Ai r Quality Standards ( NAAQS ) pollutants under
CAA section 110. This authority under CAA section 111, of course, must be understood in reference to the purpose of that section ( i.e., to achieve emission reductions for designated pollutants from designated fa cilities), rather than in reference to the purpose of s ection 110 ( i.e., to attain and maintain the NAAQS). However, it has been the agency’s longstanding view that , in both procedural and substantive respects, Congress intended that the CAA s ection 110 au thority be looked to under
CAA s ection 111(d)(2). See 40 FR 53340, at 53342 (Nov. 17, 1975) (“It is obvious that [the Administrator] could only prescribe standards on some substantive basis. The references to section 110 of the CAA suggest that (as in CAA section 110) [she] was intended to do generally what the states in such cases should have done, which in turn suggests that (as in CAA section 110) Congress intended the states to prescribe standards on some

43 The agency’s interpretation of the “remaining useful lives” provision is discussed above in s ection III.G of this preamble
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substantive basis. Thus, it seems clear that som e 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 C AA , the courts, and the EPA, have addressed the nature and scope of CAA section 110 authority. See, e.g., 71 FR 25328, 25338 (May 12, 2005) (CAIR final rule). In general, the EPA has broad power under CAA section 110(c) to cure a defective SIP . Thus, in promulgating a FIP under C AA section 110, the EPA may exercise its own, independent regulatory authority in accordance with CAA section 110(c) and the CAA more broadly. When the EPA has promulgated a FIP, courts have not required explicit authority for specific measures: “We are in clined to construe Congress ’ broad grant of power to the EPA as including all enforcement devices reasonably necessary to the achievement and maintenance of the goals established by the legislation.” South Terminal Corp. v. EPA , 504 F.2d 646, 669 (1 st Cir. 1974). Further, the same authority that is exercised by the states under the CAA in connection with the adoption, implementation, and enforcement of a SIP may be assumed to be available to the EPA when the agency issues a FIP, after determining that a sta te has not adopted a satisfactory SIP. As the Ninth Circuit has held, when the EPA***E.O. 12866 Review

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acts in place of the state pursuant to a FIP under CAA section 110(c), the EPA “stands in the shoes of the defaulting state, and all of the rights and duties that would othe rwise fall to the state accrue instead to EPA.” Central Ariz. Water Conservation Dist. V. EPA , 990 F.2d 1531, 1541 (9 th Cir. 1993). Accord, South Terminal , 504 F.2d at 668 (“[T]he Administrator must promulgate promptly regulations setting forth an implemen tation 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 f ederal clean air goals. We do not adopt any such crippling interpretation.”). By the same token, if there are clear limits to the EPA’s CAA section 110(c) authority, those too, would arguably carry
over to CAA section 111(d)(2). For instance, CAA section 110(c)(1) ties the EPA’s authority to promulgate a final FIP for
a state to the EPA’s predicate action on a SIP (or lack thereof): generally, either an action disapproving a plan, or a finding that a state has fa iled 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***E.O. 12866 Review

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the 2

- year period that begins the moment EPA determines a SIP to be inadequate.” EPA v. EME Homer City Generation , 134 S. Ct. 1584, 1602 n.14 (2014). Congress gave the EPA the same authority to prescribe a plan under CAA section 111(d)(2) as it possesses under CAA section 110(c). The EPA believes this authority is the “same” in the sense described above and in the case law. 44 The scope of the EPA’s action to undertake a FIP under CAA section 110 is informed by the scope of the state’s action to undertake a SIP; likewise, the scope of the EPA’s action to undertake a federal plan under CAA section 111(d) is informed by the scope of the state’s action to undertake a state plan. The agency received comments on the proposed EGs from commenters who stated that the EPA cannot require states to implement the building blocks that make up the BSER ; for example,

44 We interpret the cross

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

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ordering re

- dispatch to natural gas

- fired units, or ordering the construction of RE projects. These commenters went on to say that the EPA itself would have no authority to order these types of actions under a federal plan. As we explain ed in the Legal Memorandum for the final EGs , and reiterate here, t he 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 implementing standards of perf ormance 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 s ections IV and V of this preamble , the EPA would se t 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 t ake 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 w ould have the authority to directly order the implementation of the measures in the building blocks in this proposed federal plan is not only not***E.O. 12866 Review

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relevant but represents a categorical misunderstanding of the nature of the BSER in relation to the imposition of standards of performance under a CAA section 111(d) plan . To illustrate this, by the same token the EPA could not enforce many logistical aspects of a control requirement such as a scrubber

– for instance, the 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 , transporta tion 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 unit s, construct new RE projects, or take other measures, either included in the BSER or not. T he agency determined the BSER and emission performance levels in the EGs on a reasonable assumption that all of those things can actually happen. In 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
. 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***E.O. 12866 Review

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well

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

— include enforceable emission limitations and other control measures, means, or techniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights)....” 42 USC 74 10(a)(2)(A). The EPA was given similar authority in the definition of a “Federal Implementation Plan” in CAA section 302: “The term ‘Federal implementation plan’ means a plan (or portion thereof) promulgated by the Administrator ... which includes enforceabl e emissions limitations or other control techniques (including economic incentives, such as marketable permits or auctions of emissions allowances), and provides for***E.O. 12866 Review

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attainment of the relevant national ambient air quality standard.” 42 U.S.C. 7603(y). Sect ion 111(d)(2) of the CAA provides the EPA “the same power to prescribe” a federal plan under CAA section 111 as it would have to promulgate a FIP under
CAA section 110(c). Thus, the EPA believes the plain language of the statute authorizes the use of marke t techniques in CAA section 111(d) federal plan s. However, even if one were to view this language as not wholly unambiguous with respect to the scope of federal authority under CAA section 111, the EPA believes that CAA section 111, in conjunction with aut horizations and endorsements of market techniques throughout the CA A , and other indicia of congressional intent, strongly support the view that market techniques are within the EPA’s authority to promulgate a federal plan under CAA section 111(d). Case law throughout the history of the CAA has generally confirmed the legal viability of emissions trading as an implementation measure so long as the trading ultimately achieves the emission reduction goals of the statute. See, e.g., Sierra Club v. EPA , No. 12

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

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

- trade programs ( NO x SIP Call, CAIR, and CSAPR) are***E.O. 12866 Review

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permanent and enforceable). Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. , 467 U.S. 837 (1984) (“ Chevron ”), the seminal case establishing the Supreme Court’s standard of review of agency interpretations of the statutes they administer, upheld one of the EPA’s early emissio ns trading programs, the Netting Rules of 1980 (45 FR 52676; Aug. 7, 1980), which the EPA in its discretion chose to allow states to apply in both attainment and nonattainment areas (46 FR 50766; Oct. 14, 1981). The Netting Rules allowed existing major sou rces to modify without triggering certain requirements of PSD or nonattainment NSR, so long as any increase in emissions associated with the modification is compensated for by a corresponding decrease in emissions elsewhere within the same facility, such t hat there is no significant net increase in emissions from the facility as a whole. In upholding this approach in Chevron , the Supreme Court gave deference to the EPA’s definition of the term “source,” finding in that term sufficient ambiguity to support t he

a gency’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] up on more than ordinary knowledge’ of the situation, the administering agency’s construction is to be accorded***E.O. 12866 Review

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‘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 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 CA A t 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,

45 The EPA is not aware of any case since at least the Chevron decision in which a trading program under the CAA was invalidated simply by virtue of being a trading program. The CAIR trading program was set aside by the D.C. Circu it because the court held it did not accomplish the objective of the Good Neighbor provision of the CAA, not because it used a trading approach per se. North Carolina v. U.S. EPA , 531 F.3d 896, 921 (D.C. Cir. 2008). More recently the Supreme Court upheld k ey 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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particularly in non

- attain ment 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 CAA section 111(d) is also analogous to the trading system for chlorofluorocarbons (CFCs) under the pre

1990 CAA provision for control of stratospheric ozone depleting substances. This program was reviewed by the Office of Legal Counsel (OLC) within the Department of Justice in 1989. See Memorandum for Alan Raul, General Counsel, Office of Management and Budget, from the Office of the Assistant Attorney General (April 14, 1989) (hereinafter “OLC Mem o”). 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 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

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

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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 “swee ping”

– was sufficient to authorize the EPA to establish a cap

- and

- trade program with auction for CFCs. See id. A t 7 (“It cannot seriously be argued that the use of economic incentives to regulate pollution is a novel or strange idea that could not have be en 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 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 incenti ves would be, in the OLC’s words, to read into the statute the italicized clause “regulations for the control [of CFCs] by traditional command and control or specification standard methods ,” id. A t 9

– a rewriting “unwarranted in any case, but especially s o where Congress was aware of economic methods of control and where such***E.O. 12866 Review

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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 mar ket techniques that they were broadly authorized for use in SIPs and
FIPs for NAAQS. See 42 U.S.C. 7410(a)(2)(A), 7602(y). In the wake of the 1990 Amendments, the EPA issued an “Implementation Strategy for the Clean Air Act Amendments of 1990.” 47 This
Strat egy included as one of nine overarching implementation principles, “Market

- based: Use of market

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

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

– the Federal NO x Budget Trading Program (65 FR 2674; Jan. 18, 2000), the CAIR (71 FR 25328;

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

- K

- 92

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April 28, 2006), and the CSAPR (76 FR 48208; Aug. 8, 2011), under CAA section 110(a)(2)(D)(i)(I), relating to air pollution that causes nonattainment or interference with maintenance of air quality standards in downwind states. 48 As noted in the rulemaking notice for the final EGs , the EPA has instituted or authorized the us e of emissions trading programs twice in the past under CAA section 111(d). The EPA authorized NO x emissions averaging or trading within or between facilities under the Municipal Waste Combustors EG s in 1995. 60 FR 65387, 65402 (Dec. 19, 1995) (codified at 40 CFR 60.33b(d)(1) and (2)). The EPA also developed a cap - and

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

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 des igning a trading regime that accomplishes Good Neighbor objectives, are not present with respect to CO 2 , which is a global pollutant; emission reductions anywhere contribute to the environmental objective of addressing climate change.***E.O. 12866 Review

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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 C AA going back decades amply support its decision to propose two forms of emission trading as the method of implementation of the Clean Power Plan E G s in the federal plan . Notably, emissions trading is particularly appropriate with respect to a global pollutant such as CO 2 that is well

- mixed in the atmospher e 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 CAA section 111(d) to select the method by which it would control CO 2 emissions from existing power plants. See AEP v. Connecticut , 131 S. Ct. 2527, 2538 (2011)

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

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

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(“Congress delegated to EPA the decision whether and how to regulate carbon

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

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

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

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option, rate

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

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

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

- based emission standard or by applying ERCs , acqu ired 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 Clean Power Plan as a mechanism available to affected EGUs with a CO 2 emission rate greater than its respective performance rate to meet compliance obligations ,
see s ection VIII . K of the final EGs
. Under a rate

- based federal plan, the EPA would act as the state described in s ection
VIII.C. 1 .a of the final EGs 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
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This section describes the proposed rate

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

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

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

- based “emission standards” approach as a n approvable method for state plans to implement the final EGs . In this approach the***E.O. 12866 Review

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requiremen ts for compliance rest solely on affected EGUs in the form of federally enforceable emission standards expressed as a rate of emissions of CO 2 per unit of energy output
. In the Clean Power Plan , the EPA established , through application of the BSER , separate CO 2 emission performance rates for affected EGUs in two subcategories. The two subcategories are natural gas

fired stationary combustion turbines ( i.e., natural gas combined cycle units , or NGCC units ) and fossil fuel fired SGU s ( i.e., utility boi lers and IGCC units) 51
. The CO 2 emission performance rates set in the Clean Power Plan are reflected below in Table 6 of this preamble
. The EPA is proposing to apply these rates in the rate

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

- specific CO 2 emission performance rates and rationale , see s ection VI of the final EGs
. These calculated standards and the premises that these standards are based on are
not within the scope of comment in this rulemaking as they were finalized in the Clean Power Plan
. As discussed in section III.D of this preamble above , the EPA proposes to implement a compliance schedule for the rate

based federal plan with multi

- year compli ance periods as

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

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follows: A 3

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

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

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

- year compliance periods for the final period. In the Clean Power Plan , the EPA established CO 2 emission performance rates for the subcategories of affected EGUs for the performance periods . The EPA proposes to use those emission performance rate s promulgated in the Clean Power Plan as the emission rate standard for the respective EGUs that would become sub je ct to this proposed federal plan if finalized . The EPA is not opening for comment the determinations made in the Clean Power Plan of each subcategorized CO 2 emission performance rates
. T he emission rate standards for respective EGU types are provided for convenience in Table 6 of this preamble
. The EPA is proposing to use a glide path during the interim period for EGUs to provide a smooth transition to the final compliance periods after 2030. This approach is established in the final EGs . In Table 6 of this preamble, the applicable standards for each interim compliance period is listed.
**Table 6**  **. Glide Path**  **Interim Performance Rates (Adjusted Output**  **** **Weighted -**  **Average Pounds of CO 2**  **Per Net MWh From All Affected Fossil Fuel**  **- Fired EGUs)** 

**Technology 2022**  **- 2024**  **2025 -**  **2027 2028**  **- 2029**  **Final*****E.O. 12866 Review

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**Compliance**
**Rate Compliance** 
**Rate Compliance** 
**Rate Rate** 

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

Stationary combustion turbine 877 817 784 771

The EPA is using the subcategorized rate s in the rate

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

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

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

- based model rule and federal plan is not preferred by commenters , the EPA requests comment on the perceived benefits of an alternative

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

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rate or set of rates ( e.g., applying a uniform rate, i.e., the state goal, to all affected units within the state as the EGUs’ emission standard). C. Crediting M echanism Under a rate

- base d emission standard 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 representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions
. These ERCs may then be used to adjust the measured and reported C O 2 emission rate of an affected EGU when demonstrating compliance with a
rate

- based emission standard. For each ERC, one MWh is added to the denominator of the reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. Under this proposed federal plan , ERCs will be issued by the EPA to three categories of entities: (1) A ffected EGUs that perform at a rate below the applicable emission rate standard ; (2) affected NGCC units for all generation (represents shifting generation from SGU s to NGCC units , as anticipated under Building Block 2 ); ( 3 ) new nuclear units and capacity uprates at existing nuclear units, and (4) RE providers that develop***E.O. 12866 Review

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metered projects and programs whose results, in MWh, are quantified and verified according to EM&V c riteria as described below in section IV.D. 8 of this preamble . We are also discussing in this preamble , taking comment on for the federal plan, and proposing for the model trading rule a potential fourth category: other low

- and zero

- emitting non - BSER meas ures that are described in section IV. C. 3 of this preamble. The concept of using an ERC as a crediting mechanism to meet compliance obligations is consistent with the CPP EGs and is being adopted in this federal plan
. 53 Because the goal of this rulemaking is the actual reduction of CO 2 emissions, it is fundamental that ERCs represent the MWh of energy generation or savings they purport to represent. To this end, only valid ERCs that actually meet the standards articulated in this rule may be used to satisfy any aspect of compliance by an affected EGU with emission standards. The responsibility for the validity of the ERC rests with the affected EGU. Despite safeguards included in the structure of ERC issuance and tracking systems, such as the review of eligi bility applications and M&V reports, and EPA issuance of

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

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ERCs, ERCs may be issued that do not, in fact, represent eligible zero

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

- fired EGU is based on the CO 2 emission rate of the EGU in comparison to an emission rate standard. The calculation of ERCs generated by an EGU or needed for compliance is the CO 2 stack emission rate of the EGU subtracted from the standard the EGU is subject to , and this value is subsequently divided by the standard the EGU is subject to. This value is a normalized quantity of how much better or worse the EGU is performing compared to its standard. Th e normalized value is weighted by multip lying the MWh electricity output from the EGU at that emission rate
. This can be generically expressed as:
ERCs = ( EGU standard

− EGU operating rate ) EGU standard ∗ EGU generation If the value calculated is positive, this indicates the number of ERCs that are be ing generated ; conversely, a negative value indicates how many ERCs will need to be acquired to meet the***E.O. 12866 Review

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unit’s emission rate for that compliance period
. ERCs will be issued on an annual basis to ERC providers ( i.e ., entities generating ERCs via the ERC approval and 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 IV.D.10 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, 500 lbs CO 2 /MWh. Assume it operates at 2,000 lbs CO 2 /MW h , and also assume it generates 1 million MWh over a co mplianc e period. Its total emission rate would be 2 billion lbs CO 2 / 1 million MWh. In order to achieve the emission standard, it would need to purchase 3 33 , 334 ERCs (rounded to the nearest higher integer). In essence, th is quantity of ERCs represents the quantity of MWh that need to be added to the steam EGU’s denominat or ( 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, 333,334 MWh) equals the emission rate for compliance (1, 500 lbs/MWh). The discussion in this subsection bui lds on and applies the definition, benefits, use, and determination of using ERCs from the final EGs ( s ection VIII of the final EGs)
. We invite comment

on use of th e approach just described as a method of***E.O. 12866 Review

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implementation of a federal plan and a model trading rule , and we take comment on any alternatives to this approach that still fall within the established criteria described in the CPP EGs . Comments that solely relate to determinations finalized in the
EGs will be considered out side the scope of this proposed rule
. 2. Incremental NGCC ERCs Building Block 2 (BB2) of the BSER determination in the CPP
EGs describes shifting generation from SGU s to NGCC units because NGCC units generate electricity at a less carbon intensive rate. BB2 describes NGCC units ge nerat ing at 75 percent of the unit’s annual operating capacity
. This level of generation, for most NGCC units, would represent an increase in annual generation from a 2012 baseline. 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. 54 The EPA is proposing to reflect the emission reductions of BB2 by crediting all NGCC generation
on a pro - rata basis that reflects expected incremental NGCC
g eneration to 75 percent capacity
. This means that for every hour that an NGCC generates electricity, it will also generate a partial credit associated with the generation shift from fossil

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

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steam to NGCC units. The NGCC will generate a partial credit because the emission reductions associated with BB2 have been distributed on an hourly basis. A discussion on the concepts behind the distribut ion of emission reductions of incremental NGCC generation on an hourly basis can be found at the end of this subs ection.
A ll affected NGCC generation will be credited , with ERCs, by a factor that represents the described emission reductions from incremental generation; ERCs credited in this way will be designated as G as Shift ERC s (GS

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

- ERC s generated realizes the amount of emission reductions described in BB 2 when 75 per cent capacity is achieved
. This incentive is not a requirement, however. If NGCC units do not collectively increase to 75 percent capacity or above , the lost opportunity for ERC generation simply will need to be achieved through other means ( e.g., emissions performance improvements at affected EGUs or additional RE generation). The amount of GS

- ERC s the EPA proposes to be generated for every MWh of NGCC operation is set at a factor relating the amount of

55 A GS

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

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electricity generation that NGCC units collectively would generate at the level described in BB 2 ( i.e., reaching 75 percent capacity) and the associated emission reductions . This means that fractional GS

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

- ERC s that correlates to the emission reductions anticipated under BB 2 of the BSER. NGCC units are expected to be incentivized to reach this level of generation in part due to market demand for GS

ERCs . Thus, GS

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

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

- ERC Emission Factor. This emission factor represents how much better an 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 SGU standard used as reference here is as described above in section IV.B of this preamble and established in the BSER determin ation from the EGs of the least stringent region 56 ( i.e., the region with the highest calculated

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

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emission rate standard for SGU s). The 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 all NGCC generation. In essence, it is prorating the incremental NGCC generation over all NGCC generation. The Incremental Generation Factor is calculated by taking the number of MWh beyond the 2012 baseline needed for the corresponding region to reach 75 percent NGCC generation capacity and dividing it by the the MWh that is 75 percent NGCC generation capacity, giving a factor. This factor can be summarized by the following expression:
Incremental Generation Factor = 1

− Regional 2012 NGCC Baseline 75 % NGCC Regional Capacity The Incremental Generation Factor is a factor that the EPA will calculate and will be calculated for every compliance period based on the least stingent region’s Incremental Generation

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

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Factor based on increased utilization of RE and its replacement of fossil fuel fired generation (based on Building Block 3 of the CPP EGs ). 57 For the cal c ulation of this factor the EPA is using the least stringent region for each compliance period and applying it for all GS

- ERC calculations subject to the f ederal plan
. The calculations for determinating the least stringent regional Incremental Generation Factor can be found in the GS

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

- ERCs.
**Table 7**  **. 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

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

ERC is the NGCC G eneration. The NGCC Generation is the total net

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

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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 generat ion 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 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***E.O. 12866 Review

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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 generation, to continue to operate at a greater capacity to replace steam generation. The EPA believes that this will allow for more fluidity in the market and flexibility for greater NGCC generation. In the Clean Power Plan the BSER determination for subcategory rates is calculated by using the least stringent regi on 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

sam e 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 string ent regional factor to calculate GS

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

- ERC generation
rate. As propose d, the least stringent region could change from compliance period to compliance period. The EP A requests comment***E.O. 12866 Review

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on whether a single “least stringent” region should be chosen and used for calculations or whether being “least stringent” should be evaluated on a compliance period by compliance period basis. The EPA also requests comment on whether “least stringent” should be evaluated on a year to year basis. The EPA also requests comment on whether the GS

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

ERC generation, but would not reward the better performing N GCC units within the subcategory. In the GS

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

- ERCs to all NGCC units subject to the federal plan. For 2030 and beyond , this value is based on 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 the EPA proposed, this would apply to every NGCC that would be subject to the federal plan. In the GS

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

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

- ERC Emission Factor to account for the***E.O. 12866 Review

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individual 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 its assigned emission standard for every MWh generated, but still be generating GS

- ERC s. GS

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

- ERCs for its own compliance . The ERCs owed are calculated by solving for the 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 lbs CO 2 / [ 1 , 000 , 000 MWh + ERC MWh ] = 771 lbs CO 2 / MWh When that equ ation is solved for the number of ERC MWh needed, the NGCC would need to acquire 102,464 ERCs to adjust its***E.O. 12866 Review

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emission rate to its emission rate standard. Additionally, the GS

- ERC Emission Factor for this NGCC is calculated by using 771 lbs CO 2 /MWh for the N GCC emission rate and 1,404 lbs CO 2 /MWh for the SGU 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. This is only an example. Because the Incremental Generation Factor is calculated by the EPA, it can be found in the GS

- ERC TSD and is proposed to be 0.26. By using the GS

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

- ERCs for this NGCC can be calculated. 0

. 45 ∗ 0

. 26 ∗ 1 , 000 , 000 = GS

- ERC The calculation results in 117 thousand GS

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

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

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

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

- ERC s. If a GS

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

- GS

- ERC s to satisfy the NGCC ’s compliance obligations.***E.O. 12866 Review

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A GS

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

- ERC represents this generation shift. If a GS

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

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

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

- ERC s. Specifically, the EPA solicits comment

on NGCC units generating GS

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

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

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

- ERCs accordingly. The GS

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

- ERC = ( Steam standard

− NGCC emission rat e ) Steam standard ∗ Incremental NGCC generation This equation quantifies the reductions of the generation shift from fossil steam to 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) T he NGCC standard against which ERC generation is evaluated; and (2) the steam standard against which GS

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

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

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

- ERC s can be generated by replacing NGCC generation from one unit with NGCC***E.O. 12866 Review

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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 electri city and to what degree
. This allows for a situation in which GS

- ERC s can be generated without achieving the anticipated reductions in CO 2 emissions
. The EPA also requests comment on whether a distinct type of ERC that comes with the proposed restriction s (i.e., GS

- ERCs) is necessary to maintain the integrity of the rate

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

- based federal plan, the EPA is proposing to specify emission reductions measures used to adjust an emission
rate that are eligible for ERC issuance under the federal plan
. Specifically, the EPA is proposing that RE generation that meets the requirements for eligible resources in the EG s (as specified in section VIII.K of the final EG s ) , meets all other requirements related to ERC issuance in the EG s and this proposal, and falls into one of the fo llowing specific categories of RE resources (as specified in section V.E of the final EGs ) are eligible to be issued ERCs : w ind, solar,***E.O. 12866 Review

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geothermal power, and hydropower. 58 Further, the EPA is proposing for the federal plan that new nuclear units and capacity uprates at existing nuclear units that meet the requirements for eligible resources in the EG s (as specified in section VIII.K of the final EG s ) and all other requirements related to ERC issuance in the EG s and this proposal are eligible to generate
ERCs . Further, these RE and nuclear measures must have the ability to provide data from a revenue quality meter, a requirement that is further discussed in section IV.D.8 of this preamble
. The EPA is proposing the inclusion of t hese measure types in the federal plan for the following reasons. These technologies , with the exception of nuclear, are part of the quantification of RE generation potential for the BSER. Thus, they are included in the quantification of CO 2 emission

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

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

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

- based set

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

- as ide. The set

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

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performance rates and should be available to affected EGUs to meet their CO 2 emission performance rate under the federal plan
. S ee the final EGs for details on the treatment of these measures in BSER (see section V.E of the final EGs ). These technologies

a re also expected to be able to deploy on an economic basis during the compliance period, as discussed in the final EGs (see section V.E.6 of the final EGs ). These technologies also provide the simplest and most timely path for EM&V implementation under a f ederal plan, because they can use their existing metering infrastructure to quantify generation and submit it for ERC issuance
. A concern unique 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 eligib ility to measures that can be directly metered, a feasible federal plan process for ERC issuance across a potentially large number of jurisdictions is ensured. This approach would allow for easier determinations of compliance with the requirements for EM&V proposed in s ection
IV .D.8 of this preamble below (see also s ec tion VIII .K.3 of the final EGs ). The agency requests comment on the inclusion of other emission reduction measures as eligible for ERC issuance under***E.O. 12866 Review

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the rate

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

- side EE as eligible measures for ERC issuance under the federal plan , such as state and utility EE programs, project

- based demand

- side EE, state build ing codes, state appliance standards, and conservation voltage reduction. The agency also requests comment on the inclusion of CHP as an eligible measure under the federal plan . Later in this section, the agency has provided detailed requirements for the i ssuance of ERCs for CHP, and we request comment on these requirements for inclusion in the federal plan
. The EPA requests comment on the inclusion as eligible for ERC issuance under the federal plan of any other emission reduction measure s beyond those me ntioned here, as long as they meet the eligibility requirements outlined in the final E G s 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 b e implemented for these***E.O. 12866 Review

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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 section IV.D.8 of this preamble , and within the requirements outlined in the final guidelines (see section VIII. K . 3 of the final EGs ). It should also be noted that any eligible measure will be subject to the eligibility requirements outlined in this proposal and
t he final EGs , such as the requirement that the measure be incremental 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 under the federal plan . The ag ency is requesting comment on appropriate processes through which , after the federal plan is finalized, the EPA and/or stakeholders could demonstrat e the appropriateness of new measure types and the EPA could evaluate and approve the demonstration so that a new measure type could be considered eligible for ERC issuance under the federal plan. Under the rate

- based model rule, the EPA is proposing that any emission reduction measure is eligible as long as the requirements for eligible resources in the final EGs (as specified in section VIII.K of the final EG s ) and all other***E.O. 12866 Review

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requirements related to ERC issuance under the model rule that are specified in the EGs and this proposal. In particular, these

meas ures should be able to meet the requirements for EM&V as finalized in the final EGs section VIII.K and those proposed for the model rule in section IV.D.8 of this proposal. In this section, the EPA is also providing detailed requirements for CHP and waste heat power (WHP) , these requirements are proposed under the model rule, and we request comment on their inclusion in the federal plan. We are requesting comment on the inclusion of biomass and an option for the treatment of biomass in both the proposed ra te

- based federal plan and proposed rate

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

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

- derived fuels can play an important role in controlling increases of CO 2 levels in the atmosphere (see section V.A.6 of the final EGs ). T he use of some kinds of biomass has the potential to offer a wide range of environmental benefits, including carbon benefits. However these benefits can typically be realized only if biomass feedstocks are sourced***E.O. 12866 Review

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responsibly and attributes of the c arbon cycle related to the biomass feedstock are taken into account. Many states have already recognized the importance of waste

- derived feedstocks via mandatory and voluntary programs supporting such efforts. 59 Some states have also acknowledged the potent ial role of certain forestry and agricultural industrial byproduct s (such as black liquor ) in energy production. Many states have also recognized the importance of forests and other lands for climate resilience and mitigation, and have developed a variety of sustainable forestry policies, biomass

- related RE incentives and standards, and GHG accounting procedures. 60

59 Types of waste

- derived biogenic feedstocks may include: landfill gas generated through the decomposition of Municipal Solid Wa ste ( MSW ) in a landfill; biogas generated from the decomposition of livestock waste, biogenic MSW, and/or other food waste in an anaerobic digester; biogas generated through the treatment of waste water, due to the anaerobic decomposition of biological mat erials; livestock waste; and the biogenic fraction of MSW at waste

- to

- energy facilities (as discussed in section VIII. I . 2
. C of the final EGs ). 60 Some states, for example Oregon and California, have programs that 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 Regulations, support sustained production of high

- quality timber while considering eco logical, economic and social values. Several states focus on sustainable***E.O. 12866 Review

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In addition to acknowledging such state programs, the EPA has undertaken a technical assessment of biogenic CO 2 emissions from stationary sources associated with the production, processing and use of biomass fuels. In November 2014, the agency released a second draft of the technical report, Framework for Assessing Biogenic Carbon Dioxide for Stationary
Sources . Th e revised Framework, and the EPA’s Science Advisory Board (SAB) peer review of the 2011 Draft Framework , concluded that it is not scientifically valid to assume that all biogenic feedstocks are “carbon neutral” and that the net biogenic CO 2 atmospheric con tribution of different biogenic feedstocks generally depends on various factors related to feedstock characteristics, production, processing and combustion practices, and, in some cases, what would happen to that feedstock and the related biogenic emission s if not used for energy production
. 61 The EPA is engaging in a second round of

bioenergy, as seen with the sustainability requirements for eligible biomass in the Massachusetts RPS, which, among other requirements, limits old growth forest harvests. 61 Specificall y, the SAB found that “There are circumstances in which biomass is grown, harvested and combusted in a carbon neutral fashion but carbon neutrality is not an appropriate a priori assumption; it is a conclusion that should be reached only after considering a particular feedstock’s production and consumption***E.O. 12866 Review

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targeted peer review on the revised Framework with the SAB in 2015. 62 Information in the revised Framework and the second SAB peer review process, including stakeholder comments, will assist the EPA in assessing potential qualif ied biomass feedstocks in federal plan applications. If biomass is included as an eligible measure, we are taking comment on an option for biomass treatment under the
rate

- based federal plan, which w ould al so apply to eligible generation under the mass

- based plan allowance set

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

co - firing biomass
. Th is option offered for comment is to specify a list of
pre - approved qualified biomass fuels. For example, the EPA could recognize the CO 2 and climate policy benefits of waste

- derived feedstocks ( e.g., landfill gas) and certain industrial byproduct feedstocks ( e.g. , black liquor or other forestry and agricultural industrial byproduc ts with no alternative markets).
cycle. There is considerable heterogeneity in feedstock types, sources and production methods and thus net biogenic carbon emissions will vary considerably. Of course, biogenic feedstocks that displace fo ssil fuels do not have to be carbon neutral to be better than fossil fuels in terms of their climate impact.” http:// www.epa.gov/climatechange/ghgemissions/biogenic

emissions.html
. 62 http://www.epa.gov/sab
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As another example, the EPA could also recognize biomass feedstocks from sustainably managed forests lands, provided that these feedstocks meet certain requirements such as demonstration that the feedstock is sourced from s ustainably managed lands (for example, feedstocks from forest lands with sustainable practices like improved management to increase carbon sequestration benefits ) and therefore help s control increases of
CO 2 in the atmosphere
. The pre - approved qualified bi omass feedstocks list could be amended in the future as the science related to biogenic CO 2 emissions assessments evolves
. The EPA asks for comment on whether to include a provision that allows sources to seek approval for other types of biomass to be adde d 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 EPA also requests comment on options for how EGUs would demonstrat e that feedstocks meet the requirements to be accepted
as a pre - approved qualified biomass feedstocks. These requirements could include demonstration of certification or verification of practices that are additional to other monitoring , reporting and EM&V requirements discussed in this proposal , such as provision of sufficient credible analysis of***E.O. 12866 Review

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carbon benefits, third party verification and/or certification ,
or a determination of the ne t biogenic CO 2 effects related to the production, processing and use of the feedstock
. The EPA requests broad comment on the types of qualif ied biomass feedstocks that should be specified in the final model rule, if any. We request comment on the methods that we should specify in the final model rule for the measurement of the associated biogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the final model rule related to biomass. Specifically, we seek comment on the lev el of detail provided and whether more or less detail (and what detail) should be included in the final model rule. We request comment on any other requirements that should be included in the final model rule regarding EM&V for qualif ied biomass. Discussion of the biomass EM&V requirements in the rate

- based model rule can be found in section IV.D.8 of this preamble below
. T he eligibility requirements for ERC resources discussed in this s ection meet the requirements outlined in the final EGs ( s ee section VIII. K.2 of the final EGs ). The agency in this proposal is including in the regulatory text for the model rule language related to the crediting of these other potential ERC resources, even though they are not being proposed as a part of***E.O. 12866 Review

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t he federal plan. Our intent is to provide states further direction through the model rule on how states may include this broader set of ERC

- generating resources in a rate

- based plan. To reduce confusion over the applicability of these provisions, the
agenc y has added a note in the regulatory text to clarify that these resources, and provisions throughout the proposed subpart that are related to those resources, are not applicable in the case of a federal plan. Rather they are proposed as part of the model t rading rule only. However, again, the agency is requesting comment on the inclusion of these resources in the federal plan. The EPA is proposing with respect to the rate

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

- affected CHP units. Electric generation from

non - affected CHP units 63 may be used to adjust the CO 2 emission

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

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rate of an affected EGU, as CHP units are low

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

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

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

- incremental CHP electrical emission

proc ess is then used to generate electricity. Some waste heat power (WHP) units are also bottoming cycle units and the accounting treatment for bottoming cycle CHP units is provided with the WHP description below.
64 The applicable CO 2 emission rate standard is in Table 6. of this preamble.***E.O. 12866 Review

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rate/applicable affected EGU emission rate standard )* CHP MWh output Where the ratio is limited to values between 0 and 1. The CHP electrical CO 2 emission rate is the net emission rate wh en the CHP unit’s CO 2 emissions related to its thermal output are deducted from the CHP unit’s total CO 2 emissions. The CHP electrical CO 2 emission rate is derived as follows: CHP electrical CO 2 emission rate = [CHP fuel input 65 * fuel emission factor 66

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

non - affected CHP unit is a fossil fuel

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

- affected CHP unit are typically very low. To generate ERCs for CHP, the CHP E lectrical CO 2 Emission
R ate that is calculated (from above) is applied against the

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

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applicable affected EGU standards in the same fashion as described in section IV.C.1 of this preamble. The low CO 2 emission rate for electrical generation from a non - affected CHP unit is a product of both the fact that CHP units are typically very thermally efficient and the fact that a portion of the CO 2 emissions from a non

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

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

- affected WHP units. WHP units that m eet the eligibility criteria under section VIII.K.1 of the Clean Power Plan preamble may be used to adjust the CO 2 emission rate of an affected EGU. There are several types of WHP units. There are units, also referred to as bottoming cycle CHP units, where the***E.O. 12866 Review

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fuel is first used to provide thermal energy for an industrial process and the waste heat from that process is then used to generate electricity. 67 There are also WHP facilities where the waste heat from the initial combustion process is used to generate additional power. Under both configurations, unless the WHP unit supplements waste heat with fossil fuel use, there is no additional fossil fuel use d to generate this additional power. As a result, there are no incremental CO 2 emissions associated with that additional power generation. As a result, the incremental electric generation output from the WHP facilities could be considered non

emitting, for the purposes of meeting the emission guidelines, and the MWh of electrical output could be used to adjust the CO 2 emission rate of an affected EGU. 68 The MWh of electrical output from a WHP unit that can be recognized may not exceed the MWh of industrial o r other thermal load that is being met by the WHP unit,

67 In such a configuration, the waste heat stream could also be generated from a mechanical process, such as at natural gas pipeline compressors.
68 This only applies where no additional fossil fuel is used to supplement the use of waste heat in a WHP facility. Where fossil fuel is u sed to supplement waste heat in a WHP application, MWh of electrical generation that can be used to adjust the CO 2 emission rate of an affected EGU must be prorated based on the proportion of fossil fuel heat input to total heat input that is used by the W HP unit to generate electricity.***E.O. 12866 Review

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prior to the generation of electricity. 69 In addition, where fossil fuel is used to supplement waste heat in a WHP application, the EPA requests comment on what provisions to include in the final model rule to prorate the proportion of fossil fuel heat input to total heat input that is used by the WHP unit to generate electricity. The EPA also solicits comments on other potential accounting mechanisms for WHP. As noted above, the EPA requests comment inc orporating WHP as an ERC generating resource for the federal plan.
D. ERC Tracking and Compliance Operations The EPA proposes that the rate

- based federal trading
program use the agency’s already

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

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

69 This limitation prevents oversizing the thermal output of a WHP unit to exceed the useful industrial or other thermal load it is meeting, prior to generation of electricity.***E.O. 12866 Review

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affected EGUs that are under a ready

- for

- interstate

- trading state plan ), deduction of ERCs for compliance purposes, and transfers of ERCs between accounts. The primary role of the ATCS is to provide an efficient, automated means for covered source s to comply, and for the EPA to determine whether covered sources are complying, with the emissions rate standards . 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
tran sfers, buyer and seller information, serial numbers of ERCs transferred, emissions, and compliance information. This information would be publicly available on the EPA’s W eb site and in annual progress reports. The ATCS and the EPA provide all required ele ments of a qualified ERC tracking system as described in section VIII of the final EGs
. In the subsections that follow, the mechanisms by which a
rate

- based trading program would be implemented and administered

are detailed. The EPA requests 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 comment on means to expedite the process of issuing ERCs , any minimum and maximum periods for wh ich ERCs should be issued ( e.g ., monthly, quarterly, annually), and any means to e nsure that the ERCs issued meet the requirements of***E.O. 12866 Review

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the EG s and these proposed rules
. Th e rate

- based federal plan and model rule borrow many concepts from other successful
tr ading programs , and the agency is interested in receiving additional information through comments on successful 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 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. Thes e 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 operators of each affected EGU in matters pertaining to the rate

- based trading program. One alternate designated representative could be***E.O. 12866 Review

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selected to act on behalf of, and legally bind, the designated representative and, thus, the owners and operators. Because the acti ons 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 al l 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 Adm inistrator, would include: specified identifying information for the covered source and covered EGUs at the source and for the designated representative and alternate; the name of every owner and operator of the affected EGU ; and certification language and signatures of the designated representative 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 represen tative or alternate. Further, upon receipt of a complete certificate of representation, the Administrator would establish a compliance account in the ATCS for the affected EGU involved.***E.O. 12866 Review

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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 to act for the designated 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 co uld designate agents to submit electronically certain specified documents. The previously

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

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

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

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2. ERC Tracking and Compliance System The rate

- based trading program rules establish the procedures and requirements for using and operating the Allowance Tracking and Compliance System (which is the electronic data system through which the Administrator would handle ERC issuance , holding, transfer, and deduction), and for determining compliance with the ERC

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

- ERC or not) . ERC price information would not be included in the ATCS . The EPA’s experience is that private parties ( e.g., brokers) are in a better position to obtain and disseminate tim ely, accurate price information than 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 tr ansfers would reflect current market prices. 3. Tracking S ystem R equirements This federal plan and model rule’s proposed tracking system and tracking systems that will be presumptively approvable for state plans fufill the criteria set forth in the final EGs . The***E.O. 12866 Review

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EPA’s tracking system i nclude s provisions to ensure that ERCs issued to any eligible entity are properly tracked from issuance to submission by affected EGUs for compliance (where ERCs are “surrendered” by the owner or operator of an affected EGU and “retired” or “cancelled” by the Administrator or administering state regulatory body), to ensure they areused only once to meet a regulatory obligation. This is addressed through specified requirements for tracking system account holders, ERC issuance, ERC transfers among accounts, compliance true

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

- based emission trading systems. As described above in section III.A of this preamble ,

70 “Compliance true

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

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the EPA is proposing , as part of both types of model trading rules, a federal trading platform that would allow state plans that are ready

- for

- interstate

- trading to operate through a program in which the EPA provides the tracking and compliance system. This system will meet the requirements of the Clean Power Plan
. 4. Compliance and General Accounts This section describes two types of ATCS accoun ts: compliance accounts, which would be established by the Administrator 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 Administrato r 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 have to be held until retired for compliance
. General accounts could be use d 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 and timely transferred out of, a general account. To open a general account, a person or group would be required 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, in a format to be prescribed by the Administrator: T he name and identifying information of the individual who would be the authorized account representative and of any individual who would be the alternate authorized account representative; an identifying name for the account; the names of all persons with an ownership 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 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 ERCs, and for del egating 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. 5. Compliance D emonstration The EPA proposes that affected EGUs subject to this federal plan are required to meet compliance obligations by November 1 of the year following the end of the compliance period. For an affected EGU to meet its compliance obligations its average***E.O. 12866 Review

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stack emission rate over t he compliance period must be at or below its applicable rate standard, or the affected EGU must use ERCs to adjust its average stack emission rate to be at or below its applicable rate standard. An EGU ’s average emission rate over the compliance period wil l be calculated based on submitted data to ATCS. The compliance period average would be calculated by taking the m easured CO 2 mass in units of pounds (lbs) summed over the compliance period for an affected EGU and dividing it by the total net energy output over the compliance period for that affected EGU in units of MWh
. 71 This averaged emission rate will be compared to the emissions standards that the EGU is subject to during the corresponding compliance period
. Accordingly , and if necessary, the appropriat e number of ERCs will be retired from the EGU’s compliance account to adjust the emission rate of the EGU to be equal to the emission standard. The discussion of using ERCs for compliance is found in section
IV.D. 10 of this preamble. 6. Recordation of ERC Generation and ERC Issuance The EPA proposes to issue ERCs for ERC generating entities
once per year. Thus, in a 3

- year compliance period, for

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

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instance, there would be three points at which the agency issues
ERCs. After each calendar year , the EPA will cal culate the ERCs generated for EGU and non

- EGU ERC generators based on data submitted to the EPA through the Emissions Collection and Monitoring Plan System ( ECMPS ) . These calculated ERC quantities will be proposed as part of a Notice of Data Availability ( NODA) with a 30

- day comment period. Subsequently, the EPA will finalize this NODA and issue ERCs accordingly with tracking and serial numbers. For affected EGUs with compliance accounts, the ERCs will be issued to these. For entities without compliance

acc ounts, the EPA will issue ERCs to an entity’s general account. The timing for issuing ERCs is consistent with existing programs, and the EPA believes there is value in consistency. However, we solicit comment on the annual issuance of ERCs and whether issuance should occur at different intervals ( e.g., quarterly, biannually, or other time frames). The EPA requests justification along with corresponding comments regarding ERC

issuance intervals. We request comment on how reporting and recordkeeping requi rements could be minimized , particularly for small entities , to the extent possible under the statute and existing regulations.

a. Issuance of ERCs to Affected EGUs Following the determination of the number of ERCs an***E.O. 12866 Review

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affected EGU is eligible to receive, bas ed on an affected EGU’s reported CO 2 emission rate compared to a specified reference
rate 72 , the EPA will issue those ERCs into the affected EGU’s compliance account in ATCS
. The issuance will occur annually through the NODA process. ERCs will have a unique serial number, tracking number, and will distinguish ERC type ( i.e., if it is BB2 or not) when issued to an affected EGU
. b. Issuance of ERCs for Measures Used to Adjust an Emission Rate In the final EGs , the EPA has specified requirements for an ERC issuance process for the quantification and verification of

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

- step application process to the federal plan tracking systems for ERCs that allows for project approval to take place prior to the performance period, and makes the issuance of ERCs as quick and efficient as possible after generation has been quantified and verified, while still

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

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assuring a rigorous approval process . For the f irst step in the
ERC issuance application process, the EPA proposes that RE and nuclear generation providers submit to the EPA a n eligibility application for EPA approval , or its designated agent, demonstrating that the project is eligible for the issuance of credits, including an EM&V plan that meets EPA requirements. The 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 w e 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 guideline s. The following are proposed required components of the eligibility application , as specified for these measures in the final EG s : (1) The EPA proposes that the federal plan will require that providers must show that the generation they would be providing to the federal plan system for ERC issuance is only being credited in the federal plan , and will not be submitted for ERC issuance in a ny other rate

- based crediting system in any other state. As discussed in***E.O. 12866 Review

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

- based emission standards plans that have eligibility and EM&V requirements compatible with the federal plan w ould 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 s ec tion IV.C of this preamble
. (3) The provider must show that the project has an EM&V
p lan that meets the federal plan requirements. Proposed requirement s specific to the federal plan are proposed in section IV.D.6 of this preamble
. As specified in section IV.D.8 of this preamble , w e request comment on whether nuclear energy resources should be subject to the same EM&V requirements as RE resources, and if not, we take comment on to which EM&V requirements nuclear energy resources sho uld be subject. (4) There are special conditions if the provider is located in a state with a mass

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

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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 demonstr ation by providing documentation of a power purchase agreement or delivery contract from the
rate

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

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

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

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

party verifier’s review and approval of the eligibility requirements, as is reflected in EM&V requirements for the final guidelines, and specified as part of proposed***E.O. 12866 Review

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federal plan EM&V requirem ents in section IV.D.6 of this preamble
.
We request comment on each criteri on of the eligibility application described herein and in the proposed model rule, for each eligible resource. Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level of detail provided and whether more or l ess detail (and what detail) should be included in the final model rule. ERCs will be tracked in the Allowance Tracking and Compliance System (ATCS). Additionally, t he EPA is proposing that the agency will establish a complementary tracking system for the ERC issuance process. It will provide for transparent access to RE project and program eligibility applications and regulatory approvals as well as information on the activities of accredited third party verifiers (third party verifiers are further discuss ed in section IV.D.6 of this preamble ) , as well for the public to be able to generate reports based on this information
. The agency is proposing that the project eligibility applications will be accepted after the finalization of the federal plan and prio r to the first compliance period, as soon as the agency is able to establish an application process, and***E.O. 12866 Review

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that applications will be accepted on a n annual basis. The agency requests comment on whether a quarterly or bi annual application process is more appro priate. 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 providers submit an 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. The following are proposed required components of the 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 their creation. (2) Documentation that the generation has not been submitted for crediting under any other federal or state***E.O. 12866 Review

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plan, including to another rat e - based credit tracking system. (3) Documentation that the MWh resulted from RE or incremental nuclear capacity eligible for crediting under the federal plan requirements and in accordance with final EG s . This documentation should note if the MWh are from an RE project located in a state with a mass - based plan , and show if the generation is approved to be eligible for ERC issuance under the federal plan. See

s ection IV.C.3 of this preamble for specifics on the required demonstration for this type of RE generation. As discussed in that section, this option is proposed to not be available to incremental nuclear capacity located in a state with a mass

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

- party verifier , submitted after the verifier ’s review and approval of the eligibility application , as is reflected in EM&V requirements for the final guidelines, and specified as part of proposed federal plan EM&V requirements described below and included in detail in the proposed model rule
. If the application meets these requirements, pursuant to review by the EPA or its designated agent, ERCs will be issued***E.O. 12866 Review

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to the provider by the EPA through the Allowance Tracking and Compliance System (ATCS). The specific steps of the process by which an eligible resource seeks ERCs, and by which an affected EGU may use ERCs in its compliance demonstration are laid out in the proposed model rule. One of the steps requires the proponent to register for a general account in the EPA tracking system where the ERCs would be recorded. See 40 CFR 62.16515 for the requirements to establish a general account. While EPA is proposing to allow eligible resources to use a general accoun t to receive any ERCs issued under this section, the EPA requests comment on extending the designated representative provisions in 40 CFR 62.16485 to eligible resources instead of the general account provisions. Requiring eligible resources to submit information similar to that collected in the certificate of representation in 40 CFR 62.16500 and to appoint a designated representative to ac t on behalf of all owners/operators for all projects requesting ERCs may improve the EM&V process by making the eligible resources more accountable. Because it is critical to the integrity of an ERC that it represents the actual MWh of energy generated or saved that it purports to represent, and as required in the EG s for state plans, the federal plan and model rule include provisions to***E.O. 12866 Review

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address error correction (mechanisms to adjust the number of ERCs issued based on all form of errors, from clerical, to

o ver - and under

- statements, to material inconsistency with rule provisions, to fraud, etc.). In addition, the federal plan and model rule include provisions that provide that, at any time for cause, the EPA may temporarily or permanently revoke the qualific ation status of eligible resources (from being issued ERCs for at least the duration it does not meet the requirements for being issued ERCs) and independent verifiers (from providing verification services for at least the duration it does not meet the req uirements of your state plan). For the federal plan, as discussed in s ection III.I of this preamble above , we propose to use the administrative appeals process set forth 40 CFR p art 78 to address party

specific disputes concerning the issuance and/or valid ity of ERCs. States may adopt a similar procedural and substantive process at the state level to enable them to rescind or withhold approval of specific credits. We request comment on the content of each of these provisions in the model rule, and specifica lly seek comment on whether the model rule should include different or additional details related to either procedure or substance for error correction and the revocation of the qualification status of an eligible resource or***E.O. 12866 Review

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independent verifier. The agen cy is proposing that ERC eligibility applications will be accepted starting before the beginning of the first compliance period (January 1, 2022) , through an application
process the agency will establish and administer (unless delegated or taken over throu gh a partial state plan) , and that applications will be accepted on a n annual basis
. These applications will be accepted through the entirety of all compliance periods. The EPA will review and approve eligibility application s , and may designate an agent to coordinate and assist with ERC eligibility applications. The EPA is proposing that it will issue ERC s for a given year no later than 6 months after the end of the relevant year . This amount of time may be necessary to accomm odate the ERC issuance process , including necessary EM&V. The overall proposed schedule for trading and true

- up has been constructed to allow for this period of time for EM&V after the compliance period. For purposes of the proposed rate

- based federal plan, the EPA proposes to implement the Clean Energy Incentive Program (CEIP) by issuing early action ERCs for eligible actions located in or benefitting a state that are implemented after September 6, 2018

a nd that generate zero

- emitting MWh or reduce energy demand in***E.O. 12866 Review

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2020 and /or 2021. The EPA intends to implement the program in a way that maintains the stringency of the rate

- based emission standards for affected EGUs in the compliance periods established in this rule. For the purposes of the rate

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

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

• Demand

- side EE programs and measures implemented in low

income communities that result in quantified and verified electricity savings (MWh)
. The EPA proposes the following framework to implement the CEIP in the rate

- based federal plan. First, the EPA proposes to implement a mechanism for issuing early action ERCs for eligible actions implemented after September 6, 2018 and that generate zero

emitting MWh or reduce end

- use e nergy demand during 2020 and/or 2021. The EPA proposes to design this mechanism in a manner that would have no impact on the aggregate emission performance of sources required to meet rate

- based emission standards during the compliance periods. The EPA req uests comment on the structure of this mechanism, which could include adjusting the stringency of the emission standards during the compliance periods to account***E.O. 12866 Review

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for the issuance of early action ERCs for MWh generated or avoided in 2020 and/ or 2021. For ex ample, during the interim performance period, a number of ERCs could be retired in an amount equivalent to the number of early action ERCs that were awarded for MWh generated or avoided in 2020 and/or 2021 . As another option, the EPA, or a state under the model trading rule, could adjust their targets to achieve the same stringency, taking into account the additional borrowed ERCs. The EPA requests comments on all potential methods to adjust state targets, including modeling

based approaches, and on what in formation the state must present to demonstrate that the new targets preserve the needed stringency. More generally, the EPA requests comments on these ideas, as well as on alternatives for maintaining the stringency of a rate

- based plan implementing the C EIP so as to have no impact on the aggregate emission performance of sources required to meet rate

- based emission standards during the compliance periods. Second, the agency proposes to create an account of “matching” ERCs for each state participating in the CEIP

– regardless of whether a state is implementing a state plan or the agency is implementing a federal plan on its behalf. This distribution would reflect each state’s pro rata share

– based on the amount of the reductions from 2012 levels the affec ted EGUs in the state are required to achieve relative to those in the other participating***E.O. 12866 Review

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states

– of a federal pool of additional ERCs, which would be limited to the equivalent of 300 million short tons of CO 2 emissions. Thus, states whose EGUs have grea ter reduction obligations will be eligible to secure a larger proportion of the federal pool upon demonstration of quantified and verified MWh of RE generation or demand side

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

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

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

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

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

- come, first served basis. EPA requests comment on these ideas as well as alterna tive proposals regarding the***E.O. 12866 Review

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method for redistributing matching ERCs, as well as the appropriate timing for such a redistribution. Following the effective date of a rate

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

- equivalent matching pool that the state is eligible to receive. Any matching ERCs that remain undistributed after September 6, 2018 73 will be distributed to those states with approved state plans that include requirements for CEIP participation, as well as to those states on whose behalf EPA is implementing a federal plan. These ERCs will be distributed according to the pro rata method outlined above. Unused matching ERCs that remain in the accounts of states participating in the CEIP on January 1, 2023, will be retired by the EPA. The EPA requests comment on how the 300 million short ton CO 2 emissions

- equivalent pool may be converted in to ERCs for the purpose of populating the CEIP accounts of states with rate

- based plans. Third, the EPA is proposing to award early action ERCs and matching ERCs to eligible projects as follows, based upon the quantified and verified MWh of generation or savings achieved by

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

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the projects in 2020 and/or 2021 :

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

• For EE projects implemented in low

- income communities: for every two MWh in end

- use demand savings achieved, the project will receive two early action ERCs and two matching ERCs from the EPA. The EPA will address implementation details of the CEIP in a subsequen t action. ERCs awarded by the EPA pursuant to the CEIP may be used for compliance by an affected EGU with its emission standards in any compliance period and are fully transferrable prior to such use. The EPA requests comment on all aspects of implementi ng the CEIP under a rate

- based federal plan approach, including (1) The method for maintaining the stringency of rate

- based emission standards; (2) the criteria for eligible projects, including criteria for awards to EE projects that benefit low

- income

com munities; (3) the mechanism for reviewing project submittals and issuing early action ERCs; (4) EM&V requirements for eligible projects; (5) M&V reports; (6) verification reports from an independent verifier; and (7) the number of early action and***E.O. 12866 Review

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

- based emission trading program, given the types of eligible measures that may generate ERCs and the broad geographic locations in which those measures may occur. Inclusion of an indepen dent verification component provides technical support for the EP A in the context of the proposed federal plan, and the states in the context of their plans, to ensure that eligibility applications and monitoring and verification reports are appropriately reviewed prior to issuance of ERCs. Inclusion of an independent verificati on 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 state GHG emission budget trading programs. The remainder of this section and the related language in the proposed model rule provide the proposed basis by which the***E.O. 12866 Review

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EPA intends to evaluate the independence of the verifiers that it uses to provide verification reports pursuant to the federal plan. The qualifications described here and in the mo del 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 certa in codes of conduct i n providing verification services. Only verifiers approved or “accredited” by the EPA may provide verification services related to ERC issuance for the federal plan , in the same way that only verifiers approved by a state may be eligib le to perform verification services pursuant to a state plan
. 74 In addition, v erifiers must have sufficient knowledge of the rate

- based emission trading program rules, technical expertise, and knowledge of auditing, accounting, and information management p ractices , in order to perform verifcation services related to the Clean Power Plan . Accredited

74 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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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. 75

75 Accredit ed verification bodies and individual verifiers may not have any direct or indirect organizational or personal relationships with an ERC provider that would impact their impartiality in assessing the validity and accuracy of the information in an eligibili ty application or M&V report. In addition to this general requirement, the following 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 must have no relationship with the implementer of a program or project that seeks the issuance of ERCs, or any related ERC provider, that would represent a COI. Accredited verifi ers must have no role in the development and implementation of a program or project that seeks issuance of ERCs, beyond the provision of verification services. Accredited verifiers must not be compensated, directly or indirectly, in relation to the quantif ied and verified MWh in an M&V report or on the basis of program or project approval, ERC issuance, or the number of ERCs issued. 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. The EPA requests comment the potential for payments to be channeled through the EPA as fees.***E.O. 12866 Review

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Such relationships constitute a conflict of interest (COI). COI situations may also arise as a result of personal relationships among individuals representing an ERC provider and an accredit ed 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 have management protocols in place to identify and remedy any COI prior to provision of verification services. T hat the proposed federal plan and model rule provide that failure of an accredited verifier to identify and adequately address any COI prior to provision of verification services is grounds for revocation of accreditation. The EPA will perform periodic reviews of accredited verifiers, to ensure that verifiers are maintaining necessary technical and professional qualifications and are meeting program requirements for provision of ve rification services. The EPA may recognize , in part , accreditation by an outside organization where such outside accreditation demonstrates that federal plan requirements are met. 76 The EPA

76 An example is American National Standards Institute (ANSI) accreditation under ISO 14065:2013 for GHG validation and verification bodies. More information is available at https://www.ansica.org/wwwversion2/outside/GHGgeneral.asp
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requests comment on the proposed necessary requirements for an inde pende 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 a ny requirements that are not included in this
prop os a l that should be included in the final rule
. We further request comment on the level of detail that we should include in the final model rule regarding all requirements for indepenent verifiers, and all aspects of verification. 8. Evaluation, Measurement, and Verification (EM&V) Plans, Monitoring and Verification (M&V) Reports, and Verification Reports
T his section identifies and discusses the EM&V approaches used to quantify and verify MWh from RE, demand

- side EE, and other eligible measures used to generate ERCs or otherwise adjust an emission rate. 77

77 EM&V is defined 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 result ing 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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Only a subset of the potentially creditable ERC resources discussed in this section are actually being proposed as part of the federal plan. The rema inder, and the ir associated requirements, are provided as part of the proposed model trading rule. Thus, a ll provisions of this subsection relating to such

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

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

- side EE measures , and any other measures that may be eligible under the final guidelines as eligible

measur es under the federal plan. For stakeholders that are submitting comments on the inclusion of such additional measures, the EPA requests comment on how the EPA could implement across applicable jurisdictions a rigorous,***E.O. 12866 Review

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straightforward , and widely demonstra ted set of EM&V methods, procedures, and approaches that could be implemented in the time frame allowed by the federal plan and that also meet the requirements outlined in the final guidelines. To the extent proposed for inclusion in the model trading rule , w e also invite comment on these requirements in the context of state implementation as part of a state plan
. Thus, c ommenters on this aspect of th e proposal should consider whether and how these provisions could be implemented at the state level. Comments that suggest an approach not authorized by the EGs will likely be considered out side the scope of this proposed rule
. Additionally, with respect t o 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 ap proaches as specified, or may submit alternative EM&V that is functionally equivalent to the industry best

- practices described as presumptively approvable. 78

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

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

a. Overall A pproach and Measure

- S peci fic R equirements The proposed Clean Power Plan stated that the EPA would establish EM&V requirements and procedures to help states, sources, and resource providers quantify and verify MWh savings and generation resulting from zero

- emitting RE and demand

- side EE efforts. This federal plan proposes those requirements that the EPA committed to establish. The Clean Power Plan proposal and associated “State Plans Considerations” TSD 80 suggested that

that can be approved for use, provided th at such approaches are functionally equivalent to the provisions for EM&V outlined in this section. 79 A full discussion of applicable requirements for the establishment and functioning of the rate

- based trading system is provided above, in section I V.D of this preamble. 80 See discussion beginning on p. 34 of the State Plan Considerations TSD for the Clean Power Plan Proposed Rule:***E.O. 12866 Review

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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, refining , and enhancing their

e valuation and quality assurance approaches for over 30 years, particularly with regard to the quantification and verification of energy savings resulting from utility

- administered EE programs. The EPA also observed that the majority of RE generation is typ ically 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

http://www2.epa.gov/carbon

- pollution

- standards/clean

- power - plan

proposed

- rule

- state

- plan

- considerations
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the EPA’s proposed EM&V is to avoid excessive interference with existing practices that are alread y robust, transparent and effective
. (1) Submittals
. Applicable submittals under a rate

- based emission trading program include eligibility applications (including EM&V plans) , monitoring and verification reports , and verfication reports
. These submittals are described in section VIII.K. 3.b of the final EGs preamble and in this model rule and federal plan . At the initiation of a program or project, ERC providers develop and submit to the state or the EPA, respectively, an EM&V plan that documents how requiremen ts 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 ho w each of the requirements were applied. These reports must also specify the resulting MWh savings or generation values, as determined on a retrospective (ex

- post) or real

- time basis. MWh values may not be determined using projections or other ex

- ante quan tification approaches. Each EM&V plan submitted in support of an eligibility application must identify the eligible resource covered by the***E.O. 12866 Review

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plan, and provide specific EM&V criteria that specify the manner in which the energy generated or saved by the elig ible resource will be quantified, monitored and verified. The manner of quantification, monitoring and verification must meet the criteria outlined below and included in the proposed model rule, as applicable to the specific eligible resource. We take broa d comment on each criteria specified below and in the proposed model rule, for each eligible resource. Specifically, we seek comment on the substantive content of the criteria , and we seek comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible

resource. Each M&V report submitted in support of the issuance of ERCs to a specific eli gible resource must include specific criteria described here and in the proposed model rule. For the first M&V report submitted, a key component is documentation that the electricity

- generating resources or electricity

- saving measures were installed or imp lemented consistent with the description in the approved eligibility application. Each following M&V report must then identify the time period covered by the M&V report, describe how the methods specified in the EM&V plan were applied during the reporting period, and document***E.O. 12866 Review

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the quantify (in MWh) of energy generation and/or electricity savings quantified and verified for the period covered by the M&V report. Any change in the energy generation or savings capability of the eligible resource during the perio d covered by the M&V report must also be included in the M&V report, along with the date on which the change occurred, and information sufficient to demonstrate whether the eligible resource continued to meet all eligibility requirements during the period covered by the M&V report. Any change should also be specified in the report. The EPA takes broad comment on each of these criteria, as described here and in the proposed model rule. Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible resource. Each verification report submitted by an ind ependent verifier in support of the issuance of ERCs to a specific eligible resource must address the criteria described here and in the proposed rule text . Each verification report must set forth the findings of the verifier, based on an assessment of all relevant requirements, information and data, including an assessment of any material misstatements or data discrepancies.***E.O. 12866 Review

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Any verification report included as part of an eligibility application must further describe the review conducted by the verifier and verify the following : the eligibility of the resource to be issued ERCs; that the eligible resource exists and has been, or will be, generating energy or saving electricity in the manner required; that the EM&V plan meets its requirements; and any other i nformation required or that the verifier finds, in its professional opinion, is necessary to assess the accuracy of the subject of the verification report. Each verification report included as part of a M&V report must also describe the review conducted by the verifier and verify the following : the adequacy and validity of the information and data submitted to quantify eligible MWh of electric generation or electricity savings during the period covered by the report, as well as all supporting information an d data identified in the EM&V plan and M&V report; evaluate whether all generation or savings data is within a technically feasible range for that specific eligible resource (determined through a quality assurance and quality control check of the data); th at the M&V report meets its requirements; and any other information required or that the verifier finds, in its professional opinion, is necessary to assess the accuracy of the subject of the verification report. The EPA takes broad comment on each of***E.O. 12866 Review

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thes e criteria, as described here and in the proposed model rule. Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible resource. For demand

- side EE, all EM&V plans that are developed for purposes of adjusting an emission rate under this final rule are intended to leverage and closely resemb le the plans already in routine use for a wide range of publicly or rate

- payer funded EE programs and energy service company (ESCO) projects. For RE, EM&V plans similarly leverage resources and approaches to MWh tracking for RE that are broadly applied in the state and regions. The existing reports and documentation from existing tracking systems may serve as the substantive basis for a monitoring and verification report for RE. b. Renewable Energy EM&V Requirements This section describes the EM&V requirements associated with quantifying electricity generation from eligible RE and nuclear , and for documenting these requirements in EM&V plans and reports. Consistent with prevailing views expressed in public comments, the EPA’s requirements presume that the quant ification of RE generation can leverage the infrastructure***E.O. 12866 Review

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and documentation associated with the establishment of renewable energy certificate s (RECs) and registration of such certificates in REC registries . These registries typically include well

establis hed 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 t he applicable ANSI C

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

- area operators; or (2) for customer

- sited generators that are interconnected behind the customer meter, measurement at the AC output of an inverter, 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 Kilowatt capacity or less may estimate the facility’s output if the state where it is located explicitly allows estimates to be used and provides rules for when it will be allowed. In the latter case, calculations of system output must be based on the RE unit’s***E.O. 12866 Review

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capacity, estimated capacity factors, and an assessment of the local conditi ons 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 should be elect ronically collected by the control area’s energy management system, verified through an energy accounting or settlements process, and reported by the control area operator to the REC registry at least monthly. The EPA requests comment on this proposed requ irement 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 the ERC registry by an independent third party, or may be self

report ed. 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 a gency, state or the REC registry. For reporting purposes, RE generation may be aggregated from multiple genera tors 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 Kilowatt , the aggregated RE units collectiv ely have nameplate generating***E.O. 12866 Review

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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 identified a nd 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. Such calculations must apply the requirements specified for demand

- side E E as described below. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection, includuing the app ropriateness of their use for each type of RE resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Clean Power Plan compliance.
F or RE resource s with a nameplate cap acity of 10 Kilowatt or more and for RE resource s with a nameplate capacity of less***E.O. 12866 Review

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than 10 Kilowatt for which metered data are available , we take comment on the appropriateness of the requirement to use a revenue qualit y 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 10 Kilowatt is the appropriate threshol d, 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 RE resources of all sizes and means of monitoring, we take comment on the appropria te requirements for allowing generation data to b e aggregated, including comment on the provisions in the proposed model rule and any alternatives to them. We take comment on whether the a ll of the generating units have the same essential generation charac teristics, in order for their data to be aggregated, and if so, what the appropriate content of the definition of “ essential generation characteristics ” ( e.g ., are essential generating characteristics determined on a resource by resource basis, or can gene ration 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 Kilowatt per unit and the***E.O. 12866 Review

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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 Kilowatt , we take comment on whether the final model rule should specify the specific 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 request comment on a ny ot her requirements that should be included in the final model rule regarding EM&V of RE resources. For all energy generating resources (such as RE, but also including applicable resources requiring EM&V described below), we take comment on the appropriate place of measurement of the generation, including comment on whether measurement should be at the bus bar or at a different location (or in the case of meter on units of less than 10 Kilowatt , at the AC output of the inverter or elsewhere), whether measure ment 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 process prior to issuance of ER Cs, and if so, what level of specificity with respect to that process we should***E.O. 12866 Review

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include in the final model rule. If not, or if the unit does not go through a control areas settlement process, we take comment on how the data collection should be specified i n 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 quantifying electricity generation fro m eligible nuclear, and for documenting these requirements in EM&V plans and reports are the same as the requirements for RE discussed in the preceding section. The EPA requests comment on all metering, measurement, verification, and other requirements in cluded in this subsection, includuing the appropriateness of their use for each type of nuclear energy resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Clean Power Plan compliance. We ta ke comment on whether nuclear energy resources should be subject to the same EM&V requirements as RE resources, and if not, we take comment on to which EM&V requirements nuclear energy resources sho uld be subject.***E.O. 12866 Review

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d. Non

- A ffected Combined Heat and Power EM&V Requirements In additon to the CHP specific EM&V requirements discussed below and in the associated provisions in the model rule, all
CHP must follow the requirements for RE discussed in the preceding section, including metering requirements, special treatment for units of less than 10 Kilowatt , and how to account for T&D losses
. In order to determine the incremental CO 2 emission rate, a
CH P unit would monitor requirements for CO 2 emissions and energy output. 81 The monitoring requirements are standard methods currently in use and the requirements would depend on the size of the CHP units and the fuel used in the unit.
Non

- affected CHP facili ties 82 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 of this preamble
. For non

- affected CHP facilities with electric generating capacity less than or equal to 25 MW, which use only natural gas and/or distillate

81 Where a CHP unit uses biomass fuel, it must report both total CO 2 emissions and biogenic CO 2 emissions. Proposed requirements for reporting biogenic CO 2 emissions are discussed below in the section titled ‘ EM&V requirements that apply to biomass RE facili ties.’ 82 A CHP facility may consist of one or more electric generators.***E.O. 12866 Review

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fuel oil, the low mass emission unit CO 2 emission monitoring and reporting methodology outlined in 40 CFR 75 is acceptable. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection with respect to CHP, including the appropriateness of their use for CHP (including with respect to the size of the C HP resource). We take comment on whether a CHP unit should be subject to the same EM&V requirements as RE resource s, and we take comment on any additional EM&V requirements to which CHP units should be subject. Specifically, we take comment on specifying in the final model rule that if a CHP unit has an electric generating capacity greater than 25 MW, its EM&V plan
must specify that it will meet the requirements that apply to an affected EGU under 40 CFR 6 2.16540
. We also take comment on specifying in the final model rule that if a CHP unit has an electric generating capacity less than or equal to 25 MW , the EM&V plan must specify that it will meet the low mass emission unit CO 2 emission monitoring and reporting methodology 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.O. 12866 Review

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e. B iomass EM&V R equirements A state plan t hat is adopting the rate

- based model rule must propose EM&V requirements for monitoring and reporting biogenic CO 2 emissions from the use of qualified biomass at RE facilities that are eligible for adjusting a CO 2 emission rate. If a state proposes to use the monitoring and reporting requirements for biogenic CO 2 emissions in 40 CFR part 98 ( 40
CFR 98.3(c), 98.36(b)

- (d), 98.43(b), and 98.46) in its plan submission, those requirements are presumptively approvable. An EM&V plan that addresses biomass RE must follow the requirements for monitoring and reporting biogenic CO 2 emissions from the facility that were approved by the EPA in connection with the specific state plan. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection with respect to biomass, including the appropriateness of their use for qualif ied biomass. We take broad comment on the types of qualify ing 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 req uirements we should specify in the final model rule related to qualfi ed biomass. We take comment on a ny other***E.O. 12866 Review

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requirements that should be included in the final model rule regarding EM&V for qualif ied biomass
. Detailed discussion on the role of qualif ied bi omass feedstocks can be found in section
IV. C.3 of this preamble
. f. Waste

- to

- E nergy EM&V R equirements A state plan that is adopting the rate

- based model rule must propose EM&V requirements for monitoring and reporting biogenic CO 2 emissions from waste

- to

- energy facilities that are eligible for adjusting a CO 2 emission rate. If a state proposes to include the monitoring and reporting requirements for biogenic CO 2 emissions in 40 CFR part 98 ( 40 CFR 98.3(c), 98.36(b)

- (d), 98.43(b), a nd 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 that addresses the biogenic CO 2 emissions from a waste

- to

energy facility must follo w 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. As discussed in the final EGs (see section VIII.K.1 of the final EGs ) , only the portion of e lectric 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.***E.O. 12866 Review

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The EPA requests comment on all mete ring, measurement, verification, and other requirements included in this subsection with respect to WTE, including the appropriateness of their use for WTE. We take comment on whether a waste

- to

- energy resource should be subject to the same EM&V as RE reso urce 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 rel ated 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 proposes EM&V provisions that will be presumptively approvable if included in state regulations governing how EE is to be quantified by EE providers and verified by independent entities acting on behalf of the state. As noted above t hes e proposed provisions apply to all demand

side EE used to adjust an emission rate if a state adopts the model rule. The EPA is soliciting comment on the incorporation of EE for the federal plan and by extension the EM&V associated with it
. For all demand

- side EE used to generate ERCs , the EPA is proposing that the metric is MWh of electric ity savings must be***E.O. 12866 Review

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quantified on an ex

- post or real

- time basis and defined as a reduction in facility

- or premises

- level electricity consumption due to a n EE program , project , or measure . (1) Common Practice Baseline Based on public input and assessments of industry best

p ractice protocols and procedure s, the EPA is proposing that it is presumptively approvable to quantify EE saving s as the difference between actual metered electricity usage after an EE program, project, or measure is implemented, and a “common practice baseline” (CPB). A CPB is the equipment that would most frequently be installed at the time an existing piece of equi pment fails or is replaced at the end of its effective useful life

– or that a typical consumer or building owner would have continued using for the remainder of the equipment's effective useful life

– in a given circumstance (i.e., a given building type, EE program type or delivery mechanism, and geographic region) at the time of EE implementation. It defines what would commonly have happened in the absence of the EE program, project, or measure
. The applicable CPB depends on a number of factors, such as characteristics of the EE program, project, or measure, the mechanism by which electricity customers are engaged , local consumer and market characteristics, and the applicable building***E.O. 12866 Review

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energy codes and product standards (C&S), including the C&S compliance rate. Examples of appropriate CPBs to apply in specific circumstances, which may be presumptively approvable , can be found in the EPA’s EM&V guidance. EE providers must document the selected CPB in their EM&V plans, along with clear documentation and discu ssion of the rationale, applicability, and relevant data sources, protocols, and other supporting information. Monitoring and verification reports must refer to the EM&V plan and confirm that the CPB was appropriately applied. (2) M etho ds U sed to Q uantify S av ings from Energy Efficiency Programs and P rojects This section proposes criteria that are presumptively approvable 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 typically allow utilities and other EE providers to use a range of EM&V metho ds 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 is proposing to offer flexibility for EE providers to select from three br oad categories of EM&V methods to determine***E.O. 12866 Review

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savings. These categories include project

- based M&V, deemed savings, and comparison group approaches such as randomized control trials (RCT). Regardless of the approach selected, the EPA is proposing that annual savings values must be quantified using these EM&V methods at specified time intervals (in years) on a recurring basis over the effective useful life of the EE project

or measure in order to ensure accurate and reliable savings values. To be presumptivey approable , the EPA is proposing that EE providers must apply the above methods at a minimum of 4

- year intervals for building energy codes and product standards; every 1 , 2 or 3 years for publicly

- or utility

- administered EE programs, depending on the progr am type, magnitude of savings, and experience with the program; and annually for large individual commercial and industrial projects , unless the EE provider can credibly demonstrate why this is not possible and how the accuracy and reliability of savings v alues will be maintained
. The EPA is further proposing that, to be presumptively approvable , the selected method, associated assumptions, and data sources must be identified and described in EM&V plans. For comparison group approaches, the EPA is propsing that states and EE providers can refer to the EPA’s draft EM&V***E.O. 12866 Review

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guidance for a discussion of industry best

- practice protocols and guidelines
. Where feasible, the EPA is proposing to encourage the use of RCT methods , which determine savings on the basis of energy consumption differences between a treatment group and a comparison 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 EPA is proposing that the use of deemed savings values will be presumptively approvable if those values (a) are documented in a publicly available database (also known as a Tech nical Reference Manual) that is accessible on a public W eb site, or is otherwise readily accessible ; (b) s pecify the conditions for which each deemed value can be applied, including but not limited to climate zone, building type, and EE implementation mech anism ; and (c) are updated at a minimum of every 3 years to reflect the per

- measure MWh savings documented in ex

- post EM&V studies apply M&V or comparison group methods
. For M&V methods to be presumptively approvable , the EPA is proposing is that industry best

- practice protocols and/or guidelines must be followed. Examples of acceptable best

practice protocols and guidelines are provided in the EPA's EM&V***E.O. 12866 Review

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guidance. EE providers can consult the EM&V guidance to assess the applicability of these technical re sources to the EE programs and projects generating savings, and must document how one or more best

- practice protocols or guidelines will be appropriately applied in EM&V plans (along with clear documentation and discussion of the rationale, applicability, and relevant data sources, and other supporting information). The EPA is also proposing that monitoring and verification reports must refer to the EM&V plan and confirm that the relevant M&V protocol or guideline was properly applied. (3) Quantifying S avings
R egardless of the approach used to quantify and verify MWh savings, the EPA is proposing that EM&V plans must describe how they will address the following provisions :

• How major changes in independent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be accounted for
. The EPA is proposing that t he effects of these changes must be calculated using in dustry 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.***E.O. 12866 Review

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• How the initial installation of EE will be verified for EE program categories that invo lve the installation of identifiable measures ( e.g ., most utility consumer - funded EE programs and project

- based EE are evaluated site

- by

- site). The EPA is proposing that v erification is required within the first year of program implementation and that a ll verification activities must be performed using industry best

practice techniques ( e.g ., phone or mail surveys, document review, site inspections, spot or short

- term metering). For projects implemented as part of a larger program, the EPA is proposing that verification can be performed using a sample of projects to represent the full program population.

• How avoided T&D system losses 83 will be quantified and applied to EE savings determined at the customer facility or premises
. The EPA is proposing that d em and

- side EE programs (other than T&D efficiency

83 T&D losses are defined as the difference between the quantified EGU generation required to serve a customer’s load (measured at the EGU bus bar) and the customer’s actual electricit y consumption (measured at the customer meter).***E.O. 12866 Review

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measures such as CVR and volt/VAR optimization 84 ) may adjust reported savings by using a T&D adder . If such an adder is applied, the presumptively approvable
appro a ch is to use the smaller of 6 percent or the calculated statewide annual average T&D loss rate (expressed as a percentage) calculated using the most recent data published by the U.S. EIA State Electricity Profile. 85

• How the duration of EE program or project electricit y savings will be determined. This must be determined using industry best

- practice protocols and procedures involving annual verification assessments, industry

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

• How the accuracy and reliability of quantifying MWh

84 More information about these technologies is in section VIII.F.1 of the final EGs
. 85 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 electricity 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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savings values will be assessed, and the rigor 86 of the methods used to control the types of bias or error inherent to the applied EM&V methods. Sampling of populations is appropriate, provi ded that the quantified MWh derived from sampling have at least 9 0 percent confidence intervals whose end points are no more than +/

- 10 percent of the estimate.

• How double counting will be avoided through the use of tracking and accounting procedures to e nsure that the same MWh of electricity savings is not claimed more than one time (for example, two EGUs claiming savings from the same lighting retrofit). The types of double counting that may arise are discussed in the EPA’s draft EM&V guidance. (4) Use of En ergy 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

86 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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this observation and is therefore proposing the application of industry best

- practice protocols and procedures for demand

- side
EE. In particular, the EPA is proposing that, to be presumptively approvable , EM&V plans must specify the use of best

- practice protocols and procedures , and must a lso include a clear description and documentation of how the relevant protocols and procedures will be applied
. EM&V reports must include documentation of how such protocols and procedures were actually applied. EE providers can refer to the EPA’s EM&V gui dance 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 EGs rulemakin g process in allowing states to issue ERCs for quantified and verified MWh savings from DS

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

- side EE program , p roject , or measure that result s in MWh savings may b e potentially eligible to generate ERCs, including under this proposed model trading rule , provided that they meet the presumptively approvable provisions for eligibility described in section IV.C.3 of this preamble , and that supporting EM&V is rigorous, transparent, credible, complete and fulfills the requirements provided in the EG s and***E.O. 12866 Review

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the state plan. Examples of potentially eligible demand

- side EE program and project types include:

• P ublicly or utility

- administered EE programs , including those implemen ted in low

- income residences and facilities
.

• Project

- based EE evaluated site

- by

- site, for example those implemented by ESCOs at commercial buildings and industrial facilities
.

• State and local government building energy code and compliance programs
.

• State a nd local government incremental product energy standards
. The EPA’s EM&V guidance contains supplemental information about applicable best

- practice protocols, methods, and other key considerations for quantifying and verifying savings from the above

- listed EE activities in an accurate and reliable 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 pr ogram types will emerge and expand throughout the rule period, and that MWh savings resulting from any such programs can similarly be considered if they meet the requirements of the EG s .***E.O. 12866 Review

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(6) Requests for Comment on Energy Efficiency EM&V We take broad comment on each EE EM&V criteri on described herein and in the proposed rule text , for each type of EE activity, project, program, or measure . Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level detail provided regarding these criteria and whether more or less detail (and what detail) should be included in the final model rule. In addition, we seek comment on whether some of the EE EM&V criteria (and if so, which criteria) included in the d raft guidance document released simultaneously with this proposed rulemaking should instead be included in the final model rule, instead of in guidance. Similarly, we seek comment on whether some of the EE EM&V criteria (and if so, which criteria) included in the proposed model rule should instead be addressed in the final EM&V guidance. More generally, we seek comment on what EE criteria the EPA should described in guidance versus what criteria the EPA should specify in the final model, whether or not thos e 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 program, project, or measure . We take broad comment on what***E.O. 12866 Review

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c onstitute EE best

- practice protocols and procedures for every type of EE program, project, or measure. We take broad comment on whether, when , and how common practice baselines should and should not be used in calculating electricity savings from EE activi ties, projects, programs, and measures, including comment on which common practice baselines should be used in which circumstances. We also take comment on whether some alternative metric should be used in lieu of the common practice baseline and, if so, w hat that metric should be. We take broad comment on the appropriateness of quantifying electricity savings by applying one or more of the following methods and comment on all aspects of each method: project

- based measurement and verification (PB

- MV), comp arison group approaches, or deemed savings . We take further comment on circumstances in which it is appropriate (or inappropriate) to use each of these methods , including when it is appropriate to use random control trials (RCT) and quasi

- experimental meth ods , and the circumstances in which they can be encouraged and applied in practice ( e.g ., when a suitable control or comparision group can be identified and applied in a cost

effective manner ). In addition, we take comment on whether the general suitability and applicaton of quantification methods, such as RCT, quasi

- experimental techniques or other comparison***E.O. 12866 Review

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group approaches when they are available at reasonable cost for purposes of quantifying MWh savings for particular EE programs,
pro jects, or measures. If deemed savings are to be used in quantifying electricity savings from an EE program, project, or measure , we take comment on the appropriate characteristics and presumptively approvable provisions for their us e in generating qualify ing ERCs , including the basis and frequency for their determination , and the appropriateness of their application to particular EE programs, projects or measures in particular states or regions
. We further take comment on the presumptively approvable provi sion for public access and input to the development of the TRMs used to house the applicable deemed savings values. We take comment on the minimum and maximum intervals (in years) over which electricity savings must be quantified , including those time int ervals 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 leverage these programs if they incorporated EE into a rate

- based trading scheme with ERCs,***E.O. 12866 Review

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it is theoretically possible that an ERC could be issued in one state tha t would not have been issued in another, even if both states have rate

- based programs in place that meet all of the
EG s . The EPA takes comment on what criteria it should include in the final model rule, and what level of details with respect to those crite ria that it should include, in order to ensure that an ERC issued for an EE program, project, or measure in one state reflects the same MWh of energy or electricity saved in another state. We further take comment on whether there are provisions that the EP A 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 effort to find a state with standards for ERC issuance that it deems more lenient or less bu rdensome 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 life (and its basis), and interactive effects of EE programs, projects, and measures
.***E.O. 12866 Review

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We take comment on the circumstances and frequency in which savings verification must occur to ensure that EE measure s have been installed, are functioning, and have the potential to save
energy . We take comment on the appropriate steps for avoiding double c ounting, 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 ( including those identified in this section), and the presumptively approv able provisions that must be adopted in state plans for avoiding and mitigating double counting. We take comment on the appropriate means by which an EM&V plan can ensure the accuracy and reliability of electricity savings estimates , including the necessary rigor of the method s selected to evaluate the electricity savings, the methods used to control all relevant types of bias and to minimize the potential for systematic and random error, and the potential effects of such bias and error. We fur ther 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 presumptively approvable approach to quantifying the electricity savings tha t result from avoiding a***E.O. 12866 Review

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transmission and distribution system loss, including the provisions in the proposed model rule, which specify that e ach EM&V plan must quantify the transmission and distribution loss based on the lesser of 6 percent of the site

- lev el electricity comsumption measured at the end use meter or the statewide annual average transmission and distribution loss rate (expressed as a percentage) from the most recent year that is published in the U
. S . EIA State Electricity Profile. We take

comm ent on the appropriateness of including 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 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 skill certification standards can help to ass ure 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***E.O. 12866 Review

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important to substantiate the authenticity of emissions reductions. The EPA agrees that in conjunction with other EM&V measures discussed in this section, and in the context of the model trading rules although this is not an aspect needed for presumptive approvability , states are encouraged to include in their plan a description of how states will ensure that workers installing demand side EE and RE projects , or other measures intended to reduce CO 2 emissions, as well as workers who perform the EM&V of demand side EE and existing EGU performance will be certified by a third party entity that:

• Develops a training or competency based program aligned with a job task analysis and/or certification scheme;

• Engages with subject matter experts in the development of the job task analysis and/or certification schemes that represent appropriate qualifica tions, categories of the jobs, and levels of experience;

• Has clearly documented the process used to develop the job task analysis and/or certification schemes, covering such elements as the job description, knowledge, skills, and abilities;

• Has pursued th ird

- party accreditation aligned with***E.O. 12866 Review

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consensus - based standards, for example ISO/IEC 17024 or IREC 14732. Examples of such entities include: parties aligned with the
DOE ’s Better Building Workforce Guidelines and validated by a third party accrediting body recognized by DOE; or parties aligned with an apprenticeship program that is registered with the federal Department of Labor (DOL), Office of Apprenticeship; or with a state apprenticeship program approved by the DOL, or by another skill certification vali dated by a third party accrediting body can help to substantiate the authenticity of emission reductions due to demand

- side EE and RE and other carbon emission reduction measures . 9. ERC Transfers and Trading All affected EGUs that may be subject to this prop osed 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 allowa nces. To register to participate in the ATCS an affected EGU must submit designated representative information. More information on the designated representatives is described above in section IV. D .1 of this preamble. Non

- EGUs who wish to participate ( e.g., RE sources) may submit registration criteria***E.O. 12866 Review

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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 p art 75
. 87 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 that are posted online would be publicly available.
Non

- EGU ERC generating sources are required to submit generation data annually (see s ection IV .C.3 of this preamble for a comprehensive discussion of non

- EGU ERC generating sources). The data must follow the EM&V procedures delineated in

s ection IV. D . 8 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 process 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

87 See section IV.D.11 of this preamble for more information.***E.O. 12866 Review

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ERCs through a NODA as described in section IV. D . 6 of this preamble. The EPA is proposing to issue ERCs annually. ERCs are acquired and traded throughout the compliance period. An affected E GU is responsible to hold sufficient ERCs that qualify for CPP compliance in its ATCS compliance account by November 1 at midnight of the year following the conclusion of the compliance period
. 88 The process for transferring ERCs from one account to another is quite simple. A transfer would be submitted providing, in a format prescribed by the agency , the account numbers of the accounts involved, the serial numbers of the ERCs involved, and the nam e 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 business days of the receipt of the transfer form. 10. Compliance with Emissions Standards Once the compliance period has ended, affected EGUs would

88 This true

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

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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 sou rces 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 comprises the three years 2022, 2023, and 2024, then the ERC transfer deadline 89 for that first compliance period (after which point the EPA would evaluate compliance) would be on November 1, 2025. The agency also requests comment on an earlier ERC transfer deadline, such as June 1 or March 1, of the year after the last year in the compliance p eriod
. 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 emissions deemed associated with it for the compliance period that includes the year for which the ERC was issued or be averaged into a later compliance period. Consequently, each affected EGU would need, as of the ERC transfer deadline, to have in its compliance account enough ERCs usable for its compliance obligations for the compliance period. The authorized

89 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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account representative co uld identify specific ERCs to be applied, but, in the absence of such identification or in the case of a partial identification, the Administrator would deduct on a first

- in, first

- out basis. The ERCs that are used to meet compliance obligations are moved from the compliance account to the EPA’s retirement account. ERC s that are deducted for compliance will remain in the system in an EPA account, which ensures they will not be used again. The EPA will use the submitted generation, CO 2 emissions and ERCs in the affected EGU’s compliance account to calculate an average emission rate for the EGU. It is the responsibility of an affected EGU to calculate the number of ERCs that will need to be held in a compliance account to meet the EGU’s compliance obligations. The method for determining the quantity of ERCs needed to meet compliance obligations has been discussed previously in an example. To reiterate the process, the affected EGU would need to solve for the number of zero

- emitting MWh ( i.e., ERCs) that would n eed to be added to the total MWh of the EGU to make the adjusted emission rate equal to the emission standard. AAAAAAAAAAAAAAAA EEEEEE EEEEEE RRRR = MM oo CCCC 2 ( llll ) GG GG ( MMMM h ) + MMMM h EE This equation c an be rearranged to:***E.O. 12866 Review

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MMMM h EE = oo CCCC 2 ( llll ) AAAAAAAAAAAAAAAA EEEEEE EEEEEE RRRR ( llll MMMM h ) − GG GG ( MMMM h )
If an affected EGU fails to hold sufficient ERCs to comply with its emission standard 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 deducted from the EGU’s compliance account as soon as they are available in th is account; the Administrator will not wait until the next true

- up date to make this deduction. The two ERCs owed for each ERC needed for compliance is in addition to any other recourse provided in s ec tions 113 (a)

– (h) or s ection 304 of the
C AA . This requi rement 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 replacement ER Cs 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 t here should be a stricter or a***E.O. 12866 Review

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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 this failure. The deduction of another ERC per ERC that the owners and operators failed to hold provide s a strong incentive for compliance with the ERC

- holding requirement by ensuring that non

- compliance would be a significantly more expensive option than compliance. Th is is consistent with other existing trading programs
. 11. Other ERC Tracking and Compliance Operations Provisions These sections also would provide that the Administrator could, at his or her discretion and on his or her own motion and consistent with existin g 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 submission, an d 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 ARP and Cross State Air Pollution Rule ( see , e.g., 40 CFR 72.96, 73.37, 97.427, and 97.428). The EPA solicits comment on***E.O. 12866 Review

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potential alternatives for error correction that is simpler or more efficient.
12. Banking of ERCs The EPA is proposing to allow unlimited banking or ERCs within and between the interim and final compliance periods. This means th at if an affected EGU has more ERCs than are necessary during true

- up, it may save ( i.e
. , bank) those ERCs for application during a future co mpliance period . The EPA requests comment on whether there should be a quantitative limit

or cap on the number of ERCs that can be banked. The EPA also requests comment on whether an ERC should be eligible to be banked between the interim and final compliance periods. The EPA is also proposing that ERCs will not expire after any duration of time. Other trading rules that the EPA has instituted (e.g., CSAPR) do not have expiration on the tradable properties. The EPA requests comment on the shelf

- life of an ERC. ERC “borrowing” is a flexibility that the EPA is not proposing, 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 compliance obligations. The EPA also has***E.O. 12866 Review

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reservations due to the fact that future ERC generation is not guaranteed. 13. Emissions Monitoring and Reporting The EPA would require that emission and generation data be reported to the EPA quar terly starting on April 30 , 2022 , and continuing every 3 months thereafter ( i.e., the 30th of April, July, October, and January). The EPA proposes that affected EGUs subject to the rate

- based federal plan trading 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 January 1, 2022
. Quarterly reporting would be required, with each quarterly report due to the Administrator 30 days after the last day in the quarter. The reporting would be in accordance with 40 CFR
p art 75.60. The use of p art 75 certified monitoring methodologies would be required. Many aff ected 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 p art 75 as they have under existing programs. The EPA anticip ates 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***E.O. 12866 Review

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excepted monitoring methodology) affected EGUs, that would not otherwise be subject to the ARP , will have to purc hase and install additional continuous emissions monitoring system ( 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 ARP are subject to the MATS program and therefore will have already installed stack flow rate and / or CO 2 monitors in order to comply with the 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 m onitors. The same CO 2 and stack gas flow rate monitored data used in conjunction with
mercury and other CEMS to calculate a toxic pollutant emission rate may be used to calculate a CO 2 mass or CO 2 emission rate for this program. The Regional Greenhouse Gas Initiative ( RGGI ) , ARP, MATS and this rule all refer to CEMS installed and certified in accordance with 40 CFR part 75. RGGI and ARP currently require the reporting of CO 2 mass emissions on an hourly basis and cumulative totals at the end of each calendar quarter. The same monitors and data collected may be used for multiple purposes for RGGI, ARP, MATS and this rule. Relying on the same monitors that are certified and quality ensured in***E.O. 12866 Review

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accordance with 40 CFR part 75 ensures cost efficient, consistent, an d 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 RGGI programs and will have minimal additional monitoring and repor ting requirements. The EPA also requests comment on requiring monitoring and reporting of CO 2 mass and net generation for the year before the initial compliance period begins, i.e., to commence January 1, 2021. Only monitoring and reporting would be requir ed in 2021

— compliance with an enforceable emission standard would commence on the compliance period schedule that is detailed in section
III.D of this preamble
. E. Federal Plan and State Plan Interactions 1. Interstate Trading The EPA proposes that all affected EGUs within states that are covered by the federal plan , if a rate

- based federal plan is 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

“ ready

- for

- interstate

- trading ” plans in the EGs that affected EGUs located in states with approved ready

- for

- interstate

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trading state plans using the sub

- categoriz ed uniform rate standards, and a common credit currency ( i.e., ERCs representing

one zero - emitting MWh ) may trade with affected EGUs operating under the federal trading program established in this federal plan.
Rate

- based EGUs subject to the federal plan and rate

- based EGUs in ready

- for

- interstate

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

- for

interstate

- trading states must submit information tha t lists all affected EGUs and the EGU type to the Administrator to be able to trade within the federal trading program. To be able to trade in the federal trading program a n affected EGU that is subject
to a ready

- for

- interstate

- trading state plan must: (1 ) C ertify and authoriz e a designated representative per s ection IV. D .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 p rogram. An affected EGU under a state plan will not register a compliance account in the federal system because it will not be demonstrating compliance under 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***E.O. 12866 Review

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federal trading program. These ERCs will be stored in the EGU’s general account in the federal trading program. To use these ERCs for compliance purposes, the ERCs must be transferred to the EGU’s compliance account in the state’s program. The EPA proposes to provide software to states to maintain a state’s compliance and tracking program. A state’s program will have the capability to interact with the federal trading program and software, ATC S, for transferring ERCs if the state is ready

- for

interstate

- trading . A state’s program can be tailored to meet its needs while still providing a platform for a state to be transferring ERCs between the state’s system and the federal trading program. ERCs can flow between a state system and the federal trading program bilaterally. The EPA acknowledges that states may have additional criteria for generating ERCs that are not outlined as part of the federal plan, but because the EPA will have vetted these criteria through a state plan approval these ERCs will be able to be traded within the federal trading
program. 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 conclusion of a federal plan compliance period. The EPA***E.O. 12866 Review

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requests comment on whether there are reasons that a state sho uld be allowed to transition from a federal plan to a state plan in the middle of a compliance period and if so what requirements should be put in place to do so while ensuring the integrity of both the federal plan and the state plan and while enabling th e affected EGUs covered by the plans to understand and meet their compliance requirements
. If a state subject to the federal plan transitions to a state plan, any affected EGU impacted by the change remains responsible for meeting any outstanding obligatio ns under the federal plan. To make the transition to a state plan, a state must have an approved state plan as laid out in section s VIII.D and VIII.E of the final EGs
.
**V. Mass**  **- based Implementation Approach** 
A. Trading P rogram O verview In addition to the rate

- b ased implementation approach 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***E.O. 12866 Review

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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, and constitute, the emissions budget or the aggregated emissions limit expressed in terms of short tons of emissio ns . T he EPA is proposing that allowances be issued in short tons for the federal plan
. Each facility with affected EGU s in the program must surrender allowances equal in number to the quantity of the emissions of its affected EGUs during the compliance per iod. A 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 trading program for the federal plan, the aggregate emissions limit for a state is its statewide

mass - based emission goal (or “mass goal”) as finalized in the***E.O. 12866 Review

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Clean Power Plan EGs. The proposed approach to linking states for interstate allowance trading is detailed in section III.A.1 of this preamble ; i n an interstate trading program the aggregate emissions limit is the sum of the mass goals for the covered
states. The EPA believes that a broad trading region provi des greater opportunities for cost

- effective implementation of controls compared to a smaller region. Therefore , the agency proposes that a n affected EGU in any state covered by the proposed mass

- based trading federal plan may use for compliance an allowan ce distributed in any other state covered by the mass based trading federal plan
. The EPA also proposes to provide for allowance trading between affected EGUs and other entities in
states with approved mass

- based

- trading state plans that meet the condition s specified in section III.A.1 of this preamble , above , and affected EGUs and other entities in any state covered by the federal plan mass

- based trading program
. A mass

- based trading program can provide environmental certainty at lower cost than other policy mechanisms , because it assures the specified emissions outcome while maximizing compliance flexibility available to individual affected EGUs
. Further, allowance banking in such a program creates an incentive to make reductions earlier than required. M ass - based***E.O. 12866 Review

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trading programs are relatively simple to operate , which reduces administrative time and cost . Additionally, to inform the mass

based trading approach proposed here, the EPA draws upon more than two decades of experience implementing federally

administered mass - based emissions budget trading programs including the ARP SO 2 trading program, the NO X Budget Trading Program, CAIR , and CSAPR . In the proposed mass

- based trading program federal plans, the emissions limit s in each state would be the mass goals that the EPA promulgated in the Clean Power Plan EGs (if there is interstate trading then the sum of the mass goals for the states in the trading program would constitute the aggregate emissions limit) . The total amount of allowances distribute d in each state for each year would sum to the state ’s mass goal for that year
. As detailed in section V.E of this preamble , t he EPA is proposing that a state covered by the federal plan can determine its own approach to distribute allowances , and believes t hat 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 short ton of CO 2 during the compliance period applicable to the allowance’s vintage year or a later compliance period
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proposed approach to distribute allowances, including three types of allowance set

- asides, is discussed in section V.D of this preamble , below. After each compliance period , a n affected EGU would surrender for compliance an amount of allowances equal to its emissions d uring the course of the compliance period . See section V.C of this preamble for the proposed length of the multi

- year compliance period s . Allowances could be transferred , bought, sold, or banked (carried over for future use) and any party could participate in the allowance market. The EPA is not proposing allowance “borrowing” ( i.e., the bringing forward of future

- period allowances for use in an earlier period ) ; the multi

- year 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 of this preamble
. In the proposed mass

- based trading program, t he emission standard applied to individual affected EGUs is the requirement to surrender emission allowances equal to reported emissions for each compliance period
. The EPA also proposes that a state may choose to replace the federal

- plan allowance

- distribution provisions with its own allowance

- distribution provisions ( i.e., to determine the distribution of allowances for its EGUs or other entities) using***E.O. 12866 Review

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a state allowance

- distribution methodology . State allowance distribution can have impo rtant 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 , including auctions . S ee section V.E of this preambl 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. C.3 of this preamble discusses an approach on which the EPA requests comment on th e inclusion of biomass as an eligible measure and on a proposed option where the agency would identify qualif ied biomass feedstocks (i.e., biomass feedstock s that are demonstrated to be a method to control increases of CO 2 levels in the atmosphere ) and potential methods for demonstrating compliance , and thus reduce the mass emissions attributed to a biomass co

- fir ed affected EGU. If the EPA took such an approach, then for purposes of compliance with the proposed mass

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emissions less the 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 of this preamble , below, the EPA proposes to implement the mass based trading program with multi

- year compliance periods that are consistent with the compliance timing provisions in the Clean Power Plan EGs , i.e., two three

- year compliance periods followed by a 2

- year compliance period in the Interim P eriod, and succ essive 2

- 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 opening for comment the determination s , made in the Clean Power
P lan EGs, of each state ’s mass goals . The mass goals are***E.O. 12866 Review

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provided for convenienc e in Table 8 of this preamble
.

**Table 8**  **. Statewide**  **Mass -**  **B ased**  **Emission Goals**  **(“ Mass**  **Goals ”)**  **( Short**  **T ons)** 

**State Interim period**  **Final period**  **Step 1 2022**  **- 2024**  **Step 2 2025**  **- 2027**  **Step 3 2028**  **- 2029**  **2030 -**  **2031 and**  **thereafter** Alabama 66,164,470 60,918,973 58,215,989 56,880,474 Arizona 35,189,232 32,371,942 30,906,226 30,170,750 Arkansas 36,032,671 32,953,521 31,253,744 30,322,632 California 53,500,107 50,080,840 48,736,877 48,410,120 Colorado 35,785,322 32,654,483 30,891,824 29,900,397 Connecticut 7,555,787 7,108,466 6,955,080 6,941,523 Delaware 5,348,363 4,963,102 4,784,280 4,711,825 Florida 119,380,477 110,754,683 106,736,177 105,094,704 Georgia 54,257,931 49,855,082 47,534,817 46,346,846 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***E.O. 12866 Review

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Louisiana 42,035,202 38,461,163 36,496,707 35,427,023 Maine 2,251,173 2,119,865 2,076,179 2,073,942 Maryland 17,447,354 15,842,485 14,902,826 14,347,628 Massachusetts 13,360,735 12,511,985 12,181,628 12,104,747 Michigan 56,854,256 51,893,556 49,106,884 47,544,064 Minnesota 27,303,150 24,868,570 23,476,788 22,678,368 Mississippi 28,940,675 26,790,683 25,756,215 25,304,337 Missouri 67,312,915 61,158,279 57,570,942 55,462,884
Montana 13,776,601 12,500,563 11,749,574 11,303,107 Nebraska 22,246,365 20,192,820 18,987,285 18,272,739 Nevada 15,076,534 14,072,636 13,652,612 13,523,584 New Hampshire 4,461,569 4,162,981 4,037,142 3,997,579 New Jersey 18,241,502 17,107,548 16,681,949 16,599,745 New Mexico 14,789,981 13,514,670 12,805,266 12,412,602 New York 35,493,488 32,932,763 31,741,940 31,257,429 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***E.O. 12866 Review

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Tennessee 34,118,301 31,079,178 29,343,221 28,348,396
Texas 221,613,296 203,728,060 194,351,330 189,588,842 Utah 28,479,805 25,981,970 24,572,858 23,778,193 Virginia 31,290,209 28,990,999 27,898,475 27,433,111 Washington 12,395,697 11,441,137 10,963,576 10,739,172 West Virginia 62,557,024 56,762,771 53,352,666 51,325,342 Wisconsin 33,505,657 30,571,326 28,917,949 27,986,988 Wyoming 38,528,498 34,967,826 32,875,725 31,634,412

C. Compliance T iming and Allowance Banking The EPA proposes to evaluate compliance ( i.e., compare emissions from affected EGUs to allowances held by facilities ) in multi

- year periods . A multi

- year compliance period provides greater flexibility to affected EGUs and reduc es 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 3

- year compliance period (2022 through 2024), a second 3

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and then a 2

- year compliance period (2028 and 2029) , for the Interim P eriod
. As in the EGs, the F inal P eriod would be divided into successive 2

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

- based trading federal plan , e.g., if a compliance period is 3 years long, the agency would evaluate compliance only after the end of the third year in the period. The E PA is not reopening for comment the compliance periods promulgated in the Clean Power Plan EGs. Some existing GHG mass - based trading programs ( i.e., emissions budget trading programs) use m ulti

- year compliance periods
. T he RGGI uses 3

- year compliance period s, along with intervening compliance requirements . The RGGI intervening compliance requirement is that sources must hold allowances to cover 50 percent of emissions for the first two calendar years of each 3

- year compliance period ; at the end of each 3

- year compliance period sources must hold allowances to cover 100 percent of emissions for the period and allowances already deducted for the intervening requirement are subtracted from the 3

- year obligation
. 90 The California Air Resources Board (CARB)

90 RGGI, Summary of RGGI Model Rule changes: February 2013. http:// www.rggi.org/docs/ProgramReview/_FinalProgramReviewMaterials/Model_Ru le_Summary.pdf Accessed June 9, 2015.***E.O. 12866 Review

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Ca p - and

- Trade Program also use s 3

- year compliance periods , along with intervening compliance requirements
. The CARB intervening requirement is to e valuate compliance on 30 percent of each
source’s previous year’s emissions every year, and evaluat e compliance for the remainder of emissions every 3 year s. 91 The EPA proposes to evaluate compliance after each multi

- year compliance period and is not proposing to implement intervening compliance requirements such as those in the RGGI or CARB programs, however , the a gency requests comment on the inclusion of such requirements. 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 pr ecedent, “[t]he time over which [the compliance standards] extend should be as short term as possible and should generally not exceed one month.” See e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 G uidance on Enforceability Requirements for Limiting Potential to Emit through SIP and §112 Rules and General Permits. The EPA determined that the longer compliance

91 Overview of ARB Emi ssions Trading Program. http:// www.arb.ca.gov/cc/capandtrade/guidance/cap_trade_overview.pdf Accessed June 9, 2015.***E.O. 12866 Review

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periods provided for in this rulemaking are acceptable in the context of this specific rulem aking because of the unique characteristics of this rulemaking, including that CO 2 is long

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

- term impacts. The EPA proposes that allowances may be banked f or 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 unlim ited allowance banking including the banking of I nterim

- P eriod allowances for use during the F inal P eriod. Allowance “borrowing” is a type of timing flexibility wherein allowances from a future compliance period may be “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 compliance periods inherently provide the flexibility to emit at relatively higher amou nts 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 202 2)
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is not proposing to allow allowance borrowing across compliance periods in the mass

- based trading federal plans ; h owever the agency is requesting comment on the use of borrowing across compliance periods
. A llowance borrowing across compliance periods would increase the complexity of the proposed mass - based trading
program and reduce the flexibility for state s to replace the federal plan with an approved state plan . First, in order for borrowing to occur , the EPA would have to make allowances fr om future compliance periods available early so that sources could use these future allowances in earlier compliance period s. T he EPA proposes to record allowances in source accounts for one compliance period at a time in order to maxim ize the opportunitie s 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 compliance period for which the agency has not yet recorded allowances in source
accounts . Recording allowances for multiple compliance periods
at once

– in order to make future

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for borrowing

– would therefore l imit th ese opportunities for
state s to take over implementation (or implementation of the allowance

- distribu tion ). 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 peri od, th os e borrowed allowances would constitute additional emissions beyond the levels specified in the Clean Power Plan EGs. In that event , the EPA would then need to address whether and how to remove allowances from circulation to prevent inflation of the allowable emissions at affected EGUs in the remaining 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 pl ans , including from how far into the future to allow allowances to be borrowed, how inclusion of borrowing would affect opportunities for state s to take over***E.O. 12866 Review

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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 borrowi ng across compliance periods would introduce
. The agency proposes to require sources to demonstrate compliance, i.e., allowance true

- up, on May 1 of the year after the last year in the compliance period . For example, if the first compliance period comprises the three years 2022 , 2023, and 2024, then the allowance transfer deadline 92 for that first compliance period (after which point the EPA would evaluate compliance ) would be on May 1 , 202 5
. The agency also requests comment on an earlier or later allowance transfer deadline. The EPA proposes to evaluate compliance ( i.e., allowance
true

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

EGU leve l , in the mass

- based trading program . Facility

- level compliance may ease implementation compared to unit

- level

92 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 of this preamble.***E.O. 12866 Review

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

- level compliance accounts . Fe wer accounts may make it easier for the design ated representat ives to manage their allowances. T he EPA has adopted facility

- level compliance in previous emissions budget

- trading programs including the ARP (70 FR 25162 ) , the
CAIR (70 FR 25162) , and the CSAPR (76 FR 48208)
. The EP A would continue to track unit

- level emissions

– while evaluating compliance at the facility level

– allowing us to track increases and decreases of pollutants at individual EGUs.

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. The EPA proposes that states have the flexibility to determine their own approach for distributing allowances in the federal plan , through a process that is detailed in section
V.E of this preamble
. The EPA believes that s tates should have***E.O. 12866 Review

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the opportunity to make decisions 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

- distribution approach
. The EPA is requesting comment on all of these, and any other, approach es to distribute allowances. The initial allowance allocation approach that is based on historic al 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 complian ce 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 allowa nces are distributed into the marketplace so that they may be available for affected EGUs to acquire as desired to authorize emissions under the program. However, because these allowances are finite in number and thus a limited resource, they have value, a nd as a***E.O. 12866 Review

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result, initial allowance allocations may raise issues of equity
among recipients. Thus the agency recognizes that its choice of allocation methodology is important from the perspective of distributional effects , and the importance of selecting an approach that is fair and reasonable in light of this consideration and the overall purpose of CAA section 111 informs the agency’s thinking in this proposal. We also invite comment on these considerations, and on any o ther factors or considerations which
commenters believe should inform the allocation method.
T he EPA believes that the most reasonable basis for an initial allowance allocation procedure is an approach that uses historical data reported by the affected EGU s 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 EG U

- 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 al data is also consistent with the EPA’s approach to initial allowance allocation under previously established mass - based trading programs.***E.O. 12866 Review

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The EPA proposes to allocate most CO 2 emission allowances to existing affected EGUs in each state covered by a final mass

based trading federal plan , with set

- aside s for a portion of allowances (discussed in more detail below) . For each compliance period , the agency would distribute CO 2 allowances in each covered state in the amount of the state’s CO 2 “ mass goal ” ( i.e., the state’s CO 2 statewide mass

- based emission goal as promulgated in the Clean Power Plan EGs) for that compliance period . For example, if a compliance period is 3 years long, the EPA would aggregate and distribute allowances for all 3 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
. F or each year of the program, the agency proposes to allocate most of the allowances directly to affected EGUs using a historic

- generation based approach . The EPA is also proposing three set

- asides of allowances, which are detailed below. Although the EPA cannot anticipate the future EGU

- level pattern of emissions, it is possible to consider potential future emission pa tterns at the source sub category level. In develop ing the Clean Power Plan EGs, the agency conducted analysis of emission reduction potential in the two affected EGU

source sub categories, i.e., electric utility steam generating***E.O. 12866 Review

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unit s (steam generating unit s) and NGCC units . With that analysis as a basis, the EPA is requesting comment on an alternative allocation approach that would first divide the total number of allowances from each state ’s mass goal into

source sub categor ies based on analysis done in dev eloping the source 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 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 , provide d that the state’s approach addresses emissions leakage and includes a Clean Energy Incentive Program . The proposed requirements for addressing leakage , as well as how the EPA proposes to implement the C lean
E nergy I ncentive Program for the mass

- based fede ral plan, are detailed in sections V.E and V.D.4 of this preamble ,***E.O. 12866 Review

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respectively. 93
. The EPA proposes that a state could choose its own method for distribut ing allowances for any compliance period including the first period that would commence in 2022. The proposed process for a state to replace federal

- plan allowance

distribution provisions with its own allowance

- distribution provisions is detailed in section V.E of this preamble
. 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, 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 load

- serving entities

– that the EPA or states might adopt. The EPA requests comment on all of these aspects of allowance distribution
.

93 As detailed in section V.E in this preamble, a state that chooses to determine its own allowance

- distribution approach under the proposed federal plan may do so through its allocation strategy (such as the set

- aside approaches in section V.D.3) or may make a justification regarding leakage as detailed in section V.E.***E.O. 12866 Review

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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 o n historic generation (output) data . The EPA also proposes three allowance set

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

- aside is for a proposed Clean Energy Incentive Program that is detailed in section V.D.4 of this preamble . The second would set aside a portion of allowances in each compliance
pe riod except for the first period ; the EPA proposes to distribute allowances from this set

- aside to affected EGUs via an updating output

- based approach as detailed in section V.D.3 of this preamble ) . The third would set aside five percent of allowances in e ach state, in all compliance periods, to be distributed to RE projects as detailed in section V.D.3 of this preamble . In summary, the proposed set

- asides include: (1) Clean Energy Incentive Program. This set

- aside would be of first compliance period allowa nces only. (2) Output

- based allocation set

- aside. This set

- aside would start in the second compliance period and continue for each compliance period. (3) Renewable energy set

- aside. This set

- aside would be implemented in all compliance periods.***E.O. 12866 Review

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This secti on describe s the proposed historic

- generation

based approach that the agency would use to allocate all allowances except for the set

- aside allowances. The EPA is proposing affected

- EGU

- level allocations (based on available data) in every state . Further detail on this proposed allocation approach is provided in the Allowance Allocation Proposed Rule TSD in the docket. The affected

- EGU

- level allocations resulting from this proposed historic

- generation

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

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

- generation

- based portion of the allowances ( i.e., the mass goal mi nus the set

asides 94 ) to individual affected EGUs based on each affected EGU ’s share of the state ’s historic generation , using 2010 through 2012 data
. The calculation steps for th is proposed historic

- generation

– based allocation approach are as follows:
1. For each unit in the list of likely affected EGUs in each
state , identify annual net generation values for the

94 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 compliance periods this would be the mass goal minus the output

- based al location set

- aside and the RE set

- aside.***E.O. 12866 Review

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historic period of 2010 through 2012 ( reflecting affected

EGU

- specific generation assumptions incorporated in the data adjustments , e.g., assumed capacity factor for “under construction” units ) . For a year for which an affected EGU has no generation data ( e.g., a year before the year when a unit started operating), assign the affected EGU a value of

zero. 95 (See step 2, below, for how zero v alues would be treated in the calculations.)
The EPA proposes to use a 3

- year historic period ( i.e., 2010 through 2012) to reflect unit

- level operations over time. In the Clean Power Plan EGs, the EPA identified a reasonable basis for using aggregate data at the regional level largely based on the most recent data year (in that case, 2012) to inform the establishment of category

- wide
EGs (as opposed to individual, unit

- specific parameters).

95 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 alloca tion calculations be based on the same 2012 generation estimate as the agency used in the Clean Power Plan EGs for the goal

- setting calculations. That is, the EPA proposes to estimate 2012 generation for such units based on a unit’s net summer capacity and assuming a 55 percent capacity factor for gas units and a 60 percent capacity factor for steam units.***E.O. 12866 Review

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As a distinct matter, in this context the EPA is considering data at the unit level to inform unit

- specific initial allowance allocations; notwithstanding that these allowance allocations do not impose any unit

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

- year data p eriod 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 u nit’s unadjusted average generation value. The EPA included generation from all units in the historic data set in the proposed allowance calculations and calculated allowances for all such units; the agency requests comment on the treatment of generation f rom 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 obtain that state ’s “total average historic generation.”
4. Divide each affected EGU’s average generation value by the
state ’s total average historic generation to determine that affected EGU ’s share of the state’s total average historic generation.
5. Multiply each affected EGU ’s share of the state’s total
average historic gene ration by the historic

- generation

allocation portion of the state ’s mass goal ( i.e., the
state ’s mass goal minus the set

- asides ) to determine that affected EGU ’s allocation
. The agency believes that this propose d historic

- generation

based allocation approach is a reasonable approach for several
reasons:

• The agency believes that the proposed historic

generation

- based approach maximizes transparency and clarity of allowance allocations. The EPA has placed in the docket the historic generation data and the calculations used to determine the proposed affected

- EGU

level allocations. The agency also placed the proposed aff ected

- EGU

- level allocations, resulting from these***E.O. 12866 Review

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calculations, into the docket. These calculations can be relatively easily replicated.

• To calculate allocations, the EPA proposes to use historic affected

- EGU

- level net generation data compiled using a methodology similar to the Emissions & Generation Resource Integrated Database methodology. The proposed calculation approach is described further below and in the Allowance Allocation Proposed Rule TSD in the docket. The historic

- data methodology is descr ibed in the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule . The majority of the generation

- unit

- level data in this approach are from reports that emissions sources submit to the EPA under 40 CFR p art 75 and to the EIA on forms EI A

- 860 and EIA

- 923. The EPA believes these are the best data available to the agency at the time of this proposed rule for calculating affected

- EGU

- level allocations.

• Allocating based on historic data (as opposed to data not yet reported) allows for the dis tribution of allowances prior to the start of the program, which can facilitat e compliance planning. The proposed approach is transparent, based on reliable***E.O. 12866 Review

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data, and, like the approaches used in the NO X SIP Call, the ARP , and CSAPR , 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 his toric

- data

- based allocations approach would not generally affect the ultimate pattern of generation across individual power plants, as compared to other methods of allocation. The combination of plants, and their contributing generation, that will be used to meet a particular demand for electric power will be based on the relative efficiency (cost of production) of available plants. The relevant measure of this efficiency is the marginal cost of generation, which for a particular power plant would be the su m of the cost of additional fuel to generate an additional 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 regardle ss***E.O. 12866 Review

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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 EGUs operator would account for 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 longer 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 allowance when it emits an 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 electrici ty markets , because the marginal cost of emitting under the mass

- based trading program is determined by the level of the***E.O. 12866 Review

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overarching mass goals and is not affected by the distribution of the underlying allowances. This marginal cost of emitting is what wil l 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 f leet, which is not affected by the amount of allowances that any particular unit in that fleet was initially allocated (assuming a competitive allowance market)
. The EPA recognizes that some stakeholders are concerned about the potential future distributio n of emissions at the facility level, and possible effects on communities. However, for the reasons discussed in the above paragraphs, allowance allocations that do not change based on future activity (such as allocations under the proposed historic

- genera tion 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 of this preamble for discussion of anticipated broad benefits to communities. 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***E.O. 12866 Review

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requests comment is similar to the proposed appr oach in that it allocates 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) into affected
EGU source categor ies

– based on analysis done i n developing the

source category

- specific CO 2 emissions performance rates promulgated in the Clean Power Plan EGs

– before determining unit

- level allocations
. The EPA requests comment on this alternative approach because dividing the allowances in a state by source category in this manner may result in an initial distribution of allowances that would be closer at the source category level to the future category

- level pattern of emissions , and thus to allowances ultimately used, than the proposed approach. To the extent that this category

- level divi sion of allowances is a reasonable proxy for the future category

- level emissions pattern under the program , this approach may reduce wealth transfer between parties that occurs

as a consequence of a less

- anticipatory initial allocation procedure. The EPA 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 category

- specific CO 2 emissions***E.O. 12866 Review

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performance rate , and multiply historic NGCC

- unit generation by the NGCC

- unit source category

- specific CO 2 emissions performance
rate . The EPA would do th ese calculation s for ea ch of the compliance periods in the Interim Period using the glide path interim performance rates , and for the Final Period using the final performance rates. These performance rates are shown in Table 6 in section IV.B of this preamble , above
. The EPA established the source category

- specific emissions performance rates in the Clean Power Plan EGs (see section VI of the final EGs) ; these rates are not within the scope of this proposed federal plan rulemaking. Next, for each compliance period t he EPA woul d split the total number of allowances from the state’s mass goal (minus the set

- asides) into affected

- EGU source categories in proportion to the values resulting from the above calculation. The EPA would then allocate the steam

– generating

unit portion of the allowances to individual SGU s using the same historic

- generation based approach described above, and would also allocate the NGCC

- unit portion of the allowances to individual NGCC units using the historic

- generation based approach. The EPA notes that there are multiple approaches that policymakers may use to distribute allowances , beyond the proposed or alternative allocation approaches we included in***E.O. 12866 Review

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this proposed rule
. Examples of o ther allocation approaches include allocating base d 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 use d the most fuel or generated the most electricity
. 96 Alternatively , allocations could be distributed based on projected or observed future activity ( e.g., generation, heat input, or emissions)
. The proposed and alternative allocation approaches would deter mine most of the allocations be fore the start of the
program . Other potential allocation approaches w ould change allocations for future compliance periods based on future activity

– referred to as “updating” allocations . This proposed rule includes an updating

- allocation component , as we are proposing to set aside a portion of the allowances in each state for distribution using an updating output

- based approach as

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

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detailed in section V.D.3 of this preamble . 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 wh ose express intent is to align the allocation of a scarce good (in this case, the limited authorization to emit CO 2 ) with the parties most willing to pay for its use. Many ascribe benefits, in terms of economic efficiency, to the use of auctioning as a mea ns of allocating allowances. The EPA notes that some state s ( e.g., RGGI participating states) have used auctions to distribute allowances and have used auction revenues for a variety of purposes, including the implementation of demand

- side EE measures inte nded to help reduce electricity rate impacts and overall program costs, as well as targeted investments in low

income communities
. The EPA believes that if it conducted allowance auctions, any revenue from such auctions received by the agency must be depos ited in the U.S. Treasury under federal law. 97 As a result, the EPA notes that states implementing state

97 The EPA believes authority to conduc t auctions is located in CAA section 111 alone, as well as by its reference to CAA section***E.O. 12866 Review

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plans may have greater flexibility than the federal government would to direct auction funds for particular activities. The agency requests comment on the idea of auctioning all, or a portion of, each state ’s allowances in the proposed federal plan, on how much of each state ’s allowances to auction if not the entire amount, on the frequency ( e.g., yearly or every few years) , design of auctions ( e.g., spot or advance ; first, second

- price or other ) and who may participate in the auction
. The EPA requests comment on an alternative approach, which is allocating a portion of the allowances to load

- serving entities (LSEs) rather t han to affected EGUs
. LSEs are the entities responsible for delivering power to retail consumers. Allocation to LSEs can help mitigate bill impacts on electricity consumers when applied in concert with certain additional design features. In particular, if LSEs commit and/or are required to pass through to ratepayers the value from their selling of the allocated allowances , this approach can mitigate the impact of electricity bill increases on consumers that might otherwise resul t from application of the federal plan
. As described in the Allowance Allocation TSD, t his type of approach

110(c) FIPs. The statutory definition of a FIP authorizes “techniques (including economic incentives, such as marketable permits or auctions of emissions allowances) .” 42 U.S.C. 7602(y).***E.O. 12866 Review

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can also help to avoid or mitigate the potential for windfall profits for affected EGUs
. The EPA could apply this approach by condition ing the recei pt of allowances by LSEs on the pass through to consumers of any allowance value if necessary
. The EPA requests comment on the design and utility of allocating allowances to LSE s to help mitigate electricity price impacts. In particular, the EPA requests comment on options to establish conditions requiring pass through of allowance value and verification of such pass

- through, whether it would be appropriate to identify any conditions related to equitable distribution of allowance value among ratepayer cate gories, as well as the EPA’s legal authority to apply any such conditions. The EPA requests comment on the additional design aspects of any potential allocation to LSEs , including but not limited to the following questions : I n particular, what metric should provide the basis for LSE allocation , e.g . , electricity demand served by the LSE , population served by the LSE, emissions associated with generation serving the LSE, or some other metric. If emissions are used as the basis for such allocation, what approach should be taken: on a historic basis or a continually updated basis, on the basis of estimated emissions for the relevant region or some other basis, and using what data to calculate such emissions. Also, the EPA requests comment on***E.O. 12866 Review

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the form by wh ich LSEs may distribute the allowance value to
rate

- payers, e.g . as a fixed amount, through reduced rates, etc. Finally, the EPA requests comment on what share of the total number of allowances should be distributed to LSEs and what monitoring and reporting requirements may be necessary to support an effective program. The EPA requests comment on the proposed historic

generation based allocation approach, the alternative approach that divides total allowances from a mass goa l into source 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
. T he EPA also requests comment on allocating allowances to all generation in a state (including non

- emitting generation) using a historic

- generation based approach. The agency also requests comment on the proposed allowance set

- asides, which are detailed below. The agency requests comment on allocation approaches that may minimize the impact of this proposed rule on small entities. The EPA also requests comment on any other approaches to distribute allowances
. T he agency notes that we propose to provide that any state may choose to replace the federal

- plan allocat ion provisions with an allocation approach of its choosing as discussed below. Finally, w ith regard to alternative***E.O. 12866 Review

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allocation methodologies (either those specifically mentioned in this proposal or other allocation methodologies), the EPA requests comment on how those alternatives would satisfy the requirement that in a mass

- based program where new sources are not included as part of the program, the allocation methodology must address leakage to new fossil

- fuel

- fired sources
. 2. Timing of Allowance Recordatio n The proposed historic

- data

- based allocation approach

– which the EPA proposes to use to allocate all of the allowances in each state except for the set

- aside allowances

– is a one

time determination that is not updated. The allocations resulting from this approach would be determined prior to the start of the program. The EPA proposes to record the historic

data based allowances for each compliance period in source accounts prior to the start of each compliance period , and to record allowances for one compliance period at a time. Recording allowances prior to the start of a compliance period provides certainty to affected EGUs of their allocations in advance of when the allowances are needed for compliance and can facilitate long

- term planning. Recordin g allowances for one compliance period at a time provides flexibility for a state to replace the federal plan with its own plan in a timely way. As discussed in section V.F of this preamble , the EPA proposes to allow a state***E.O. 12866 Review

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to replace the federal plan with its own approved state plan , for a compliance period for which allowances have not yet been recorded (the proposed schedule for allowance recordation is detailed below)
. T he EPA also proposes that a state could choose
to re place the federal

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

- based trading program in accounts of affected EGUs seven months prior to the start of each compliance period . For example, if compliance periods are 3 years long and the first compliance period comprises the years 2022, 2023, and 2024, the EPA would record allowances for 2022, 2023, and 2024 by June 1, 2021
. The EPA requests comment on the proposed approach of recording allowances 7 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 of this preamble 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***E.O. 12866 Review

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allowance allocat ion under a mass

- based federal plan. These two
set

- asides are being proposed to satisfy the requirement in the final g uidelines that mass

- based plan s demonstrate that they have addressed the risk of leakage to new unaffected units, as specified below. 98 The final EGs specify the concern of leakage, which is defined in section VII.D of the final EGs preamble as the potential of an alternative form of implementation ( e.g ., the
rate

- based and mass

- based state goals) to create a larger incentive for affected EGUs to shift generation to new fossil fuel

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

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

- based plan approaches must address leakage, because the form of th e mass goals may ultimately impact the relative incentives to generate and emit at affected EGUs as opposed to shifting generation to new sources, with potential implications for whether the mass goal implements or is

98 The EPA is also proposing a third set

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

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consistent with the BSER and overall e missions from the sector
. These circumstances are much less likely to be present under a
rate

- based plan approach, where the form of the goal ensures sufficient incentive to affected existing EGUs to generate and thus avoid leakage, similar to the CO 2 emis sion performance
rates . By requiring mass - based plan components that address leakage, the final EGs ensure that mass goals are equivalent to the CO 2 emission performance rates and are thus an equivalent expression of the BSER
. Section VII.D of the final EG s details the requirement for addressing leakage and why it is needed, and section VIII.J of the final EGs specifies options for mass - based
state plan components that address leakage. We are proposing, as part of the mass

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

- based allocation set

- aside and a set

- aside that encourages the installation of RE. As noted in the EG, i f a state were to adop t allowance
set

- aside provisions exactly as they are outlined in th is model rule once it is finalized , the requirement for that state plan to address leakage would be considered presumptively approvable. Section VIII.J of the final EGs provides a discussion of how set

- asides can effectively address leakage in a mass

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plan approach. That section of the final EGs also describes why
t he allowance allocation alternative for addressing leakage must be chosen for the federal plan and mod el rule proposal instead of the option to regulate new non

- affected fossil fuel

- fired
EGUs . This is because the EPA does not have authority to extend regulation of and federal enforceability to new fossil fuel

fired sources under CAA section 111(d), and th erefore we cannot include new sources under a federal mass

- based plan approach
. The set

- asides we are proposing

– described in detail below

- would establish a pool of allowances that would be allocated to affected EGUS or other entities based upon criteri a designed
to address leakage
.
These set

- asides are essentially a type of “economic incentive” authorized by the CAA as a means of pollution prevention and control, and the expected benefits of this particular type of economic incentive to address leakage make it appropriate here. 99 The EPA believes these set

- aside programs are both authorized and consistent with the purpose of the Clean

99 In designing a federal plan under CAA section 111(d), the EPA recognizes its authority as being, in some sense, the same as that available under CAA section 110(c), where the use of economic incentives is authorized. See 42 USC 7602(y) (authorizing use of “economic incentives” in FIPs).***E.O. 12866 Review

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Power Plan under CAA section 111(d) and the specific requirements specified in the final guidelines . They do not have the effect of increasing the stringency of the federal plan because the overall budget of allowances (representing allowable emissions) remains the same.
T he EPA is aware of the successful use of set

- asides and similar programs in other emissions trading programs. The following are examples of set

- asides and similar programs used in other federal air quality rules, and in state

- based GHG regulat ory programs . The EPA has previously established set

- asides of emissions allowances in FIPs un der CAA section 110. For example, in the 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 add ress 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 modeling, where new uni ts 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***E.O. 12866 Review

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market drivers. 100 As between a choice of requiring these new units to purchase their allowa nce 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 n initial allowance allocation out of the new unit set

- aside, the EPA chose the latter. As part of the ARP under Title IV of the 1990 CAA Amendments, Congress established a “conservation and renewable energy reserve” account. CAA section 404(f), 42 U.S.C. 7651 c (f). This is in essence a set

- aside account of SO 2 allowance s which the regulated utilities could earn by undertaking “qualified energy conservation measures” and “qualified renewable energy” projects. The size of the reserve was set at 300,000 allowances, and utilities could earn one SO 2 allowance for every 500 MW h 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, an d, in the words of one industry representative, “creating a culture

100 See also EPA, Allowance Allocation Final Rule TSD, E PA

- HQ

- OAR

2009

- 0491, at 3

- 4 (June 2011).***E.O. 12866 Review

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change where utilities are looking for opportunities everywhere.” 101 The reserve program was nonetheless undersubscribed, and the EPA and other parties have learned from this case and made a djustments to similar programs to promote participation. This proposal seeks to minimize the administrative burden associated with participation in th is rule’s proposed set

- aside s . In the NO X SIP Call, the EPA encouraged states to “consider including energy efficiency and renewables as a strategy in meeting their [emission] budgets. One way to achieve this goal is including a provision with a state’s NO x Budget Trading Rule that allocates a portion of a state’s trading program budget to implementers of energy efficiency and renewable energy projects that reduce energy

- related NO x emissions during 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, fo r the implementation of CAIR. A “roundtable” meeting with 25 states in 2006 indicated that states that had established these programs were generally having success with them, and provided a forum for exchanges of ideas on how to handle a variety of impleme ntation issues, such as

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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over - and under

- subscription, application issues, compliance and verification, the appropriate size of a set

- aside account, how to garner public input on which projects are selected, and other issues. 102 In general, the EPA believes i ts 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 Below, the EPA describes two potential allowance set

asides. First, the EPA proposes a set

- aside for allowances

102 U.S. EPA, State Clean Energy

- Environment Technical Forum Roundtable on State NOx Allowance EE/RE Set Aside Pr ograms, Call Summary (June 6, 2006), available at http:// www.epa.gov/statelocalclimate/documents/pdf/summary_paper_nox_allowan ce_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 1999), available at http:// www.epa.gov/statelocalclimate/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 http:// www.epa.gov/statelocalclimate/documents/pdf/ee

- re_set

- asides_vol2.pdf ; Creating an EE and RE Set

- aside in the NOx Budget Trading Pr ogram: Evaluation, Measurement, and Verification of Electricity Savings for Determining Emission Reductions from Energy Efficiency and Renewable Energy Actions (July 2007), available at http:// www.epa.gov/statelocalclimate/documents/pdf/ee

- re_set

- asides_v ol3.pdf .***E.O. 12866 Review

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distributed to existing NGCC units based on output ( i.e., output

- based allocation ) to mitigate emission leakage to new

sources . Second, the EPA proposes a set

- aside for electricity generation from qualifying renewables . This set

- aside also addresses the potential for leakage to new sources, as increased RE capacity can serve electricity demand in place of new

sources . The EPA also solicits comment on other s et

- aside options that could address 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 metho d for allocation of allowances to set

- asides, the size of the set

asides, the requirements for the process of distribution, eligibility requirements for receiving set

- aside allowances, the proposed process for redistribution of undistributed allowances fro m 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 leakage
. The EPA believes that this proposed
set

- aside would reduce incentives for generation to shift away from EGUs covered under mas s - based plans to new unaffected EGUs
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We seek comment on all aspects of this proposal and its underlying rationale
. Under the output

- based allocation approach we are proposing , beginning with the second compliance period, a portion of the total allowances within each mass - based federal plan state would be allocated to existing NGCC units based, in part, on their level of electricity generation in the previous compliance period. E ach eligible EGU would get a larger allowance allocation from this set

- aside if it generates more , such that owner/operators of eligible EGUs will have an incentive to generate more in order to receive more allowances. Because the total number of allowances is limited, this allocation approach will not exceed the overall emission goa l
. I nstead, it merely modifies the distribution of allowance s in a manner designed to align the generation incentives for eligible EGUs in mass

- based states with new emitting EGUs that are not subject to a mass - based limit , mitigating emissions leakage
.

The EPA is inviting comment on key parameters for the appropriate design of the output

- based allocation approach used for this proposed set

- aside. Key parameters to be identified under the output

- based allocation approach include which affected EGUs receiv e the allocation, the timing of the set

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aside’s allocation procedure , the allocation rate(s ) , and the size of the set

- aside
. The EPA also invites comment on what other parameters may be relevant for design of an appropriate output

- based set

- aside. The EPA first solicits comment on which EGUs should be eligible to receive output

- based allocation from the set

- aside. The EPA proposes that only NGCC unit s subject to the final EGs receive output

- based allocation from the set

- aside. The EPA recognizes tha t performance of output

- based allocation may be improved by targeting which units receive this additional incentive. In particular, this approach can most effectively address emission leakage if targeted to those affected EGUs subject to a mass goal that f ace the greatest difference in their incentive to generate relative to otherwise similar EGUs that are not subject to a mass goal . As noted in the discussion of the allocation rate below, new combustion turbines (i.e., NGCC units and simple cycle combustio n turbines) would be expected to generate more absent this set

- aside. Therefore, t he difference in generation incentives between affected stationary combustion turbines subject to a mass goal and otherwise similar new stationary combustion turbines that ar e not subject to a mass goal is likely one of the most salient deviations in production incentives to address.***E.O. 12866 Review

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The EPA also requests comment on extending output

- based allocation from this set aside to affected SGU s. Output

- based allocation for SGU s may increase generation subject to the mass limit, leading to reduced generation and emissions from new emitting sources. However, the EPA does not propose this approach because it is not as effective as output

- based allocation to NGCC units. This is beca use output

- based allocation to SGU s would incentivize generation from relatively high

- emitting EGUs, which would likely increase allowance prices as other emission reductions are made to respect the overarching mass limit. This approach would thus strongly counteract the intended effect of lowering the production cost from sources subject to the proposed mass

- based federal plan (compared to emitting sources not subject to the plan). The EPA also requests comment on extending output

- based allocation from thi s set

- aside
to zero

- emitting generators (including both renewable and nuclear generation ), and how the design of the OBA set

- aside for such generators would differ relative to the NGCC approach (e.g., the amount of allowances earned per MWh, the capacity

f actor threshold, the size of the total set

- aside). The EPA also proposes that this approach be targeted towards marginal generation that may not have otherwise occurred absent this set

- aside, by providing allocations under this set

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aside only to eligible EGUs that exceed a 50 percent capacity factor on a net basis over the compliance period , and only for the portion of their generation that exceeds that capacity factor
. 104 The EPA also solicits comment on the timing of the OBA set

aside’s allocation procedu re, which involves the relationship between the time at which eligible generation occurs and the vintage year(s) of the allowances allocated from this set

- aside to recognize that generation
. The EPA is proposing a lagged accounting procedure for this set

- aside, where eligible generation that occurs during a given compliance period would receive allowances through this set

- aside taken from vintage years in the subsequent compliance period. In k eeping with this lagged accounting procedure, the EPA is proposing not to reserve any allowances of vintage years during the first compliance period (2022

- 2024) for allocation through this set

- aside; eligible generation that occurs during the first complia nce period would be recognized through this set

- aside with allowances of vintage years from the second compliance period (2025

- 2027). The EPA is proposing this lagged accounting procedure

104 Effectively, the allocation rate (defined below) of output

based allocation is zero up until this average capacity factor.***E.O. 12866 Review

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because the amount and location of eligible generation in any given compliance period remains uncertain until the compliance period has ended and the relevant data has been reported and verified. Without this lagged accounting procedure, the EPA would have to withhold a n amount of allowances for this set

aside from certain vintage years even as the corresponding compliance period was already underway. Given the size of this proposed OBA set

- aside in certain states, the EPA believes it would be more advantage ous for affected EGUs to know in advance how many allowances they w ill be allocated in a given period , inclusive of allowances allocated through this OBA set

- aside
. 105

The EPA request s comment on options for the allocation rate under this approach. The allocation rate is the number of allowances , in an amount equal to a specific amount of emissions , that the affected EGU receives per one net MWh of generation eligible for the set

- aside
. The EPA propose s to set the allocation rate equal to the emission rate standard (on a
net basis) for new NGCC units under 111(b), in orde r to align the generation incentives across EGUs eligible for the set

- aside

105 The EPA recognizes that under this lagged accounting procedure, if the federal plan is replaced by a state plan in a future compliance period, the incentive to create eligible generation in the last compliance period subject to the federal plan is potentially diminished.***E.O. 12866 Review

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and the type of new emitting source that would generate more absent this set

- aside . Specifically, an additional MWh of eligible generation would earn the affected EGU allowances eq ual to the level of emissions permitted per MWh of net generation under the 111(b) new source standard , which is 1,030 lb s /MWh

- net ( Carbon Pollution Standards for new, modified, and reconstructed EGUs). The EPA requests comments on other values for the allocation rate . 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 source category

- specific emissions performance rates p romulgated in the Clean Power Plan EGs ( see section VI of the final EGs )
.

The EPA proposes to calculate a n NGCC unit’s capacity factor based on the previous compliance period’s net generation and the net summer capacity of the unit. The EPA is proposing to require affected EGUs to report net generation to the agency. 106 The EPA proposes to use net summer capacity as reported to EIA
. In the alternative, the EPA proposes to require that NGCC units

106 See section V.H of this preamble for proposed monitoring and reporting requirements. The EPA propos es to make the reported generation data available to the public on the agency’s Web site.***E.O. 12866 Review

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report net summer capacity directly to the EPA by adding it as a required data field in the certificate of registration that a unit’s owner or operator would submit to the agency (see section
V. H of this preamble )
. The EPA notes that the EIA net summer capacity data is r eported at the generator 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 capacity factors
. The EPA also requests comment on whether the “maximum load value,” which is a parameter t hat 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 other approaches to the calculation.

The EPA proposes to determine the size of the output

- based
set

- aside once, before the start of the program, and not to change the size thereafter. The EPA proposes to determine the

s ize of the set

- aside assuming that it would incentivize existing NGCC to increase utilization to a 60 percent capacity factor. The assumed 60 percent capacity factor offers a way to***E.O. 12866 Review

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limit the s ize of this set

- aside, which allows the remainder of the allowances in a given compliance period to be allocated through the historic

- generation approach (as detailed above) and the other proposed set

- asides (as detailed below)
. Furthermore , limiting the size of the set

- aside avoid s the risk of incentivi zing too much generation from eligible sources , as discussed further in the Allowance Allocation Proposed Rule TSD
. The EPA proposes to determine the size of the output

- based
set

- aside using 2012 baseline data from the Clean Power Plan
EGs . 107 The EPA would calculate the size of the set

- aside as 10 percent of the NGCC capacity in the state 108 multiplied by the hours in a year multiplied by the allocation rate for the set

aside. The EPA takes comment on the proposed capacity data used as the basis for determini ng the size of the output

- based set

aside, and alternative sources of capacity data that may be used for determining its size
. The set

- asides resulting from this proposed approach are shown in Table 9 of this preamble
. The set

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

107 CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule. 108 The sum of net summer capacity for affected NGCC units in the 2012 baseline for the Clean Power Plan EGs (CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule).***E.O. 12866 Review

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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 g oals decrease with each step in the Interim Period and to the Final Period, the set

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

- aside. The EPA requests comment on a potential limit for the size of the set

- aside in a compliance period based on a percentage of the state’s total allowances for the compliance period.

**Table 9**  **. Proposed Size of Output**  **- Based**  **Set -**  **Aside for the S**  **econd Compliance Period and Later**  **( Short**  **Tons)**

**State Allowances in output**  **** **based set -**  **aside** Alabama 4,185,496 Arizona 4,197,813 Arkansas 2,102,538 California 8,458,604 Colorado 1,348,187 Connecticut 1,090,811 Delaware 649,190 Florida 12,102,688 Georgia 3,563,104 Idaho 246,638 Illinois 1,598,615 Indiana 1,106,150 Iowa 492,510 Kansas 62,257***E.O. 12866 Review

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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 2,439,991 Michigan 2,105,786 Minnesota 909,724 Mississippi 3,132,671 Missouri 815,210 Montana 0 Nebraska 144,635 Nevada 2,326,529 New Hampshire 542,721 New Jersey 3,413,100 New Mexico 627,085 New York 3,815,381 North Carolina 2,120,178 North Dakota 0 Ohio 1,757,326 Oklahoma 3,121,167 Oregon 1,291,027 Pennsylvania 4,392,931 Rhode Island 778,307 South Carolina 1,029,366 South Dakota 130,831 Tennessee 632,949 Texas 15,990,657 Utah 825,586 Virginia 3,011,811 Washington 1,383,060 West Virginia 0 Wisconsin 1,181,175 Wyoming 45,114

Given the proposed limit on the total size of the set

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aside, and the amount of potential generation eligible for the set aside, there may be fewer allowances available in the set aside than can be earned at the allocation rate . The EPA proposes that, i f the amount of total generation eligible for the set asid e multiplied by the allocation rate exceeds the size of this set

- aside , then the allowances in this set

- aside would be allocated to eligible generation on a pro

- rata basis. The EPA propose s that if the number of allowances allocated from the set aside is less than the size of this set

- aside , then the remaining allowances would be distributed to all affected EGUs using the historic

- generation based

- approach described above
. The EPA 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 period 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 fina l 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***E.O. 12866 Review

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data and allocations. The EPA requests comment on all aspects of the proposed approach to calculate output

- based set

- aside allocations. Further details are in the Allowance Allocation Proposed Rule TSD in the docket.

b. Set

- asides for Renewable Energy Projects The EPA proposes to provide a set

- aside of allowances for dis tribution to RE in each state covered by the proposed mass

based federal plan , and is also proposed for the mass

- based model rule . The agency is also taking comment on whether distribution should extend to demand

- side energy efficiency (DS

EE) and CHP proj ects. Under this program, the EPA would reserve a percentage of each state’s allowances 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
. This set

- aside is expected to address concerns regarding leakage by lowering the marginal cost of production of the incented clean energy technologies within the state. This will make RE more competitive against new sources, reducing the potential for leakage to new sources. While the proposed set

asides would provide additional incentive for the creation of***E.O. 12866 Review

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additional RE capacity, it should also be noted that t he proposed mass

- based trading program itself would p rovide incentive for new and existing low and zero

- emitting generation. In the context of the proposed federal plan, t he EPA is proposing that it would create a unique set

- aside for each state covered by a mass

- based federal plan. Under a model rule, the

s tate would create this set

- aside . The allowances in each set

aside would be reserved from each vintage of the assigned mass goal to that state prior to allocation of allowances to sources. The EPA is proposing that five percent of allowances will be

reserv ed from the allocation for each state for the purpose of the set

- aside. We are also requesting 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 upon determining an appropriate volume o f 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 Allowance Allocation Proposed Rule TSD
. We note that, under the proposed framework,***E.O. 12866 Review

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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 stringency of the program.
In section V.D.5 of this preamble , below , the EPA is proposing that the size of the RE set

- asides may grow over time as certain units shift out of the program. We are proposing , as part of the mass

- based federal plan and model rule, that a project is eligible to receive set

- aside allowances if it is RE that meets the eligibility requirements for rate

- based ERC issuance as specified in section IV.C of this preamble and section VIII .K of the final EGs
. This includes, for example, the requirement that only capacity incremental to 2012 is eligible for the set

- aside. The agency is requesting comment on an additional potential condition that would limit eligibility to project providers that are also the owners or operators of affected EGUs . This approach has precedent in the eligibility requirements for the ARP set

- aside, and would limit the entities eligible to receive set

- aside allowances to those that are subject to the federal plan. The EPA is proposing that eligible RE capacity mu st meet the following conditions regarding geographic eligibility for both the federal plan and model rule . Eligible RE projects must***E.O. 12866 Review

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be located in the mass

- based state for which the set

- aside has been designated. The agency invites comment on whether capa city outside the state should be recognized, and how that could be implemented. The EPA also proposes that the generation for which an entity receives allowances from the set

- aside would not be eligible for ERC issuance in rate

- based states. As specified in section IV. C of this preamble , the EPA is proposing that the same RE measures are eligible to receive set

aside allowances under a mass

- based federal plan as would be eligible for ERC issuance under a rate

- based federal plan and the model r ule
. Specificall y, the following RE measures are eligible: on - shore w ind, solar, geothermal power , and hydropower. The RE measure must also have the capacity to provide data quantified by a revenue

- quality meter, a requirement that is further discussed in section IV.D.8 of this preamble
. New nuclear units and capacity uprates at existing nuclear units are not proposed to be eligible to receive set

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 RE eligible measure types described in section IV. C of this pre amble and the***E.O. 12866 Review

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requests for comment included within that section also apply in the mass

- based set

- aside context for both the proposed mass

based federal plan and the proposed mass

- based model rule
. For example, we are requesting comment on the inclusion of other RE
measures, incremental nuclear, demand

- side EE measures, CHP and any other emission reduction measure s beyond those mentioned here, as long as they meet the eligibility requirements outlined in the final EGs for rate

- based crediting , as eligible measures to receive set

- aside allowance s . We particularly request comment on how a set

- aside to provide an incentive from these particular measures will serve to address leakage to new sources. We also request comment on the implications of th e inclusion of such technologies for the streamlined implementation of projection

based EM&V requirements of the set

- aside specified below in a federal plan context across the applicable jurisdictions, while still maintaining necessary rigor . We request co mment on the appropriateness of the biomass treatment requirements offered for comment in section IV. C.3 of this preamble in the context of

a mass - based set

- asid e . We request comment on requirements for the treatment of CHP and WHP, in the context of the m ass - based
set

- aside
. We also request comment on appropriate processes through which , after the federal plan is finalized, the EPA and/or stakeholders could make a demonstration of the***E.O. 12866 Review

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appropriateness of new measure types and the EPA could evaluate and approve the demonstration so that a new measure type can be considered eligible for the set

- aside
. To demonstrate that an RE project meets the requirements proposed above, in the context of a mass

- based federal plan , it is proposed t hat 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 MWh generat ion for an RE project. The EPA must approve the documentation of eligibility and the projection of MWh before the project becomes eligible for a distribution of the set

- aside allowances. In addition, the proponent must register for a general account in the EPA tracking system where the allowances would be recorded. See 40 CFR 62.16320 for the requirements to establish a general account. While the EPA is proposing to allow eligible resources to use a general account to receive any allowances allocated under this section, the EPA requests comment on extending the designated representative provisions in 40 CFR 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 representation in 40 CFR 62.16305 and to appoint a designated***E.O. 12866 Review

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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 comment on what documentation would be required if other measure types were considered eligible to receive set

- aside allowances. We propose that the same process for approval of projects be applied in a model rule, with the state taking the approving role instead of EPA. The EM&V requirements for the mass

- based set

- aside differ from those for rate

- based ERC issuance, particularly because it is based upon projections provided prior to generation rather metered data provided after the generation occurs (though we are proposing that the projections will be checked against ex

- post metered data)
. The projection method enables the distribution of
set

- aside allowances prior to the year du ring which the generation occurs
. The EPA feels this still provides sufficient rigor because the set

- aside does not directly affect program stringency. The reason that stringency is not affected is because of key differences between issuance of credits and distribution of set

- aside allowances. Under rate

- based implementation, each decision to issue an ERC based on a quantification of RE generation affects the ultimate amount of allowable CO 2 emissions , because the number of ERCs is determined***E.O. 12866 Review

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by the amount of MWhs approved as eligible for ERC issuance and the ERC does not exist until the issuance decision is made . Thus the amount of ERCs that are issued can affect the stringency of the rule. A s a result, the EPA has laid out specific requirements (including EM&V procedures) in the final CPP, and in this proposed federal plan and model rule , to assure the environmental reliability of measures qualifying for ERC recognition under rate

- based implementation. In contrast, any decision to recognize RE with set

- asid e allowance allocations under a mass

- based approach does not affect the validity of the allowance itself and does not affect the CO 2 emissions outcome because the ultimate amount of allowable CO 2 emissions is determined by the total number of allowances initially created (regardless of how they are distributed). As a result, while the EPA believes it is reasonable to consider a minimum set of qualifications for recognizing RE through these allowan ce 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 ultim ately sets for RE recognition through allocation from these
set

- asides. This being said, the agency is proposing to require robust demonstrations of the eligibility and EM&V projections***E.O. 12866 Review

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for RE generation submitted for the set

- aside, demonstrations that are based in the best practices of existing programs. This is necessary to assure the delivery of RE as a result of the
set

- aside. The EPA proposes that the projections of MWh provided will be the basis of the distribution of set

- aside allowances. A satisfac tory demonstration of the future RE generation from an eligible project must use technically sound quantification methods that are reliable, replicable, and accompanied by underlying analytical assumptions and verifiable data sources used to demonstrate fu ture performance. These methods, assumptions and data sources must be specified 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 these proposed requirements for projections. We also take comment on whether
set

- asides should be distributed proportional to actual MWh provided by the installation in a prior year or compliance period, or another form of historical generation data. This type of allocation method could also be similar to the structure proposed for the OBA set

- aside. We propose that the same projection

- based distribution basis be applied in a model rule,***E.O. 12866 Review

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with the state taking the approving role instead of EPA. The EPA is proposing the following process for distribution of RE set

- aside allowances. Starting prior to the compliance period, and going forward through the compliance period , RE providers in each state will have an opportunity to apply to the EPA or a designated agent to be approved as eligible to receive
set

- aside allowances in their state. This application mu st include all the requirements outlined above, including projections of expected MWh 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 year during which the RE generation oc curs (the “generation year”) . The EPA or its agent will review and approve the project as eligible and it will be entered into the pool of projects that will receive set

- asides in any compliance period . If approved, the number of projected MWh in each gene ration year will be the basis of the number of allowances the provider will receive , as an input to the methodology specified below . The providers will have an opportunity to update projections for future generation years, these projections must be receive d by June 1 of the year prior to the generation year in question. On December 1 of the year prior to each year of the compliance period in question, the EPA is proposing to***E.O. 12866 Review

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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 MWh for that state that the approved MWHs from their project represe nt. This method is proposed because it treats all eligible RE projects equally in the distribution of
set

- aside allowance. It also inherently provides a more significant incentive in states with less eligible RE generation, but will become less significant as RE generation increases. We would also like to take comment on whether to restrict projects to a maximum number of allowances they can receive per MWh of generation, such as 1 allowance per MWh
. After each generation year, RE providers receiving allowa nces will have to provide an M&V report with the MWh of RE generation actually produced, to assure that they have met the projected level of generation. These M&V reports need to document that the generation wa s by an approved project, and the report should be approved by a third party verifier. As discussed in the rate

- based approach EM&V section above, these data should be readily available from existing metering. The EPA requests comment on the process for submitting M&V rep orts with actual generation
.***E.O. 12866 Review

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If the project or program does not reach the MWh projected in a particular generation year, the unfulfilled MWh will be subtracted from that RE provider ’s MWh eligible for the set

aside in the next generation year, or multiple years if the deficit exceeds the MWhs projected for the upcoming year. If this deficit is greater than 10 percent in a particular year, the provider will need to provide an explanation of the deficit and will be required to reevaluate their projections fo r future years. If such deficits continue through all three years of the
any performance period in which they participate , the provider will be disqualified from receiving future set

- asides for the following compliance period. We also take comment on whether a 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 proce ss. 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 t he 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

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aside allowances to eligible RE providers on December 1 of the year prior to the generation year in question. The EPA requests comment on this approach. We propose that the same distribution process as outlined above be applied in a model rule, with the state taking the approving role instead of EPA. The EPA is also seeking commen t , in the context of the proposed rate

- based federal plan and model rule, on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities. This benefit could be in the form of MWh provided to the low

- income community, 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 community should be defined as eligible under this set

- aside. We seek comment on how much of the set

- aside should be designated as targeted at low

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

- income communities should differ from the methods that are proposed to apply to other RE projects. The EPA seeks comment , in the context of the proposed rate

based federal plan and model rule, on all aspects of this***E.O. 12866 Review

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proposed RE allowance set

- aside program, including whether it sho uld be included as part of a mass

- based federal plan, the structure of the set

- aside reserve, eligibility requirements for receiving set

- aside allowances, demonstration of eligibility, and the process for distribution of allowances. 4. Provisions to Encourage Early A ction For purposes of the proposed mass

- based federal plan, the EPA proposes to implement the Clean Energy Incentive Program (CEIP) by issuing early action allowances for actions located in or benefitting a state that are implemented after September 6, 2018 and that generate zero

- emitting MWh or reduce energy demand in in 2020 and/or 2021 . These early action allowances would be drawn from a third set

- aside of allowances from the general distribution methodology. The EPA believes it is reasonable to establish the total amount of the early action

- set aside in an amount equal to the pool of matching allowances. Thus, the EPA proposes that the total early action set

- aside would be of an amount equal to the pool of matching allowances: no mo re than 300 million CO 2 allowances, depending on how many states are subject to a federal plan. The EPA proposes to distribute the 300 million early action
set

- aside allowances among the states based upon the amount of the reductions from 2012 levels each state must achieve relative to***E.O. 12866 Review

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that of the other participating states. The EPA proposes to calculate these values as each state’s proportional share of the total difference between the 2012 baseline and the 2030 mass goals. 109 See Table 10 of this preamble for the proposed set

- asides for each state under the mass

- based federal plan. The agency proposes to set aside 100 million early action allowances from each of the three years in the first compliance period (2022, 2023, and 2024) for a total of 300 million allowances to be set aside. While the table shows set

- asides for every state, the EPA proposes to implement this set

- aside, according to the amounts listed in Table 10, only for those states for whom the EPA is implementing the mass

- based federal plan. Th e EPA also requests comment on other approaches for determining the size of this set

- aside in the mass

based federal plan. For the purposes of the mass

- based federal plan, the EPA is proposing to award early action allowances to two types of eligible proje cts installed after September 6, 2018 that are located in or benefit the state for which the EPA is implementing a federal plan:

109 The 2012 baseline is from the CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule. Where a state’s relative share of the reductions from 2012 levels would yield a set

- aside of less than zero, the EPA proposes to assign such a state a set

- aside equal to one percent of the state’s 2030 mass goal and adjust the remaining state set

- asides according ly.***E.O. 12866 Review

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

• Demand

- side EE programs and measures imp lemented in low

income communities that result in quantified and verified electricity savings (MWh)
. The EPA proposes the following framework to implement the CEIP in the mass

- based federal plan. First, the EPA proposes to
create a set

- aside of early act ion allowances for all federal

- plan states, as described above. Second, the agency proposes to create an account of “matching” allowances for each state participating in the CEIP

– regardless of whether a state is implementing a state plan or the agency is implementing a federal plan on its behalf. This distribution would reflect each state’s pro rata share of a federal pool of additional ERCs

– based on the amount of the reductions from 2012 levels the affected EGUs in the state are required to achieve rel ative to those in the other participating
states 110

– which would be limited to the equivalent of 300 million short tons of CO 2 emissions. Thus, states whose EGUs have greater reduction obligations will be eligible to secure a larger proportion of the federa l allocation upon demonstration of

110 This is the same distribution method proposed above for the allocation of early action set

- aside allowances to mass

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

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quantified and verified MWh of RE generation or demand side

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

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

- income EE programs as well as for eligible wind and solar projects. The EPA is proposing that unused allowances in either reserve would redistributed among participating states. This redistribution could be executed according to the pro

- rata method discussed above. Alternatively, unus ed matching EE or RE allowances could be swept back into a federal pool and distributed to project providers on a first

- come, first served basis. EPA requests comment on these ideas as well as alternative proposals regarding the method for redistributing m atching ERCs, as well as the appropriate timing for such a redistribution. Following the effective date of a federal plan for a state, the agency will create an account of matching allowances for the***E.O. 12866 Review

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state that reflects the pro rata share of the 300 milli on short ton CO 2 emissions

- equivalent matching pool that the state is eligible to receive. Any matching allowances that remain undistributed after September 6, 2018 111 will be distributed to those states with approved state plans that include requirements fo r CEIP participation, as well as to those states on whose behalf EPA is implementing a federal plan. These allowances will be distributed according to the pro rata method outlined above. Unused matching allowances that remain in the accounts of states part icipating in the CEIP on January 1, 2023, will be retired by the EPA. The EPA seeks comment on whether the number of matching allowances available to a state under the mass

- based federal plan should be limited to a number equal to the number of early actio n allowances included in each federal plan state’s early action set

aside. Third, for any state subject to a federal plan, the EPA proposes to award early action allowances and matching allowances to eligible projects as follows, based upon the quantifie d and verified MWh of generation or savings achieved by the projects in 2020 and/or 2021 :

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

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• For RE projects that generate metered MWh from any type of wind or solar resources: for every two MWh generated, the project will receive a number of allowances equiv alent to one MWh from the state early action allowance set

- aside, and a number of matching allowances equivalent to one MWh from the EPA.

• For EE projects implemented in low

- income communities: for every two MWh in end

- use demand savings achieved, the project will receive a number of allowances equivalent to two MWh from the state early action allowance set

- aside, and a number of matching all owances equivalent to two MWh from the EPA. The EPA will address implementation details of the CEIP in a subsequent action. Allowances awarded by the EPA pursuant to the CEIP may be used for compliance by an affected EGU with its emission standards in any compliance period and are fully transferrable prior to such use. The EPA proposes to distribute any remaining early action set

- aside allowances in a state

– after distribution to all eligible projects in the state

– to the affected EGUs in the state on a pro - rata basis in proportion to the initial allocations made to those EGUs under the mass

- based federal plan. As discussed in section V.E of this preamble, the EPA proposes***E.O. 12866 Review

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to allow any state where a federal plan is being implemented to take responsibilit y for distributing allowances to affected sources. This will allow a state to tailor its allowance

distribution approach to the characteristics and preferences of the state. The EPA proposes that a state that chooses to replace the federal

- plan allocations with a state

- determined approach must include a CEIP set

- aside, as authorized in section VIII.B.2 of the final EGs. The EPA intends that such a state would have the same flexibilities as a state implementing a full state plan with respect to implementatio n of the CEIP. That is, the state would not be required to implement a set

- aside of the same size as proposed in Table 10 of this preamble, but rather could choose how many of its allowances to set

- aside for the CEIP. The EPA requests comment on all aspec ts of implementing the CEIP under a mass

- based federal plan approach, including (1) The size of the early action allowance set aside; (2) the approach for distributing the early action allowance set

- aside among states; (3) the timing of distribution of set

- aside and matching allowances; (4) the amount of allowances awarded per eligible MWh generated or avoided; (5) the criteria for eligible projects, including criteria for awards to EE projects implemented in low

income communities; (6) the mechanism for re viewing project submittals and issuing early action allowances; (7) EM&V***E.O. 12866 Review

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requirements for eligible projects; and, (8) the number of early action and matching allowances that should be awarded for each ton of emissions reduced from eligible generation or lo w - income efficiency projects to ensure a robust response to the program. The EPA also seeks comment on how states, tribes and territories for whom goals have not yet been established in the final EGs may be able to participate in the CEIP in the future. The EPA also requests comment on the proposed approach of requiring states to implement this program as a condition of a state choosing to determine its own allocation approach via a partial state plan or a delegation of the federal plan.

**Table 10. Propos ed Clean Energy Incentive Program Early Action**  **Allowance Set**  **- Aside in**  **the Mass**  **- Based Federal Plan (Short Tons)** 

**State Set**  **- Aside 2022**  **through 2024** Alabama 3,122,306 Arizona 1,719,618 Arkansas 2,187,230 California 218,846 Colorado 2,223,192 Connecticut 69,415 Delaware 138,392 Florida 3,230,248 Georgia 2,755,623 Idaho 14,929 Illinois 5,968,721***E.O. 12866 Review

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Indiana 5,754,076 Iowa 2,191,183 Kansas 2,115,630 Kentucky 4,952,862 Lands of the Fort Mojave Tribe 5,885 Lands of the Navajo Nation 1,623,066 Lands of the Uintah and Ouray Reservation 175,509 Louisiana 1,497,428 Maine 20,739 Maryland 972,775 Massachusetts 170,471 Michigan 3,727,861 Minnesota 2,002,903 Mississippi 357,307 Missouri 3,771,322 Montana 1,310,344 Nebraska 1,481,695 Nevada 336,288 New Hampshire 107,798 New Jersey 446,005 New Mexico 823,049 New York 557,771 North Carolina 2,674,590 North Dakota 2,150,635 Ohio 4,788,372 Oklahoma 2,067,006 Oregon 154,353 Pennsylvania 5,039,346 Rhode Island 35,674 South Carolina 1,652,802 South Dakota 264,207 Tennessee 2,178,084 Texas 10,400,192***E.O. 12866 Review

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Utah 1,401,189 Virginia 1,386,546 Washington 751,434 West Virginia 3,506,890 Wisconsin 2,393,870 Wyoming 3,104,324

5. Allocations to U nits that C hange S tatus Units that retire. The EPA proposes that, if an affected EGU does not operate for two consecutive calendar years, the unit would continue to receive allocations for a limited number of years after it ceases operation , after which the allo wances that would otherwise have been allocated to that unit would be allocated to the RE set

- aside for the state in which the retired unit is located
. 112 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 longer emitting and so do not need allowances. The EPA believes that the proposed approach of all ocating allowances for

112 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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a specified , but limited , period after a unit ceases operating is a reasonable middle ground approach. The proposed approach also allows the RE set

- aside s to grow over time. The EPA proposes to record allowances for each year of a multi

- year compliance period at once , 7 months prior to the start of each compliance period , as discussed above. The agency proposes that, if an affected EGU does not operate for two full calendar years, then starting with the next compliance period for wh ich allowances have not yet been recorded, the allowances that would otherwise have been allocated to the unit would be allocated to the RE set

- aside. As a result, the number of years of non

- operation for which a retired unit would receive allocations woul d 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 3

- year compliance period , then starting with the next compliance period the allowances that would otherwise have been allocated to that unit would be allocated to the RE
set

- aside

— in other words the unit would receive allocations f or 3 years of non

- operation
. As a further example, if an affected EGU does not operate for both calendar years of a 2

- year compliance period, then starting with the compliance period after the next compliance period the allowances would be allocated to the RE set

- aside

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receive allocations for 4 years of non

- operation. The agency requests c omment on this approach for treatment of allocations 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 suc h 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 RE set

- aside
. The agency requests comment 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. Units that are mo dified or reconstructed
. Similar to the approach for an affected EGU that retires, the EPA proposes that, if a unit is modified or reconstructed such that it is no longer an affected EGU, then starting with the next compliance period for which allowances h ave not yet been recorded, the allowances that would otherwise have been allocated to the unit would be allocated to the RE set

- aside. The EPA requests comment on this proposed approach , including on the number of years for which a unit would continue to receive allocations . The agency***E.O. 12866 Review

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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 t he initial allocations were made), instead of allocating such allowances to the state’s RE
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

- determ ined 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 to distribute initial allowance allocations among its affected EGUs (and other entities). The EPA believes that this option may offer significant appeal, because it will allow a state to tailor its allocation approach to the characteristic s 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 st ate would have great flexibility in its allowance distribution approach and could***E.O. 12866 Review

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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 reven ue to consumers, or allocate all allowances to load

- serving entities, while mandating that the value be passed through to vulnerable consumers. The EPA believes that the state

- determined allocation approach offers significant advantages and solicits commen t on how to ease its application by states. This is similar to the approach taken in CSAPR and CAIR where the EPA adopted rule s allowing states to submit SIPs with provisions replacing the allowance

- distribution provisions in the CSAPR or CAIR FIPs, respectively, while remaining in the trading programs under those FIPs (76 FR 48208; August 8, 2011 , 71 FR 25328; April 28, 2006 )
. In both CSAPR and CAIR, some states have chosen to determine their own allocations under the FIPs. This form of SIP that can replace the 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” (analo gous to an abbreviated 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***E.O. 12866 Review

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partial state plan or (for any future chang es 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.) In general, under the proposed
appro ach, 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 her e , 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 leakage , and the EGs provide several options for doing so ( see section s VII.D and VIII. J of the final EGs ) . One of the options provided in the EGs is to address leakage through an allowance distribution approach that provides incentive to counteract***E.O. 12866 Review

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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 allocation and one for RE projects, as detailed in section V.D.3 of this preamble . The EPA believes that a state allowance

- distribution methodology, which would replace the federal

- plan allocation provisions , must also address leakag e. The EPA proposes that a state allowance

- distribution methodology must address leakage by providing incentive to counteract leakage, e.g., by including allowance set

- asides like the output

- based allocation and RE
set

- asides detailed in section V.D.3 of this preamble , or other allocation approaches designed to counteract leakage
. The EPA requests comment on this proposed approach for addressing leakage in a state allowance

- distribution methodology and on any other approaches for doing so
. The EGs provide an additional option for state plans to address leakage, where a state would provide a demonstration that leakage will not occur (without implementing any of the strategies specified in the EGs) due to specified characteristics of the state (section VIII. J of the final EGs ) . In this federal plan proposal, t he EPA requests comment on an alternative option where a state that chooses to submit a state allowance

- distribution methodology could provide a demonstration that leakage will not occur ( without***E.O. 12866 Review

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implemen ting the allocation strategies specified here ) due to specifi c characteristics of the state ; the EPA proposes that such demonstration must meet the requirements in the final EGs, including support by credible analysis, for such a demonstration (see final EGs section VII.D)
. The EPA notes that a state’s allowance

- distribution methodology may also include other set

aside approaches that are not designed to counteract leakage. The Clean Power Plan EGs established a Clean Energy Incentive Program ( section VIII of the final EGs). The EPA proposes that a state allowance

- distribution methodology, which would replace the federal

- plan allocation provisions, must also include a Clean Energy Incentive Program , as detailed in section V.D.4 of this preamble
. Under the p roposed approach of providing for states to determine their allowance distribution approaches in the federal plan mass - based trading program, the affected EGUs in a state that submitted a state allowance

- distribution methodology , which the EPA approved, would participate in the federal plan mass based trading program, but with allowance distribution determined by the state instead of by the EPA. The EPA proposes that a state must submit to the Administrator tables specifying the unit

- level allowances in an electronic format specified by the Administrator and by the***E.O. 12866 Review

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specified deadlines appli cable to each compliance period (see Table 11 of this preamble for proposed submission deadlines). The EPA proposes that a state may submit a state allocation methodology for any compliance period , including the first compliance period , which would comprise the years 2022 , 2023 , and 2024 . The EPA proposes that a state submitting a state allowance

- distribution methodology to modify the federal pl an allowance

- distribution provisions must do so for all years within a compliance period ( e.g., for all 3 years in a 3

- year compliance period ). The EPA proposes that, if the state’s allowance

distribution provisions meet certain requirements and the state allowance

- distribution methodology does not change any other provisions in the proposed mass

- based trading program, then the agency would likely approve the state allowance

- distribution methodology . In the state allowance distribution methodology , the stat e could distribute allowances to affected EGUs or other entities (such as RE facilities) or could auction some or all of the allowances. The agency proposes that for EPA approval, the
state allowance

- distribution meth o dology provisions would have
to meet t he following requirements. 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

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distribution provisions would apply, the total amount of allowances distribut ed 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
. 113 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 must provide for allowances to be issued in short tons . The allocation (or auction) of allowances would be final and could not be subject to modification. Additionally , the
state ’s provisions could not change any other provisions of the proposed mass

- based trading program with regard to the allowances ( e.g., the deadlines for allocation recordation, or

113 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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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 provisions for a given compliance period , a state would have to submit the state allo wance - distribution methodology by a deadline that would provide the agency sufficient time to review and approve it , and to submit the allowance table meeting the specified electronic format by a deadline that would provide sufficient time to record the un it

- by

- unit allowances in source
accounts . The EPA believes that about 12 months

— starting from the date of receipt of a state allowance

- distribution methodology

— is sufficient to complete the agency’s review and approval process, which would have to provide an opportunity for public comment on the approval (or disapproval) action. Thus, the EPA proposes the following deadlines, in Table 11 of this preamble , for submission to the agency of state allowanc e distribution methodologies and unit

- level allowances , and for the EPA ’s recordation of allowances, for each compliance period
. The EPA would review and approve state allowance

- distribution methodologies in the 12 months between the proposed deadline for
states to submit their methodologies and the proposed deadline for states to submit unit

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deadline for submission of allowance tables is 3 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 11** 
. **Proposed Deadlines for Submission of**  **S tate**  **Allowance**   ** Distribution** **Methodologies and**  **Unit -**  **Level Allowances**  **and for Recordation** 

**First c**  **ompliance period**  **for which a**  **llowances would be**  **d istributed**  **Deadline for s**  **ubmittal of s**  **tate a**  **llowance**   ** d** **istribution m**  **ethodologies Deadline for**  **s ubmittal of**  **u nit**  **** **level a**  **llowance t**  **able Deadline for**  the **EPA to r**  **ecord a**  **llowances**
2022, 2023, 2024 March 1, 20 20 March 1, 202 1 June 1, 202 1 2025, 2026, 2027 March 1, 202 3 March 1, 202 4 June 1, 202 4 2028, 2029 March 1, 202 6 March 1, 202 7 June 1, 202 7 2030, 2031* March 1, 202 8 * March 1, 202 9 * June 1, 202 9 * *This pattern of deadlines would hold for successive 2

- year compliance periods.
The proposed deadlines for submission of state allowance

distribution methodologies are later than the state plan submission deadlines promulgated in the Clean Power Plan 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 plan allocations only in the absence of a n approved state plan or approved state allowance

- distribution methodology. The EPA proposes to record in source accounts allowances that are determined by any state as soon as feasible after approval of a***E.O. 12866 Review

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state allowance

- distribution methodology and submi ssion of the unit

- level allowance table, and not to wait until the allowance recordation deadline to do so. In section V.D.2 of this preamble , the EPA proposes the allowance recordation deadline 7 months prior to the start of the compliance period ( i.e., June 1 of the prior year) and also requests comment on a recordation deadline 13 months prior to the start of the compliance period ( i.e., December 1 of the year 2 years before the compliance period starts). If the EPA adopted the earlier recordation dead line on which it requests comment or any other deadline , 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 repla ce EPA

determined allocations for a compliance period for which federal plan allocations have already been recorded , for the same reasons that the agency proposes that a state may not replace a

mass - based trading federal plan with a state plan for a future compliance period for which allowances have already been recorded, as discussed below in section V.F of this preamble
. The agency requests comment on the proposed approach to allow states to determine allocations via state allowance

distribution methodologies and replace the federal

- plan***E.O. 12866 Review

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allowance

- distribution provisions. The EPA requests comment on the proposed schedule for submitting state allowance distribution methodologies to the agency, for submitting the resulting unit

- level allowance tabl es 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 comme nt 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

- det ermined allowances to be recorded, similar to the alternative timing approach discussed in section V.F of this preamble
. The EPA is also requesting comment on an alternative approach to p rovide the opportunity for a state to determine its allowance

- distribution provisions in the federal plan mass

- based trading program. The alternative approach on which the agency requests comment is to provide for a partial delegation of the federal plan

– limited to the allowance

- distribution provisions

– to a state that wishes to determine its allowance

- distribution provisions. The EPA requests comment on the relative efficiency and ease of implementation of the two approach es ( the state***E.O. 12866 Review

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allowance

- distribution methodology described above , or the partial de legation ) . The agency requests comment on whether the partial delegation approach would provide sufficient flexibility for a state to choose any method to distribute its allowances including approaches that the EPA is n o t proposing here. See further discus sion of delegations in section VI of 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 3

- year compliance period comprises 2022, 2023, and 2024, the EPA would record allowances in source accounts for 2022, 2023, and 2024 prior to 2022. Once 2022, 2023, and 2024 allowances had been recorded, the first compl iance period for which a state could replace the federal plan with its own plan would be for the period commencing in 2025. The EPA is proposing this stipulation for the timing of replacing a federal plan with a state plan due to the need to avoid disrupti on to sources already subject to the***E.O. 12866 Review

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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 remove those allowances from circulation to prevent inflation of the allowable emissions at affected EGUs in the remaining states subject to the federal plans beyond the levels specified in the Clean Power Plan EGs. The EPA believes it is more reasonable to avoid this potential disruption by requiring that the replacement of a federal plan with a state plan be scheduled to

co incide with the conclusion of the last compliance period for which allowances under the federal plan have already been recorded for that state. The EPA requests comment on other approaches to provide a smooth transition from federal

- plan implementation to implementation by state plans, and on its proposed approach 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 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) ,***E.O. 12866 Review

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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 federal

- plan implementation to state

plan implementation, and on the trade

- off between recording allowances in a timely way and providing this i ncreased 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 tha t are currently in use for CSAPR and the ARP under Title IV
. Under the proposed mass

- based trading program, the CO 2 program would be a separate trading program maintained in the EPA’s existing data system. ATCS would be used to track the trading of CO 2 allowances held by covered affected EGUs in facility level compli ance accounts , as well as such allowances held by other entities or individuals. Specifically, ATCS would track the allocation of all CO 2 allowances, holdings of CO 2 allowances in compliance accounts ( i.e., a fac ility level account for al l affected EGUs at the facility ) and general accounts ( i.e., accounts for other entities such as companies and brokers), deduction of CO 2 allowances for compliance purposes, and transfers of allowances***E.O. 12866 Review

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betwee n accounts. The primary role of ATCS is to provide an efficient, automated means for affected EGUs to comply, and for the EPA to determine whether affected EGUs are complying, with the emissions limitations and any other requirements of the

mass - based trad ing program. ATCS would also provide data to the allowance market and the public, including a record of ownership of allowances, dates of allowance allocations, allowance transfers, buyer and seller information, serial numbers of allowances transferred, em issions, and compliance information. This information would be publicly available on the EPA’s W eb site and in annual progress reports. 1. Designated Representatives and Alternate Designated Representatives Th e EPA proposes to establish 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 representati ve. These 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 Adminis trator. These provisions would be patterned after the provisions concerning***E.O. 12866 Review

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designated representatives and alternates in prior EPA

administered trading programs. The designated representative would be the individual authorized to represent the owners and operators of each affected EGU in matters 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. B ecause the actions of the designated representative and alternate would legally bind the owners and operators, the designated representative and alternate would have to submit a certificate of representation certifying that each was selected by an
agreemen t 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 prescr ibed by the Administrator, would include: specified identifying information for the affected EGU and for the designated representative and alternate; the name of every owner and operator of the affected
EGU ; and certification language and signatures of the designated representative and alternate. All submissions ( e.g., monitoring plans, monitoring system certifications, and allowance***E.O. 12866 Review

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transfers) for a n affected EGU would have to be submitted, signed, and certified by the designated representative or alternat e. 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 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

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and alternates would provide regulated enti ties 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 Complianc e 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 would 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

administered trading programs, allowance price information would not be included in the ATCS
. The EPA’s experi ence 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***E.O. 12866 Review

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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 Allowance Tracking and Compliance system accounts: Compliance accounts, one of which the Administrator would establish for each facility with an affected EGU upon receipt of the certificate of representation for the facility ; and general accounts, which could be established by a ny 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, rathe r than EGU

- level accounts, would provide owners and operators more flexibility in managing their allowances for compliance, without jeopardizing the environmental goals of the

mass - based trading program, because the facility

- level approach would avoid situ ations where an EGU would hold insufficient allowances and would be in violation of allowance

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enough allowances to meet these requirements for the entire facility
. Facility

- level comp liance would also be consistent with other EPA

- administered mass - based trading programs. General accounts could be used by any person or group for holding or trading allowances. However, allowances could not be used for compliance with emissions limitati ons 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 representation. The application would include, in a format prescribed by the Administrator: the name and identifying information of the individual who would be the authorized account representative and of any individual who would be the alte rnate authorized account representative; an identifying name for the account; the names of all persons with an ownership interest with respect to allowances held in the account; and certification language and signatures of the authorized account representa tive and alternate. 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***E.O. 12866 Review

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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 a lternates. 4. Recordation of Allowance Allocations and Transfers By J une 1, 2021 , the Administrator would record allowance allocations for EGUs for 20 22 through 20 24
. Then, b y June 1 of the year prior to the beginning of each compliance period , the Administrator would record the allowance allocations for the proposed mass

- based trading program for each year within th at next compliance period , e.g., for 2 0 25, 2026, and 2027 by June 1, 202 4
. Recording these allowance allocations in advance of the first year for which they could be used for compliance would facilitate compliance planning by owners and operators and promote robust allowance markets, including futures markets for allowances. The process for transferring allowances from one account to another would be quite simple. A transfer would be submitted providing, in a format prescribed by the Administrator, the account numbers of the accounts involved, the serial numbers of the allowances involved, and the name and signature of the transferr ing authorized account representative or alternate. If the transfer form containing all the required information were***E.O. 12866 Review

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submitted to the Administrator and, when the Administrator attempted to record the transfer, the transferor account included the allowance s 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 transfer form. 5. Compliance with Emissions Limitations Once th e 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 May 1 , 2025 (the EPA is also requesting
comment on earlier or later allowance transfer deadline s )
. Each allowance issued in the proposed mass

- based trading program would authorize emission of one t on of CO 2 and so would be usable for compliance, for the compliance pe riod 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 , to have in its facility compliance account, or to have a properly submitted transfer that would***E.O. 12866 Review

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move into its compliance account, enough allowances usable for compliance to authorize its total emissions for the co mpliance period. The authorized account representative could identify specific allowances to be deducted, but, in the 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 facility were to fail to hold sufficient allowances for compliance by all affected EGUs at the facility , then the owners and operators of the facility and each affected EGU at the facility would have to provide, for deduction by the Administrator, two allowances

a llocated 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 prior period is an ongoing obligation until compliance is achieved, and there is an ongoing obligation to comply in the current period. In addition, the se owners and operators would be subject to civil penalties for***E.O. 12866 Review

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each vi olation in accordance with the C AA , with each ton of unauthorized emissions and each day of the co mpliance period involved constituting a violation of the CAA . The EPA believes that it is important to include a requirement for an automatic deduction of al lowances. 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 avoided , 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 th an compliance. Such automatic deductions have been successfully used in prior programs including the CAIR , achieving compliance rates close to 100 percent. 6. Other Allowance Tracking and Compliance Operations Provisions These sections also would provide that the Administrator could, at his or her discretion and on his or her own motion, correct any type of error that he or she finds in an account in the Allowance Tracking and Compliance System. In addition, the Administra tor could review any submission under the mass

- based trading program, make adjustments to the information in the***E.O. 12866 Review

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submission, and deduct or transfer allowances based on such adjusted information. These provisions are a standard part of other trading program s administered by the EPA including the ARP and Cross State Air Pollution Rule ( see 40 CFR 72.96, 73.37, 97.427, and 97.428).
H. Emissions M onitoring and R eporting R equirements The EPA proposes that units subject to the mass

- based federal plan trading program would monitor and report CO 2 mass emissions in accordance with 40 CFR part 75
. The EPA is proposing to require affected EGUs in all states covered by the mass

- based federal plan trading program to monitor and report CO 2 emissions and output data by January 1, 2022
. Quarterly reporting would be required, with each quarterly report due to the Administrator 30 days after the last day in the quarter. The reporting would be in accordance with 40 CFR
p art 75.60. The use of p art 75 certified monitoring methodologies would be required. Many EGUs that might be covered by the proposed federal plans will generally have no changes to their monitoring and reporting requirements and will continue to monitor an d submit reports under p art 75 as they have under existing programs. The EPA anticipates fewer than 50 affected EGUs that would not otherwise be subject to the ARP will have to purchase and install additional CEMS and data handling systems***E.O. 12866 Review

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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
ARP are subject to the 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 r eport 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 mercury and other CEMS to calculate a toxi c pollutant emission rate may be used to calculate a CO 2 mass or CO 2 emission rate for this
program . RGGI, ARP, MATS and this rule all refer to CEMS installed and certified in accordance with 40 CFR part 75. RGGI and ARP currently require the reporting of CO 2 mass emissions on an hourly basis and cumulative totals at the end of each calendar quarter
. The same monitors and data collected may be used for multiple purposes for RGGI, ARP, MATS and this rule
. Relying on the same monitors that are certified and q uality ensured in accordance with 40 CFR part 75 ensures cost efficient, consistent, and accurate data that may be used for***E.O. 12866 Review

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different purposes for multiple regulatory programs. The majority of the units covered by this rule are already affected by the Acid Rain and / or RGGI programs and will have minimal additional monitoring and reporting requirements. The EPA also requests comment on requiring monitoring and reporting of CO 2 mass and net generation for the year before the initial compliance period begins, i.e., to commence January 1, 2021. Only the monitoring and reporting would be required in 2021

— compliance with the requirement to hold allowances would commence on the compliance period schedule that is detailed in section V.C of this preamble
.

**VI. Implementation of the**  **F ederal**  **P lan**  **and Delegation** Under section 111(d) of the CAA, the EPA adopts EG s that are then implemented when the EPA approves a state or tribal 114 plan or promulgates a federal plan that implements and enforces the EG s for affected E GUS in states or areas of Indian country 115

114 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. 115 As discussed in detail in (citation), in adopting a federal plan implementing the EG s in areas of Indian country containing EGU, the EPA must determine that such a pla n is “necessary or appropriate” to protect air quality. See, 40 CFR 49.11(a).***E.O. 12866 Review

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without an approved state or tribal plan. Congress has determined that the primary responsibility for air pollution prevention and control rests with state and local agencies, while also recognizing that “Federal ... leadership is essential for the development of cooperative Federal, State, re gional, and local programs to prevent and control air pollution.” (See section 101(a)(3) and (4) of the CAA.) Congress has also provided for Indian T ribes meeting specified eligibility criteria to implement the C AA within the exterior boundaries of their r eservations or other areas within the tribe’s jurisdiction. (See section 301(d)(1) and (2) of the CAA.) Even in the event that it becomes necessary for the EPA to directly regulate affected EGUS under CAA section 111(d), states and eligible tribes may stil l seek a delegation of authority from the EPA to implement a federal plan, similar to the ability to take delegated authority under other CAA programs. The EPA encourages states and eligible tribes that do not 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 a nd local , or tribal, agencies have practical knowledge and enforcement***E.O. 12866 Review

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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
pr omulgated standard become obligations to a state or tribe (except for functions that the EPA retains for itself) upon delegation. 116 117
A. Delegation of the F ederal P lan and Retained Authorities If a state or tribe 118 intends to take delegation of the federal pla n, the state or tribe should submit to the appropriate EPA Regional Office a written request for delegation of authority. The state or tribe should explain how it meets the criteria for delegation. See generally “Good Practices Manual for Delegation of NSP S and NESHAP” (EPA, February 1983). The

116 If the Administrator chooses to retain certain authorities under a standard, those authorities cannot be delegated, e.g., the authority to allow alternative methods of demonstr ating compliance. 117 We note that issuance of a title V permit is not equivalent to the approval of a state plan or delegation of a federal plan. This has been discussed in prior rulemakings, 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 57518, 57535; Oct. 3, 2003). 118 A tribe interested in taking delegation of the federal plan must also apply, and be approved by the EPA, for TAS eligibility for that purpose. 40 CFR part 49.***E.O. 12866 Review

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letter requesting delegation of authority to implement the federal plan should: (1) D emonstrate that the state or tribe has adequate resources, as well as the legal and enforcement authority to administer and enforce the program, (2) include an inventory of affected EGUs, which includes those that have ceased operation but have not been dismantled, include an inventory of the affected units’ air emissions and a provision for state or tribal progress reports to the EPA , (3) certify that a public hearing has been held on the state or tribal delegation request, and (4) include a memorandum of agreement between the state or tribe and the EPA that sets forth the terms and conditions of the delegation, the effective date of the agreement and the mechanism to transfer authority. Upon signature of the agreement, the appropriate EPA Regional Office would publish an approval notice in the Federal Register , thereby incorporating the delegation of authority into the appropriate sub part 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 placed in the docket for this action.) If authority is not delegated to a state or tribe, the EPA will implement the federal plan. Also, if a state or tribe fails***E.O. 12866 Review

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to properly implement a delegated portion of the federal plan, the EPA will assume direct implementation and enforcement of that portion. The EP A will continue to hold inspection, information gathering, enforcement, and other parallel authorities along with the state or tribe even when a state or tribe has received delegation of the federal plan. In all cases where the federal plan is delegated, t he EPA may retain and not transfer authority to a state or tribe to approve certain items promulgated in the 2015 CAA section 111(d) Clean Power Plan
. This proposed federal plan also specifies that EGU owners or operators who wish to petition the agency for any alternative requirement should submit a request to the Regional Administrator with a copy set to the appropriate state.
B. Mechanisms for Transferring A uthority There are two mechanisms for transferring implementation authority to state and local agencies and tribes : (1) The EPA approval of a state or tribal plan after the federal plan is in effect; and (2) if a state or tribe does not submit or obtain
ap proval of its own plan, the EPA delegation to a state or tribe of the authority to implement certain portions of this federal plan to the extent appropriate and if allowed by state or tribal law. Both of these options are described in more detail below.***E.O. 12866 Review

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1. Fe deral Plan Becomes Effective Prior to Approval of a State or Tribal Plan After EGUs in a state or area of Indian country become subject to the federal plan, the state or local agency or tribe may still adopt and submit a plan to the EPA. If the EPA determi nes that the state or tribal plan is satisfactory and approvable pursuant to the EG, the EPA will approve the state or tribal plan. If the EPA, on review of the submitted state or tribal plan, determines that this is not the case, the EPA will disapprove t he plan and the EGUs covered in the state or tribal plan would remain subject to the federal plan until a state or tribal plan covering those EGU is approved and effective. Prior to disapproval, the EPA will work with states and eligible tribes to attempt to reconcile areas of the plan that are unapprovable
. Upon the effective date of an approved state or tribal plan, the federal plan would no longer apply to EGUs covered by such a plan and the state or local agency , or the tribe, would implement and enforce the state or tribal plan in lieu of the federal plan. The timing of effectiveness of an approved state or tribal plan in this circumstance may depend in part on the need to ensure a smooth transition and maintain regulatory

cer tainty. Thus, for example, under a mass

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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 inter ested 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 tr ibal plan, it will amend the appropriate subpart of 40 CFR part 62 or 40 CFR part 49, respectively, to indicate such approval , as well as the timing of its effectiveness
. As discussed elsewhere in this document , the EPA may also in certain circumstances ap prove 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 V.E of this preamble
. The partial state or tribal plan would allow for the state or tribe to assume direct authority for administering and implementing this aspect of the trading program, while the remainder of the federal plan remains in place. The procedural and submission requirements set forth in the framework***E.O. 12866 Review

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regulations of 40 CFR p art 60 , s ubpart B and the EG s would generally apply to a partial state or tribal plan, just as they would a full state or tribal plan. The scope of the requirement, however, would be commensura te 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.

2. State or Tribe Takes Delegation of the F ederal F lan The EPA, in its discretion, may delegate to state or tribal air agencies the authority to implement this federal plan. As discusse d above, the EPA believes that it is advantageous and the best use of resources for state or local agencies or tribes to agree to undertake, on the EPA’s behalf, administrative and substantive roles in implementing the federal plan to the extent appropriat e and where authorized by state or tribal law. If a
state or tribe requests 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 administrati on and oversight of compliance reporting and recordkeeping requirements, inspections of its affected EGUs,***E.O. 12866 Review

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and enforcement. The EPA will continue to hold inspection, information gathering, enforcement, and other authorities along with the state or tribe ev en 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 to the appropriate Regional Administrator. Section II. B of this preamble includes Table 2 of t his preamble 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 any final federal plan for a state or tribe, group of states or combined group of states and tribes, the Office of Air and Radiation within the Headquarters of the EPA is proposed to be the primary office within the agency with delegated CAA section 111(d)(2) authority. See Delegation 7

- 139, section 3(c).
D. Necessary or Appropriate Findi ng for Affected EGUs in Indian Country Indian T ribes may, but are not required to, submit tribal***E.O. 12866 Review

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plans to implement the EG s . Section 301(d) of the C AA and 40 CFR part 49 authorize the Administrator to treat an Indian T ribe in the same manner as a state (TAS) for purposes of developing and implementing a tribal plan implementing the EG. See 40 CFR 49.3; see also “ Indian Tribes: Air Quality Planning and Management, ” hereafter “ Tribal Authority Rule, ” (63 FR 7254, February 12, 1998). We invite tribes with EGU in their area of Indian country to comment on the level of their interest, if any, in developing their own plans. The EPA is proposing in this action to find that it is necessary or appropriate to regulate affected EG Us in each of the three areas of Indian country that have affected EGUs under the proposed federal plan. The EPA is authorized to directly implement the EG s in Indian country when it finds, consistent with the authority of CAA section 301 which the EPA has exercised in 40 CFR 49.11, that it is necessary or appropriate to do so. In the final EG s , the EPA establishes emission performance rates for the four EGUs located in Indian country and mass and rate

- based emission goals for each of the three affected are as of Indian country. These areas include lands of the Navajo Nation’s reservation, lands of the Ute Tribe of the Uintah and Ouray Reservation, and lands of the Fort Mojave Tribe’s reservation. The EPA proposed carbon pollution EG s for***E.O. 12866 Review

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EGUs in these areas and U.S. Territories in a Supplemental Notice 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 Poi nt Energy Center, on the Fort Mojave Reservation geographically located within Arizona; the Navajo Generating Station, on the Navajo Indian Reservation geographically located within Arizona; the Four Corners Power Plant, on the Navajo Indian Reservation ge ographically located within New Mexico; and the Bonanza Power Plant, on the Uintah and Ouray Indian 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.
In this action, we are proposing to find that it is necessary or appropriate, in each of the three areas of Indian country that have affected EGUs, to establish a federal plan that applies to the four power plants located on the Navajo Nation, the Fort Mojave 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 continental U.S. , are interconnected with t he western electricity grid, and are owned and operated by entities that generate and provide electricity to***E.O. 12866 Review

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customers in several states. The affected EGU located on the Uintah and Ouray Reservation of the Ute Tribe is in an area of Indian country located within the continental U.S. , is interconnected with the western electricity grid, and is owned and operated by an entity that generates and provides electricity to customers in several states. The affected EGU located on the Fort Mojave Indian Reservation is in an area of Indian country located within the continental U.S. , is interconnected with the western electricity grid, and is owned and operated by an entity that generates and provides electricity to customers in several states. To date, none of the th ree tribes on whose areas of Indian countr y the four power plants are located ha ve expressed a clear intent to develop and seek approval of a tribal implementation plan. Thus, absent a federal plan, the significant emissions from these four power plants co uld go unregulated by the Clean Power Plan. Because the agency has finalized emission performance targets for these power plants in the EGs, there is, in our view, little benefit to be had by not proposing to include them in a federal plan now and a potent ially significant downside to not doing so ; the reductions the EPA has determined are achievable in the EGs would become more difficult and costly for these power p l ants to achieve if they are delayed in entering into the trading program the agency intends to establish. In order to meet the performance***E.O. 12866 Review

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targets, we are anticipating that the affected EGUs may need to secure allowances or ERCs (depending on the approach ultimately finalized) during the compliance periods
. They may also be able to generate and sell compliance instruments by participating in the trading program. Thus, proposing a finding that it is necessary or appropriate to establish one or more federal plans providing the ability to participate in a rate

- or mass - based trading program is in th e interest of these four power plants located in areas of Indian country. We believe that this together with the facts that, as indicated above, all four EGU are interconnected with the western electricity grid and are owned and operated by an entity that generates and provides electricity to customers in several
states thereby making it potentially disruptive and inequitable not to include them in one or more federal plans on the same schedule as other affected EGU 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 t ribes from taking such actions. We also note that this proposed determination does not preclude these tribes from seeking TAS and receiving delegation to administer aspects of any applicable federal plan that is***E.O. 12866 Review

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ultimately promulgated. In the event a feder al plan is needed, proposing a necessary or appropriate finding at this time will allow the EPA to expeditiously promulgate a final federal plan for one or all of these power plants in the future to allow trading to occur. We will continue to consult with the governments of the Navajo Nation, Fort Mojave Indian Tribe, and the Ute Tribe of the Uin tah and Ouray Reservation during the comment period for this proposal, and prior to taking any action to finalize a necessary or appropriate finding and/or a federal plan. Comments on the appropriateness of the proposed finding, should be submitted within the comment period specified in the Dates section of this preamble.

**VII. Amendments to Process for Submittal and Approval of State**  **Plans and EPA Actions** As indicated in the final rulemaking notice for the CAA section 111(d) guideline, “Carbon Pollution Emissio n 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
act ing on CAA section 111(d) state plans under 40 CFR p art 60 , subpart B
. These changes would be applicable to any future CAA section 111(d) rules going forward, not just the Clean Power***E.O. 12866 Review

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Plan EGs. The EPA proposes six changes to the CAA section 111(d)
process in the framework regulations to include: (1) P artial approval/disapproval mechanisms similar to CAA section 110(k)(3); ( 2 ) a conditional approval mechanism similar to CAA section 110(k)(4); (3) a mechanism for the EPA to make calls for plan revisions simi lar to the "SIP

- call" provisions of CAA

s ection 110(k)(5); ( 4 ) an error correction mechanism similar to
CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar to CAA section 110(k)(1) and (2); and (6) updates to the deadlines for the EPA action. In addition, in this s ection, the agency is proposing an interpretation regarding the effect under section 111 if an existing facility subject to CAA section 111(d) modifies or reconstructs. We believe these changes will significantly streamline the state plan review and approval process, be more 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 CAA section [110] of this title under which each state shall submit to the Administrator a [111(d)] plan . . ..” 42 U.S.C. 7411(d)(1). Thus, the CAA directs the EPA to look to the structure of the SIP program when designing the procedures the states and agency will use to***E.O. 12866 Review

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develop CAA section 111(d) plans. Notably, the CAA does not require the CAA section 111(d) procedures to be identical to those the EPA uses under CAA section 110 for SIPs. 119 Therefore, the EPA interprets CAA section 111(d) to provide the EPA flexibility in designing procedures that reflect the structure of those used under CAA section 110 for implementation plans, without requiring the EPA to exactly track SIP procedures when acting on section 111(d) plans. As a general matter these proposed changes would simply update the CAA section 111(d) framework regulations to include several new, more flexible procedural tools that Congress introduced into section 110 in the 1990 C AA Amendments. T he basic procedures in the CAA section 111(d) framework regulations were promulgated in 1975 based on the structure of CAA section 110 as Congress designed it in the 1970 CAA Amendments. See 40 FR 53340

- 49 (Nov. 17, 1975). Over the years since 1970, the EPA and the states learned a great deal about the procedural limitations of the 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

119 See Webster’s II New Riverside University Dictionary (Riverside 1988) (defining “similar” to mean “resembling though not completely identical”).***E.O. 12866 Review

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the EPA wa nted to work with states to get state programs approved to the extent possible, while maintaining consistency with CAA requirements. Congress responded in 1990 and enhanced the procedural mechanisms the EPA has to act on SIPs. The EPA is proposing correspo ndingly to update the CAA section 111(d) regulations in a similar fashion . Currently, the EPA’s framework regulations for submittal and adoption of CAA section 111(d) state plans do not explicitly provide for the EPA to use some of the same procedures for approving or disapproving state plans Congress introduced into the SIP program in the 1990 C AA Amendments. The EPA is proposing to amend the procedures for approval or disapproval of CAA section 111(d) state plans to reflect the enhancements Congress inclu ded in CAA section 110 for agency actions on SIPs. These proposed amendments are discussed in more detail below.
A. Partial Approvals/Disapprovals First , the EPA proposes to add authority similar to that under CAA section 110(k)(3) to partially approve or disapprove a plan. 120 This is a particularly useful function when much of a

120 We recognize that the regulations appear to already contemplate partial approval/disapprovals to some extent. See 40 CFR 60.27(a) (“The Administrator may ... extend the period for submission of any plan ... or portion thereof.”) (emphasis added). We note that this***E.O. 12866 Review

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state plan is approvable and the EPA and the state cannot reach resolution on only a small, severa b l e portion of the state plan. In this case, the EPA prefers not to be in a position where it must disapprove the full plan, but rather to allow the state to move forward with those portions of the plan that are approvable
. T his mechanism are those situations where the state wishes to take over a discrete part of a federal plan. For instance, in this proposal, states will be able to seek approval of a partial state plan that will give them the ability to handle the allocation of allowances under a mass

- based f ederal plan. In cases where elements of a plan are functionally severable from each other, and one element is approvable while another is not, this provision will authorize the EPA to approve one part of a plan and disapprove the other. It will also author ize the EPA to accept and review a state plan that is only partial in nature, if identified by the state as such, so long as the other applicable submission requirements are met (such as demonstration of legal authority and completion of the public
language only allows for extensions of time with respect to portions of state plan submissions and may not sufficiently authorize a permanent partial approval. The proposed enhancement will resolve any ambiguity that partial approvals/disapprovals ar e an acceptable mechanism under CAA section 111(d).***E.O. 12866 Review

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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 followi ng 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 of the submittal in a way that is contrary to the state’s intent. The partial disapproval would be a disapproval for the purposes of CAA section 111(d)(2)(A) and would trigger the EPA’s authority to issue a federal plan for the state, at least for that part of the plan that was disapproved. Incorporating this mechanism under the framework regulations for CAA section 111(d) will enable the EPA to approve a state to implement as much of its program as is consistent with a CAA section 111(d) guideline and may reduce the scope of any federal plan that would be
necessary. B. Conditional Approvals The second mechanism is the authority under CAA section 110(k)(4) to conditionally approve a plan. Where a state has***E.O. 12866 Review

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submitted a plan that substantially meets the requirements of a CAA section 111(d) e mission g uideline, but requires some specific amendments to make it fully approvable, this provision authorizes the EPA to conditionally approve the plan. The Governor or h er designee must submit to the EPA a commitment that specifies the amendments to be adopted and submitted to the EPA by no later than 1 year from the effective date of the conditional approval. If the state fails to meet its commitment, the conditional app roval is treated as a disapproval. Incorporating this mechanism under the framework regulations for
CAA 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. This provision is designed to authorize a state with a substantially complete and approvable program to begin implementing it, while promptly amending the program to ensure it fully complies with
CAA section 111(d).
C. Calls for Plan Revisio ns CAA s ection 110(k)(5) authorizes the EPA to find that a SIP does not comply with the requirements of the CAA. To date, the EPA has not considered using a similar procedure pursuant to the authority under CAA section 111(d). We now propose to do so. The ability to call for plan revisions is fundamental to a program***E.O. 12866 Review

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that will be implemented over many years multiple decad Under the Clean Power Plan EGs , state s ha ve more than a decade to fully implement emissions standards or state measures in order to ensure affected EGUs achieve the emission goals of the EGs. Throughout this period, the EPA and the states will be monitoring their programs to ensure they are achieving the intended results. It is possible that design assumptions about the effect of contr ol 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 CAA sectio n 111(d) similar to the so

- called “SIP call” mechanism in CAA section 110(k)(5) will allow the agency to initiate a process with the state to make necessary revisions
to ensure the plan functions properly
. Accordingly, the EPA is proposing to amend the fr amework regulations to include a provision similar to CAA section 110(k)(5) under which the EPA may find that a state’s CAA section 111(d) plan is substantially inadequate to comply with the requirements of the CAA and require the state to revise the plan as necessary to correct such inadequacies. Consistent with
CAA section 110(k)(5), the EPA shall notify the state of any inadequacies and establish a reasonable deadline for the state***E.O. 12866 Review

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to submit required plan revisions. That deadline will not exceed 18 month s after the date of the notice. The EPA will make its finding and notice to the state available to the public. 121 The effect of such a finding is that either the state submits the program corrections by the date the EPA sets in the notice, or pursuant to CAA section 111(d)(2)(A), the EPA has authority to issue a federal plan for a state that misses its deadline to correct its plan. In effect, the finding of plan inadequacy establishes a plan submittal deadline subject to the provisions of CAA section 111(d)(2 )(A). A finding of failure to meet that new deadline triggers the EPA’s authority to issue a federal plan for the state. T he EPA may promulgate a federal plan at any time following the state’s failure to timely submit an adequate plan that addresses the EP A’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 c all for plan revision leads to a constructive dialogue with a state or states, and ultimately, an improved and more effective CAA

121 Consistent with the agency’s practice under CAA section 110(k)(5), the EPA anticipates that a call for plan revisions under CAA section 111(d) will be done via notice and comment rulemaking.***E.O. 12866 Review

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section 111(d) plan. The EPA is also proposing that the a gency can call for a plan revision in circumstances where a state is not implementing its approved state plan and , therefore , the state plan is substantially inadequate to provide for the implementation of
CAA section 111(d) standards of performance
. As discussed above, the CAA directs the EPA to develop a procedure for sta te plans under CAA section 111(d) similar to CAA section 110 SIP procedures. Calling a plan that is substantially inadequate to provide for implementation of standards of performance ( i.e., there is a failure to implement a state plan) is one area where th e EPA proposes it is appropriate to adapt the procedural mechanisms available in the SIP program to provide a similar process that assures effective state plan implementation under
CAA section 111(d). Under CAA section 110(k)(5), the EPA may call for a rev ision of a state plan “[w]henever the Administrator finds that the . . . plan . . . is substantially inadequate to . . . comply with any requirement of [the Act].”
I f the state does not submit a plan revision in response to the call to cure th e failure to provide for implement ation , the EPA would have the authority to promulgate the federal plan being proposed. One critical requirement of CAA section 111(d)(1)(B) is***E.O. 12866 Review

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that a state must submit a plan that “provides for the implementation and enforcement of su ch 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 inadequate to comply with this requirement of the CAA . Under this proposal, the EPA’s remedy would be to find the plan is substantially inadequate, which triggers the state’s obligation to cure, and failing that, the EPA’s authority to promulgate the federal plan. In the alternative, the EPA proposes that this authority to call a plan for failure to im plement is anchored in the authority provided under CAA section 110(k)(5) to call a SIP when the a gency finds that it is “substantially inadequate to attain or maintain the relevant national ambient air quality standard.” In the context of CAA section 111, this authority translates into the EPA calling a state plan when the a gency finds that it is substantially inadequate to achieve the emissions reductions required under the EG. If a state has failed to implement its plan, and that failure is pervasive enough to render the requirements of the plan ineffective, it is reasonabl e for the EPA to find that the state plan is substantially inadequate to achieve the emissions reductions required under the EG. The state’s failure to implement has***E.O. 12866 Review

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revised the effect of the plan so that it is no longer adequate to meet the CAA ’s requirem ents. Error Corrections The fourth mechanism is the error correction authority under CAA section 110(k)(6). Where the EPA concludes that it has erroneously approved, disapproved, or promulgated a plan or plan revision (or part thereof), this section author izes the agency to revise its action, in the same manner as the original action, without requiring any further submission from the state. Prior
to the 1990 CAA Amendments , there was some question whether the EPA could unilaterally correct a previous action on a SIP submittal without the state having to submit a new SIP. This limitation imposed unnecessary burdens on states to fix even obvious errors, because CAA section 110(a)(2) requires the state to provide notice and a public hearing on each new SIP subm ittal. Incorporating this mechanism into the CAA section 111(d) framework regulations will allow the EPA to fix errors in its prior actions on state plans without imposing on the states the corresponding burden of providing notice and a public hearing as r equired under the CAA section 111(d) framework regulations. 40 CFR 60.23.
D. Completeness Criteria Completeness criteria provide the agency with a means to***E.O. 12866 Review

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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 submittals do not contain the necessary minimum elements, then the EPA may, without further action, find that a state has failed to submit a plan. This determination is ministerial in nature and requires no exer cise of discretion or judgment on the agency’s part, nor does it reflect a judgment on the sufficiency or adequacy of the submitted portions of a state plan. The task is accomplished by simply comparing the materials provided by the state as its submittal against the required criteria to determine whether the plan is complete or not. In the case of SIPs under CAA section 110(k)(1), the EPA promulgated completeness criteria in 1990 at a ppendix V to 40 CFR p art 51 (55 FR 5830; Feb. 16, 1990). The EPA proposes to adopt criteria similar to the criteria set out at section 2.0 of Appendix V for determining the completeness of submissions under
CAA section 111(d). The completeness criteria can be grouped into : (1) A dministrative materials ; and (2) technical support
. The EPA proposes that both groups would apply to all CAA section 111(d) rules going forward. The agency notes that the addition of completeness criteria in the framework regulations does not alter any of the submission requirements states already have under the EGs .***E.O. 12866 Review

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For administrative materials, the EPA is proposing completeness criteria that mir ror the existing administrative criteria for SIP submittals because the two programs have similar administrative processes. The EPA proposes that a complete final state plan submittal under CAA section 111(d) must include: (1) A formal letter of submittal from the Governor or her designee requesting EPA approval of the plan or revision thereof; ( 2 ) e vidence that the state has adopted the plan in the state code or body of regulations ( That evidence shall include the date of adoption or final issuance as well as the effective date of the plan, if different from the adoption/issuance date .) ; (3) Evidence that the state has the necessary legal authority under state law to adopt and implement the plan; and (4) a copy of the actual regulation, or document submitte d for approval and incorporation by reference into the plan. The submittal shall be a copy of the official state regulation/document signed, stamped and dated by the appropriate state official indicating that it is fully enforceable by the state. The effec tive date of the regulation/document shall, whenever possible, be indicated in the document itself. The state’s electronic copy must be an exact duplicate of the hard copy. For revisions to the approved plan, the submittal shall indicate the changes made ( for example, by***E.O. 12866 Review

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redline/strikethrough) to the approved plan; ( 5 ) e vidence that the state followed all of the procedural requirements of the state's laws and constitution in conducting and completing the adoption/issuance of the plan; ( 6 ) e vidence that publ ic notice was given of the proposed change with procedures consistent with the requirements of 40 CFR 60.23, including the date of publication of such notice; ( 7 ) c ertification that public hearing(s) were held in accordance with the information 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 ( 8 ) c ompilation of public comments and the state's response thereto. These criteria, as proposed, are intended to be generic to all
CAA section 111(d) plans going forward , with the proviso that specific EG s may provide otherwise . The technical support completeness criteria that the EPA proposes will also be generic to all C AA section 111(d) rules , with the same proviso
. The EPA proposes that the technical support required for all plans must include each of the following: (1) D escription of the plan approach and geographic scope; (2) i dentification of each designated facility , identification of emission standards for the designated facilties , and monitoring, recordkeeping , and reporting requirements that will determine compliance by each***E.O. 12866 Review

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designated facility ; (3) i dentification of compliance schedules and/or increments of progres s; ( 4 ) d emonstration that the state plan submittal is projected to achieve emission s performance under the applicable EGs ; ( 5 ) d ocumentation of state recordkeeping and reporting requirements t o determine the performance of the plan as a whole ; and ( 6 ) d emonstration that each emission standard is quantifiable, non

- duplicative, permanent, verifiable, and enforceable. The EPA proposes a process similar, though not identical, to that set forth in 40 CFR 51.103 and Appendix V to 40 CFR p art 51 to make complet eness determinations. Similar to CAA section 110(k)(1)(C), under this proposal, where the EPA determines that a state submission required under CAA section 111(d) does not meet the minimum completeness criteria we are proposing to establish, the state will be considered to have not made the submission. The EPA further proposes that, similar to CAA section 110(k)(1)(B), within 60 days of the EPA's receipt of a state submission, but no later than 6 months after the date, if any, by which a state is required to submit the plan or revision, the Administrator shall determine whether the minimum criteria have been met. Any plan or plan revision that a state submits to the EPA, and that has not been determined by the EPA by the date 6 months after receipt of the submission to have***E.O. 12866 Review

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failed to meet the minimum criteria, shall on that date be deemed by operatio n of law to meet such minimum 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 CAA section 111(d) o r 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 submittal and, therefore, the submittal is sufficient to trigger the EPA’s obligation to act on it. But in the completeness process the agency will not assess the content of those submissions to determine if they are approvable. Accordingly, even when the EPA affirmatively determines that a submittal is complete, it does not prevent the agency from later finding that the state plan does not meet the requirements of the EGs , including finding that the submittal failed to address

a required element and must be disapproved. Similarly, when a submittal is determined to be complete by operation of law after 6 months without the EPA’s affirmative determination of completeness, the only legal consequence is that the EPA now has an obliga tion to act on that submittal.***E.O. 12866 Review

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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 state 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 approvi ng, 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 operation of l aw in no 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 CAA secti on 111(d) EGs , a state will submit all CAA section 111(d) plans electronically. If the EPA determines that any submission fails to meet the completeness criteria, the agency may return the plan to the state and request corrections, identifying the
componen ts 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***E.O. 12866 Review

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state plan or supporting materials addressing the corrections the EPA identi fied 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 stat e to submit the plan prior to final adoption by the state and provides an opportunity for the state to consider 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 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 addre ssed any corrections that the EPA identified in its proposed action on the state plan without any other material change to the plan. Note that a plan submitted for parallel processing must still meet all the criteria for technical completeness so that the EPA and the public have a sufficient basis on which to evaluate and
comment on the EPA’s proposed action.
E. Update to Deadlines for EPA Actions
T he EPA proposes to update the deadlines for acting on state submittals and promulgating a federal plan under 40 CFR 60.27(b), (c), and (d) to more closely track the current***E.O. 12866 Review

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versions of CAA section 110(c) and 110(k) adopted in 1990. The framework regulations f or CAA section 111(d) state plans currently are parallel to the prior version of CAA section 110. They require the EPA to act on a state plan or plan revision submittal within 4 months after the date required for submission of a plan or plan revision. 40 C FR 60.27(b). The regulations then require the EPA to issue a proposed federal plan in certain circumstances after consideration of any state hearing record, 40 CFR 60.27(c), and require the EPA to promulgate the proposed federal plan within 6 months after the date required for plan submissions, id. 60.27(d). The final CO 2 EG for EGUs have already adjusted the deadline in 60.27(b) to require the EPA to act on a state plan under those EGs within 12 months (rather than 4 months) after the date required for submission of a plan. See 40 CFR 60.5715. However, the Clean Power Plan EGs did not modify the 6 month deadline for a federal plan in 60.27(d). The EPA is proposing to amend 40 CFR 60.27( b) to allow the EPA 12 months to approve or disapprove submittals of all plans or plan revisions under CAA section 111(d), not just those related to the Clean Power Plan under 60.5715. This change would provide the EPA with sufficient time for the steps re quired to approve or disapprove the submittal, which include proposing the***E.O. 12866 Review

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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 issuanc e of a final rule approving or disapproving the plan or plan revision. The EPA is also proposing to amend 40 CFR 60.27(b) to specify that the deadline for the EPA to act on a plan or plan revision is 12 months after receipt of a complete plan or plan revis ion, rather than 12 months after the deadline for submittal of a plan or plan revision. This amendment will allow the EPA to have the full 12 months to act on submittals of complete plans or plan revisions. The EPA also proposes slight modifications to th e provision related to issuing a proposed federal plan in 60.27(c); changing the 6 month deadline for issuing a final federal plan in 60.27(d) to 1 year 122 ; and, similar to the change in timing for

122 As under CAA section 110, the EPA believes that, should it fail for whatever reason to meet a deadline by which it was to take action, such as issue a federal plan, under CAA section 111(d), that failure does not thereby obviate or in any way remove the EPA’s autho rity or obligation to take that action. See Oklahoma v. U.S. EPA , 723 F.3d 1201, 1224 (10th Cir. 2013) (“Although the statute undoubtedly requires that the EPA promulgate a FIP within two years, it does not stand to reason that it loses its ability to do s o 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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60.27(b) above, setting the deadline for promulgation of a f ederal plan to run from the date of the EPA's action on a state submittal, rather than from the original deadline for a state submittal. The EPA believes it is appropriate to modify these timing requirements for several reasons. First, the EPA notes that under CAA section 111(d)(2), Congress gave the EPA the "same" authority to prescribe a federal plan under CAA section 111(d) as it would have under CAA section 110(c) in the case of a state failure to submit a SIP. The term "same" stands in contrast to the term "similar" in CAA section 111(d)(1) (discussed above). As with the use of the term “similar,” the EPA believes it is authorized by this language to follow the timing provisions of
CAA section 110(c) as currently enacted. Second, as a ge neral matter, the timing requirements of current 60.27(c) and (d), which effectively require the EPA to propose and finalize a federal plan within 6 months of the deadline for state submittals, may be outdated and unrealistic with respect to the timelines for review of state plans and the time periods for action, particularly as informed by the a gency's experience with
CAA section 110 SIPs (which led to the extension of the timelines and other changes to CAA section 110 in the 1990 Amendments discussed abov e). Third, in the CPP Emission***E.O. 12866 Review

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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 6 m onths of the initial deadline for state plans is therefore inconsistent with this provision. Fourth, existing 60.27(c) tracks the prior version of
CAA section 110(c) with respect to the issuance of a proposed federal plan. This relatively prescriptive lang uage is no longer present in CAA section 110(c). The procedural requirements for rulemakings under both CAA section 110 and 111(d) are set out in section 307(d) of the CAA , and the EPA believes those provisions are appropriate and adequate to guide its rul emaking process for
CAA section 111(d) federal plans. The EPA invites comment on all of these proposed changes to the framework regulations. The EPA notes that the addition of these mechanisms to the framework regulations will make them available for all C AA section 111(d) regulations, not just those under the Clean Power Plan at Subpart UUUU.
F. Proposed Interpretation regarding Existing Sources that Modify
or Reconstruct In the proposed rulemaking for the CPP, the EPA proposed the interpretation that if an existing source is subject to a
CAA section 111(d) state plan, and then undertakes a***E.O. 12866 Review

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modification or reconstruction, the source 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 and take comment on this issue through this fede ral plan rulemaking. The EPA also stated deferral of action on this issue does not impact states’ and affected EGUs’ pending obligations under this final rule relating to plan submission deadlines, as this issue concerns potential obligations or impacts af ter 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 performance period beginning in 2022, at which point state plan obligations on existing sources are effectuated.
We note d in the Clean Power Plan proposal that CAA section 111(d) is arguably silent a s to this issue. Thus, we took this to grant the agency the authority to provide a reasonable interpret ation 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 CAA section 111(d) program through modification or reconstruction. We did this for two reasons. First, if a source did so, that could prove disruptive to the***E.O. 12866 Review

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state plan. Second, allowing sources to do so could provide them an incentive to do so that would be contrary to the purposes of
CAA section 111(d). We then asked for comment on “whether this interpretation is suppor ted by the statutory text and whether this interpretation is sensible policy and will further the goals of the statute.” We received many comments disagreeing with this approach. After reviewing these comments, the agency believes an alternative interpret ation 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 CAA section 111(d) EG s are initially promulgated for existing stationary sourc es in response to corresponding CAA section 111(b) standards of per formance for the same pollutant, the statute prevents new , modified or reconstructed sources (including under those particular CAA section 111(b) standards of performance and as those terms are applied in the relevant new source performance standards ( NSPS ) ) from simultaneously being subject to state plans under those particular CAA section 111(d) EG s . This interpretation gives meaning to the definition of “existing source” in CAA section 11 1(a)(6) and is consistent with the definition of “new source” in section 111(a)(2). Further, it is consistent with the historical treatment of***E.O. 12866 Review

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modified and reconstructed sources in the CAA section 111
program. The EPA notes the concerns it noted in the pr oposal supporting why the originally proposed interpretation was reasonable are being addressed in other ways in the final EGs, and in the proposed federal plan. In other words, there will be other ways to minimize disruption to state plans if such a modif ication or reco nstruction were to take place. We invite comment on the agency’s proposed interpretation that when an existing source modifies or reconstructs in such a way that it meets the definition of a new source, for purposes of a particular NSPS and emission guideline, it becomes a new source under the statute and is no longer subject to the CAA section 111(d) program G. Separate Finalization of these Changes The a gency intends to finalize these procedural changes and interpretation sooner than it finalizes the rest of this proposed action. The EPA believes these changes generally enhance and improve the framework regulations in a way that will be of benefit to the states, the EPA, and other stakeholders, and will improve the overall efficacy of the program. We believe it is important to finalize these changes to the framework regulations relatively quickly in order to provide states and***E.O. 12866 Review

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other stakeholders predictability in how the EPA intends to process state plans and submissions und er CAA section 111(d). If the EPA does finalize these changes sooner than the model trading rules or the federal plan , it will do so after the close of the comment period, and after consideration and response to any comments on these changes.

**VIII. Impacts of th**  **is Action**
A. Endangered Species Act Consistent with the requirements of section 7(a)(2) of the Endangered Species Act (ESA), the EPA has considered the effects of this proposed rule and has reviewed applicable ESA regulations, case law, and guidance to deter mine 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 ensure that actions they authorize, fund, or carry out are not likely to jeopardize the continued existence of federally listed endangered or threatened species or result in the destruction or adverse modification of designated criti cal habitat of such species. 16 U.S.C. 1536(a)(2). Under relevant implementing regulations, ESA section 7(a)(2) applies only to***E.O. 12866 Review

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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 ac tion that evaluates the action 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. 123 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 causal connection between the federal action, the effect in question, and if the effect is indirect, it must be reasonably certain to occur.

123 See Endangered Species Consultation Handbook, U.S. Fish & Wildlife Service and National Marine Fisheries Servi ce at 4

- 25(March 1998) (providing examples of direct effects: e.g. , driving an off road vehicle through the nesting habitat of a listed species of bird and destroying a ground nest; building a housing unit and destroying the habitat of a listed species).***E.O. 12866 Review

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The EPA has considered the effects of this proposed ru le and has reviewed applicable ESA regulations, case law, and guidance to determine what, if any, impact there may be to listed species or designated critical habitat for purposes of
ESA section 7(a)(2) consultation. The EPA notes that the projected enviro nmental effects of this proposal are, like the
EGs that it implements, positive: reductions in overall GHG emissions, and reductions in PM and ozone

- precursor emissions (SO X and NO X ), for EGUS that will be covered by the federal plan
. However, the EPA’s as sessment that the rule will have an overall net positive environmental effect by virtue of reducing emissions of certain air pollutants does not address whether the rule may affect any listed species or designated critical habitat for ESA section 7(a)(2) p urposes 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 design ated critical habitat of such species within the meaning of ESA section 7(a)(2) or the implementing regulations or require ESA consultation. The EPA has considered various types of potential effects in considering whether E SA consultation is required for t his rule. With respect to the projected GHG emission reductions, the***E.O. 12866 Review

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EPA does not believe that such reductions trigger ESA consultation requirements under ESA section 7(a)(2). In reaching this conclusion, the EPA is mindful of significant legal and technic al 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 insu fficient to draw a causal connection between GHG emissions and effects on the species in its habitat. 124 The DOI Solicitor concluded that where the effect at issue is climate change, proposed actions involving GHG emissions cannot pass the “may affect” test of the ESA section 7 regulations and , thus , are not subject to ESA consultation. The EPA has also previously considered issues relating to GHG emissions in connection with the requirements of ESA section 7(a)(2). In the final EGs, the agency noted that, a lthough the GHG emission reductions projected for the EGs are large ( estimated reductions of about 415 million short tons of C O 2 in 2030 relative

124 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 Consultation Requirements to Proposed Actions Involving the Emission of Greenhouse Gases” (Oct. 3, 2008).***E.O. 12866 Review

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to the base case ), the EPA evaluated larger reductions in assessing this same issue in the context of the ligh t duty vehicle GHG emission standards for model years 2012

- 2016 and 2017

- 2025. There the agency projected emission reductions over the lifetimes of the model years in question, 125 which are roughly five to six times those projected above and, based on air qu ality 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 me tric to local effect with such small numbers, and accounting for further links in a causative chain, remain beyond current modeling capabilities.” EPA, Light Duty Vehicle Greenhouse Gas Standards and Corporate Average Fuel Econom y Standards, Response to Comment Document for Joint Rulemaking at 4

- 102 (Docket EPA

- OAR

- HQ

- 2009

- 4782). The EPA reached this conclusion after evaluating issues relating to potential improvements from the fuel efficiency rule relevant to both temperature and oceanograph ic pH outputs. The EPA's ultimate finding was that “any potential for a specific impact [of the specific federal action] on listed species in their habitats associated with these very small changes in average global

125 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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temperature and ocean pH is too remote t o trigger the threshold for ESA section 7(a)(2).” Id. See also , e.g., Ground Zero Center for Non

- Violent Action v. U.S. Dept. of Navy, 383 F. 3d 1082, 1091

- 92 (9th Cir. 2004)
. The EPA similarly proposes to determine that the likelihood of jeopardy to a spe cies from this proposed action is extremely remote, and ESA does not require consultation). The
EPA’s proposed conclusion is entirely consistent with DOI’s analysis regarding ESA requirements in the context of federal actions involving GHG emissions. With regard to non

- GHG air emissions, the EPA is also projecting substantial reductions of SO 2 and NO x as a collateral consequence of this proposal (which will be, as stated above, only a subset of the total reductions from the EGs ). However, CAA section 111(d) cannot directly control emissions of criteria pollutants. And furthermore, a federal plan under CAA section 111(d)(2) does no more than prescribe emissions standards of the same stringency as the corresponding EGs . 40 CFR 60. 27(e)(1). Consequently, CAA section 111(d) provides no discretion to set a standard in a federal plan based on potential impacts to endangered species of reduced criteria pollutant emissions. ESA

s ection 7(a)(2) consultation is not required with respect to the projected reductions of criteria pollutant emissions. See 50 CFR 402.03; see also WildEarth Guardians v. U.S. Envt’l Protection***E.O. 12866 Review

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Agency , 759 F.3d 1196, 1207

- 10 (10th Cir. 2014) ( the EPA has no duty to consult under section 7 of the ESA regarding HAP

c ontrols that it did not require

-- and likely lacked authority to require

-- in a FIP for regional haze controls under section 169A of the CAA.). Finally, the EPA has also considered other potential effects of the rule (beyond reductions in 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 dec isions such as increased utilization of solar or wind power could have effects on listed species. The EPA received comments on the EGs asserting that because potential increased reliance on wind or solar power may be an element of Building Block 3, and bec ause wind and solar facilities may in some cases have effects on listed species, the EPA must consult under the ESA on this aspect of the rule. The EPA has carefully considered the comments and the correspondence from Congress as well as the case law and other materials cited in those documents. The EPA does not believe that the effects of potential future changes in the energy sector

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– or any potential alterations 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 r egulations call for consultation where 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 issu e and must be reasonably certain to occur. Under a federal plan , it is the EPA that would implement a
CAA section 111(d) plan. The EPA believes that even with this proposed federal plan , any effects on listed species or designated habitat are too uncertain to require consultation under ESA section 7. This is so for at least two reasons : (1) T he EPA cannot know with any certainty at this sta g e which states will actually become subject to a finally promulgated federal plan
. W hich affected EGUs , in which states, will be covered by this Plan can only be known after states have failed to submit a plan, or have had their plans disapproved by the EPA ; and (2) , the federal plan as proposed will b e 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***E.O. 12866 Review

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lon g as the affected EGU holds sufficient credits or allowances. At this point , the EPA has no meaningful information to express in any more than the broadest terms how any particular affected EGU may choose to comply with the federal plan , should it be
promu lgated for them based on their location in an area not covered by an approved state plan. The Services have explained that ESA section 7(a)(2) was not intended to preclude federal actions based on potential future speculative effects. 126 These are precisely the types of speculative future activities and effects currently at issue here. The EPA requests comment on its proposed conclusion that ESA section 7 consultation is not required for this action.

126 See 51 FR at 19933 (describing effects that are “reasonably certain to occur” in the context of consideration of cumulative effects and distinguishing broader consideration that may be appropriate in applying a procedural statute such as the National Environm ental Policy Act, as opposed to a substantive provision such as ESA section 7(a)(2) that may prohibit certain federal actions); Endangered Species Consultation Handbook, U.S. Fish & Wildlife Service and National Marine Fisheries Service at 4

- 30(March 1998) (in the same context, describing indicators that an activity is reasonably certain to occur as including governmental approvals of the action or indications that such approval is imminent, project sponsors’ assurance that the action will proceed, obligati on of venture capital, or initiation of contracts; and noting that the more governmental administrative discretion remains to be exercised, the less there is reasonable certainty the action will proceed).***E.O. 12866 Review

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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 redu ctions under th is propo s ed action for the utility power sector. Specifically, the EPA is proposing approaches in the form of mass

- and rate

based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 emission performance rates in the Clean Power Plan EG s . However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or will adopt a model rule. Because of this lack of information, in the Regulatory Impact Analysis ( RIA ) for this proposal, the EPA chose to examine a scenario where all states of the contiguous U.S. will be regulated under a federal plan or will adopt the model rule. Additionally, we examine two alternative federal plan approach scenarios. The first federal plan approach assumes a ll states in the contiguous U.S. are regulated under a rate

- based federal plan. The second federal***E.O. 12866 Review

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plan approach assumes all contiguous states are regulated under

a mass - based federal plan
. 127 Under the rate

- based approach, when compared to 2005, CO 2 emissi ons 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 proposal is projected to result in substantial co

- benefits through reductions of SO 2 , NO X and PM 2.5 that will have direct public health benefits by lowering ambient levels of these pollutants and ozone. Table 12 and Ta ble 13 of this preamble show expected CO 2 and other air pollutant emissions in the base case and reductions under the proposal for 2020, 2025, and 2030 for both rate

- based and mass

- based approaches.
**Table 12**  **. Summary of CO 2**  **and Other Air Pollutant Emission Reductions from the Base Case under Rate**  **- Based**  **Federal Plan** 

127 It is important to note that the differences between the analytical results for the rate

- based and mass

- based federal plan approaches presented may not be indicative of likely differences between the approaches. If one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instances.***E.O. 12866 Review

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**Approach CO**  **2 (millions**  **short tons) SO**  **2 (thousand**  **short tons) NO**  **X (thousand**  **short tons) 2020**  Base Case 2,155 1,311 1,333 Rate

- based Federal Plan Approach 2,085 1,297 1,282 Emissions Reductions 69 14 50 **2025** Base Case 2,165 1,275 1,302 Rate

- based Federal Plan Approach 1,933 1,097 1,138 Emissions Reductions 232 178 165 **2030** Base Case 2,227 1,314 1,293 Rate

- based Federal Plan Approach 1,812 996 1,011 Emissions Reductions 415 318 282 Source: Integrated Planning Model, 201 5
. Note: Emissions may not sum due to rounding.
**Table 13**  **. Summary of CO 2**  **and Other Air Pollutant Emission Reductions from the Base Case under Mass**  **- Based**  **Federal Plan**  **Approach CO**  **2 (million**  **short tons) SO**  **2 (thousand**  **short tons) NO**  **X (thousand**  **short tons) 2020**  Base Case 2,155 1,311 1,333 Mass

- based Federal Plan Approach 2,073 1,257 1,272 Emissions Reductions 81 54 60 **2025*****E.O. 12866 Review

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Base Case 2,165 1,275 1,302 Mass

- based Federal Plan Approach 1,901 1,090 1,100 Emissions Reductions 265 185 203 **2030** Base Case 2,227 1,314 1,293 Mass

- based Federal Plan Approach 1,814 1,034 1,015 Emissions Reductions 413 280 278 S ource: Integrated Planning Model, 201 5
. Note: Emissions may not sum due to rounding.
The reductions in Tables 12 and 13 of this preamble do not account for reductions in HAP that may occur as a result of this rule. For instance, the fine particulate reductions presented above do not reflect all of the reductions in many hea vy metal particulates.
C. What are the Energy Impacts ? The proposed action may have important energy market implications. Table 14 of this preamble presents a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate

- based and mass

- based federal plan approaches described in s ection VIII. C of this preamble and presented in the RIA for this proposal
. **Table 14**  **. Summary Table of Important Energy Market Impacts for**  **Rate -**  **Based and Mass**  **- Based**  **Federal Plan Approaches (Percent**  **Change from Base Case) Rate**  **- Based**  **Mass -**  **Based*****E.O. 12866 Review

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**2020 2025**  **2030 2020**  **2025 2030**  Retail electricity prices 3% 1% 1% 3% 2% 0% Average electricity bills 3%

- 4%

- 7% 2%

- 3%

- 8%
Price of coal at minemouth - 1%

- 5%

- 4%

- 1%

- 5%

- 3% Coal production for power sector use - 5%

- 14%

- 25%

- 7%

- 17%

- 24% Price of natural gas delivered to power sector 5%

- 8% 2% 4%

- 3%

- 2%

Natural gas use for electricity generation 3%

- 1%

- 1% 5% 0%

- 4%

These figures reflect the EPA’s modeling that presumes policies that lead to generation shifts and growing use of DS

- EE and renewable electricity generation out to 2029. If different implementation choices are made than those modelled , impacts could be different.
D. What are the Compliance Costs ? The compliance costs of this proposed action are represented in this analysis as the change in electric power generation costs between the base case and modeled fed eral plan approaches described in s ection VIII.B in this preamble and presented in the RIA for this proposal
. The incremental cost is***E.O. 12866 Review

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the projected additional cost of complying with the proposed action in the year analyzed and includes the amortized cost of capital investment, needed new capacity, shifts between or amongst various fuels, deployment of DS

- EE programs, and other actions associated with compliance. These important dynamics are discussed in more detail in the RIA in the rulemaking docket. The EPA estimates the annual incremental compliance cost for the rate

- based federal plan approach to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 2030

. The EPA estimates the annual incremental compliance cost for the mass

- based federal plan approach to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030. More detailed cost estimates are available in the RIA included in the rulemaking do cket.
E. What are the Economic and Employment Impacts ? Based on the analysis presented in the RIA, t he proposed action is projected to result in certain changes to power system operation as a compliance with the standards. See Table 14 of this preamble for a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate

- based and mass

based federal plan approaches described in Section VIII.B in this preamble and presented in the RIA
. 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 inputs in the production process***E.O. 12866 Review

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or supply those sectors. Changes in the cost of production may result in changes in prices, quantities produced, and profitability of affected firms. The EPA recognizes that these guidelines provide significant flexibilities and states implementing the guidelines may choose to mitigate impacts to some markets outside the utility power sector. Similarly, demand for new ge neration or DS

- EE as a result of states implementing the guidelines can result in shifts in production and profitability for firms that supply those goods and services. Executive Order 13563 directs federal agencies to consider the effect of regulations o n job creation and employment. According to the Executive Order, “our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science.” (Executive Order 13563, 2011) Although standard benefit

- cost analyses have not typically included a separate analysis of regulation

- induced employment impacts, we typically conduct employment analyses. While the economy continues to move toward full employment , employment impacts are of particular concern and questions may arise about their existence and magnitude. The EPA’s employment analysis includes projected employment***E.O. 12866 Review

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impacts associated with modeled federal plan approaches for the electric power industry, coal and natural gas production, and
DS

- EE activities. These projections are derived, in part, from a detailed model of the utility power sector used for this regulatory analysis, and U.S
. government data on employment and labor productivity. In the electricity, coal, and natural gas sectors, the EPA estimates that the proposed action could result in a net decrease of approximately 25,000 job

- years in 2025 under the rate

- based federal plan approach and approximately 26,000 job

- years in 2025 under the mass

- based approach. For 2030, the estimates of the net decrease in job

- years are 31,000 under the rate

- based approach and 34,000 under the mass

- based approach. The a gency is also offering an illustrative calculation of potential employment effects due to DS

- EE programs. Employment impacts from DS

- EE programs in 2030 could range from approximately 52,000 to 83,000 jobs under the proposal
. By its nature, DS

- EE reduces overall demand for el ectric
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 fossil

- fuel fired EGU construction and operation than would otherwise have been expected. The EPA also recognizes the***E.O. 12866 Review

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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 the se 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 include workers previously employed elsewhere. Thi s 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 th ese reasons, the numbers reported here should not be interpreted as a net national employment impact.
F. What are the Benefits of the Proposed Action ? Implementing the proposed action will generate benefits by reducing emissions of CO 2 and criteria pollutant precursors, including SO 2 , NO X , and directly emitted particles. SO 2 and NO X are precursors to PM 2.5 (particles smaller than 2.5 microns), and
NO X is a precursor to ozone. The estimated benefits associated with these emission reducti ons are beyond those achieved by previous EPA rulemakings including the Mercury and Air Toxics Standards rule. The health and welfare benefits from reducing***E.O. 12866 Review

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air pollution are considered co

- benefits for this proposal . 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 not able to quantify, leading to an underestimate of monetized be nefits. In summary, we estimate the total combined climate benefits and health co

benefits for the rate

- based federal plan approach to be $3.5 to $4.6 billion in 2020, $18 to $28 billion in 2025, and $34 to $54 billion in 2030 (3 percent discount rate, 201 1$). Total combined climate benefits and health co

- benefits for the mass

- based federal plan approach are estimated to be $5.3 to $8.1 billion in 2020, $19 to $29 billion in 2025, and $32 to $48 billion in 2030 (3 percent discount rate, 2011$). A summary of the emission reductions and monetized benefits estimated for this rule at all discount rates is provided in Tables 15 through 17 of this preamble.
**Table 15**  **. Summary of the Monetized Global Climate Benefits for the**  **Proposal (**  **Billions of 2011$)**  **a Discount**  **Rate**

**(Statistic) Monetized Climate Benefits** 
**YEAR 2020**  **2025 2030**  **Rate -**  **based Federal Plan**  **Approach*****E.O. 12866 Review

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**CO 2**  **Reductions (million**  **short tons)** 69 232 415

5 percent (average SC

- CO 2 ) $0.80 $3.1 $6.4 3 percent (average SC

- CO 2 ) $2.8 $10 $20 2.5 percent (average SC

- CO 2 ) $4.1 $15 $29 3 percent (95 th percentile SC

- CO 2 ) $8.2 $31 $61
**Mass -**  **based Federal Plan**  **Approach**

**CO 2**  **Reductions (million**  **short tons)** 8 1 26 5 413

5 percent (average SC

- CO 2 ) $0.94 $3.6 $6.4 3 percent (average SC

- CO 2 ) $3.3 $12 $20 2.5 percent (average SC

- CO 2 ) $4.9 $17 $29 3 percent (95 th percentile SC

- CO 2 ) $9.7 $35 $60

a Climate benefit estimates reflect impacts from CO 2 emission changes in the analysis years presented in the table and do not account for changes in non

- CO 2 GHG emissions. These estimates are based on the global social cost of carbon ( SC

- CO 2 ) estimates for the analysis years and are rounded to two significant figures.***E.O. 12866 Review

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**Table 16**  **. Summary of the Monetized Health Co -**  **Benefits in the U.S. for the**  **Proposal , Rate**  **- b**  **ased Federal Plan**  **Approach (**  **Billions of 2011$)**  **a**

**Pollutant National**  **Emission Reductions**  **(thousands**

**of short tons)**  **Monetized Health Co**  ****

**benefits Monetized**  **Health Co**  

** benefits** **(3 percent discount)**  **(7 percent discount)** 
**Rate -**  **based Federal Plan**  **Approach, 2020 PM**  **2.5 precursors**  **b**
**SO 2**  14 $0.44 to $0.99 $0.39 to $0.89
**NO X**  50 $0.14 to $0.33 $0.13 to $0.30 **Ozone precursor c** 
**NO X**  **(ozone season only)** 19 $0.12 to $0.52 $0.12 to $0.52 **Total Monetized Health Co -**  **benefits** $0.70 to $1.8 $0.64 to $1.7 **Total Monetized Health Co**  **- benefits**  **combined wi th Monetized Climate**  **Benefits d**  $3.5 to $4.6 $3.5 to $4.5

**Rate -**  **based Federal Plan**  **Approach, 2025 PM**  **2.5 precursors**  **b SO**  **2** 178 $6.4 to $14 $5.7 to $13
**NO X**  1 65 $0.56 to $1.3 $0.50 to $1.1 **Ozone precursor c** 
**NO X**  **(ozone season only)** 7 0 $0.49 to $2.1 $0.49 to $2.1 **Total Monetized Health Co -**  **benefits** $7.4 to $18 $6.7 to $16***E.O. 12866 Review

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**Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $18 to $28 $17 to $26

**Rate -**  **based Federal Plan**  **Approach, 2030**  **PM 2.5**  **precursors b**  **SO 2**  3 18 $12 to $28 $11 to $25
**NO X**  2 82 $1.0 to $2.3 $0.93 to $2.1 **Ozone precursor c**  **NO X**  **(ozone season only)**  1 18 $0.86 to $3.7 $0.86 to $3.7 **Total Monetized Health Co -**  **benefits** $14 to $34 $13 to $31 **Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $34 to $54 $33 to $51

a All estimates are rounded to two significant figures, so estimates may not sum. It is important to note that the monetized co

- benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosyste m effects or visibility impairment. Air pollution health co

- benefits are estimated using regional benefit

- per - ton estimates for the contiguous U.S. b The monetized PM 2.5 co - benefits reflect the human health benefits associated with reducing exposure to PM 2 .5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The co

b enefits do not include the bene fi ts of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed Clean Power Plan EGs
. PM co

- benefits are shown as a range reflecting the use of two concentration

- response functions, with the lower end of the range based on a function from Krewski et al. (2009) and the upper end based on a function***E.O. 12866 Review

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from Lepeule et al. (2012). These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing prematur e 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 reductio ns of NO X during the ozone season. Ozone co

- benefits are shown as a range reflecting the use of several different concentration

- response functions, with the lower end of the range based on a function from Bell, et al. (2004) and the upper end based on a fu nction 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 discou nt 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, h owever we emphasize the importance and value of 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 17**  **. Summary of the Monetized Health Co -**  **Benefi ts in the**  **U.S. for the Proposal**  **, Mass -**  **based Federal Plan**  **Approach (**  **Billions of 2011$)**  **a**

**Pollutant National**  **Emission Reductions**  **(thousands**

**of short Monetized**  **Health Co**  

** benefits** **Monetized Health Co**  ****

**benefits (3 percent**  **discount) (7 percent**  **discount)*****E.O. 12866 Review

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**tons) Mass**  **- based**  **Federal Plan Approach, 2020**  **PM 2.5**  **precursors b**  **SO 2**  54 $1.7 to $3.8 $1.5 to $3.4
**NO X**  60 $0.17 to $0.39 $0.16 to $0.36 **Ozone precursor c** 
**NO X**  **(ozone season only)** 23 $0.14 to $0.61 $0.14 to $0.61 **Total Monetized Health Co -**  **benefits** $2.0 to $4.8 $1.8 to $4.4 **Total Monetized Health Co -**  **benefits combined wi**  **th Monetized Climate Benefits**  **d** $5.3 to $8.1 $5.1 to $7.7

**Mass -**  **based Federal Plan**  **Approach, 2025 PM**  **2.5 precursors**  **b SO**  **2** 185 $6.0 to $13 $5.4 to $12
**NO X**  203 $0.58 to $1.3 $0.52 to $1.2 **Ozone precursor c** 
**NO X**  **(ozone season only)** 88 $0.56 to $2.4 $0.56 to $2.4 **Total Monetized Health Co -**  **benefits** $7.1 to $17 $6.5 to $16 **Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $19 to $29 $18 to $27

**Mass -**  **based Federal Plan**  **Approach, 2030 PM**  **2.5 precursors**  **b SO**  **2** 280 $10 to $23 $9.0 to $20
**NO X**  27 8 $0.87 to $2.0 $0.79 to $1.8 **Ozone precursor c** ***E.O. 12866 Review

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**NO X**  **(ozone season only)**  121 $0.82 to $3.5 $0.82 to $3.5 **Total Monetized Health Co -**  **benefits** $12 to $28 $11 to $26 **Total Monetized Health Co -**  **benefits combined with Monetized Climate**  **Benefits d**  $32 to $48 $31 to $46

a All estimates are rounded to two significant figures, so estimates may not sum. It is important to note that the monetized co

- benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosyste m effects or visibility impairment. Air pollution health co

- benefits are estimated using regional benefit

- per - ton estimates for the contiguous U.S. b The monetized PM 2.5 co - benefits reflect the human health benefits associated with reducing exposure to PM 2 .5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The co

b enefits do not include the bene fi ts of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed Clean Power Plan EGs
. PM co

- benefits are shown as a range reflecting the use of two concentration

- response functions, with the lower end of the range based on a function from Krewski et al. (2009) and the upper end based on a function from Lepeule et al. (2012). These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estima tes 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 dif ferent concentration

- response functions, with the lower end of the***E.O. 12866 Review

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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 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.
The EPA has used the social cost of carbon (SC

- CO 2 ) estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for R egulatory Impact Analysis Under Executive Order 12866 (May 2013, Revised Ju ly 2015) (“current TSD”) to analyze CO 2 climate impacts of this rulemaking. 128 We refer to these estimates, which were developed

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 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 P rotection Agency, National Economic Council,***E.O. 12866 Review

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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 an d 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., 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 t hree 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

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
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estimates were first released in February 2010 and updated in 2013 using new versions of each IAM. The 20 10 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 presents and discusses the 2013 update (including two recent minor corrections to the estimates). 130

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 Counc il of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Chang e, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (February 2010). Also available at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/for

agencies/Social

- Cost

- of

- Carbon

- for

- RIA.pdf
. 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 EPA

- HQ

- OAR

2013

- 0495, Technical Support Document: Technical Update of the Social Cost of Car bon 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, Dep artment of Energy, Department of Transportation, Domestic Policy Council, Environmental***E.O. 12866 Review

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OMB’s Off ice of Information and Regulatory Affairs received
comments in response to a 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 t he use of the SC

- CO 2 estimates in RIA . 131 With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the National Academies of Sciences, Engineering, and Medicine (Academies) to ensure that the SC

- CO 2 estim ates continue to reflect the best available scientific and economic information 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 improving t he SC

- CO 2 estimates in future updates. See the EPA Response to Comments document for the complete response to comments received on SC

- CO 2 as part of this rulemaking. Concurrent with OMB’s publication of the response to
comments on SC

- CO 2 and announcement of the Academies process , OMB

Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised Ju ly 2015). 131 See https://www.whitehouse.gov/omb/oira/social

- cost

- of

- carbon for additional details, including the OMB Response to Comments and the SC

- CO 2 TSDs.***E.O. 12866 Review

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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 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 es timates associated with the 95th percentile estimates when using a 3 percent discount rate is slightly larger, as those estimates are heavily influenced by the results from the model that was affected by the indexing

error. The EPA, as a member of the IWG on the SC

- CO 2 , has carefully examined and evaluated the minor technical corrections in the revised TSD and the public comments submitted to OMB’s SC

- CO 2 comment process. The EPA concurs with the IWG’s conclusion that it is reasonable, and scientifically a ppropriate, to use the
current SC

- CO 2 estimates for purposes of RIA , including for this proceeding. The four SC

- CO 2 estimates are as follows: $12, $40, $60, and $120 per short ton of CO 2 emissions in the year 2020 (2011$). 132

132 The current version o f the TSD is available at:***E.O. 12866 Review

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The first three values are based on the average SC

- CO 2 from the three IAMs, at discount rates of 5, 3, and 2.5 percent, respectively. The SC

- CO 2 value at several discount rates are included because the literature shows that the SC

- CO 2 is quite sensitive to assumptions about the discount rate, and because no consensus exists on the appropriate rate to use in an intergenerational context (where costs and benefits are incurred by different generations). The fourth value is the 95 th percentile of the SC

- CO 2 from all three models at a 3 percen t 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). There are limitations in the estimates of the benefits from
t his proposal , 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, including the incomplete way in which the IAMs capture

https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

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 0.90 718474 and (2) 2011$ using GDP Implicit Price Deflator, http://www.gpo.gov/fdsys/pkg/ECONI

2013

- 02/pdf/ECONI

- 2013

- 02

- Pg3.pdf
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catastrophic and non

- catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently, IAMs do not assign value to all of the important impacts of CO 2 recognized in the literature, such as ocean acidification or potential tipping points, for various reasons, including the inherent difficulties in valuing non

- market impacts and the fact that the science incorporated in to these models understandably lags behind the most recent research. Nonetheless, these estimates and the discussion of their limitations represent the best available information about the social benefits of CO 2 emission reductions to inform the benefit

- co st analysis. As previously noted, the IWG plans to seek independent expert advice on technical opportunities to improve the SC

- CO 2 estimates from the Academies. The Academies process will help to ensure that the SC

- CO 2 estimates used by the federal government continue to reflect the best available science and methodologies. Additional details are provided in the TSDs. The health co

- benefits estimates represent the total monetized human health benefits for populations ex posed to reduced PM 2.5 and ozone resultin g from emission reductions from the federal plan approaches examined in the RIA for this***E.O. 12866 Review

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proposal . Unlike the global SC

- CO 2 estimates, the air pollution health co

- benefits are estimated for the contiguous U.S. only.
W e used a “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 Clean Power Plan EGs to convert
precurs or 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

133 http://www.epa.gov/airquality/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 Planning and Standards, Health and Environmental Impacts Division. (EPA document number EPA

- 452/R

- 12

- 00 3, 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 an d Environmental Impacts Division, Air Benefit and Cost Group Research. (EPA document number EPA

- 452/R

- 08

- 003, March). Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. 136 U.S. Environmental Protection Agency (U.S. EPA). 2010. Secti on***E.O. 12866 Review

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Eastern U.S., Western U.S., and California. To calculate the co

benefits for t his proposal , we multiplied the regional benefit

per - ton estimates generated from modeling of the proposed Clean Power Plan EGs standards by the corresponding regional emission reductions for th is proposal
. 137 All benefit

- per - ton estimates reflect the geographic distribution of the modeled emissions for the proposed Clean Power Plan EGs , which may not exactly match the emission redu ctions in this proposed rulemaking, and thus they may not reflect the local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location. More information regarding the derivati on of the benefit

- per - ton estimates is available in the Clean Power Plan Final Rule RIA.
PM benefit

- per - ton values are generated us ing two

3: Re

- analysis of the Benefits of Attaining Alternative Ozone Standards to Incorporate Current Methods. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/s3

- supplemental_analysis

- updated_benefits11

- 5.09.pdf
. 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_Apportionment _BPT_TSD_1_31_13.pdf
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concentration

- response functions, Krewski et al. (2009) 138 and Lepeule et al. (2012) 139
. These models assume that all fi ne 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 fi ne 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 mag nitude of the PM 2.5 and

ozone co - benefits is largely driven by the concentration response function s for premature mortality and the value of a statistical life used to value reductions in premature mortality. For PM 2.5 , we use two key empirical studies, on e based on the American Cancer Society cohort study (Krewski 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 Parti culate Air Pollution and Mortality. Health Effects Institute. (HEI Research Report number 140). Boston, MA: Health Effects Institute. 139 Lepeule, J.; F. Laden; D. Dockery; J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Fol low

- Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspective, 120(7), July, pp. 965

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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 epidemiology studies, but this range does not capture the full range of uncertainty inherent in the co

- benefits estimates. In the RIA for this rule, which is available in the docket, we also include
PM 2. 5 co - benefits estimates using benefit

- per - ton estimates based

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. (20 04) 141 and the upper end based on a benefit

- per - ton estimate using the function from Levy et al.

140 Roman, H., et al. 2008. “Expert Judgment Assessment of the Mortality Impact of Changes in Ambient Fine Particulate Matter in the U.S.” Environmental Science & Technology , Vol. 42, No. 7, February, pp. 2268

– 2274. 141 Bell, M.L., et al. 2004. “Ozone and Short

- Term Mortality in 95 U.S. Urban Communities, 1987

- 2000.” Journal of the American Medical Association, 292(19), pp. 2372

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(2005)
. 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 that the health impact function for fine particles is without a threshold. This is based on the conclusions of the EPA’s Integrated Science Assessment for Particulate Matter, 143 which evaluated the substantial bo dy of published scientific literature, reflecting thousands of epidemiology, toxicology, and clinical studies that documents the association between elevated PM 2.5 concentrations and adverse health effects, including increased premature mortality. This

ass essment, which was twice reviewed by the EPA’s independent Science Advisory Board, concluded that the scientific literature consistently finds that a no

- threshold model most adequately portrays the PM

- mortality concentration

- response relationship.

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. Environmental Protection Agency. 2009. Integrated Science Assessment for Particulate Matter (Fin al Report)
. Research Triangle Park, NC: National Center for Environmental Assessment, RTP Division. (EPA document number EPA

- 600

- R

- 08

- 139F, December). Available at: http://cfpub.epa.gov/ si / si_public_record_Report.cfm?dirEntryId=2 16546
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In gene ral, we are more confident in the magnitude of the risks we estimate from simulated PM 2.5 concentrations that coincide with the bulk of the observed PM concentrations in the epidemiological studies that are used to estimate the benefits. Likewise, we are l ess confident in the risk we estimate from simulated PM 2.5 concentrations that fall below the bulk of the observed data in these studies. For this analysis, policy

- specific air quality data are not available, 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.

144 In addition, site

- specific emission reductions will depend upon how states implement the guidelines.***E.O. 12866 Review

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(2012) study, 46 percent of the population is exposed above the LML of 8 μg/m 3
. It is important to note that baseline exposure is only one parameter in the health impact function, along with baseline incidence rates, popul ation, and change in air quality. Every benefit analysis examining the potential effects of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the underlying scientific and econom ic studies used to configure the benefit and cost models. Despite these uncertainties, we believe the air quality co

- benefit analysis for this rule provides a reasonable indication of the expected health benefits of the air pollution emission reductions fo r the illustrative analysis of this proposed action under a set of reasonable assumptions. This analysis does not include the type of detailed uncertainty assessment found in the 2012 PM 2.5 NAAQS RIA (U.S. EPA, 2012) because we lack the necessary air quali ty 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 t he sensitivity of our results to various assumptions. 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 HAP ( e.g ., mercury and hydrogen chloride), as well a s 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 unquantified benefits in the RIA for th is proposa l . In addition, in the RIA for th is proposal , we did not estimate changes in emissions of directly emitted particles. As a result, quantified PM 2.5 related benefits are underestimated by a relatively small amount. In the RIA for the proposed Clean Power Pl an EGs , 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, please refer to the RIA for this rule, which is av ailable in the rulemaking docket.

**IX. Community**  **and Environmental Justice Considerations**  In this section we provide an overview of the actions that the agency is taking to help ensure that vulnerable communities 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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EJ issue. Low

- income communities and communities of color already overburdened with pollution are likely to be disproportionat ely 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 GHGs , the most significant driver of climate change. While addressing climate ch ange 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 location) where people are most vulnerable t o the impacts of climate change (a more robust discussion of the impacts of climate change on vulnerable communities is provided in the Executive Order 12898 section X.J of this preamble). While climate change is a global phenomenon, the adverse effects of climate change can be very localized, as impacts such as storms, flooding, droughts, and the like are experienced in individual communities. Vulnerable communities also often receive more than their fair share of conventional air pollution, with the atte ndant adverse health impacts. The changes in electricity generation that will result from this rule will further benefit communities by reducing existing air pollution that directly contributes to adverse localized***E.O. 12866 Review

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health effects. Th ese air quality improve ments will be achieved through th is rule because the EGUs that emit the most GHGs also have the highest emissions of conventional pollutants, such as
SO 2 , NO x , fine particles , and HAP. These pollutants are known to contribute to adverse health outcomes, in cluding 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

- emitting units likely to occur during the implementation of federal plans will produce significant reductions in emissions of conventional pollutants, particularly in those communities already o verburdened by pollution, which are often 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, this rulemaking complem ents other actions already taken by the EPA to reduce conventional pollutant emissions and improve health outcomes for overburdened communities. By reducing millions of tons of CO 2 emissions that are

145 Six Common Air Pollutants. http://www.epa.gov/oaqps001/urbanair/***E.O. 12866 Review

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contributing to global GHG levels and providing strong leadership to encourage meaningful reductions by countries across the globe, this rule is a significant step to address health and economic impacts of climate change that will fall disproportionately on vulnerable communities. By reducing millions of tons of conventional air pollutants, this proposed rule will lead to better air quality and improved health in those communities. In the comment period for the CPP, we heard from many commenters who recognize and welcome tho se benef its. There are other ways in which the actions that result from this rulemaking may affect overburdened communities in positive or potentially adverse ways and we also heard about these from
commenters. While the agency expects overall emission decreases a s a result of this rulemaking, we recognize that some EGUs may operate more frequently . To the extent that we project increases in utilization as a result of this rulemaking, we expect these increases to occur generally in lower

- emitting NGCC units, which have minimal or no emissions of SO 2 and HAP, lower emissions of particulate matter, and much lower emissions of NO x compared to higher

- emitting steam units. We acknowledge the concerns that have been raised on this point , but also the difficulty in anticipating prior to plan implementation where those impacts***E.O. 12866 Review

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might occur. As described below, the EPA intends to conduct an assessment of whether and where emission increases may result from plan implementation and mitigate adv erse impacts, if any, in overburdened communities. In addition to the many positive anticipated health benefits of this rulemaking, it also will increase the use of clean energy and will encourage EE . These changes in the electricity generation system, whi ch are already occurring , but may be accelerated by this program, are expected to have other positive benefits for communities. The electricity sector is, and will continue to be, investing more in RE and EE. The construction of renewable generation and th e implementation of
EE programs such as residential weatherization will bring invest ment and employment opportunities to the communities where they take place. It is important to ensure that all communities share in these benefits. And while we estimate th at the benefits of this program will greatly exceed its costs (as noted in the RIA for this rulemaking) , it is also important to ensure that to the extent there are increases in electricity costs, that those do not fall disproportionately on those least ab le to afford them. The EPA has engaged with community groups throughout this rulemaking and we received many comments on the issues outlined***E.O. 12866 Review

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above from community groups, EJ organizations, faith

- based organizations, public health organizations, and others. This input has informed this final rulemaking and prompted the EPA to consider other steps that the agency can take in the short and long term to assist states and stakehol ders to consider EJ and impacts to communities in plan development and implementation. It has also prompted us to work with our federal partners to make sure that communities have information on federal resources available to assist them. We describe thes e resources below, as well as resources that the EPA will be providing to assist c ommunities in accessing EE/RE and financial assistance
programs. Finally, and importantly, we recognize that communities must be able to participate meaningfully in the deve lopment 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 t hat there is no disproportionate, adverse impact on overburdened communities as a result of this proposed rulemaking. To provide information fundamental to beginning that process, the EPA has conducted a proximity analysis for this proposed rulemaking that summarizes***E.O. 12866 Review

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demographic data on the communities located near power plants. 146 The EPA understands that, in order to prevent disproportionate ly high and adverse human health or environmental effects on these communiti es, both the agency and communities must have information on the communities living near facilities, including demographic data, and that accessing and using census data files requires expertise that some community groups may lack. Therefore, the EPA used census data from the American Community Survey (ACS) 2008

- 2012 to conduct a proximity analysis that can be used by communities as they engage with the agency throughout the comment period of this rulemaking. The analysis and its results are presented in th e 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 U.S . Included in the analysis is the breakdown by percentage of community characteristics such as income and minority status. The analysis shows a higher percentage of communities of color and low

- income communities living near power pl ants than national averages. It is important

146 The proximity analysis was conducted using the EPA’s environmental justice mapping and screening tool, E JSCREEN.***E.O. 12866 Review

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to note that the impacts of power plant emissions are not limited to a 3

- mile radius and the impacts of both potential increases and decreases in power plant emissions can be felt many miles away. Still, being a ware of the characteristics of communities closest to power plants is a starting point in understanding how changes in the plant’s air emissions may affect the air quality experienced by some of those already experiencing environmental burdens. Although o verall there is a higher fraction of communities of color and low

- income populations living near power plants than national averages, there are differences between rural and urban power plants. There are many rural power plants that are located near small 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 and communities of color. In light of this difference between rural and urb an communities proximate to power plants and in order to adequately capture both the low

income and minority aspects central to EJ considerations, we use the term s “vulnerable” or “overburdened” when referring to these communities. Our intent is for th e s e term s to be understood in an expansive sense, in order to capture the full scope of communities, including indigenous communities most often located***E.O. 12866 Review

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in rural areas, that are central to our EJ and community considerations. As stated in the Executive Order 12898 discussion located in section X.J of this preamble, the EPA believes that all communities 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 standards for existing affected fossil fuel

- fired power plants. The EPA also believes that the information provided in the proximity analysis will promote engagement between vulnerable communities and th e agency throughout the rulemaking process. In addition to providing the proximity analysis in the docket of this rulemaking, the EPA will make it publicly available on its Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s W eb site ( http:// www.epa.gov/cleanpowerplan ). Furthermore, the EPA has also created an interactive mapping tool that illustrates where power plants are located and provides information on a state level. This tool is available
at: http:// cleanpowerplanmaps.epa.gov/CleanPowerPlan/
. B. Community Engagement in This Rulemaking Process The EPA has heard from vulnerable communities t hroughout the outreach process for the Clean Power Plan that it is imperative for communities to have an understandi ng of how***E.O. 12866 Review

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rulemakings that target climate change work. They expressed a desire to know how these programs may benefit their communities and what the potential adverse impacts of the rule s may be on their communities. We intend to provide communities with t he information that they need to engage with the agency throughout the comment period
. We have received feedback from communities that public hearings, webinars and in

- person meetings are the most effective ways to engage with them and to provide them with the information that they need to understand the rulemaking process. Therefore, for this rulemaking , in addition to conducting public hearings for all members of the American public (please see the dates section for information on the upcoming public hearings), the agency will hold a national webinar for communities in the early stages of the comment period. The goal of this webinar will be to walk communities through the highlights of the preamble, so they have an understanding of how the rulemaking

m ay potentially affect their communit ies and they will have the contextual information they need to actively engage with the agency throughout the comment period. Additionally, because we received positive feedback on the effectiveness of the face

- to

- face meetings conducted on the regional level, each region will be offering an outreach***E.O. 12866 Review

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meeting(s) for communities. The goal of these meetings is to build a level of understanding on this rulemaking to enable vulnerable communities to actively engage with the a gency throughout the comment period. Furthermore, we will follow up on common issues raised during the outreach meetings with national conference calls, specifically targeted for vulnerable communities.
C. Providing Communities with Access to Additional Reso urces In section V.D of this preamble , we outline that we are seeking comment on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities. Furthermore, the EPA is seeking comment on how an low

- income communi ty 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 allowance s to projects that benefit low

- income communities should differ , and if so, in what manner, from the methods that are proposed to apply to other RE projects. As discussed below, there are also many federal programs that can help low

- income populations access the benefits of RE , EE , and the economic benefits of a cleaner energy economy. In the coming months, the EPA will continue to provide***E.O. 12866 Review

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information and resources for low

- income communities on existing federal, state, local, and other fina ncial assistance programs to encourage EE/RE opportunities that are already available to communities. For example the EPA will provide a catalog of current or recent state and local programs that have successfully h elped communities adopt EE/RE measures. T he goal of these resources is to help vulnerable communities gain the benefits of this rulemaking. The use of these RE/EE tools can also help low

- income households reduce their electricity consumption a nd bills. Additionally, as part of the resources that we will be providing low

- income communities, the EPA will provide information on the Adminstration’s Partnerships for Opportunity and Workforce and Economic Revitalization (POWER) Initative and other programs tha t 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 EE and RE to low

- income communities. Earlier this summer, the Administration

147 http://www.e d a.gov/power/.***E.O. 12866 Review

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announced a new initiative to scale up access to solar energy and cut energy bills for all Americans, in particular low

- and moderate

- i ncome communities, and to create a more inclusive solar workforce. As part of this new initiative, the U.S. DOE, the U.S. Department of Housing and Urban Development, U.S. Department of Agriculture, and the EPA launched a National Community Solar Partnersh ip to unlock access to solar energy for the nearly 50 percent of households and businesses that are renters or do not have adequate roof space to install solar systems, with a focus on low

- and moderate

- income communities. The Administration also set a go al to install 300 MW of RE in federally subsidized housing by 2020 and plants to provide technical assistance to make it easier to install solar energy on affordable housing, including clarifying how to use federal funding for EE and RE . To continue enhanc ing employment opportunities in the solar industry for all Americans, AmeriCorps is providing funding to deploy solar energy and create jobs in underserved communities, and DOE is working to expand solar energy education and opportunities for job training.
These recent announcements build on the many existing federal programs and resources available to improve EE and accelerate the***E.O. 12866 Review

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deployment of RE in vulnerable communities. Some examples of these resources include: the DOE ’s Weatherization Assistance Program, Health and Human Service’s Low Income Home Energy Assistance Program, the Department of Agriculture’s Energy Efficiency and Conservation Loan Program, High Cost Energy Grant Program, and the Rural Housing Service’s Multi

- Family Housing Program. The U.S. Department of Housing and Urban Development supports EE improvements and the deployment of RE on affordable housing through its Energy Efficient Mortgage P rogram, Multifamily Property Ass essed Clean Energy Pilot with the S tate of California, PowerSaver Program, and the use of Section 108
Commu nity Development Block Grants. The Department of Treasury provides several tax credits to support RE development and EE in low

- income communities, including the New Markets Tax Credit Program and the Low

- Income Housing Tax Credit. The EPA ’s RE

Powering America’s Land Initiative promotes the reuse of potentially contaminated lands, landfills and mine sites

– many of which are in low

- income communities

– for RE through a combination of ta ilored redevelopment tools for communities and developers, as well as site

- specific technical support
. The
EPA’s Green Power Partnership is increasing community use of renewable electricity across the country and in low

- income communities. The EPA partners with EE programs throughout the***E.O. 12866 Review

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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 reduc e energy costs

– savings that can then be repurposed to their community mission, including programs and assistance to residents in low

- income communities
. The EPA will be working with these federal partners and others to ensure that states and vulnerable c ommunities 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 the U.S. Department of Housing and Urban Development , DOE, and the Department of Education’s “STEM, Energy, and Economic Development” program; DOE’s Diversity in Science and Technology Advances National Clean Energy in Solar (DISTANCE

- Solar) Program; Grid Engineering for Accelerated Renewable Energy 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 Train ing and Greening of Centers, and YouthBuild; and the EPA’s Environmental Workforce Development and Job Training (EWDJT) program.***E.O. 12866 Review

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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 CSAPR the EPA used its authority to reduce emissions that significantly contribute to downwind exposures. The RIA for the final CSAPR anticipates substantial health benefits for t he population across a wide region. Similarly, the EPA believes that, like the CSAPR , this rulemaking will result in significant health benefits because it will reduce co

- pollutant emissions of
SO 2 and NO x on a regional and national basis. 149 Thus, localized increases in NO x emissions may well be more than offset by NO x decreases elsewhere in the region that produce a net improvement in ozone and particulate concentrations across the area. Another effect of the final CO 2 emission standards for affected existing fossil fuel

- fired EGUs may be increased utilization of other, unmodified EGUs

- in particular , high efficiency gas

- fired EGUs

- with relatively low GHG emissions per unit of electrical output. These plants may operate more hours duri ng the year and could emit pollutants, including pollutants whose environmental effects would be localized and

148 76 FR 48348. 149 76 FR 48347.***E.O. 12866 Review

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regional rather than global as is the case with GHG emissions. Changes in utilization already occur in response to energy demands and evolving en ergy sources, but the final CO 2 emission standards for affected existing fossil fuel

- fired EGUs can be expected to cause more such changes. Increased utilization of solid fossil fuel

- fired units generally would not increase peak concentrations of PM 2.5, NO x , or ozone around such EGUs to levels higher than those that are already occurring because peak hourly or daily emissions generally would not change; however, increased utilization may make periods of relatively high concentrations more frequent. It shoul d 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 address the conv entional pollutants, including federal emission standards, rules included in SIPs , and conditions in title V operating permits, in addition to the guidelines in this final rulemaking. Therefore, local (or regional) air quality for these pollutants is not l ikely 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 based on the results of the study***E.O. 12866 Review

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docume nted in the utility RTC.” 150 Because gas

- fired EGUs emit essentially no mercury, increased utilization will not increase methyl mercury concentrations in water bodies near these affected EGUs. In studies done by DOE/NETL comparing cost and performance of coa l

- and NGCC

- fired generation, they assumed SO 2 , NO x , PM (and Hg) emissions to be “negligible.” Their studies predict NO x emissions from a NGCC unit to be approximately 10 times lower than a subcritical or supercritical coal

- fired boiler. 151 Many, although not all, NGCC units are also very well controlled for emissions of NO x through the application of after combustion controls 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 overburdened by disproportionate environmental harms and risks . The EPA will conduct its own assessment during the impl ementation phase of this rulemaking to determine whether the implementation of federal plans and other air quality rules are, in fact, reducing

150 65 FR 79831. 151 “Cost and Performance Baseline for Fossil Energy Plants Volume 1: Bituminous Coal and Natural Gas to Electricity” Rev 2a, September 2013 Revision 2, November 2010 DOE/NETL

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emissions and improving air quality in a ll areas and , or whether there are localized air quality impacts that ne ed 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 training will include guidance in accessing the publicly available information 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 monitorin g 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 advers e impacts and address them.
G. The EPA ’s Continued Engagement The EPA is committed to helping ensure that this action will not have disproportionate adverse human health or environmental effects on vulnerable communities. Throughout the implementation phase of this rulemaking, the agency will continue to provide trainings and resources to assist communities and as they engage with the agency. The EPA, throug h its outreach efforts during the comment period, will continue to***E.O. 12866 Review

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solicit feedback from communities o n what they would like additional trainings 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 information gene rated throughout the implementation process, on its Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s W eb site ( http:// www.epa.gov/cleanpowerplan ). In addition, the EPA has expanded its set of resources that are being devel oped to help communities understand the breadth of policy options and programs that have successfully brought EE/RE to low

- income communities. The EPA is committed to continuing its engagement with communities from the comment period of this rulemaking thr ough federal plan implementation. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when crafting this rulemaking. 152 A more detailed discussion concerning the application of Executive Order 12898

152 Guidance on Considering Environmental Justice During the Development of Regulatory Actions. http:// www.epa.gov/environmentaljustice/resources/policy/considering

- ej

- in

rulemaking

- guide

- final.pdf . May 2015.***E.O. 12866 Review

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in this rulemaking can be found in section X.J of this preamble. A summary of the EPA’s interactions with communities is in the EJ Screening Report for the Clean Power Plan, ava ilable in the docket of this rulemaking. Furthermore, the EPA’s responses to public comments, including comments received from communities, are provided in the response to comments documents located in the docket for this rulemaking. In summary, the EPA i n 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 comm unities 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.***E.O. 12866 Review

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**X. Statutory and Executive Order Reviews**  Additional information about these statutes and Executive Orders can be found at http:// www2.epa.gov/laws

regulations/laws

- and

- executive

- orders
. A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review This proposed action is an economically significant regulatory action that was submitted to the OMB for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA prepared an analysis of the potential costs and benefits asso ciated with this action. This analysis, which is contained in the “Regulatory Impact Analysis for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Tra ding Rules; Amendments to Framework Regulations ” (EPA

- 452/R

- 15

- 00 6 , July 2015), is available in the docket and is briefly summarized in section
VII I of this preamble. Consistent with Executive Order 12866 and Executive Order 13563, the EPA estimated the costs and benefits for two alternative federal plan approaches to implementing the proposed federal plan and model trading rules
. The proposed action will***E.O. 12866 Review

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achieve the same levels of emissions performance as required of state plans under the CAA section 111 (d) EG s for the control of
CO 2 . Actions taken to comply with the guidelines will also reduce the emissions of directly

- emitted PM 2.5 , SO 2 and NO X . The benefits associated with these PM 2.5 , SO 2 and NO X reductions are referred
to as co

- benefits, as these red uctions are not the primary objective of this rule. T he RIA for this proposal analyzed two implementation scenarios , which we term the “rate

- based federal plan approach ” and the “mass

- base d federal plan approach ”

. It is very important to note that the differences between the analytical results for the rate

- based and mass

based federal plan approaches presented in the RIA may not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the proposed rule . In other words, if one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instances. It is important to note that the potenti al regulatory impacts presented in the Clean Power Plan Final Rule RIA and the RIA for this proposed rule are not additive. Both RIAs present estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan EGs . In th e case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for the proposed federal plan and model trading rules, the same performance rates are accomplished but are assumed to be achieved under the federal plan or model trading rules. The EPA has used the social cost of carbon estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory***E.O. 12866 Review

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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 monetar y 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 percen t), and each increases over time. In this summary, the EPA provides the estimate of climate benefits associated with the SC

- CO 2 value deemed to be central in the current TSD: the model average at 3 percent discount rate. The EPA estimates that, in 2020, the proposal will yield monetized climate benefits (in 2011$) of approximately $2.8 billion for the rate

- based approach and $3.3 billion for the mass

- based approach (3 percent model average). For the rate

- based approach, th e air pollution health co

- benefits in 2020 are estimated to be $0.7 billion to $1.8 billion (2011$) for a 3 percent discount rate and $0.64 billion to $1.7 billion (2011$) for a 7 percent discount rate. For the mass

- based approach, the air pollution health co benefits in 2020 are estimated to be $2.0 billion to $4.8 billion (2011$) for a 3 percent discount rate and $1.8 billion to $4.4 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2020, are approximately $2.5 billion for the rate

based approach and $1.4 billion for the mass

- based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 20 20 are estimated to range from $1.0 billion to $2.1 billion (2011$) for the rate

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

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and from $3.9 billion to 6.7 billion (2011$) for the mass

- based approach, using a 3 percent discount rate (model average). The EPA estimates that, in 2025, the proposal will yield monetized climate benefits (in 2011$) of approximately $10 billion for the rate

- based approach and $12 billion for the mass

based approach (3 percent model average). For the rate

- based approach, the air pollution health

co - benefits in 2 025 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 compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2025, are approximately $1.0 billion for the
rate

- based approach and $3.0 billion for the mass

- based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2025 are estimated to range from $ 17 billion t o $ 27 billion (2011$) for the rate

- based approach and $16 billion to $26 billion (2011$) for the mass

- based approach, using a 3 percent discount rate (model average). The EPA estimates that, in 2030, the proposal will yield monetized climate benefits (in 2 011$) of approximately $20 billion for the rate

- based approach and $20 billion for the mass

based approach (3 percent model average). For the rate

- based approach, the air pollution health

co - benefits in 2030 are estimated to be $14 billion to $34 billion ( 2011$) for a 3 percent discount rate and $13 billion to $31 billion (2011$) for a 7 percent discount rate. For the mass

- based approach, the air pollution health co

- benefits in 2030 are estimated to be $12 billion to $28***E.O. 12866 Review

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billion (2011$) for a 3 percent disc ount rate and $11 billion to $26 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2030, are approximately $8.4 billion for the rate

- based appro ach and $5.1 billion for the mass

- based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2030 are estimated to range from $ 26 billion to $ 45 billion (2011$) for the rate

- based approach and fr om $26 billion to $43 billion (2011$) for the mass

- based approach, using a 3 percent discount rate (model average). Table 18 and Table 19 of this preamble provide the estimates of the climate benefits, health co

- benefits, compliance costs and net benefits of the proposal for rate

- based and mass

based federal plan approaches, respectively. **Table 18**  **. Summary of the Monetized Benefits, Compliance Costs, and Net**  **Benefits for the Proposal**  **in 2020, 2025 and 2030 Under the Rate**  **- Based**  **Federal Plan Approach [Billions of 2011$]**  **a**
**Rate -**  **Based Approach 2020**  **2025 2030**  **Climate Benefits**  **b** 5% discount rate $0.80 $3.1 $6.4 3% discount rate $2.8 $10 $20
2.5% discount rate $4.1 $15 $29

95th percentile at 3% $8.2 $31 $61***E.O. 12866 Review

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discount rate Air Quality Co

- benefits Discount Rate
3% 7% 3% 7% 3% 7% **Air Quality Health Co**  **** **benefits c**  $0.70 to $1.8 $0.64 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 **Compliance Costs**  **d** $2.5 $1.0 $8.4
**Net Benefits**  **e** $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

**Non**   ** Monetized** **Benefits** Non

- monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a All are rounded to two significant figures, so figures may not 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.***E.O. 12866 Review

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c The air pollution health co

- benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The range reflects the use of concentration

- response functions from different epidemiology studies. The co

- benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the Clean Power Plan proposed rule. The reduction i n premature fatalities each year accounts for over 98 percent of total monetized co

benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality beca use the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. d C osts are approximated by the compliance costs estimated using the IPM for th is proposal and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and DS

- EE program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC

- CO 2 at a 3 percent discount rate (model average). The RIA in cludes combined climate and health estimates based on additional discount rates.

**Table 19**  **. Summary of the Monetized Benefits, Compliance Costs, and Net Benefits for the**  **Proposal in 2020, 2025 and 2030**  **Under the Mass -**  **Based Federal**  **Plan Approach [Billions of 2011$]**  **a**
**Mass -**  **Based Approach 2020**  **2025 2030**  **Climate Benefits**  **b** 5% discount rate $0.9 $3.6 $6.4 3% discount rate $3.3 $12 $20
2.5% discount rate $4.9 $17 $29

95th percentile $9.7 $35 $60***E.O. 12866 Review

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at 3% discount rate Air Quality Co

- benefits Discount Rate
3% 7% 3% 7% 3% 7% **Air Quality Health Co**  **** **benefits c**  $2.0 to $4.8 $1.8 to $4.4 $7.1 to $17 $6.5 to $16 $12 to $28 $11 to $26 **Compliance Costs**  **d** $1.4 $3.0 $5.1
**Net Benefits**  **e** $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

**Non**   ** Monetized** **Benefits** Non

- monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum.
b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non

- CO 2 GHG emissions. Also, different discount rates are applied to SC

- CO 2 than to the other estimates because CO 2 emissions are long

- lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC

- CO 2 estimated for a 3 percent discount rate. However, we emphasize the importance and value of considering the full range of SC

- CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC

- CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC

- CO 2 estimates are year

specific and increase over time.***E.O. 12866 Review

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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 inclu de the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the Clean Power Plan proposed rule. The range reflects the use of concentration

- response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co

- benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical comp osition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. d Costs are approximated by the compliance costs estimated using the Integrated Planning Model for this proposal and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and DS

- EE program and participan t costs.

e The estimates of net benefits in this summary table are calculated using the global SC

- CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates. There are additio nal important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing emissions of non

- CO 2 GHGs ( e.g ., nitrous oxide and methane) and co

- benefits from reducing direct exposure to SO 2 , NO X , and HAP ( e.g ., mercury), as well as from reducing ecosystem effects and visibility impairment. Based upon the foregoing discussion, it remains clear that the benefits of this proposed action are substantial, and far exceed the costs. Additional details on benefits, co sts, and net benefits estimates are provided in th e RIA for this proposal

. B. Paperwork Reduction Act (PRA) 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***E.O. 12866 Review

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EPA has been assigned EPA ICR number 2526.01 . You can find a copy of the ICR in th e docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until approved by OMB. This rule does not directly impose specific requirements on state and U.S. territory governments with affected EGU s. 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 ( **[insert FR number]** ; the Clean Power Plan) finalized on August 3 , 2015. The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The IC R document prepared by the EPA has been assigned EPA ICR number 2526.01
. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. Aside from reading and understanding the rule, t his***E.O. 12866 Review

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proposed action would impose minima l 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 previously approved the information collection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060

– 0626 and 2060

– 0629, respectively. Apart from certain reporting costs based on requirements in the NSPS General Provisions (40 CFR part 60, subpart A), which are mandatory for all owners/operators subject to CAA section 111 national emission standards, there are no new information collection costs, as the information required by this proposed rule is already collected and reported by other regulatory programs. The recordkeeping and reporting requirements are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confidentiality is made is safegua rded according to a gency policies set forth in 40 CFR part 2, subpart B. Although EPA cannot determine at this time how many affected EGU respondents will submit information under the federal plan, EPA has estimated an “upper bound” burden estimate***E.O. 12866 Review

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for thi s ICR that estimates burden should every affected EGU read and understand the rule. This is the only potential respondent activity that would be required under the 3

- year period following publication of the final federal plan, so there are no obligations t o respond in this period. The results of this “upper bound” estimate of federal plan burden are presented below: Respondents/affected entities: 1,028 Respondents’s obligation to respond: Not applicable, no responses are required during the period covered b y the ICR. Estimated number of respondents: Unknown at this time, but have assumed all affected entities are respondents for an upper bound estimate. Frequency of response: None, no responses are required during the period covered by the ICR. Total estima ted burden: 17,133 hours (per year)
. Burden is defined at 5 CFR 1320.3(b). Total estimated cost: $1,706,501 (per year) An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a curren tly valid OMB control number. The OMB control numbers for the EPA’s regulations in 40 CFR are listed in 40 CFR part 9.***E.O. 12866 Review

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Submit your comments on the a gency’s need for this information, the accuracy of the provided burden estimates and any suggested methods for minimizing respondent burden to the EPA using the docket identified at the beginning of this rule. You may also send your ICR

- related comments to OMB’s Office of Information and Regulatory Affairs via email to oria_submissions@omb.eop.gov , Attention: Desk Officer for the EPA. Since OMB is required to make a decision concerning the ICR between 30 and 60 days after receipt, OMB must receive comments no later than **[insert date 30 days after date of**  **publication in the Federal Register]**  . The EP A 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 e ntities along with regulatory alternatives that could minimize that impact
. The complete IRFA is available for review with in the RIA in docket
EPA

- HQ

- OAR

- 2015

- 0199 and is summarized here. The small entities subject to the requirements of this proposed rul e may include privately

- owned and publicly

- owned entities, and rural electric cooperatives that are majority owners of affected EGUs. EPA conducted this regulatory***E.O. 12866 Review

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flexibility analysis at the highest level of ownership, evaluating parent entities with the largest share of ownership in at least one potentially

- affected EGU included in EPA’s Base Case using the Integrated Planning Model (IPM) v.5.15, used in the RIA for this proposed rule. This analysis dr ew on parsed unit

- level estimates using IPM results f or 2030
. EPA identified 223 potentially affected EGUs owned by 74 small entities included in 2030 projections from EPA’s IPM v.5.15 . Fifty

- nine of these potentially affected EGUs are projected to no longer be operating by 2030 in the Base Case of EPA’s version of IPM . Twenty

- four small entities are projected to have all of their potentially affected EGUs cease operation by 2030 in th is b ase c ase. EPA estimated net compliance costs for individual EGUs for the proposed rule using components for operating and annualized capital costs, fuel costs, demand

- side energy efficiency program costs, and revenue changes. This approach is consistent with previous proposed power sector regulations, but also adds the additional component of cha nge in demand

- side energy efficiency program costs. Investment in demand

- side energy efficiency results in lower electricity demand, and consequently fewer emissions as production is reduced to meet the lower demand, an important emission

- reduction strateg y modelled in the rate

- based***E.O. 12866 Review

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and mass

- based federal plan approaches. For this analysis, EPA used the parsed unit

- level estimates to estimate three of the four components of the net compliance cost equation using IPM outputs : the change in operating and ann ualized capital costs, the change in fuel costs, and the change in revenue, where all changes are estimated as the difference between the base case and federal plan scenario. These impacts were then summed for each small entity, adjusting for ownership sha re. An a dditional analysis was performed outside of EPA’s IPM model to estimate the change in demand

- side energy efficiency program costs, based largely on I PM

- projected outputs. As noted earlier, there are 74 small entities with potentially affected EGUs that are modeled in the IPM base case in 2030. Of these, 24 small entities are projected to withdraw all of their potentially affected EGUs from operation under base case conditions. This leaves 50 small entities with potentially affected EGUs that are pro jected to be generating electricity in 2030. Under the rate

- based federal plan approach, 7 of these 50 small entities are projected to withdraw all of their potentially affected EGUs from operation by 2030. Under the

mass - based federal plan approach, 5 of these 50 small entities are projected withdraw all of their potentially affected EGUs from operation by 2030.***E.O. 12866 Review

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Under the rate

- based federal plan approach, 23 small entities are projected to incur net compliance costs greater than 3 percent of generation rev enues from their potentially affected EGUs. In contrast, 9 entities are estimated to have net compliance cost savings greater than 3 percent of their generation revenues from affected EGUs. Under the mass

- based federal plan approach, 21 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 11 entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from their affected EGUs. There are uncertainties and limitations in this analysis that may result in estimates that diverge from what we might see in reality. For example, a t the time of this proposal, the EPA has no information on whether any or how many states wi ll require a federal plan. The rate

- based and mass

- based federal plan approaches analyzed in this IRFA are based on a scenario where all states of the contiguous U.S. will be regulated under a federal plan. Another factor to consider is that e ntities
opera ting in regulated or cost

- of

- service markets are likely able to recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being over

- estimates***E.O. 12866 Review

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for this set of utilities. Other uncertainties and data limitations exis t and are described in the complete IRFA available for review within the RIA. As discussed earlier in this preamble, the reporting, recordkeeping and other compliance requirements are most likely covered under Part 75 and Part 98 programs for affected EGUs
. Therefore, only a marginal additional cost is expected for the monitoring, reporting and recordkeeping requirements of the proposed federal plan for affected EGUs. Owners of affected EGUs may be subject to other related rules. For example, o n September 20, 2013, EPA proposed carbon pollution standards for new fossil fuel fired EGUs. On June 2, 2014, the EPA proposed carbon pollution standards for modified and reconstructed fossil fuel fired EGUs, in addition to the Clean Power Plan EGs, to cut carbon pol lution from existing fossil fuel fired EGUs. These existing EGUs are, or will be, potentially impacted by several other recently finalized EPA rules. On February 16, 2012, the EPA issued the mercury and air toxics standards (MATS) rule (77 FR 9304) to redu ce emissions of toxic air pollutants from new and existing coal

- and oil

- fired EGUs. On May 19, 2014, the EPA issued a final rule under section 316(b) of the Clean Water Act (33 U.S.C. 1326(b)). This rule establishes new standards to reduce injury and deat h of fish and***E.O. 12866 Review

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other aquatic life caused by cooling water intake structures at existing power plants and manufacturing facilities. On June 18, 2014 (79 FR 34830), the EPA promulgated the stream electric effluent limitation guidelines (SE ELG) rule to streng then the controls on discharges from certain steam electric power plants. On April 17, 2015 (80 FR 21302), the EPA promulgated the coal combustion residuals (CCR) rule, which establishes technical requirements for CCR landfills and surface impoundments und er subtitle D of the Resource Conservation and Recovery Act (RCRA), the nation's primary law for regulating solid waste. As required by section 609(b) of the RFA, the EPA also convened a Small Business Advocacy Review (SBAR) Panel to obtain advice and recommendations from small entity representatives that potentially would be subj ect to the rule's requirements.
T he SBAR Panel evaluated the assembled materials and small

entity comments on issues related to elements of an IRFA. A copy of the full SBAR Panel R eport is available in the rulemaking docket. The EPA also considered whether the separate changes that we are proposing to make, as explained in s ection VII of this preamble above, to the framework regulations in s ubpart B of
p art 60 of the CAA regulations would have any impacts on small entities. Since these changes only modify and enhance the***E.O. 12866 Review

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procedures that the Administrator will follow in processing state plans and promulgating a federal plan, and do not alter
t he 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 number of small entities.

D. Unfunded Mandates Reform Act (UMRA) This action contains a federal mandate under UMRA, 2 U.S.C. 1531

- 1538, that could potentiall y result in expenditures of $100 million or more for state, local, and tribal governments, in the aggregate, or the private sector in any one year. This federal plan will apply only to those EGUs located in states that do not submit approvable state plans, which is a subset of the EGUs considered in the RIA for the final EGs (see RIA for f urther discussion of impacts). Because it is impossible to determine at this time which states might be ultimately subject to a federal plan, EPA cannot determine whether this final rule will be subject to UMRA. However, as noted below, the Agency has done substantial outreach to government entities as part of both the***E.O. 12866 Review

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federal plan and the related 111(d) rulemaking. Further, regardless of whether EPA does determine that thi s action ultimately meets the UMRA threshold, the agency intends to do additional outreach with government entities between now and the final rule. Additionally, the EPA has determined that this action is not subject to the requirements of section 203 of U MRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. Nevertheless, the EPA is aware that there is substantial interest in this rule among small entities (e.g., municipal and rural electric coope ratives). In light of this interest, prior to this action, the EPA sought early input from representatives of small entities while formulating the provisions of the proposed regulation. Such outreach is also consistent with the President’s January 18, 2011 Memorandum on Regulatory Flexibility, Small Business, and Job Creation, which emphasizes the important role small businesses play in the American economy. This outreach process has enabled the EPA to hear directly from these representatives, as EPA develo ped the rule about how the EPA should approach the complex question of how to apply section 111 of the CAA to the regulation of GHGs from these source categories. We invite comments on all aspects of this proposal and its impacts, including potential adver se***E.O. 12866 Review

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impacts, on small entities.

E. Executive Order 13132: Federalism The EPA believes that this proposed rule may be of significant interest to state and local governments due to its relationship with the Clean Power Plan EGs. Therefore, the EPA has deter mined that consultations with state and local governments conducted during the Clean Power Plan EGs development process are also relevant to this proposed rule. Consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA consulted with state and local officials early in the process of developing the Clean Power Plan EGs to permit them to have meaningful and timely input into its development. As described in the Federalism discussion in the preamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501; January 8, 2014), the EPA consulted with state and local officials in the process of developing the proposed standards for newly constructed EGUs. A detailed Federalism Summ ary Impact Statement (FSIS) describing the most pressing issues raised in
pre - proposal and post

- proposal comments will be forthcoming with the final Clean Power Plan EGs, as required by section 6(b) of Executive Order 13132. In the spirit of Executive Orde r 13132,***E.O. 12866 Review

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and consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA specifically solicits comment on this proposed action from state and local officials.

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 EGU potentially impacted by this proposed rulemaking located on Indian reservations are primarily owned by private entities, and in one case, partially owned by an agency of the U.S. government. As a result, the tribes on whose areas of Indian country those units are located will not be directly impacted by any costs of complying with this proposed rulemaking incurred by the owners/operators of those units. There would only be tribal implications in regards to compliance costs associated with this proposed rulemaking in the

case w here a tribal government has an ownership interest in a potentially affected EGU. A tribal government could also incur costs in the event that it seeks and is given delegated authority to enforce the federal plan proposed in this rulemaking. The EPA has, n evertheless, offered consultation to the tribes on whose***E.O. 12866 Review

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areas of Indian country the units are located. As part of its general outreach to tribes regarding this proposed rulemaking, the EPA received feedback from a number of tribes regarding the potential overall economic impact that both the proposed Clean Power Plan and a proposed federal plan rulemaking may have on them. In these instances, the EPA has reached out to these tribes and as part of the consultation on the Clean Power Plan engaged with them

o n their concerns regarding a potential federal plan. The EPA has conducted consultation with tribes on the Clean Power Plan and the Supplemental Proposal for the Clean Power Plan and will offer all tribes consultation on this proposed action. The EPA held consultations with tribes on the Clean Power Plan in the fall of 2014 before the agency issued its Supplemental Proposal for Indian Country and U.S. Territories. Add i tionally, the EPA held consultations for tribes shortly following the release of the supp lemental proposal. The agency also held a public hearing on the supplemental proposal on November 19, 2014, in Phoenix, Arizonia. At the public hearing the agency received oral comments from community members representing a number of tribes and a number of tribal officals. The agency also conducted consultation with tribes in the spring and summer of 2015. An overview of the consultations provided as part of the Clean Power Plan is available in section XII.F of***E.O. 12866 Review

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the final EGs . Additionally, the EPA engaged in meaningful dialogue with tribal stakeholders to obtain their feedback in the pre

- prop o sal stages of this rulemaking. We provided an update on this proposed rulemaking on the May 28, 2015, National Tribal Air Association and the EPA Air Policy call. Addi tionally, staff attended the National Tribal Forum conference on May 20, 2015 and provided an overview of th e Clean Power Plan and explained that the agency would be proposing a federal plan
. Consistent with previous rulemakings impacting the power
sector , there is significant tribal interest in these rulemakings because of the potential indirect impacts that rules such as the Clean Power Plan and this proposed federal plan may have on tribes. T he EPA specifically solicits additional feedback from tribal o fficials on all aspects of this proposed rulemaking, including whether tribes whose areas of Indian country contain affected EGU(s) are interested in developing their own plan implementing the final EG s . Additionally, tribal stakeholders will be included in the outreach that the agency will be conducting with those communities already overburdened by pollution, which are often low

- income communties, communities of color, , and indigenous communities . The a cti o ns that the agency will be tak ing are outlined in section IX of this***E.O. 12866 Review

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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 potential to influence the regulation. This action is not subject to EO 13045 because it does not involve decisions on en vironmental health or safety risks that may disproportionately affect children. The EPA believes that the CO 2 emission reductions resulting from implementation of the proposed guidelines, as well as substantial ozone and PM2.5 emission reductions as a cobe nefit, would further improve children’s health.
H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution , or Use This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on th e supply, distribution, or use of energy. The EPA has prepared a Statement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction in coal

- fired electricity generation as a result of this rule. The***E.O. 12866 Review

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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 available in the RIA, which is in the public docket.
I. National Technology Transfer and Advancement Act (NTTAA) This proposed action does not involve technical standards.

J. Executive Order 1 2898: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations Executive Order 12898 (59 FR 7629; February 16, 1994) establishes federal executive policy on EJ . Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make EJ part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effect s of their programs, policies , and activities on minority populations and low

- income populations in the U.S. The EPA defines EJ as the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with
respec t to the development, implementation, and enforcement of environmental laws, regulations, and policies. The EPA has this***E.O. 12866 Review

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goal for all communities and persons across this Nation. It will be achieved when everyone enjoys the same degree of protection from en vironmental and health hazards and equal access to the decision

- making process to have a healthy environment in which to live, learn, and work. Leading up to this rulemaking the EPA summarized the public health and welfare effects of GHG emissions in its 2 009 Endangerment Finding. As part of the Endangerment Finding, the Administrator considered climate change risks to minority populations and low

- income populations, finding that certain parts of the population may be especially vulnerable based on their ch aracteristics 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 d ependent on one or a few resources. See sections
X .F and X .G of this preamble , above, where the EPA discusses Consultation and Coordination with Tribal Governments and Protection of Children. The Administrator placed weight on the fact that certain groups, including children, the elderly, and the poor, are most vulnerable to climate

- related health effects. The record for the 2009 Endangerment Finding summarizes the strong scientific evidence in the major assessment reports by***E.O. 12866 Review

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the U.S. Global Change Research Program, the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council of the National Academies that the potential impacts of climate change raise EJ issues. These reports concluded that poor communities can be especially vulner able to climate change impacts because they tend to have more limited adaptive capacities and are more dependent on climate

- sensitive resources such as local water and food supplies. In addition, Native American tribal communities possess unique vulnerabil ities to climate change, particularly those impacted by degradation of natural and cultural resources within established reservation boundaries and threats to traditional subsistence lifestyles. Tribal communities whose health, economic well

- being, and cul tural traditions that depend upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated with climate change. The 2009 Endangerment Finding record also specifically noted that Southwest native cultures are especially vulnerable to water quality and availability impacts. Native Alaskan communities are already experiencing disruptive impacts, including coastal erosion and shifts in the range or abundance of wild species crucial to their livelihoods and we ll

- being. The most recent assessments continue to strengthen***E.O. 12866 Review

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scientific understanding of climate change risks to minority populations and low

- income populations in the U.S . 153 The new assessment literature provides more detailed findings regarding these populations’ vulnerabilities and projected impacts they may experience. In addition, the most recent assessment reports provide new information on how some communities of color m ay be uniquely vulnerable to climate change health impacts in the U.S .

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 Re port of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, an d 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 Univer sity Press, 688 pp.***E.O. 12866 Review

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These reports find that certain climate change related impacts

— including heat waves, degraded air quality, and extreme weather
events

— have disproportionate effects on low

- income populat ions and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location) , raising EJ concerns. Existing health disparities and other inequities in these communities increase their vulnerabilit y to the health effects of climate change. In addition, assessment reports also find that climate change poses particular threats to health, well

- being, and ways of life of indigenous peoples in the U.S . As the scientific literature presented above and as the 2009 Endangerment Finding illustrates, low income populations and some communities of color are especially vulnerable to the health and other adverse impacts of climate change. The EPA believes that communities will benefit from this proposed federal plan because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 emission standards for existing affected fossil fuel

- fired EGUs. In addition to reducing CO 2 emissions, the guidelines fin alized in this rulemaking would reduce other emissions from affected EGUs that reduce generation due to higher adoption of***E.O. 12866 Review

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EE and RE . These emission reductions will include SO 2 and NO x , which form ambient PM 2.5 and ozone in the atmosphere, and HAP, such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 NAAQS, 154 the EPA identified low

- income populations as being a vulnerable population for experiencing adverse health effects related to PM exposures. Low

- income populations have been generally found to have a higher prevalence of pre

- existing diseases, limited access to medical treatment, and increased nutritional deficiencies, which can increase this population’s susceptibility to PM

- related effects. 155 I n areas where this rulemaking r educes 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 e cosystem effects associated with these emission reductions. Additionally, as outlined in the community and EJ

154 “National Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013). 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 http://www.cfpub.epa.gov/ si/si_public_record_Report.cfm?dirEntry Id =216546 .***E.O. 12866 Review

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considerations section IX of this preamble, the EPA has taken a number of actions to help ensure that this action will not have potential disprop ortionately high and adverse human health or environmental effects on vulnerable communities. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when determining what actions to take. 156 As described in the community and EJ 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 of this preamb l e . Additionally, as outlined in sections I and IX of this preamble the EPA has engaged meaningfully with communities throughout the development of the CPP and has devised a robust outreach strategy for continual engagemen t throughout this rulemaking.

156 Guidance on Considering Environmental Justice During the D evelopment of Regulatory Actions. http:// www. epa.gov/environmentaljustice/resources/policy/conside ring

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- in

- rulemaking

- guide

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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.