1 TABLE OF CONTENTS

5.7 Treatment of interstate effects

................................ ................................ ............................... 3 5.7.1 State may claim the impact of a measure on CO2 emissions from affected EGUs within its borders

................................ ................................ ................................ .............. 3 5.7.2 State that implements the measure claims the emission effects

................................ ..... 16 5.7.3 Cooperative multi

- state accounting of interstate emission effects

................................ 36 5.7.4 Tradable regional EE/RE credit mar ket

................................ ................................ ......... 42 5.7.5 Regional demonstration by states of emission performance

................................ .......... 81 5.7.6 Assessment of interstate effects by the EPA in the course of state plan review

........... 93 5.7.7 Ot her

................................ ................................ ................................ ................................ ... 98 5.8 Projecting EGU CO2 Emission Performance

................................ ................................ .. 123 5.8.1 Electricity System Modeling Approaches for Projecting EGU CO2 Emissions

........ 123 5.8.1a National

- scale capacity expansion and dispatch planning models

............................ 135 5.8.1b Utility

- Scale Capacity Expansion and Dispatch Planning Models

............................ 135 5.8.1c Electri city System Dispatch Simulation Model

................................ ........................... 1 35 5.8.1d Multi

- Sector Models

................................ ................................ ................................ ...... 137 5.8.2 Growth Tools for Projecting EGU Utilization and CO2 Emissions

............................ 139 5.8.3 Translating from a rate

- based emission performance goal to a mass

- based emission performance goal

................................ ................................ ................................ .......... 140 5.8.3a Reference Case Scenario

................................ ................................ ............................... 145 5.8.3b Mass

- Based CO2 Emission Goal Policy Scenario

................................ ....................... 147 5.8.3c State Plan Policy Scenario

................................ ................................ ............................. 147 5.8.4 Projecting CO2 emission performance under a state plan

................................ .......... 147 5.8.5 Applied Considerations for Different Types of State Plans

................................ ......... 148 5.8.5a Approaches for Estimating the Future Effects of State Energy Efficiency Requirements, Programs, and Measures

................................ ................................ .... 149 5.8.5b Potential Uses of Energy Efficiency Projections for State Plan Emission Projections

................................ ................................ ................................ ................................ ......... 149 5.8.5c D ata Issues and Considerations for Using and Developing Energy Efficiency Projections

................................ ................................ ................................ ..................... 150 5.8.5e Renewable Portfolio Standards

................................ ................................ .................... 152 5.8.5f RPS as an Input to Electricity Sector Modeling

................................ .......................... 153 5.8.5g Data Needs for Estimating Generation Resulting from State RPS

........................... 154 5.8.5h Feed

- In Tariff

................................ ................................ ................................ ................. 154 5.8.5i Data Needs for Estimating Generation Resulting from Feed

- In Tariff and Performance

- Based Tax Incentives

................................ ................................ ............. 155 5.8.5j Emission Budget Trading Programs

................................ ................................ ............. 155 5.8.5.k Addressing the Sectoral Scope of Emission Budg et Trading Programs

.................. 155 5.8.5l Addressing Multi

- Sector Emission Trading

................................ ................................ . 155 5.8.5m Addressing Emission Offsets

................................ ................................ ....................... 156 5.8.5n Multi

- State Emission Trading Programs

................................ ................................ .... 174 5.8.6 Process Considerations for conducting EGU CO2 emission projections

................... 176 5.8.6a Provision of the EPA Guidance

................................ ................................ .................... 178 5.8.6b Party that Translates the Rate

- Based Goal to a Mass

- Based Goal

........................... 1782 5.8.7 Other

................................ ................................ ................................ ................................ . 182 5.9 Treatment of existing state regulations and programs

................................ .................... 193 5.10 Treatment of New Fossil Fuel

- fired EGUs

................................ ................................ ..... 228 5.11 Consideration of a facility's " remaining useful life " in applying standards of performance

................................ ................................ ................................ ................... 236 5.12 Design, Equipment, Work Practice, or Operational Standards

................................ ... 274 5.13 Emissions averaging and trading

................................ ................................ .................... 276 5.14 State

- specific Implementation Considerations

................................ ............................... 306 5.15 Other

................................ ................................ ................................ ................................ .. 3263 5.7 TREATMENT OF INT ERSTATE EFFECTS

This section addresse s p rograms and measures in a state plan that may affect the emission performance of the interconnected electricity system beyond a state border. In addition, many state measures allow for actions in neighboring states to meet the in

- state requirement, or explicitly address CO 2 emissions in neighborin g states. We have organized the comments in this section under 8 subsections, 5.7. 0 to 5.7.7. Responses to the comment topics of these subsections are discussed below

, along with summaries of the specific public comments.

5.7.1 State may claim the impact of a measure on CO 2 emissions from affected EGUs within its borders

This section contains comments on the proposed method for accounting EE emission reduction

measures.
Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments disagreeing with proposed method for accounting for EE emission reduction me asures ; tracking energy savings to a specific utility; and symmetry between goal calculation and compliance measures, especially for EE.

Response 1: The treatment of EE has changed from the proposed approach. In the final rule, to the extent demand

- side EE measures are tied to a state plan, the full quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory. Discounting is not required. For more information about the treatment of in

- state and
out

- of

- state energy efficiency impacts, see section VIII. K and VIII. L of the preamble to the final rule.

The EP A revised the methodology used to calculate CO 2 emission performance rates and state
rate

- based CO 2 goals from the one used in the proposal. In order to ensure consistency with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh im pacts of zero

- emitting and low

- emitting

resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. This ensures that affected EGUs receive full recognition for their investments

, even if the impacts occur elsewhere , removing the need to determine exactly w hich EGUs reduced and changed power generation in response to the zero

- emitting or low

- emitting

resource and removing what commenters below called the energy efficiency penalty described

.4 Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

based CO 2 goals in the final emission guidelines, the quantified and verified MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emissions

e stimated by applying an emissions factor to the MWhs, would double count CO 2 emissions impacts across the grid. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE, including specific geo graphic eligibility
req uirements and limitations, see s ection VIII.K.1.a of the preamble to the final rule

. In this final rule, while the EPA allows the use of eligible EE measures to meet the emissions guidelines, demand

- side EE is no longer incorporate d into the BSER . For more detail on BSER, refer to section V of the preamble to the final rule

.
The final rule allows for both rate

- based and mass

- based trading systems. Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the MWh accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework as specif ied in this rule.

The specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE are described in section VIII.K. 1 of the preamble to the final rule

. The same section also describes the eligibility requirements and conditions for resources to be use d to adjust a CO 2 emission rate. The preamble to the proposed Federal Plan describes the provisions related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savi ngs in Section IV. D .8 of the preamble to the proposed Federal Plan

. Information about the requirements for rate

- based emission trading programs and the issuance and tracking of ERCs are described in Sections VIII.C and VIII.K.2 of the preamble to the final rule . The final rule also allows for mass

- based trading systems, as described in Sections VIII.C and VIII.J of the preamble

. The following are summaries of the specific public comments under this comment:

Multiple commenters had significant concerns abo ut the proposed approach for crediting energy efficiency in state compliance plans. C ommenters disagreed with the proposed method for taking into account EE measures by discounting the emissions savings by the proportion of electricity imported and assumed to result in emission reductions that occur in exporting state. Commenters thought there should be equitable requirements with respect to both energy

- exporting and
energy

- importing states. Commenter s felt the EPA’s method of accounting for EE was inherent ly arbitrary and serves no valid purpose. Commenter s stated s tates that generate the most coal power, such as Wyoming, Montana, West Virginia and Kentucky, tend to be states that are small in population and

, therefore

, export a great deal of the coal power they generate. Commenter s stated there is therefore little connection between the amount by which these states may reduce their electricity consumption and the amount of coal power these states will generate.5 Multipl e commenters supported including 100 percent of the EE savings in the state, rather than the EPA proposal to devalue those savings by multiplying them by the in

- state generation percentage. C ommenters argued that the full benefit of ratepayer investment i n energy efficiency projects should accrue to the state implementing the programs. Commenter s stated that as currently proposed, the full benefit of energy efficiency projects is not credited in a net importer state, nor is it accounted for in any other st ate, thereby eliminating a portion of these measures as a compliance mechanism.

Commenter s indicated that pro

- rating also creates a new problem by failing to give states that are net importers of electricity full credit for their EE measures, and this dis parate treatment increases the burden on states that are net importers electricity in meeting their state goals. Rather than incorporating emissions reductions from EE into state goals differently based on whether the state imports electricity, commenter s stated that the EPA should eliminate EE from the state goals.

Commenters felt that it is important that net importers get full credit for their investments in energy efficiency where such investments are reducing generation from fossil

- fired resources. C o mmenters added that failing to provide full credit for EE investments will mean that a significant amount of energy efficiency is not recognized as a compliance option, even when they are having the practical effect of displacing in

- state generation. Comme nter s noted that Georgia (a net importer of electricity) would receive only 88% of the emissions reductions from EE investments under the proposed rule. Commenter s stated that this would act as a disincentive for net importing states such as New Jersey to utilize cost effective EE as a compliance tool. Commenter s asserted that a state that is willing to fund EE should be able to take full credit for that investment and noted this approach is consistent with the proposed compliance rules for Building Block 3 which would allow a state to take credit for RE purchased by the state, even if the resource is out

- of

- state. Commenter s noted that if the EPA only credits Wisconsin with 83.97% of its savings as proposed, then the state is not being credited for $15 mill ion in investments in 2012 alone. Commenter s stated that the EPA should grant the full credit for avoided emissions due to the EE measures to the state that instituted and paid for the measure, which is consistent with the proposed compliance rules for Bui lding Block 3. Commenter s stated that if Virginia were to receive credit for the full 100 percent of its energy efficiency, the reduction would increase from 9 lbs/MWh to 14 lbs/MWh. Commenter s stated that the proposal essentially reduces North Carolina's EE savings credit by 13.88% even though North Carolina electricity consumers have been implementing and paying for 100% of the utility

- sponsored EE and DSM programs implemented in the s tate. Commenter s stated that the "net importer" adjustment improperly shifts a portion of these benefits to other states and leaves the corresponding costs of EE in the state producing EE savings. Commenter s supported a consistent compliance approach where the state that implements energy efficiency measures claims equivalen t emissions reduction benefits in its state compliance plan. Commenter s stated allowing the state that implemented the EE program to claim the savings and emissions reductions benefit is consistent with the approach the EPA took when it calculated buildin g block 4 savings. Commenter s stated a significant portion of Washington's investor

- owned utilities import fossil fuel generation from outside state borders. Commenter s stated that dispatch of those
out

- of

- state plants is dependent upon the load demand in Washington. Commenter s stated if the state is unable to claim out

- of

- state efficiency savings, it distorts the value of energy efficiency implemented within the state. Commenter s stated if the final rule only allows a state to claim the6 in

- state emissions reductions of energy efficiency, the EPA would need to symmetrically adjust the building block 4 target to reflect the diminished energy efficiency savings.

Commenter s noted that

, as proposed

, about 30 percent of California's EE benefits would not be credited to any state. Commenter s also noted that determining which EE savings displace generation inside and outside of California would entail complex modeling and an analysis of error and uncert ainty; as such, it would be very difficult to determine where the reductions occurred. Commenter s noted that under the current approach, RE would count 100 percent towards compliance while EE would only count a fraction of that which places EE at a disadva ntage even though both resources are expected to have the same effect on dispatch of in

or out

- of

- state resources. Commenter s recommended that the EPA should use the same approach for EE and RE: the state that pays for the new resource (RE or EE programs) counts 100 percent of the new resource for compliance. Commenter s stated that California's total EE savings are being devalued by approximately 30 percent before being applied to the BSER goal, therefore California utilities believe that the EPA should inc lude 100 percent of California's modeled EE savings in the goal

- setting process, and symmetrically include 100 percent of EE savings during compliance.

Commenter s stated that in estimating emission reductions from building block 4, the EPA should make no a djustment for either net electricity

- importing or net electricity

- exporting states, and instead base estimated emission reductions on the "avoided net generation value." Commenter s stated the opportunity for a state to reduce the amount of greenhouse gase s emitted using demand

- side energy efficiency improvements depends on the size and composition of electricity loads in the state. Commenter s stated that the EPA should recognize this in applying Building Block 4 to set state goals: estimating the amount of annual incremental reductions in the state's electricity usage solely by applying an annual percentage savings rate to a state's baseline annual sales, accounting for transmission and distribution system losses. Commenter s stated the EPA should not then r educe this amount by the portion of a state's load served by out

- of

- state generation, as proposed and as detailed in the Goal Computation TSD. Commenter s stated this unbalanced adjustment does not reflect the load

- based nature of the energy efficiency
oppo rtunity, unfairly deprives importing states the full greenhouse gas reducing impact of demand

- side EE measures its electricity customers pay for, and leaves the excess efficiency in
net

- importing states unused in the target

- setting process, even though thi s excess efficiency will actually decrease affected EGU emissions. Commenter s stated making no adjustment in Step 5 for either net electricity

- importing or

- exporting states would best reflect the actual potential for energy efficiency in each state. Comm enter s stated if the EPA chooses to retain an adjustment, the EPA should scale up the estimated reduction in generation by affected EGUs in net electricity

- exporting states to reflect an expectation that a portion of the generation avoided in conjunction w ith the demand

- side energy efficiency efforts of other, net electricity

- importing states would occur at those EGUs.

Commenter s stated this adjustment also obviously creates wide disparities in setting state goals given that different states import and exp ort different amounts of power. Commenter s stated the adjustment requires states that consume all or most of the power they generate to reduce electric consumption more than states that import a greater amount of their power. Commenter s stated yet, in an i ntegrated grid, there is no reason why a state should wish to generate more or less power in

- state; how much a state should rely on in

- state power should depend on interstate7 power economics. Commenter s stated the entire thrust of federal electricity polic y over the last two decades has been to break down artificial barriers and open up the power grid to the free movement of electrons so that consumers have the benefit of the lowest cost sources of electricity wherever those sources are located. Commenter s stated that indeed, the EPA's policy of promoting renewable energy depends on promoting large

- scale, long

- distance electric transmission, as the areas richest in renewable resources (for instance in the Midwest wind belt) are not located near to the nation 's major metropolitan areas. Commenter s stated it therefore makes no sense to set state goals in part based on their percentage of in

- state generation or to create an incentive for states to increase their use of in

- state generation.

In addition, c ommenter s stated the EPA's adjustment is arbitrary because it fails to account for all of the CO 2 emissions reductions that will be created by the enormous amount of energy efficiency that the EPA is assuming. Commenter s stated that in the EPA's Ohio examp le, for instance, 14.03 percent of Ohio's saved electricity is not counted against any state's goal, yet all of Ohio's reduced consumption would avoid electric generation (and thus presumably CO 2 emissions) somewhere. Commenter s stated that presumably, tha t 14.03 percent savings should be credited to the states which purchase power from Ohio, but the EPA never performs that calculation nor would it be feasible to do so on a 50

- state basis given the dynamics of the interstate electricity market. Commenter s s tated in the end, the EPA's attempt to superimpose
state

- by

- state energy efficiency targets on the interstate grid thus cannot help being arbitrary.

Several commenters had concerns about disincentivizing EE measures. Commenter s stated that requirements mu st be easy to understand and not discourage energy importing states from funding and implementing EE programs. Commenters stated that this provision of the Proposed Rule risks diminishing the incentive for cost

- effective, feasible emission reductions from EE measures, leaving significant EE on the table.

Commenters believed that the EPA should base efficiency goals on electricity use, not generation, to avoid penalizing electricity

- exporting states since the EPA's approach, as currently proposed, would mak e states' ability to achieve efficiency targets dependent on efficiency measures implemented in other states and would also impose higher efficiency savings requirements on electricity

- exporting states as compared to electricity

- importing states. Commenter s also wondered how the EPA expects an electricity exporting state to effect demand

side reductions in states to which it exports electricity (Is a state expected to add renewable generation that is not needed to meet in

- state demand? Will it receive credi t if, for example, an importing state installs renewable generation and thus reduces demand from the exporting state?)

Commenters stated that the proposal would only allow credit of a small portion of EE measures for some states. Commenter s stated that o nly 12 percent of their state's load is served by in

- state, investor

- owned, fossil

- fuel EGUs in part because much of the remaining load is served by fossil generation imported from EGUs in other states. Commenter s stated that this approach would affect the cost

- effectiveness and overall continued use of EE in their state. Commenter s stated that if they could only claim 12 percent of the resulting emission reductions from their EE investment, then demonstrating cost

- effectiveness of that EE investment would not be viable. Commenter s stated that in their state, this approach would likely result in EE no longer being8 considered a cost

- effective emissions reduction strategy because only a small fraction of the energy savings can be attributed to reduction of emi ssions at in

- state EGUs.

Commenter s stated that in the case where a mass

- based system of compliance is utilized by a state importing power to their state, the remaining 88 percent of emission reductions may be surrendered to states whose ratepayers did no t make that long

- term investment in EE resulting in an unfair transfer of hundreds of millions of dollars of ratepayer investment. C ommenters were also concerned about fairness. Some c ommenter s stated that it would not be fair for neighboring
states to t ake credit for EE savings from programs paid for and implemented in their state without a clear system for their reimbursement, while Commenters stated that this approach to calculate the impact of these savings would result in a very unfair outcome. Commenters provided a table that c ommenters said showed the states that would be negatively impacted and the extent of that impact. Commenters stated that they estimate that this approach would result in approximately 41 million MWh of state energy saving s that would go unclaimed. Commenter s stated that their state has seen EE measures to be the most sought after and least cost energy resource, under the EPA's base proposal, EE measures would be relegated to the least

- sought after and most

- costly resource.

Commenters had concerns about the ability of states to meet their goals under the CPP if the proposed EE approach was included in a final rule. Commenter s asserted that, if their state's compliance plan included "only those carbon dioxide emission reduc tions occurring in the state that result from demand

- side EE programs and measures implemented in the state," it would be extremely difficult and unnecessarily costly to meet the 2030 goal set by the EPA. Commenters stated that a net

- exporting state would have limited in

- state demand

- side EE opportunities to offset the emissions at its affected EGUs relative to its in

- state generation, while the state receiving the exporting state's generation could get credit only for efficiency that reduces in

- state fossi l generation, of which there may be relatively little.

C ommenters claimed that this proposal would mean that reductions stemming from EE programs in importing states could be "stranded," discouraging investment in EE measures. Commenter s stated that the E PA's asymmetrical approach to imports and exports means that electricity that can be avoided by Building Block 4's EE measures are effectively "stranded": the state targets simply do not account for these reductions. Commenter s believed that the simplest a nd fairest "fix" to this problem is to avoid scaling down the obligations of importing states, and to recalibrate those states' targets to account for 100 percent of the demand reduction achieved through EE measures. Commenter s noted that the EE targets sp ecified in Building Block 4 do not include any assumptions about how the responsibility for implementing those measures should be distributed across the state's utilities or affected EGUs and it is therefore both feasible and fair to assign responsibility to in

- state generators for achieving the level of EE savings specified in Building Block 4

. Commenter s stated that their fix would make the EPA's methodologies for RE and EE consistent. Commenter s also stated that the EPA's approach relies too heavily on t he net importation factor from a single year in setting state targets for 2030 as the percentage of energy that a state imports or exports can change significantly from year to year when units enter and exit the system and new transmission lines are built. Commenter s stated that basing the state's target on its export

- to

- import ratio for one year could lead to targets that are either too high or too low. Commenter s noted that the EPA is not proposing that neighboring states, including states that are net ex porters would be allowed to claim credit for the portion of9 EE emission reductions that presumably occur in those states; thus, the "discounted" amount of the EE credit is simply lost, and could not be double

- counted.

Commenter s stated that if the EPA were to finalize its proposal where EE measures in net importing states must be discounted, the rule would skew state incentives away from investments in EE and toward investments in RE, reductions from which can be fully counted toward state compliance regard less of the RE

- producing state's status as a net importer or exporter, and regardless of whether the RE is generated in

- state or out

- of

- state. Commenter s added that the fact that net

- importing states will have greater incentives to invest in RE than in EE is unreasonable given that each MWh of EE or RE is equally likely to reduce emissions by reducing the need for an extra MWh of generation from a fossil

- fueled generator. Commenter s stated that because the potential emission reduction achievable by each MWh produced by an RE resource or saved by an EE investment is exactly the same, the EPA should treat these resources equivalently for compliance. Commenter s urged that the EPA not require states to demonstrate that each MWh of EE saved in the state has reduc ed emissions in the state (as opposed to a neighboring or interconnected states) and noted that by allowing states to claim 100% of each MWh of energy saved in the state toward state plan compliance, the EPA could avoid disadvantaging EE relative to other forms of emission reductions while ensuring that RE and EE are treated the same for purposes of compliance. Commenter s stated that if the EPA is unwilling to allow net importers to receive full credit for their EE investments, the EPA should allow states to submit approvable multi

- state or modular agreements that apportion credit for EE among neighboring states.

Several commenters pointed out the different treatment in the proposal for EE and RE policies. Commenter s asserted that this is not how the CPP t reats any other emission reduction measure. Commenter s stated that this accounting provision imposes a double standard, allowing full recognition for cross

- state RE impacts, while denying full recognition to analogous EE actions. Commenters stated that thi s strongly disincentivizes the use of EE as a compliance tool in power importing states and fails to reflect the carbon reduction benefits that are actually being achieved by statewide efficiency programs in such states when using a rate

- based accounting a pproach. Commenter s offered an example, comparing the treatment under the proposed CPP of a net

importing state installing solar panels and the installation of more efficient installation. Commenter s stated that the solar panels could be given credit, rega rdless of where they were located; but the installation of the insulation would only generate credit for part of the actual MWh of energy savings (and therefore emission reductions) based on the proportion covered by in

- state generation sold to that state' s customers. Commenter s stated that these analogous cases should not be treated differently. C ommenters commented on the difficulty of determining how much EE displaces generation inside and outside a state. Several commenters stated that the EPA's appro ach attributing EE savings assumes that a state could trace exactly which affected units generate less electricity as a result of increased EE. C ommenters contended that the nature of the interconnected electric system make it impossible to directly link certain EE measures with reduced utilization of specific units, let alone specific affected units. Commenters stated that the EPA is willing to accept a great deal of imprecision in determining the magnitude of reductions that result from EE measures, incl uding assigning an average 10

- year life to EE measures and allowing states to make assumptions to project the amount of electricity that will be saved. Yet, commenters stated, the EPA asks states to precisely assign "credit" for reductions associated with EE measures. Commenters stated that it would be arbitrary if the EPA allowed a10 general level of imprecision when calculating the benefits of EE, but then penalized states by requiring precise attribution of these estimated benefits for compliance purposes . Commenter s stated that if the EPA thinks it is possible to link demand

- side EE connected to a specific affected EGU, then the EPA should provide further information and guidance to states. Commenter s noted that a utility would not know the value of poten tial energy efficiency measures until after the fact, since the emission reduction value of these energy efficiency measures might be discounted by a factor not known until the end of the compliance period and also that the utility generally has no control over this discount factor. Commenter s stated the EPA's methodology of pro

- rating EE savings based on the net importation of electricity fails to resolve the uncertainty in whether a state's EE measures actually lead to energy measures and emissions reduct ions in the state.

Commenter s added that an additional consideration is where a generating facility is located on the dispatch stack. Commenters provided an example of North Carolina and South Carolina; North Carolina is an electricity importing state, mu ch of which comes from South Carolina. Commenters stated that South Carolina does not have any coal

- fired EGUs and only has combustion turbines and nuclear units. Commenters stated that EE programs would never reduce the use of the nuclear units because th ey are at the bottom of the dispatch stack due to their low operating cost. Commenters stated that EE will affect the marginal generating unit, which will be a fossil unit in North Carolina, not the lowest cost nuclear unit. Commenters concluded that it is not appropriate for the EPA to require that North Carolina, for example, discount the CO 2 emission reductions related to EE undertaken in the state based on the amount of electricity the state imports because EE programs in NC will no t reduce the amount of electricity imported from nuclear plants in South Carolina.

Commenter s stated that the EPA should provide guidance for allowing states to take full credit for both EE and renewable or other low

- and zero

- carbon power resulting in int erstate emissions avoidance. Commenters recommended that the guidance could suggest that such full crediting may be permitted if the importing and exporting states both have rate

- based targets, if they have a memorandum of understanding to avoid multiple s tates counting the same savings, or if the energy savings are included in a registry that includes guards against double counting.

Commenter s stated that according to an analysis by the American Council on an Energy Efficient Economy, efficiency potential is undercounted in half the states and the EPA's described methodology would leave in excess of 41 million MW h out of computations for state targets. Commenters noted that several of these states are participating in the two existing carbon markets in the US and, as such, are using, and crediting, EE in full under those regulatory
programs.

Commenter s stated that imported electricity is more ex pensive and will be one of the first resources to be displaced; therefore, RE and EE only result in a small portion of in

- state generation reductions. Commenters stated that this was confirmed using EIA 2013 data, which showed that electricity imports decr eased from 18% in 2012 to 9% in 2013 in their state (North Carolina). Commenters stated that this was also confirmed using AVERT modeling of EPA's projected 2030 cumulative EE and RE impacts to generation. Commenters contended that the EPA's AVERT model pr edicted that only 5% of the avoided generation from North Carolina EE and RE programs will actually occur in North Carolina. Commenters stated that the results11 indicate that most of the avoided generation from EE and RE will take place outside of North Car olina and the remainder of the avoided generation was spread out among the southeast
states. Commenters contended that allowing a state to only take credit for in

- state CO 2 reductions occurring as a result of RE generation/EE measures creates a disincentiv e for implementing these building blocks within states that import electricity. Commenters stated that if the proposed rule is not revised, net importing states will not be able to achieve the required in

- state CO 2 reductions.

Commenter s noted various conc erns regarding EE credits, especially for states that are net importers of fossil generation yet are characterized in the BSER calculation as net exporters of electricity overall. While c ommenters agreed that EE measures provide an important and cost effec tive component of BSER, c ommenters contended that, under the proposed approach, they would be unable to develop a cost

- effective compliance plan because the state would only be able to credit a small fraction of the investment in EE that can be tracked to fossil

- fuel generation in the state. Therefore, c ommenters added, they would have to rely on much more expensive and potentially infeasible over

- compliance with measures contemplated in the other three building blocks. In summary, c ommenters stated that it was of utmost importance for them to be allowed to take credit for the full breadth of emission reductions in their state compliance plan that are a result of EE investments.

Commenter s noted that equity is an implicit element of cost considerations, and the rule makes no effort to ensure that it is geographically equitable. Commenter s stated that interstate electricity sales are important to many states, but the building block is based only on in

- state electricity generation, not consumption, while the state energy efficiency standards are based on retail sales (consumption) within the state and not on generation. Commenter s noted that the EPA reduces the EE requirement in states when ge neration is less than consumption to apply only to its generation and but that the EPA makes no compensating adjustment for electricity exporting states.

Commenter s stated the generation unit affected by a given energy efficiency measure may be located in a different State than the implemented measure. Commenter s indicated that a State's inability to control the location of the impact of an efficiency measure on the GHG emissions within the State and the inability to address this issue without making arbitr ary assumptions is indicative of the challenges associated with using end

- use efficiency to control emissions and further indicates that it is not BSER.

Commenter s stated that rewarding electricity

- exporting states with a multiplier for energy efficiency achieved in

- state carries with it an implication that neighboring electricity importing states are pursuing similar levels of energy efficiency; however, because of the potentially divergent incentives for pursuing energy efficiency as a means of complianc e with the EPA's proposed 111(d) plan between electricity

- importing and exporting states, such an assumption is potentially incorrect. Commenter s stated that there is no guarantee that the additional energy efficiency credits an electricity

- exporting state would get were actually being generated in other, electricity

- importing states.

Commenter s stated that the EPA's methodology of pro

- rating EE savings based on the net importation of electricity not only fails to resolve the uncertainty surrounding whethe r a state's12 EE measures actually lead to emissions reductions in the state, but creates a new problem by failing to give states that are net importers of electricity full credit for their EE measures. Commenter s stated that this increases the burden on sta tes that are net importers of electricity in meeting their state goals. Commenter s believed that the EPA should eliminate EE from the state goals.

Commenter s stated that the impacts to the generators and utilities will be difficult to discern in regions w here there is not a match of service boundaries to political boundaries (i.e., state borders). Commenter s stated that the regulators likely will require a common approach with which all participants comply to allow for the summation of the results for the entire state.

Commenter s stated that if the ISO's modeling expertise is deployed for developing the state's CO 2 rate goal, adjustments in the energy efficiency impact due to whether or not a state is a power importer would be unnecessary. Commenter s state d that the ISO modeling effort would account for the impact of the state's energy efficiency on the region's and states' fossil generation.

Commenter s noted that even in states with vertically integrated utilities, there are some independent power produce rs (also known as merchant plants) that are not affiliated with load

serving utilities. Where there is not common ownership between the party currently implementing the EE program and the affected EGU, c ommenters believed the state will need to either admi nistratively allocate or auction EE savings generated by those programs, or adopt a tradable credit mechanism to enable affected EGUs to acquire the credits needed to achieve their target emission rates. Commenter s suggested that, if the EPA could not allo w states to take full credit for in

- state EE investments, then a possible solution would be for the EPA to revisit their Block 4 emissions reduction goal computation. Commenters added, though, that it would not be sufficient to simply adjust this goal to account for the small percentage of in

- state energy that can be used for compliance, as this would provide a disincentive for further EE investment.

Multiple commenters believed that it is near impossible to trace energy savings, or megawatts, to

a specific generating unit and that the Building Block 4 BSER would should be implemented in a manner which ensures that this level of tracking is not required.

Commen ters stated Washington interprets the proposal to require states to track efficiency saving s to specific in

- state EGUs subject to the Clean Power Plan. Commenters believed this is an unnecessary and complicated step to the rule. Commenters stated it is inconsistent with the
way the EPA established the emissions reduction goal, and it is inconsi stent with the EPA proposal to allow states to count all energy efficiency achieved and claimed through program implementation despite the intricacies of inter

- state electricity transmission. Commenters stated it would significantly diminish the efficacy o f a state's energy efficiency programs.

Commenters stated that Washington has been a leader in energy efficiency since the late 1970s, and is nationally recognized for its programs, however, in 2012 only 10 percent of Washington's in

- state generation cam e from affected electric generating units. Commenters stated 99 percent of the state's generation came from unaffected sources such as hydroelectric power, nuclear, and wind, and the investor

- owned utilities receive a significant portion of their energy fr om out

- of

state EGUs. Commenters stated if Washington could only claim "those CO 2 emission reductions13 occurring (or projected to occur) in the state that result from demand

- side EE measures implemented in the state," Washington would only claim a fraction of the efficiency savings it actually achieved, yet the building block 4 target assumes Washington could claim 100 percent of its savings compared to the small proportion of that the proposal implies would be available for use in demonstrating compliance. Commenters stated under this approach it is reasonable to assume that compliance with the plan would be unnecessarily expensive and challenging. If the final rule insists upon tracking back efficiency savings to an affected EGU, commenters recommended that the EPA symmetrically adjust the process of setting the value for the building block 4 targets to account for the value of energy efficiency in reducing emissions from a state's fossil EGUs.

Commenters stated that it is impossible to trace energy savings , or megawatts, from E E to find out which generator would have run but for the EE savings. Commenters noted that the EPA assesses the impact of EE programs through reductions in electricity sales but estimates the impact of EE programs only at the statewid e

- level because, in many cases, it is impossible to determine whether a particular generator's electricity sales were reduced due to EE. Commenters stated that the EPA cannot assess whether the megawatts reduced through an EE measure displace fossil genera tion rather than RE or other zero

- emitting generation and consequently, it is uncertain whether EE actually reduces CO 2

.
Commenters stated that it is not clear how the carbon reductions from EE will be attribu ted to a specific emitting generator, or to a utility that achieves the additional efficiency.

Commenters stated that there should be some symmetry between the goal calculation and the measures permitted for compliance. Commenters noted that the EPA currently calculates the contribution of EE measure s to Alaska's target rate on the basis of statewide electric sales but believes that the EPA should calculate the amount generation is avoided due to EE measures as a percent of forecasted generation from affected EGUs or, in the alternative, allow statewi de EE measures to count for compliance purposes.

Commenters said the guidance should provide states with needed clarity on the following items:

• Identify Remedies for the 111(d) State Energy Efficiency Penalty. The EPA should address and resolve the EE penalty created when EE projects are implemented in electricity

- importing states. As proposed, the rule would leave stranded and uncounted the emission reductions created by energy efficiency in an importing state because neither the importing state, nor the generating state, could claim credit for emissions reductions equal to 100% of those created by the energy efficiency program or project. (Further detail provided on page 45 of the comment.)

• Encourage the Use of Tradable Credits. The EPA should support the development and use of single

- state and multi

- state credit programs and other market

- based systems. This will encourage the use of the least

- cost compliance options, which, in many cases, will involve comprehensive energy retrofits.14 Commenters stated the EPA should require that any state or states that include energy efficiency gains in multi

- jurisdictional plans should be allowed to include the potential savings in their targets. Commenters add that the EPA could also determine that a target adjustme nt might not be necessary if the potential change in the targets is small enough, as it might be from areas with low energy consumption.

C omment 2: Comments suggesting that the rule does not state whether an exporting state can claim credit for EE gains i n an importing state

. Response 2: The treatment of EE has chan ged from the proposed approach. In the final rule, to the extent demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affe cted EGU or state to adjust a CO 2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory. For more information about the treatment of in

- state and out

- of

- state energy efficiency impacts, see section V III. L of the preamble to the final rule

. The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal. In order to ensure consistency with the calculation of CO 2 performance rates and
state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 e mission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

- emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or stat e to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. This ensures that affected EGUs receive full recognition for their investments

, even if the impacts oc cur elsewhere , removing the need to determine exactly which EGUs reduced and changed power generation in response to the zero

- emitting or low

- emitting resource

. The following are summaries of the specific public comments under this comment:

Commenter s sta ted that states can take credit only for the effects of EE programs associated with electricity generated within their borders. Commenters s t ated that this means that while EE in an importing state can benefit an exporting state by reducing the need for ge neration at higher carbon facilities serving the importer, the proposed rule does not explicitly state whether the exporting state may claim credit for the EE gains in their compliance plans. Commenters stated that, if it cannot, it appears that this credi t may be lost and this would reduce the incentive for the importer to invest further in these programs. Commenters stated that the EPA support of modular multi

- state plans that allow states to fairly claim credit for these lower cost compliance options
may also incentivize new EE measures.

Comment 3: Comments suggesting that e ach state plan submitted must ensure that credit for emissions avoided through EE is awarded only to EE measures and programs undertaken within that state

.15 Response 3: In the final rule, to the extent demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts of eligible measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory. For more information about the MWh accounting approach for adjusting a CO 2 emission performance rate, a nd requirements related to geographic eligibility, see s ection VIII.K.1 of the preamble to the fi nal rule

. For more information about the treatment of in

- state and out

- of

- state energy efficiency impacts, see section VIII. L of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenter s stated that, in order to simplify administration of EE crediting and assure adequate state oversight, each state plan submitted must ensure that credit for emissions avoided through EE is awarded only to EE measures and programs undertaken within that sta te. Commenters stated that a state plan may not provide for crediting of avoided emissions for EE programs and measures undertaken in other states. Commenters stated that as experience is gained with this program and systems for tracking the crediting of a voided CO 2 emissions are developed, th e EPA should review and consider the possibility of expanding the geograph y of acceptable EE investments.

Comment 4: Comments suggesting that the EPA allow approvable multi

- state agreements

. Response 4: The EPA’s approach has changed since proposal. In the final rule, to the extent demand

- side EE measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether t he demand

- side EE savings occur inside or outside the state or territory. For more information about the treatment of in

- state and out

- of

- state energy efficiency impacts, see section VIII. L of the preamble to the final rule

. The EPA is also allowing multi

- state plans in the final emission guidelines, see section VIII.C.5 of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenter s stated that if the EPA is unwilling to allow net importers to receive full credit for their EE investments, the EPA should at least allow states to submit approvable multi

- state agreements that apportion credit for EE among neighboring states. Commenters contended that under this approach, these multi

- state agreement s could ensure that no state receives "double" credit for emission reductions from EE while allowing states that have invested in EE to quantify and receive full credit for their investments.

Comment 5: Comments requesting clarification regarding the treatment of EE by states that export electricity16 Response 5: The EPA’s approach has changed since proposal. In the final rule, to the extent demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be u sed by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory. For more information about the treatment of in

- state and out

- of

- state energy efficiency impacts, see section VIII. L of the preamble to the final rule . There are a range of ways states can engage in multi

state coordination, as described in Section VIII.C.5 of the preamble to the final rule.
The following are summaries of the specific public comments under this comment:

Commenter s asked the following questions regarding treatment of EE for states that import/export electricity :

• Would it be possible for the EPA to apportion a state's excluded EE savings to the exporting states?

• Could states enter into bilateral or multi

- state agreements to apportion credit for EE?

• Can you explain how the EPA determined the level of each state's electricity imports/exports and which sales year they used? What if these levels change over time?

5.7.2 State that impleme nts the measure claims the emission effects

This section contains comments on the proposed met hod for accounting RE projects and a method recommended by some commenters for accounting for EE emission reduction measures.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments supporting the EPA's proposal for claiming RE

. Response 1: In the final rule , to the extent qualifying RE generation measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, the timing and the eligibility requirements for resources used to adjust a CO 2 emission ra te, including renewable resources, see section VIII.K.1 of the final rule preamble. The rule describes requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in se ction VIII. K.3 of the final rule preamble. For more information about how the BSER RE assumptions in the final rule address concerns about17 crediting and about the treatment of in

- state and out

- of

- state renewable energy impacts and the avoidance of double

- counting , see also section VIII. L of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Several commenters agreed that a state should be able to take into account all of the carbon emission reductions from RE measures implemented by the state, regardless of where the energy is generated. Commenters stated that this should only be allowed when the environmental attributes of the energy are retired in that state, while other c ommenters stated that this should be allowed as long as the generation is not double

- counted. Commenter s stated that this should be allowed as long as there is a credible REC tracking system or they can demonstrate entities in the state have submitted environmental attrib utes (i.e., credits) for those MWhs

. Commenters stated that the ability to sell the environmental attributes of renewable power to buyers that will retire the attributes for compliance or other purposes is a critical component of the business model of RE developers. Commenter s recommended that any asset or PPA that is recognized, approved and paid for by utility customers be given credit to customers' state when accounting for CPP compliance. Commenter s stated that the principles of cost causation and fisc al responsibility are long

- standing in the utility industry, and it is consistent with those principles that states that pay for RE should get credit for that RE for compliance.

Commenters stated that the CPP, when finalized, should not disrupt current a nd expanding interstate markets for RE and associated environmental attributes or credits. Commenters stated that the simplest, fairest, most reliable, and most environmentally beneficial way to account for RE is to treat the credit for RE as a property r ight that accrues first to the entity that owns the right to sell or use the RE itself and that entity could then use that right to meet its obligations under any state or multi

- state plan, or alternatively sell or grant that right to another entity to use in meeting its obligations. C ommenter s stated that states should have flexibility to enter into bilateral agreements regarding use of credits much like they would with a multi

- state compliance option. Commenter s stated that a state should not take credit for any existing RE programs that were included in another state's baseline and used to set that state's interim and final goals.

Commenter s stated that the EPA should explicitly prohibit double counting, without providing a suggestion on which state shou ld bear the burden of demonstrating that the reductions were not double counted; while c ommenters stated that the state receiving the credit must demonstrate that there had not been double counting. Commenters also stated that the EPA should require that

e very state that wishes to use RE MWh to demonstrate compliance with its state goal demonstrate that the zero

- carbon attributes of that RE are dedicated to that state; c ommenters asserted that this would minimize double counting and avoid disruptive uncertainty in the underlying commercial markets.

Several commenters stated that the proposed approach is consistent with the requirements of most state's RPS by allowing a state to ta ke credit for RE generated in another state and it recognizes that RECs can be used for interstate trading. Commenter s stated that they believe that RECs can be a useful tracking mechanism, but the ownership of RECs should not take precedence over the fund amental principle that the state whose customers are paying for RE should receive compliance credit. Commenters stated that, in the event that the customers who18 paid for the energy did not acquire or no longer hold ownership of RECs, those who paid for the energy should receive compliance credit.

Commenter s stated that allocating RECs in the final rule based solely on where the electricity is generated would work a manifest injustice on states and companies that have invested in the development of out

- of

- st ate RE. Commenters stated that the proposed approach will help to ensure the development of the most cost

- effective renewable resources. Commenter s stated that limiting compliance to RE located within a given state could result in less efficient placement of RE resources. Commenter s stated that if the rule only allowed for REC in the state where the generation occurred, use of prime locations would be artificially constrained, resulting in higher costs and potentially less technically sound and efficient RE systems, which would create an unnecessary disincentive that could ultimately reduce the amount of RE developed in the long

term. Commenters also stated that limiting credit to the state of generation could unjustly reward owners and operators of affected EGUs that have not invested in developing RE resources, but happen to be located in a state where another operator has built such resources. Commenters stated that under these circumstances, the owner or operator of an EGU with a high emission rate might avoid any responsibility to reduce emissions while the developer of the renewable resources might be unable to take any advantage of its investment in complying with the rule.

Commenter s clarified that this approach means that in cases where one state has an RPS and purchases RE from another state that has a production tax credit, the EPA must consider the purchasing state to have the "enforceable measure" and give that state the credit for the RE. Commenters stated that doing otherwise would directly confl ict with how RE has been treated for years under existing tracking systems.

Commenters stated that states should only be allowed to take credit for RE generated in another state if they participate in an environmental crediting accounting system for RE.

C ommenter s stated that states should also be allowed to take credit for reductions in energy demand due to any local or municipal government's RE program. Commenters provided an example of reductions in energy demand resulting from RE programs in New Orlean s, stating that these should be credited to Louisiana's compliance with its state target. Commenters stated that similarly, where another state curtails generation that serves New Orleans, the costs imposed on New Orleans ratepayers should be shared in som e manner. Commenters stated that if credits and costs are not shared across state borders in an equitable manner, states will have a powerful incentive to design their programs in a manner that shifts as much of the cost impact of the program to the other state as possible, rather than designing programs in a regionally cooperative

manner. Commenters suggested that, to address these issues, states should be able to work with one another to determine the best method for the accounting of interstate credits f rom RE programs and that states should be able to determine how to allocate the credits and costs, and ensure there is no double counting of reductions among states.

Commenter s stated that, i n order to avoid double counting, states be prohibited from count ing RE generation within their borders for compliance, if the associated RECs are used for compliance with out

- of

- state policies. Commenters stated that because the District of Columbia does not have any fossil fuel power plants, they are not subject to th e CPP; however, they urged EPA to prohibit a state from counting any RE power or RECs purchased by the District toward19 that state's compliance. Commenter s stated that it is essential that the EPA recognize existing contracts that allocated environmental a ttributes to particular counter parties in particular states.

Commenter s stated that RECs are not the only way in which compliance with RES programs is measured and the EPA should not limit compliance credit to only RE represented by RECs. Commenters also stated that the EPA should not limit RES programs as the only mechanism for including renewable generation. Commenters stated that the final guidelines should clarify that states can pursue a range of options to increase RE deployment and that RECs are not necessarily the best or only way for states to credit or trade RE across state lines.

Commenter s believed that entities owning out of state RECs should get credit for those RECs in the states in which they are headquartered, regardless of whether they ar e in a multistate compliance arrangement with the state that generates the energy.

Commenters stated that export and import of both unbundled and bundled RE and the corresponding greenhouse gas compliance value should be unencumbered and should not be limi ted to contiguous states or ISO regions.

Commenter s stated that if a state could only take credit for RE generation that displaced in

- state units, unanticipated new generation or retirements over the ten

- year compliance period could change which fossil unit is displaced by RE generation, such that a wind f arm for which a state could previously take credit is no longer available to the state as a compliance

measure. Commenters stated that this uncertainty would make it less likely for a state to include significant RE measures as part of its plan in comparis on to measures that would carry less uncertainty, such as increased gas dispatch of existing NGCCs. Commenters stated that the proposed accounting method of allowing states to take credit for RE regardless of where displacement occurs will minimize this un certainty and promote the use of RE in state plans.

Commenter s stated the Proposal presents insurmountable challenges for states like Oregon that are net importers of fossil generation yet are characterized in the EPA's BSER calculation as net exporters of electricity overall. Commenter s provided an overview of EE in Oregon and stated that Oregon would not be able to develop a cost

- effective compliance plan because the state would only be able to credit a small fraction of the investment in energy efficien cy that can be tracked to fossil

- fuel generation in the state. Commenter s stated this would effectively render as unusable otherwise cost

- effective investments in energy efficiency that were assumed in setting the BSER, and force Oregon to rely on much mor e expensive and potentially infeasible over

compliance with measures contemplated in the other three building blocks. Commenter s stated it is of utmost importance that the EPA allows Oregon to take credit for the full breadth of emission reductions resulti ng from energy efficiency investments in its state compliance plan. Commenter s recommended the EPA should adopt a consistent compliance approach requirement where the state that implements energy efficiency measures will claim the resulting emission reduct ions in its state compliance plan.

Comment 2: Comments suggesting d isparity between how state goals and credits were derived.20 Response 2: In the final rule, the EPA adopted the denominator approach, not the numerator approach recommended by the reviewers that commented on the proposed approach. The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal. In order to ensure consistency with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

- emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources, including eligible renewable energy resources, tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates an d state rate

- based CO 2 goals in the final emission guidelines, the MWh impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. For more information about how the BSER RE
assump tions in the final rule address concerns about crediting, see section V of the preamble. For more information about the treatment of in

- state and out

- of

- state renewable energy impacts and the avoidance of double

- counting, see section VIII. L of the preamble to the final rule.
The following are summaries of the specific public comments under this comment:

Several commenters stated that the final rule should assign compliance credit to the state that produces the RE, no matter where the energy is used. Commenters did not express a preference for how RE is counted, but discussed compliance challenges given the proposed accounting method. Commenter s stated that renewable generation should be counted with the state that generates the electricity b oth for purposes of determining carbon dioxide intensity and for establishing compliance with the goal. Commenter s stated that the EPA should adopt an approach that is consistent with regard to goal setting and compliance, while allowing states flexibility to establish agreements to utilize out

- of

- state renewable generation for compliance
purposes. Commenters urged the EPA to adopt an approach that consistently and adequately addresses the legal, economic and technical implications of the RE compliance opti on.
Several commenters had concerns about RE exporting states. Commenters stated that the EPA's proposed approach for counting out

- of

- state RE for compliance could create significant compliance challenges for certain states that produce more RE than they c onsume. However,

c ommenters stated that RE generation from these states is used by others to satisfy current demand or RES requirements, reducing the amount of RE generation that these states could rely upon for compliance with the state goals. Further, co mmenters contended that these states have little control over whether and to whom the RE generation is sold (or whether and to whom the renewable attributes are sold). Commenters stated that these states have ambitious goals, but limited tools with which t o comply with them. Commenters stated that these "source" states, like Idaho, New Mexico or Wyoming, have RE targets predicated, in part, on their high levels of RE generation in 2012. Commenter s stated that these states are faced with a dilemma of having their targets established on the basis of RE to which they do not have access, creating a conflict between the energy on which the goal is based versus the energy which is available for21 compliance with that state goal. Commenters stated that the EPA shou ld re

- calculate the state goals for source states accordingly.

Commenter s stated that given the disparity between their state's (Wyoming) exports and consumption, the differences between how the goal was derived and credits for future renewable development eviscerate the EPA's growth assumptions. Commenters provided an example of energy produced from a 1,000 MW wind farm in Wyoming, which transmits all of its electricity to California. Commenters noted that this generation will be used to determine Califor nia's compliance with section 111(d), not Wyoming's. Commenters stated that they see an analogue in the EPA's decision to exclude hydroelectric power from setting goals because no states are expected to develop any new large facilities. Commenters conclude d that in the context of new renewables on a scale that would make it possible to reach Wyoming's Block 3 goal, there is no reason to expect new export facilities to be credited to Wyoming.

Commenter s stated that for Montana to accomplish the reductions, w ithin the time frame allowed that all low and no carbon emission sources of ele ctricity generation within the s tate of Montana must be included in the calculations to meet the assigned goals/standards. Commenters stated that if the proposed method for acco unting for RE becomes final, then CO 2 emissions from EGUs within the State of Montana must be excluded from the calculations on an equal basis; MWh per MWh. Commenters concluded that this is the only equitable avenue for accurately calculating and determining the achievement of the goals/standards. Commenter s stated that there is no feasible way for Montana to reach its goal using the building blocks unless credit for renewables that are built in Montana, but whose energy would flow out of state, is given to Montana.

Commenter s stated that if another s tate is allowed to make claim to RE sources physically located outside their state, for determining carbon dioxide inte nsity and compliance, then they must also be required to account for the carbon dioxide emitted by power plants located outside their borders, whose sole purpose is to provide energy to that State.

Commenter s stated that if the method for calculating state goals does not change and the EPA decides, for compliance, to credit a state for only the RE consumed in the state, then the EPA should provide symmetrical treatment for carbon emissions and count only the carbon associated with fossil

- fuel generated elec tricity consumed in a state. Commenter s stated that, if the final CPP allows states to take credit for RE consumed in their state, but generated in another state, then those states should also be required to take credit for the power and carbon emissions
p roduced by the RE exporting state's fossil fuel power plants. Commenters stated that allowing other states to take credit for RE production without also taking credit for the carbon emissions only makes it more certain that the RE Exporting state will not meet the EPA' s carbon goal.

Because the state targets are based on generation in a state and not consumption, commenters wanted to know how the EPA expects an electricity exporting state to effect demand side reductions in states to which it exports elect ricity and asked if an exporting state is expected to add renewable generation that is not needed to meet in

- state demand. Commenters also asked if an exporting state will get credit if an importing state installs renewable generation and thus reduces dema nd from the exporting state.22 Commenter s stated that the proposed method for accounting for RE is directly contradictory to the method the EPA used to calculate Maine's base rate and goal rate of CO 2 production, which includes all of Maine's wind

- generated RE in the total generation for the state, without regard for existing out

- of

- state PPAs. Commenters contended that the EPA cannot have it both ways and stated that if the EPA considers RE generation with an out

- of

- state PPA to be part of Maine's existing e nergy generation mix, then the EPA must allow new RE in Maine to be used as a compliance mechanism, regardless of any PPAs or RECs. Commenters stated that if this is not addressed in the final rule, it will de

- incentivize development of wind power projects in Maine and other states. Commenters stated that local impacts from RE developments are borne directly and primarily by local residents, and residents have a right to expect benefits from a project to counter the effects of any negative impacts. Commente rs stated that the host state bears the burden of any environmental impacts from these projects, and has invested time and effort in reviewing and permitting these projects and ongoing compliance. Commenters stated that it is inappropriate that the impacte d resources should be devalued further through the loss of any benefit the host state might otherwise gain by using the projects as a compliance mechanism. Commenters stated that excess RE generation should then be allowed for compliance in states where th e power is sold by PPA or credited through REC ownership.

Commenter s stated that the EPA must credit RE for determining compliance consistent with the framework of counting all in

- state EGU emissions for goal setting regardless of where the electricity is consumed. Commenters stated that if their state (Idaho) received credit for all RE generation within its borders, Idaho would have the flexibility to s hare its RE generation with states that export energy to Idaho. Commenters also noted that this would be consistent with the way EPA considered in

- state RE generation potential in setting each state's RE goal. Commenters stated that the proposal to ultimately give credit to consuming states is inconsistent with this methodology. Commenters urged that Idaho must be credited for generation that occurs within its borders.

Commenters stated that it was unfortunate that the p roposal would not grant any emission reduction credits to Kansas for the zero emission wind energy produced. Commenters stated that to capture credit for the RECs, Kansas will likely have to participate in some form of interstate program that would include states receiving Kansas wind energy. Commenters stated that an interstate program would require new statutory authority, significant groundwork in determining which states would participate, resources to develop interstate agreements to create the entity that would administer the trading program, and time to create parallel regulations in each state to implement a program that would allow for Kansas to receive benefit from the zero carbon emissions associated with future wind energy development. Commenter s stated that s tates like Kansas should have the opportunity to develop a state plan that promotes the build

- out of Kansas wind resources, for Kansas utilities as well as out of state utilities. Commenters encouraged the EPA to offer a solution to this issu e in the final rule that gives Kansas the flexibility to provide for wind energy expansion that allows neighboring states as well as Kansas to develop plans that can meet their respective CO 2 emission reduction goals.

Commenter s stated that RE should be cr edited to the state where it is generated, regardless of where it is consumed. Commenters noted that this is consistent with the way CO 2 emissions from affected EGUs, EE (credit only for demand

- side EE measures implemented in the state), and nuclear electr icity are counted. Commenters specifically commented on not using the same23 accounting method for nuclear electricity and RE and stated that this creates a distortion within the proposed rule's carbon accounting that would unfairly penalize states that exp ort renewable electricity. Similarly, commenter s stated that renewable and nuclear resources should be counted towards compliance only in the state in which they are located, (renewable and nuclear energy should be counted consistently). Commenters stated that this approach would better reflect the manner in which the EPA set the goals, would be simpler, would eliminate the need to address the possibility of double

- counting, eliminate many inter

- state conflicts that are likely to arise under the proposed R E crediting provisions, and it would remove a disincentive for multi

- state plans under the proposed CPP. Commenters stated that multi

- state plans, under the proposed CPP, allows states to claim compliance credit for another state's renewable resources with out having to share that credit. Commenters stated that crediting the state that generates the RE would lower New Mexico's compliance gap from a "base case" of 211 lb/MWh to 83 lb/MWh and provides a better representation of the emission reductions that New Mexico would be able to achieve.

Comment 3: Comments suggesting that s tate plans should be utility

- driven portfolios.
Response 3 : In the final rule, to the extent qualifying RE generation measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occur s inside or outside the state or territory. For more information about how the BSER RE assumptions in the final rule address concerns about crediting see section V of the preamble to the final rule. For more information about the treatment of in

- state and out

- of

- state renewable energy impacts, see section VIII. L of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenter s stated that the provisions of the CPP proposal are not suited to a situation where load is remote from generation, a characteristic that affect small municipal entities like Missouri River Energy Services (MRES) and its members. Commenters stated that the building blocks all presume that load and generation are located in the same state. Commenters stated that this means MRES' renewable wind energy resources in Iowa, Minnesota and N orth Dakota, as well as their nuclear resource, do not fall within the boundaries of the state of Wyoming where their only fossil fuel EGUs emit CO 2

. Commenters stated that their EE and demand

- side management programs in their member states generate CO 2 s avings outside of Wyoming, in states where they have no affected units that emit CO 2 under the CPP.

Commenter s stated that renewables have to be constructed where the resources exist (and where there is adequate transmission), and those resources are not necessarily located in the same state where all CO 2 emitting affected units are located. Commenters contended that this fact also demands that utilities that acquire renewable resources should be entitled to use the credits where the utility's system needs them for compliance purposes. Commenters stated that portability ensures that utilities pursue those resources that fit best with their system at the lowest cost, and promote a more efficient and economical generation portfolio and electric grid. Commente rs stated that state plans should employ a utility

- driven portfolio approach that recognizes the clean energy and EE (the non

- CO 2 resources) owned by each utility, as well as the other building24 blocks. Commenters stated that in the event that a utility has non

- emitting credits, that utility should be entitled to use those non

- emitting credits it owns to offset its CO 2 emissions in any
state. Commenters stated that it is only fair that the customers who paid for th e RE resource and the EE measures be entitled to take credit for them to offset their own emissions. Commenters stated that ratepayers are entitled to portability of their non

- emitting resources in interstate commerce to use them for compliance against the CO 2 emissions from their resource located remote from their home state.

Commenter s provided an example of the potential inequity. Commenters stated that the example involves the Minnesota RES, as well its 1.5 percent EE goal. Commenters stated that both i n

state and out

- of

- state wholesale utilities serve the load in Minnesota, and they do so with both renewable and fossil generation that are based in

- state and outside of Minnesota. Commenters noted that Minnesota's CO 2 reduction goal is based on the gener ation located only in the state and stated that it would be unjust for Minnesota to count all of the RE and EE used in the state by
out

- of

- state entities towards CPP compliance. Commenters stated that MRES has no generation contributing to the CO 2 emission s located in the state of Minnesota, but it does provide RE and EE based on the state's mandates. Commenters note d that the RE and EE has been paid for by MRES members in MN, IA, ND and SD and is generated in Iowa, Minnesota and North Dakota. Commenters st ated that the state of Minnesota should not be entitled to offset the emissions of its in

- state EGUs with RE and EE from a utility that does not even emit any CO 2 in the state. Commenters contended that to reduce emissions at an affected EGU by requiring

u tilities that do not own, operate, or otherwise purchase power from the EGU to invest in RE or EE flies in the face of fairness. Commenters stated that they may have an RES compliance obligation in Minnesota, but that does not entitle the state of Minnesot a to take the RE paid for by MRES members and their customers to meet its state CO 2 reduction goal. Instead,

c ommenters stated it is only fair that ratepayers get the full benefit of their investments by allowing the utility owning the RECs to use those credits for its own benefit to offset its own CO 2 emissions.

Comment 4: Comments expressing c oncerns that RE cannot be cr eated out of state

. Response 4: In the final rule, to the extent qualifying renewable energy generation is tied to a state plan, the quantified and verified MWh impacts of the renewable energy measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the generation occurs inside or outside the state or territory. For more information about the treatment of in

- state and out

- of

- state renewable energy impacts, see section VIII. L of the preamble to the final rule

.

Re garding double counting, it is proposed that EM& V plans must address how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure (for example, two EGUs claiming savings f rom the same lighting retrofit). Other types of double counting must likewise be considered and avoided. For more details on EM&V provisions, see section VIII.K.3 of the preamble to the final rule, section IV.D.8 of the preamble to the proposed Federal Pla n, and the draft guidance document.25 The following are summaries of the specific public comments under this comment:

Commenter s stated that the proposed guidelines appear to say that credit for RE projects can only go to the state where the project is locat ed, even though RE may help reduce emissions in another state. Commenters suggested that the RE should be credited to the state that uses the RE and that verified RECs be used as evidence of emission reductions in those cases where the RE generation took p lace in another state. Commenters stated that RECs should eliminate the potential for double counting of generation offsets.

Commenter s w ere concerned that there are no provisions to allow for the interstate use of RE for compliance with the rule, and that the Red Rock Hydroelectric Project which is under construction in Iowa may be limited to the state of Iowa only. Commenters said they have an exclusive power purchase agreement with a private wind developer in another state which is a significant investme nt that their company chose to take proactive ly to augment its resource w ith a certain amount of renewable energy.

Commenter s stated that under the proposed approach the credit for existing RE projects would accrue to the state that hosts them rather than the states that bankrolled them through binding purchased power agreements. Commenters contended that this is clearly inequitable and must be addressed in the architecture of any rule that entails beyond

- the

- fence line mandates.

Comment 5: Comments sugge sting that the EPA must avoid double

- counting, regardless of the method for crediting RE.
Response 5: The EPA agrees that it is important to minimize the risk of double

- counting of emission impacts of measures, particularly across state plans, and has incorporated elements into the rule that seek to minimize it. It is proposed in the Federal Plan that EM&V plans must add ress how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure. Other types of double counting must likewise be consider ed and avoided. For more details on EM&V provisions, see section VIII.K.3 of the preamble to the final rule, section IV.D.8 of the preamble to the proposed Federal Plan, and the draft guidance document

. States have the option to adopt multi

- state plans, fo r either rate

- based or mass

- based plans, that reflect regional interactions. These plans engage multiple states in the same system for purposes of tracking mass

- based allowances or issuing and trading unique rate

- based Emission Rate Credits (ERCs) as descr ibed below.

Mass

- based plans rely exclusively on reported stack emissions for determining whether a mass

based CO 2 emission goal is achieved and avoids concerns about counting the same mass reductions in two different mass

- based states.

For rate

- based p lan compliance, the final rule specifies a general accounting approach that inherently acts to minimize state rate differences that may influence distortionary investments and ensures that quantified and verified MWh impacts of qualifying zero

- emitting and low

emitting resources are applied consistently across all affected EGUs. The EPA revised the26 methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal to better reflect the regional natu re of the grid among other things. Consistent with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Double

- counting of CO 2 emission reductions is
prev ented, however, because the reported emissions from each unit are represented in the numerator of each of those unit’s emission rates and the method disallows any adjustment to any EGU’s reported emissions.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of MWh

- denominated ERCs in the rate

- based emission trading framework specified in this rule. This MWh accounting method creates a crediting system or rate adjustment process that is indifferent to the rate

- based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and
t he relative stringency of those goals or standards.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ER Cs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

The EPA acknowledges in the final rule that th ere may be interactions between mass

- based and
rate

- based plans regarding counting measures, specifically where measures that provide substitute or avoided generation, such as RE and demand

- side EE, are located in a mass

- based state and can also be used by a rate

- based state in meeting the CO 2 performance rates or state goals. The EPA has determined that, in the context of interactions among rate

- based and mass

based plans, there is not explicit double

- counting of the CO 2 emission reductions associated wit h counting measures located in mass

- based states, considering the accounting methods outlined in this final rule. Though there is no risk of double

- counting emissions, in response to commenter concern that overall CO 2 emissions reductions would be foregon e in situations where a source in
a rate

- based state counts the MWh from measures in a mass

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

- based state, the EPA is restricting the ability of
rate

- based state to claim emission reduction measures, such as RE and demand

- side EE, located in mass

- based states. In order to avoid cutting some states off from regional RE supplies that are assumed in the BSER building block 3 and incorporated in the CO 2 emission performance ra tes or state rate

- based CO 2 goals in the emission guidelines, the EPA has determined that it is appropriate for rate

- based states to count MWhs from RE located in mass

- based states, subject to the condition that the generation in question was intended to m eet electricity load in a state with
a rate

- based plan.27 For a discussion about the elements incorporated into the final rule to minimize double

- counting,

see s ection VIII.L of the final rule preamble

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible,

see s ection VIII.K.1 of th e final rule preamble . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble . Section IV.D.8 of the preamble to the proposed Federal Plan describes the provisions related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE s avings to avoid overestimation as suggested by commenters. For information about mass

- based emission standards with a market

- based emission budget trading program, see s ection VIII.J.2. d of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenter s , in response to the EPA's request for comment on whether RE

- based emission reductions should be credited to the state where the energy is generated rather than the state where the energy is used, stated that the EPA must avoid all incentives to double

- count emission reductions or otherwise game the system. Commenters also stated that the EPA should design its
state

- based targets so that RE generation (rather than importation) is incentivized wherev er such generation is physically feasible, so that maximum RE capacity is fostered.

Comment 6: Comments suggesting that states exporting renewable energy may not receive credit for these exports without further agreements with importing states.
Response 6: In the final rule, to the extent qualifying renewable energy measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the gene ration occurs inside or outside the state or territory. For more information about the treatment of in

- state and out

- of

state renewable energy impacts, see section VIII. L of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenter s stated that states can claim credit only for RE they consume and that is accounted for under their renewable policies; as a result, states exporting RE may not receive credit for these exports without further agreements with importing states. Commenters stated that, at the same time, energy exporting states may not be able to claim credit for these emission reductions either. Commenters concluded that the proposed accounting method for RE may not capture all in centives for RE development in areas, like the West, with many large export and import relationships.

Commenter s stated that these import/export relationships are particularly important in the West because there are numerous long distance power transfers i n the region and that California is particularly interested in working with regional partners to explore joint compliance options and ensure that RE is accounted for across state lines to strongly encourage further investments.28 Comment 7: Comments recomme nding that customer

- sited distributed renewable generation within a state be credited like EE.
Response 7: In the final rule, the EPA recognizes the value of renewable energy as part of the Best System of Emission Reduction. Renewable energy measures ins talled after 2012, including distributed renewable energy generation, that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO 2 emission rate, in the same way that eligible EE resources may be used, described in s ection VIII.K.1 of the preamble to the final rule . T he measures must also meet the eligibility requirements and provisions related to proper quantification and verification of MWhs from RE generation, as described in S s ection IV.D.8 of the preamble to the proposed Federal Plan
The following are summaries o f the specific public comments under this comment:

Although commenter s agreed that RE be credited based on out

- of

- state PPAs, c ommenters recommended that EPA should credit increased, customer

- sited distributed renewable generation within a state, which is implemented after the date of the publication of the Proposed Rule, similarly to its proposed treatment of end

- use EE.

Comment 8: Comments suggesting that states should be able to take credit for emission reductions achieved out of state due to in

- state energy efficiency policies.
Response 8: In the final rule, to the extent demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory. For more information about the treatment of in

- state and out

- of

state energy efficiency impacts, see section VIII. L
, Treatment of Interstate Effects , in the f inal rule preamble

. The following are summaries of the specific public comments under this comment:

Several commenters stated that a state should be able to take credit for emission reductions achieved out of state due to in

- state EE policies. Commenters stated that the credit should only be taken as long as the reductions will not be double

- counted. Commenters stated that the credit should only be taken as long as both the importing and exporting state select rate

- based goals; and commenters added that states should not be required to track savings back to the actual power plants or determine CO 2 emissions reductions due to electricity savings. Commenter s stated that a state should not take credit any existing efficiency programs that were included in

an other state's baseline and used to set that state's interim and final goals. Commenter s stated that as long as both the emissions and the energy output from the energy resources are allocated only to the state that imports the energy, these sources will no t be double counted, and the technical potential for leakage is reduced29 Several commenters believed that the state that funds the incentives and related program expenses incurred by the utility, should receive full credit for savings realized at out

- state EGUs under 111(d). Commenters stated that such treatment of EE savings would be consistent with expected treatment of out

- of

- state RE generation compelled by the state. Commenter s stated that this approach would accurately credit and incentivize EE inves tment in states that import fossil

- fuel energy, thereby allowing the state to use its EE infrastructure as a tool for compliance.

Commenter s stated that this approach would be compatible with their existing state laws. Commenter s stated that this approach also provides parity between the mechanisms used to develop the BSER Block Four goal and compliance mechanisms available to importers.

Several commenters stated that this approach would encourage energy importing states from funding and implementing EE pr ograms and maximize the impact of the most cost

- effective resource available for reducing carbon emissions.

Commenters asked that the EPA recognize that EE measures in hydropower

- based utility territory reduces GHG emissions and award credit for that witho ut requiring EE mandates or other encumberments on utilities with de minimis GHG emissions of their own.

Commenter s stated that states should have the ability to work with one another to determine the best method for accounting of such credits and costs, without having to be in a regional program, ensuring there is no double counting of reductions among states.

Commenter s stated that, in addition to changing the rule to allow EE measures to be claimed no matter where the emission reductions occur, the EPA should allow a state to use the marginal emissions rate of the region's net system mix or its own average marginal emissions rate. Commenters claimed that this will allow each state to count the full value of its EE investments. Commenter s stated that the EPA should allow each state to assign the avoided emission rate as the emissions rate of the marginal resources in the power pool.

Commenter s stated that if the CPP is to achieve the degree of cost

- effective carbon reductions that the RGGI model demon strates are achievable, the rules under which state compliance is enforced must allow for the full crediting of EE impacts.

Commenter s recommended that the EPA appropriately account for voluntary EE actions by private actors not covered by the rule, so tha t such actions are not double counted by reducing any state's obligations under the rule.

Commenter s requested that the EPA recognize the existing deployment process for EE in

consumer

- owned utilities (COUs) in the Pacific Northwest. Commenters described the process for bringing EE projects onboard. Commenters stated that significant EE acquisitions have come about due to collaboration with the NWPPC and the Bonneville Power Administration (BPA). Commenters stated that every successive regional power pla n adopted by the NWPPC is an overall 20 year forecast that offers resource guidance accomplished through rigorous analysis and stakeholder involvement. Commenters stated that EE goals are a part of that resource guidance prioritized along with renewables a nd cogeneration. Commenters explained that BPA's power rate case sets the agency's budget, including budgeting for EE goals, informed by the Regional Technical Forum (RTF) which evaluates the cost effectiveness of EE measures.30 Commenters stated that COUs f und BPA EE programs through their power rates and many COUs supplement their EE programs by budgeting additional incentives in addition to contributions made through BPA programs.

Comment 9: Comments requesting additional guidance

. Response 9: In the fina l rule, to the extent qualifying RE generation and demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate under a rate

- based approach

, regardless of whether the RE generation or demand

- side EE savings occur inside or outside the state or territory. The EPA will work with states using the rate

- based approach that are interested in allowing the use of RE from outside the U.S. to adjust CO 2 emission rates as described in

s ection VIII.K.1.a.(2)(c)(iii). Descriptions of the types of qualifying generation that is eligible, including hydropower, is described in s ection VIII.K.1.a.(3). For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

side EE, including specific geographic eligibility requirements and limitations and measurement and verification requirements to ensure that the MWhs are unique and creditable, see s ection s VIII. K .1 and VIII.K.3 of the preamble to the final rule

. For more information on the treatment of in

- state and out

- of

- state renewable energy and energy efficiency impacts, see section VIII. L of the preamble to the final rule

.

T he MWh accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. An ERC is issued separately from any other instruments that may be issued for a MWh of energy g eneration or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs tha t are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how e xisting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs. Requirements for rate

based emission trading programs and the issuance and tracking of ERCs, including qualifying
measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

S everal commenters believed that additi onal consideration, clarity and/or guidance was needed with respect to quantifying, assigning, or crediting electricity generation that crosses state or regional boundaries.

Several commenters requested clarification on how RE is to be credited when RE i s generated in one state but financed and/or used in another. Commenter s w ere unsure whether renewable generation imported from Canada could count towards 111(d) compliance. Commenter s stated that the EPA should specifically address the manner in which in terstate REC markets will be assessed for the purpose of compliance with the CPP. Commenter s requested guidance on31 determining the beneficiary of RE and EE programs where the implementing state imports power from an EGU located in another state.

Commenter s recommended the EPA allow states to take credit for international sources of RE and EE where the following conditions are met: 1

. the new international resources used for crediting will result in reduced emissions from fossil

- fuel generation in the Unite d States ; and 2

. the international resources are not double

- counted as a non

- emitting or low

- emitting resource for a regulatory obligation of both the source country and Clean Power Plan compliance. Commenters expressed concern about the potential for lea kage between states and between new and existing generation and recommended the E PA should ensure that generation shifts across borders does not allow power plants in the U.S. to comply with the clean power plan without actually achieving the anticipated r eduction in carbon pollution.

Commenter s believe d states should be able to include import of Canadian low

- and non

- emitting electric generation in a state

- driven portfolio plan. Commenters also suggested that the requirements to use Canadian low

- and non

- e mitting electric generation could be part of a state commitment approach in which the requirements would be only enforceable by the state. Commenters noted that electricity flows across state and international boundaries, and that load centers in U.S. states are often supplied in part by resources in neighboring Canadian provinces, and vice versa. Commenters stated that the same accounting systems used for interstate tracking systems can be used to track emission effects and to avoid double counting of emission reductions in the U.S.

- Canada context. Commenters noted the following examples of tracking systems currently used: Midwest Renewable Energy Tra cking System (or "M

- RETS") (used to track renewable energy in U.S. Midwestern states and the province of Manitoba); Western Renewable Energy Generation Information System (or "WREGIS") (renewable energy registry and tracking system for the Western Intercon nection, including the provinces of Alberta and BC); and New England Power Pool Generation Information System ("NEPOOL GIS") (tracks renewable energy credits ("RECs") for both renewable generation sourced within the ISO

- NE control area and for generation i mported from adjacent control areas, including provinces in eastern Canada).

Commenter s noted that the Regional Greenhouse Gas Initiative ("RGGI") program has used the importation of electricity from Canada to reduce the utilization of fossil fuel

- fired un its in the RGGI region and thereby decrease the CO 2 emissions at covered EGUs and noted that several states include Canadian RECs in their RPS programs. Commenters recommended states be allowed to include these RECs in their state plans.

Commenter s stated that clear accounting rules to award credit for RE to the appropriate parties is needed. Commenter s stated that the EPA also did not adequately address the issue of increased demand or competition for such out

- of

- state credits, which will affect availabil ity and price of those credits. Commenters specifically requested the EPA to provide guidance on avoiding double

- counting

. Commenter s requested that the EPA include more discrete provisions in the CPP governing the quantification and credit of electrici ty generation. Commenter s asked for guidance on what the EPA considers effective ways to identify, allocate and ensure the integrity of out

- of

- state reductions caused by in

- state RE programs.32 Commenter s asked how hydropower assets should be counted and sp ecifically how they should be counted when two states each want to count the same hydropower generation toward their goal. Commenters asked whether the owner of the hydropower asset or output gets to pick the highest bidder, or is it based on load (contrac t path) following.

Commenter s asked for clarification on the following questions: who gets the credit when RE is developed in one state using that state's tax credits and other incentives, but then exported to another state for consumption; and how does this differ in a multi

- state arrangement. Commenter s stated that the Proposed Rule is unclear whether the transfer of REC count toward the recipient state's compliance efforts in the absence of a formal multi

- state plan between those
two states.

Commenter s urged the EPA to work collaboratively with states in developing definitive guidance that establishes a clear and workable framework on how states can account for and use RECs or RE generated from out

- of

- state resources.

Several comments stated that the EPA must clarify that the state paying for the RE generation may claim credit for that generation regardless of where the generation physically occurs. C ommenters requested that this clarification be made in rule language. Commenters stated that the own er should be able to sell or grant the right to another entity to use in meeting its obligations. Commenter s also stated that if the EPA does not clarify that the state that owes the RE claims the credit, that there is a risk that the state hosting the RE production could also try to claim the compliance credit, which could lead to double counting of emissions reductions, and therefore a failure to meet the emissions reductions targeted by CPP.

Commenters suggested that the EPA clearly state that renewable generation based upon out

- of

state PPAs are also creditable and they are credited in a manner that does not require importing
state s to negotiate agreements with exporting states. Commenter s asked that the EPA clarify that bundled REC purchases from other states may count for compliance.

Commenter s claimed that failure to specify acceptable and unacceptable attribution approaches for out

- of

- state RE introduces significant uncertainty, risk of double

- counting emissions reductions and RECs, and potential for serious damage to existing RE markets.

Commenter s requested that the EPA provide guidance on affordable methods by which any state may quantify emissions occurring outside of state boundaries when electricity or credits are being imported or exported, if the final CPP requires such quantification be included in State Plans.

Commenter s stated that new hydroelectric power must be avail able for compliance for the state that owns the energy, regardless of where the energy is generated.

Commenters stated that the EPA should clarify that existing and future contracts that include RECs or other environment attributes also convey the associat ed emissions reductions relevant to state CPP implementation plans while preserving flexibility for regional and bilateral arrangements between states. Commenters contended that a lack of clarity will restrict utilities' ability to contract for renewable power across state lines, increasing compliance costs and artificially restricting the development of cost

- effective renewable projects.33 Commenter s stated that the EPA should provide guidance to states for assessing the relative contribution of different s tate policies to a particular RE project. Commenters presented issues that required guidance, including: whether credit could be apportioned based on financial analysis of the contributions of each state's policy to the viability of a RE project; or, cre dit could go solely to the holder of the REC associated with the RE generation. Commenters stated that this may be worked out through multi

- state accounting agreements, but some form of guidance or default allocations would provide more certainty for state s, utilities, and RE developers. Commenters encouraged the EPA to further develop and describe what it means for a state to have "implemented" a RE measure in light of the interactive nature of state and federal policies promoting clean energy.

Commenter s stated that having the EPA be the final arbiter of whether a state has properly included RE emission reductions in a compliance plan creates great uncertainty for individual states, which would not know until after the EPA assessed all submitted state com pliance plans whether they could count all of the RE included in a particular plan. Commenters w ere concerned that this could undermine a state's ability to demonstrate that a plan would achieve the target emission rate goal, and could result in time

- consu ming and expensive plan revisions that delay the start of compliance. Commenters suggested to avoid plan revisions related to possible RE double counting and to ensure against double counting in the first instance, the EPA should provide clear guidance as to how states should attribute RE.

Commenter s stated that the EPA should provide states with guidance on how to allocate RE built by electric utilities to serve customers in multiple states. Commenters gave an example of KCP&L which serves customers in Kan sas and Missouri. Commenters stated that most of KCP&L's fossil generation owned by the company is located in Missouri, but most of the wind generation that has been built and is expected to be built in the coming years is in Kansas. Commenters stated that wind resources are allocated to each state, based on customer demand, without any need to transfer RECs. Commenters contended that in such situations, the state that consumes the RE should be able to use it for compliance. Commenters stated that the final guidelines should address how utilities can allocate RE generation to different states, consistent with customer consumption patterns.

Commenters stated that the proposed guidelines do not specify how a state would demonstrate RE reductions included in a plan will not be double counted, but, in the absence of clear guidance from the EPA, it would seem to presuppose that states with potentially competing claims agree on how to apportion credit for RE reductions. Commenters stated that it appears that the EP A may intend to foreclose the use of some RE emission reductions for compliance if states cannot agree on attribution. Commenters stated that this would be unfair to states (and the owners of RE generation) as it could increase compliance costs by renderin g some valid emission reductions unusable for compliance purposes simply because states could not agree. Commenters asserted that the EPA should not disallow the use of RE generation because it may have been double counted. Instead, Commenters stated, the EPA should articulate clearly how RE generation will be credited to states to prevent against double counting and ensure that all reductions can be used for compliance.

Commenter s stated that the proposal fails to establish a workable regulatory framework for addressing the accounting of electricity resources generated in one state but used in another.34 Commenters stated that our electricity system is interconnected with many cross

- state purchase agreements.

Commenters stated that the EPA should clarify how EE measures should be credited. Commenter s urged the EPA to clarify EE measures are counted on a load

- basis rather than a geographical basis.

Commenter s stated that it will be i mportant that the guidance provided to the states in the final rule, clearly recognizes the strength of mass

- based approaches in avoiding accounting difficulties.

Commenters stated that the proposed rule is vague and the final rule should be unmistakably clear that all RE produced in a state is also credited entirely to that state.

Commenters stated that Wyoming exports about 60% of its b lock 1 generation and ask ed if b lock 3 and 4 savings from other states can be appl ied to Wyoming's Block 1 exported pro duction

. Commenters also asked for clarification on whether b lock 3 and 4 savings only apply to Wyoming generation related to intrastate retail sales and asked for guidance on h ow block 3 and 4 savings would be allocated among b lock 1 generators.

Comment 10: Comments requesting clarification on how RE should be credited; lack of clarification is costing Navajo Nation jobs and revenue

. Response 10: In the final rule, to the extent qualifying RE generation are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. For more information about specific geograp hic and other eligibility requirements for resources that can used to adjust a CO 2 emission rate, see s ection VIII. K .1 of the preamble to the final rule

. States, including areas of the Indian country, that do not have any affected EGUs within their b o rde rs may be providers of credits to adjust CO 2 emission rates, as discussed in Section VIII.K.1.a.(2)(c).

T he accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading fra mework specified i n this rule. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the sam e data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.35 For more information about s pecific methods to adjust the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see section VIII.K.1 of the final rule preamble of the CPP. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for inte ractions between ERCs and RECs, are in section VIII.K.2 of the final rule preamble. For requirements related to the measurement and verification of eligible and unique MWhs, see Section VIII.K.3 of the preamble to the final rule.
The following are summarie s of the specific public comments under this comment:

Commenters commenting on the Tribal and Territories Supplemental Notice, provided comments on counting RE. Commenters stated that RE generated within a state should be credited toward meeting that stat es carbon reduction rate. Commenters stated that the EPA should clarify that credits for RE should be assigned to the entity that is purchasing the output, including the RECs (or merely the RECs from that resource), unless an alternate arrangement is speci fied through contract. Commenters urged the EPA to make an immediate clarification without waiting for the issuance of a final rule

.
Commenter s stated that they have repeatedly asked the EPA to make this clarification and listed 6 different meetings or doc uments where c ommenters asked the EPA for clarification. Commenters stated that the EPA's action, and subsequent inaction by not clarifying its ambiguous statements, has created and continues to create direct and irreversible economic harm to the Navajo Na tion economy and its citizens. Commenters explained that because of the ambiguity of whether RE development on tribal lands will count toward a state's emission reduction goal, one project is currently on hold in the Navajo Nation. Commenters contended th at this project has the potential to be the first of many utility

- scale RE projects developed within the Navajo Nation and that several hundred construction jobs that the project would provide are on hold and in jeopardy. Commenter s stated that absent an i mmediate clarification adopting the Navajo Nation's position, the Navajo Nation will likely lose all of the jobs and the direct and indirect economic growth associated with the project. Commenters stated that based on standard economic factors, the resulting lack of investment will cost the Navajo Nation economy over the life of the RE resource over $50 million in tax revenue alone. Commenters stated that the EPA should not engage in any behavior that would limit the use of tribal RE resources in an y state and should refrain in its final rule from questioning the existing RE marketplace, which currently allows for interstate and inter

- territorial sales and exchanges of RECs produced by RE projects.

Commenter s contended that because the EPA asked for comment on whether states should only count RE generated in their state, the proposal is ambiguous about whether RE projects constructed on tribal lands will have to be included in either a regional trading program or a multi

- state plan in order for RECs f rom such projects to be distributed across multiple jurisdictions. Commenters stated that developers must be allowed to freely negotiate the sale and delivery of electricity and RECs across jurisdictions (including state and tribal boundaries) through var ious contractual mechanisms, such as PPAs, without fear that the value of those36 projects will be severely limited by an inability to transfer the RECs for use to address CO 2 emission reductions under any state plan.

Commenter s stated that the EPA is also mistaken that the Supplemental Proposed Rule will result in no additional costs to the Navajo Nation. Commenters provided the example of the utility

- scale RE project that is currently on hold. Commenters stated that the Navajo Nation is currently losing out on $100 million worth of investments in RE resources on the Navajo Nation because of the ambiguity of whether RE development on tribal lands will count toward a state's emission reduction goal.

Commenter s stated that in an environment that suffers fr om over 50% unemployment, the continued delay in job creation is unconscionable and should not be allowed to continue merely because of the ambiguity created by the CPP. Commenters stated that the delay could also cause the project to not qualify for Fede ral tax credits and would lead to increasing the cost of the project. Commenters asserted that without immediate clarification by the EPA, additional project partners could have the same concerns, thereby stifling the Navajo Nation's economic growth and je opardizing its pursuit of a green economy. Commenters stated that the EPA should issue an immediate clarification and statement supporting the current RE marketplace and the existing practice under which the use of RE and application of RECs is not bound b y territorial restrictions. Commenter s stated that this clarification should include that EPA has no interest in modifying the current RE development marketplace and supports without conditions or questions multi

- jurisdictional development of RE resources and that such development can be contracted for use to meet compliance requirements for any state under the Proposed Rule for the States.

Commenters stated that the EPA should not interfere with RE project development in Indian Country. Commenters stat ed that the EPA should allow Indian tribes to receive credits for RE projects the tribes develop and use on their lands. Commenter s stated that the EPA should immediately state that its intent is not to hinder the development of RE projects on tribal lands and further clarify that the EPA explicitly rejects any prohibition against a state utilizing RE projects that occur outside its boundaries. Comme nters stated that the EPA should continue to leave the methodology for coordination for the sale and purchase of RECs and RE to the market and not attempt to dictate that methodology.

Commenter s stated under the Energy Policy Act of 2005, the federal gover nment committed to support the development of energy resources, and in particular RE resources, on tribal lands. Commenters concluded that the EPA is contravening the clear mandates of the EPA by creating a barrier to the development of RE on tribal lands in a manner that is discriminatory as compared to the states.

5.7.3 Cooperative multi

- state accounting of interstate emission effects

This section includes comments associated with multi

- state agreements.

Commenters have raised a number of issues relate d to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.37 Comment 1 : The EPA should provide guidance on how to attribute reductions associated with RE before states submit compliance plans. EPA shou ld serve as the third party verifier.

Response 1 : In the final rule, to the extent RE generation and demand

- side EE measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation or demand

- side EE savings occur inside or outside the state or territory. The accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trad ing framework specified in this rule. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the po tential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, including specific geographic eligibility requirements and limitations, see s ection VIII. K .1 of the preamble to the final rule

. Re quirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule pr eamble. For requirements related to the measurement and verification of eligible and unique MWhs, see Section VIII.K.3 of the preamble to the final rule. For more information on the treatment of in

- state and out

- of

- state renewable energy and energy efficie ncy impacts, see section VIII. L of the preamble to the final rule

, Treatment of Interstate Effects.
The following are summaries of the specific public comments under this comment:

Commenters supported the use of cooperative agreements between states, but requested that EPA provide clear guidance as to how to attribute reductions associated with RE and EE before states submit their compliance plans. Commenters raised questions about how to addr ess compliance in the case of generation resources located in one state, but serving customers in another state or multiple states. Commenters provided an example where utilities located in one state that have ownership in generation stations in another st ate may be interested in using EE measures adopted in the "home" state to offset the CO 2 emissions from generating stations in the other state, but would be unable to do so unless a multi

- state plan is adopted. Commenters also pointed out a potential scena rio in which one state may impose a CO 2 reduction obligation on a non

- emitting utility in that state, and another state (where the utility has generation that emits CO 2 ) may require only CO 2 emitters to reduce CO 2 , which would effectively require utility to pay twice for reducing the same CO 2 emissions. Commenters also asked how an agreement could be reached when a state wants to claim credit for renewable generation built outside its borders, based on an38 assertion that the renewable project was built pursuant to that state's renewable policies. Commenters suggested that the proposed rule should be adjusted to provide incentives for developing cross

- state energy efficiency and renewable energy to encourage these col laborative regional plans.

Commenters urged that EPA develop guidance on these issues. Commenter s stated that there are many existing state and federal laws that already focus on generation and use of energy, including renewable resources and energy effic iency, in the Northwest region. Commenters stated t he proposed EPA rule raises questions about the general construct, timing, and interaction with these existing laws. Commenters stated i t is unclear how renewable energy credits (or actual energy) that com es into a state from a neighboring state would be accounted for in individual state implementation of the goals. Commenters noted that clear guidance may be useful to helping incentivize states to develop cooperative approaches and avoid scenarios were st ates may not be able to design multi

- state plans prior to the due date for compliance plans. Commenters also called on EPA regional support to design joint compliance options and provide the data needed to support those options. Commenters suggested that s tates incorporate existing measurement and verification processes for determining the avoided MWh and emissions reductions from EE into regional protocols that can measure the impacts of EE at a regional level.

Commenter s agreed that states must adopt a me asurement and verification (M&V) program to accompany any plan elements beyond Building Blocks 1 and 2 in the final rule. Commenters stated t he M&V program would also allow a state to take credit for reductions of emissions in another state where the imple menting state now obtains transmitted power, and ensure that two states do not claim the same reduction.

Commenter s stated that EPA's approach of requiring a state to determine where the avoided generation has/will occur and only giving credit for in

- state reductions is going to be burdensome to states in terms of planning, record keeping, and ensuring no double counting. Commenters stated that in order to prevent legal issues between states and utilities, EPA should serve as the third party to examine how to handle the tracking of avoided generation to prevent double counting where the EE/RE is paid for by one state, implemented by a second state, and the generation is avoided in a third state. Commenters also indicated that EPA needs to provide the
states with a more concrete methodology for this accounting/ modeling, a nation

- wide reporting system, and third party verification of which unit avoided generation due to EE/RE in which
state.

Comment 2 : Comments stating that the EPA should promote regional coo peration to prevent perverse incentives that could result in negative economic impacts between states. Additionally,

c osts to customers in DC will be affected by decisions made by other states.

Response 2 : The final rule allows for multi

- state coordination through a joint emission goal and among states retaining individual state goals, including via trading programs, as well as multi

state plans that address a subset of EGUs in a state. For more information, see s ection VIII.C.5 of the preamble to the final rule

.39 The following are summaries of the specific public comments under this comment:

Commenters noted the potential cost impacts associated with the rule. Commenters expressed concerns that the proposed rule could have potential deleterious effects where regulated utilities provide customers with energy generated by facilities outside the state. Commenters noted that if a state's emission goals under the Proposed Rule created a perverse incentive to close an electric utility, it could result in economic costs to customers in outside states. Commenters urged that EPA should promote consideration in working towards the common goal of carbon reduction among states. Commenter s stated that although the District of Columbia would not have to submit a state plan because it imports nearly all of its electricity via the regional transmission grid managed by PJM, it will be affected by the actions states within its region take to comply with their emissions guideline s. Commenters noted that decisions made by states throughout the PJM RTO region will ultimately affect District residents and ratepayers.

Comment 3 : Comments suggesting a cooperative accounting agreement would not address double

- counting concerns.
Respon se 3 : The EPA agrees that it must minimize the potential for double

- counting. The final rule acknowledges the interactions between rate and mass states and includes elements that minimize the risk of double

- counting as described in section VIII. L of the preamble to the final rule

. It is proposed in the Federal Plan that EM&V plans must address how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savin gs from the same EE project or measure (for example, two EGUs claiming savings from the same lighting retrofit). Other types of double counting must likewise be considered and avoided. For more details on EM&V provisions, see section VIII.K.3 of the preamb le to the final rule, section IV.D.8 of the preamble to the proposed Federal Plan, and the draft guidance document.

The follo wing are summaries of the specific public comments under this comment:

Commenters requested assurances that EPA will confirm that d ouble counting does not occur. Commenters expressed concerns that a cooperative accounting agreement would not address double

- counting concerns. Commenters noted that although the proposal suggests that a mass

based state could adjust the overall CO 2 emiss ions from the affected fleet to account for the "export" of avoided CO 2 emission credits, RE and EE benefits are already automatically accounted for under a mass

- based program as the existence of RE/EE measures, or "megawatts," displaces the state's or reg ion's reliance on fossil fuel

- fired generation. Commenters argued that it is difficult to unravel the location and type of fossil fuel

- fired generation the specific unit of RE or EE has displaced, therefore, any adjustment to the overall CO 2 emissions from the mass

- based state's affected fleet would be derived from assumptions (e.g., estimates of the magnitude by which to offset the emissions of the mass

- based state's affected fleet). Commenters expressed concern that if an adjacent state that relies on a r ate

- based approach attempted to claim credit for RE produced in a mass

- based state, this would result in unavoidable double

- counting. Commenters stated they support the level of emission reductions in the proposed rule, but urged40 EPA to ensure that flexibi lity in the rule does not result in double counting of emission reductions.

Commenter s support ed EPA's proposal giving states the ability to take credits for renewables for compliance purposes as well as state renewable portfolio standard requirements without duplicating compliance credit. Commenters noted that a crediting and tracking system will be needed to ensure that 111(d) compliance credit is not double counted between states. Commenter s stressed that implementation of the Clean Power Plan hinges on EPA's ability to accept or reject state proposals in order for the Plan to be effective. Comment ers stated t he EPA must disapprove a state's implementation plan if the plan is deemed "unsatisfactory" or double counts RECs or avoided emissions already accounted for in other state implementation plans.

Comment 4 : Comments regarding the duplication of emission reductions between state plans.

Response 4 : In the final rule, to the extent RE generation and demand

- side EE measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate , regardless of whether the RE generation or demand

- side EE savings occur inside or outside the state or territory. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE, see s ection VIII. K .1 of the
pr eamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenters responded to EPA's request for comments concerning duplicative emission reductions between state plans. Commenters stated that EPA should defer to states that agree on an alternate formula for allocating reductions between or among themselves, as long as double

counting is avoided. Commenters stated that the final rule should clearly provide that it is up to the owners of renewable generation to indicate which entity gets credit for the renewable generation. Commenters indicated that the affected state plans will include and track these agreements, and EPA must respect these agreements as long as there is no double

- coun ting of the renewable generation for 111(d) compliance. Commenters stated that EPA should provide flexibility in the final rule to not strand existing utility pollution control assets, while providing for wind energy expansion that allows the host state as well as neighboring states to develop plans that can meet their respective CO 2 emission reduction goals.

Commenter s noted that EPA requested comment on whether an emission reduction becomes duplicative (and therefore cannot be used for demonstrating perfo rmance in a plan) if it is used as part of another State's demonstration of emission performance under its CAA section 111(d) plan (79 FR 34913). Commenters stated that avoidance of double counting is an accounting issue for States to resolve and EPA's inv olvement should only be as a last resort. Commenters suggested that, upon resolution, state goals should be modified as appropriate but the credits should not be voided resulting in no state benefit.41 Comment 5 : Comments suggesting that the EPA should use certification tracking system to track emissions.

Response 5 : The final rule allows for multi

- state coordination through a joint emission goal and among states retaining individual state goals, including via trading programs, as well as multi

state plans t hat address a subset of EGUs in a state, as described in s ection VIII.C.5 of the preamble to the final rule

. The final rule also includes requirements for tracking systems used by states issuing emission rate credits under rate

- based emission trading approaches. For more information, see section VIII. K.2 of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should encourage states participating in a multi

- state plan to use existing all

- generation certificate tracking systems, where they exist, or work with existing RE tracking systems to track emissions from affected EGUs. Commenters noted that projects often receive numerous tax credits and other incentives in the s tate in which they are located, and that EPA should be receptive to state plans that cooperatively allocate credit for such resources through mutual agreement between states that generate and use renewable electricity. Commenters stated that EPA must treat renewables consistently in state carbon emission baselines and targets.

Comment 6 : States shouldn't have to join a multi

- state compact to share RE credits. The EPA should give deference to states' ongoing resource planning measures as a means for sustainable electricity supply planning and delivery

. Response 6 : In the final emission guidelines, the EPA provides for multiple multi

- state plan approaches that state s may take to meet the emission guidelines. This includes multi

- state plans with joint multi

- state rate

- or mass

- based goals and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a si ngle

- state plan. These multi

- state approaches are described in sections VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule.
Regarding renewable energy, the final rule bases the Best System of Emission Reductions upon resources within a regi onal, not a state’s border. In the final rule, to the extent RE generation measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE, see s ection VIII. K .1 of the final rule
pr eamble

. The f inal rule allows for multi

- state coordination among states retaining individual state goals under rate

- based and mass

- based emission trading programs

. Details can be found under s ection VIII.C.5 of the final rule preamble

. The following are s ummaries of the specific public comments under this comment:42 Several commenters stated that states should not have to join a multi

- state compact in order to effectively share the renewable resource credit. Commenters stated that EPA should not impose

measu res within the CPP that would compel Minnesota to cease the importing and exporting of energy resources needed to reliably and cost effectively serve the energy needs of Minnesotans as part of CPP state target compliance requirements, and noted that EPA's proposed determination of a Best System of Emission Reductions is based upon resources within a state's borders. Commenters stated that EPA should give deference to Minnesota's ongoing resource planning measures as a means for sustainable electricity suppl y planning and delivery, and if necessary, demonstrating Minnesota compliance with the EPA proposed CPP. Commenters stated that EPA should permit states to allow regulated sources to use tradable mass

- based emissions credits purchased from sources in other states, without any formal multistate plan, so long as any ton of emissions allowance can only be used in one state. For states that use the rate

based emissions approach, EPA should clarify that renewable energy generated in one state can be included in another state's compliance formula. Commenters agreed that multi

- state cooperation is most likely to arise among states that have individual state plans that recognize reductions or credits from other states, but indicated EPA must clarify that states can cooperate without blending state goals into a multi

- state goal. Commenters stated that this approach should qualify as a multi

- state approach eligible for an additional one year extension.

Comment 7 : Comments regarding the practical implication of not considering energy cooperative ’s electric systems

. Response 7 : The treatment of EE has changed from the proposed approach. In the final rule, to the extent demand

- side EE measures are tied to a state plan, the full MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory.
The following are summaries of the specific public comments under this comment:

Commenters stated th at the proposal fails to consider the practical implications of an energy cooperative's electric system that crosses state boundaries, particularly in the case of crediting reductions due to energy efficiency projects

.

5.7.4 Tradable regional EE/RE credit market

This section addresses comments on tradable credit markets as a method of implementation and compliance with CPP.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are als o provided for these topics.

Comment 1: Comments supporting tradable credit markets.43 Response 1: In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or dema nd

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines, the MWh impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requ iring explicit adjustments, the accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems f or issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when de veloping their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflec t renewable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see s ection VIII.K.1 of the final rule preamble of the CPP . Req uirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule pre amble . Section IV.D.8 of the preamble to proposed Federal Plan describes the provisions related to proper quantification and verification of MWhs from renewable electricity generation.

The following are summaries of the specific public comments under this comment:
Multiple commenters stated they believe that states should be able to take advantage of existing REC markets to track and take credit for renewable energy generated out

- of

- state; these commenters noted that a renewable energy certificate (REC) is sued by a tracking system would be a viable, effective, efficient option that would allow affected EGUs and other entities to demonstrate compliance with a renewable energy standard. Commenters noted that the use of regional REC markets is consistent with EPA's approach of determining state renewable targets based on the regional availability of renewable power resources. Commenter s stated that allowing states to continue to use demonstrated and effective regional tracking systems to track RE will be the mo st efficient way to demonstrate CPP compliance. Commenters recommended that states be required (or strongly encouraged) to use current tracking systems in place for REC generation and tracking to avoid double counting (e.g. PJM

- EIS GATS). Commenters stated that such tracking systems help states comply with renewable portfolio standard (RPS) obligations; other commenters stated that each state has the discretion to choose what level of RPS44 compliance it will allow through out

- of

- state RECs. Commenters noted that RECs convey RE attributes, the name and location of the generating unit, the fuel used to produce electricity, the use of renewable electricity to individual grid users, the date the generation unit went online, and avoided grid emissions associated w ith renewable generation. Multiple commenters supported states developing, expanding or participating in an environmental crediting accounting system for renewable energy that utilizes RECs. Commenters supported RECs from a utility perspective

, and stated that the final rule should allow utilities the ability to utilize RECs to demonstrate compliance by surrendering or selling the RECs to entities or states needing additional environmental attributes. C ommenters noted that the problem of double counting is minimized when RECs are properly issued, tracked, and retired. Commenters asserted that the benefit of tracking systems is the ability to identify the location of certificate use and whether the certificate is used for compliance with a state RPS in the st ate where the generator is located, an adjoining state, or a state across the country. Commenters also noted that interstate trading programs would ensure reliability and reduce customer rate impacts. Commenters stated that the use of markets would also he lp utilities determine how much renewable energy capacity they needed to install or have under contract. Commenters also noted that reliance on the renewable energy market would provide greater RE generation opportunities at lower cost and lower emissions; c ommenters asserted that the interstate trading of RECs is an integral component of the financing and deployment of RE generation. Commenter s also noted that a recent UCS report discussed the benefits of regional grid coordination and highlighted several recent studies by grid operators showing that renewable energy can significantly lower CO 2 emissions while maintaining reliable and affordable electricity. Commenters believed that allowing nationwide trading of RECs for compliance RE targets would lower compliance costs.

Commenters supported a trading mechanism as a means for states to accommodate utilities that do not have mechanisms to reduce emissions

- e.g., NGCC units (which can be redispatched) or electrical load (to which energy efficiency measures can be applied)

- in all states where it has generation. Commenters urged that state plans must have some way for utilities to comply without the possibility of ener gy efficiency or demand reduction measures in that state to offset generation.

Commenters recommended the EPA not modify the current renewable energy development marketplace and recommended that any state by allowed to use renewable energy resource
cont racts to meet their compliance requirements without requiring multi

- jurisdictional agreements

.

Comment 2: Comments requesting recommendations on how to track the crediting of RE use.

Response 2: The EPA agrees that it is important to ensure that emission rate credits (ERCs) for qualifying measures, including RE MWh generation projects and programs, are properly issued and tracked to avoid duplication or double claims. The final rule describes specific requirements and assurances states must include in their plan submittal, including tracking system requirements, to assure the integrity of a rate

- based emission trading approach. For more information, see s ection VIII. K.2 of the preamble to the final rul e

.45 In the final rule, to the extent RE generation measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside th e state or territory.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualify ing measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standa rds. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary mark ets may interact with ERCs.

Multi

- state plans, where multiple states submit a plan to meet a joint rate

- based or mass

- based CO 2 goal, must meet all of the same requirements as a single state plan to be approvable. State plan requirements are addressed at s ection VIII.D.2 of the preamble to the final rule. In particular, a state plan must describe the plan approach and geographic scope, as discussed in section VIII.D.2.a.(1) of the preamble to the final rule . In addition, states may collaborate in the implem entation of single

- state rate

- based and mass

- based emission trading programs, through the interstate transfer of ERCs and emission allowances, as discussed at section VIII.C.5.c. of the preamble to the final rule. RECs may not be used as a compliance unit under a rate

- based emission standards plan type, as discussed at section VIII.K.2.f of the preamble to the final rule

. However, RECs could be used as a compliance instrument under a state measure, such as a state RPS, addressed in the supporting material f or a state measures plan type.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see s ection VIII.K.1 of the preamble to the final rule . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifyin g measures, programs or projects and the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Several commenters provide d recommendations on how to track the crediting of RE use. Commenters recommended EPA leverage the infrastructure for REC tracking that is in place in many states and regions. Commenters supported the use of established REC tracking systems and believe the y are a viable tool that affected EGUS, regulators, and other entities can employ to help ensure compliance with an RE standard. Commenter s stated that the existing REC tracking systems would not likely need any major modifications in order to be used to a ccount for and verify out

- of

- state purchases of RE. For example, commenters recommended the use of46 the existing M

- RETs tracking system; commenters specifically listed procedures for review used in M

- RETs to prevent double

- counting. Commenters stated that M

- RETS tracks the amount of RE delivered to the interstate transmission system and the amount of RE that the utility retires for each state, and RECs may be used only once. Commenters provided that processes are in place to prevent double counting both for generation tracked within M

- RETS and between M

RETS and other tracking systems. Commenters also supported the use of tracking systems such as WREGIS to expand the procurement of RE options for states, and other c ommenters also pointed to the New England P ower Pool Generation Information System. Commenters supported the use of RGGI, stating that RGGI states have successfully implemented emissions limits within existing power markets without distortions, disruptions, or reliability issues . C ommenters urged E PA to simplify the manner in which RGGI states can craft state plans to comply with the ESPS. Commenters noted that states would benefit from the ability to purchase more competitively priced RE as well as the ability to sell RECs to other states. Commente rs pointed to North Carolina as a state with an established entity which verifies, tracks, and banks both RE generation and EE avoided generation. Commenters pointed to the Generation Attribution Tracking System (GATS) as a viable system for tracking RECs

. Commenters noted that GATS has validations built into the tracking system to provide as a basis of certificate ownership and to prevent double counting from system registration through retirement of the certificates. Commenters asserted that incorporating a tradable

- REC program into a rate

- based compliance mechanism would take advantage of existing tools and resources and minimize a state's need to develop new mechanisms to demonstrate compliance. Commenter s gave examples of existing programs that could be used and referenced a document for more information on the existing programs: Jan Hamrin, Clean Energy States Alliance, REC Definitions and Tracking Mechanisms Used by State RPS Programs (Jun. 2014), available at http://www.cesa.org/assets/2014

- Files/RECs

- Attribute

- Definitions

- Hamrin

- June

- 2014. Commenters suggested that EPA be clear that existing REC and environmental attribute crediting platforms (including voluntary REC tracking systems) are acceptable tools for approvable state plans to use, and that f or any existing or newly developed system to be approvable it must ensure that the same renewable MWh do not generate or use credits that can be double counted.

Commenter s pointed to a recent independent report (see "Tracking Renewable Energy for the U.S. EPA's Clean Power Plan", June 25, 2014) that concluded that the current tracking infrastructure is sound and the risk of double counting renewables for the purposes of RPS compliance is remote. Commenters noted that most REC tracking systems require that a facility be registered only in one tracking system, which ensures that claims are not being made for certificates over multiple tracking systems. Commenters also noted th at for most tracking systems, including GATS, there registry administrators also have the ability to identify duplication or double claims, that the registries provide public reports that are very similar to ensure comprehensive checks to prevent double co unting; and that the registries allow regulators access to centralized on

- demand and current reports about retired certificates, account

- holder information, and state, regional, or market

- wide data. Commenters urged that similar reports could be designed a nd created based on the rules for 111(d) compliance; Commenters stated that the tracking systems have implemented many enhancements and changes to accommodate the changing needs of the States and could also accommodate the changes needed to support 111(d) compliance.47 Commenters noted that for state renewable policies that do not currently involve the transfer of RECs, states will need to incorporate accounting using RECs in order for the renewable energy to be assigned to different policies and counted unde r 111(d). C ommenters supported allowing RE regulations and programs that meet Evaluation, Measurement, and Verification (EM&V) requirements to generate RECs based on of the quantity of energy savings or renewable energy generation. Commenters asserted that these states would not need to require the transfer of RECs, provided the RECs are retired in state and are not counted towards another mechanism being used for 111(d) compliance. Commenters recommended that EPA provide guidance to states regarding the ac ceptable RE that would count towards compliance, and requested as well specific guidance on how states could reconcile existing RE policy and generation sources with the RE targets and generation sources indicated in the proposed rule.

Commenters expressed concern that some states lack infrastructure capable of planning and implementing RE measures on a state

- specific basis, or have time to develop a joint implementation plan. C ommenters recommended that as long as there is a basic level of consistency betw een state programs (e.g., similar currencies), any two or more states should be able to trade emission credits on a bilateral basis without a formal multistate compliance plan. Commenters pointed out that interstate REC trading would require coordinated re gional action.

Commenters also asked EPA to allow the use of greenhouse gas reductions secured outside of the power sector, as long as the reduction is made by facilities that are tied to the grid. As an example, commenters suggested that a Waste

- to

- Energ y facility that sells renewable energy to the grid could generate an offset in a state or regional trading system based on the avoided landfill methane emissions. Commenters specifically requested that RECs not be limited to utility scale projects, but be allowed to come from commercial and residential distributed solar systems.

Comment 3 : Comments suggesting that t he EPA should/should not mandate interstate trading

. Response 3 : The final emission guidelines allow for, but do not require, multi

- state plans. The final emission guidelines also provide for coordination among states in the implementation of single

- state plans. The final emission guidelines provide for multiple multi

- state plan approaches that states may take to meet the emission guidelines . This includes multi

- state plans with joint multi

- state rate

- or mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approa ches are described in sections VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters recommended that the EPA mandate interstate trading of CO 2 credi ts. Commenters urged that although the proposed rule provides flexibility to each state to make their own determination regarding regional CO 2 markets, it also allows for each state to "go it alone" and does not require cooperative planning and stakeholder processes. Commenters asked that at a48 minimum, the EPA mandate that states perform comprehensive analysis of multistate and regionals CO 2 reductions plans before defaulting to a state only program.

Commenters asserted that the EPA cannot and should not m andate interstate trading programs. Commenters asserted that the Clean Air Act does not anticipate or define RECs, and that the inclusion of RECs is not workable in a regime where the state has obligations related to emitting units located in the state. Co mmenters further noted that because RECs are based on state laws, the definition of what fuel can be used to produce a REC may vary among the states.

Comment 4 : Comments requesting the EPA to a llow flexibility in credit trading, e.g. allow
states to account for RE using options other than RECs.

Response 4 : The EPA agrees that it is important to ensure that emission rate credits for qualifying measures, including RE MWh generation projects and programs, are properly issued and tracked to avoid duplica tion or double claims. The final rule describes specific requirements and assurances states must include in their plan submittal, including tracking system requirements, to assure the integrity of a rate

- based emission trading approach. For more informatio n, see s ection VIII. K.2 of the preamble to the final rule

. In the final rule, to the extent qualifying RE generation measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule.

An ERC is issued s eparately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification require ments used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when develop ing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

Multi

- state plans, where multiple states submit a plan to meet a joint rate

- based or mass

- based CO 2 goal, must meet all of the same requirements as a single state plan to be approvable. State plan requirements are addressed at section VIII.D.2 of the preamble to the final rule. In particular, a state plan must describe the plan approach and geographic s cope, as discussed in section VIII.D.2.a.(1) of the preamble to the final rule . In addition, states may collaborate in the implementation of single

- state rate

- based and mass

- based emission trading programs, through the interstate transfer of ERCs and emiss ion allowances, as discussed at section VIII.C.5.c of the preamble to the final rule. RECs may not be used as a compliance unit under a rate

- based49 emission standards plan type, as discussed at section VIII.K.2.f of the preamble to the final rule

. However, RECs could be used as a compliance instrument under a state measure, such as a state RPS, addressed in the supporting material for a state measures plan type.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU
t o reflect renewable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see s ection VIII.K.1 of the preamble to the final rule

. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Several commenters requested that EPA allow flexibility in the types of trading agreements allowed between states. Commenters stated that RE and EE credit trading among states should support compliance even in the absence of a comprehensive regional plan. Commenters asked EPA to support approaches that allow states flexibility to allocate credits for RE an EE, as well as approaches which allow states to reach agreements on the allocation of carbon liabilities. Commenters suggested that this would allow existing tracking mechanisms, such as WREGIS, to be compatible with the final rule.

Commenters requested that EPA not limit states' ability to include RE in state plans to RE that is represented by RECs. Commenters argued that RECs are not the best or only means of crediting or trading RE across state lines, and provided as examples both the use of bilateral contracts for RE as well as allowing accounting for the use of util ity

- owned in

- state and out

- of

- state RE without the generation of a REC. Commenters also asserted that EPA should not limit states to RES programs as the only means of including RE in a compliance plan, and recommended that states could also consider performance

- based incentives, financial assistance programs, state integrated resource pl ans, or other regulatory programs.

Commenters requested EPA consider allowing or implementing alternative trading platforms/registries. Commenters requested that EPA be open to state proposals to rely on alternative approaches for allocating RE, including through existing voluntary REC platforms or through a new section 111(d) platform or registry. Commenters also noted that other generation tracking systems can be used to calculate interstate emissions from affected EGUs and help avoid double

- counting. Co mmenters recommended allowing states to approve carbon credit exchanges that allow facilities using renewable or other tools to sell their surplus emission reductions to other facilities; c ommenters urged that such an exchange could also serve as a finance mechanism for technological upgrades and worker/community transition programs and work on either a single state or a regional basis. Commenters urged EPA to provide guidance for states or regions wishing to implement their own programs.

Commenters noted t hat since renewable energy may be used both to comply with RPS and Clean Power Plan requirements, the ability to track renewable and carbon attributes separately for use in different regulatory programs should be considered. Commenters assured that the fin al rules50 should provide as much flexibility as possible and should not exclude certain types of credits or trading programs.

Comment 5 : Comments suggesting the EPA s eparate the CPP from state RPS programs by establishing a Renewable Energy Carbon Attribut e (RECA) certificate.

Response 5 : The final rule allows interested states to participate in interstate trading programs depending upon the type of approach the state selects and specifies a unique acceptable unit of trading under a rate

- based approach, the emission rate credit (ERC), a tradable compliance unit representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions. Requirements for rate

- based emi ssion trading programs, including those related to issuance of ERCs based on RE generation and demand

- side EE MWh savings, and tracking systems. For specific requirements under rate

- based emission trading approaches, see section VIII. K.2 of the preamble to the final rule

. In section VIII.K.3.b of the preamble to the final rule , the EPA clarified that for energy generating resources, including RE, states may leverage the programs and infrastructure they have in place for achievement of their RPS and take adv antage of registries in place for the issuance and tracking of RECs. Many existing REC tracking systems already include well

established safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar f unctions in relation to the final emission guidelines.

The following are summaries of the specific public comments under this comment:

Commenters argued that reliance on a state RPS REC tracking system as a basis for compliance with the Clean Power Plan is problematic because most states do not have a mandatory RPS and do not issue or use RECs. Commenters provided examples of numerous definitions and practices among the state RPSs that may contradict or be incompatible. For example, c ommenters provided that some, but not all, state RPSs may allow non

- zero emitting resources such as biomass and coal wastes to be used for compliance, may allow RECs to be banked for varying amounts of time, or may define RECs as including environmental attributes or not. Commen ters urged that the conflicting definitions and practices of jurisdictional RPSs that use state RPS RECs would lead to duplication or use of ineligible resources (e.g., if a state claimed credit for a REC that has already been accounted for in a separate s tate plan).

Commenters recommended that EPA separate the CPP from state RPS programs by establishing a Renewable Energy Carbon Attribute (RECA) certificate or similar instrument that represents the CO 2 reduction attribute of one megawatt

- hour of electricity generated by a zero

- emitting renewable resource. Commenters suggested that a RECA certificate could be created for each megawatt

- hour of eligible renewable energy and granted to the renewable resourc e owner, who could then surrender the RECA certificate as part of the state's Clean Power Plan compliance or trade the RECA certificate to another entity for their compliance obligation. C ommenter s recommended the state to provide documentation that it pos sesses and has retired an equivalent amount of RECA certificates. Commenters asserted that under this approach, there would be no possibility of duplicate counting.51 Commenters noted that if a RECA approach is adopted, an eligible renewable resource would receive a RECA certificate and could also receive a REC separately for state RPS compliance
purposes. Commenters explained that the RECA certificate and the REC generated could be owned by separate entities and retired for separate purposes, or they could travel together under common ownership and be traded and retired together. Commenters further explained that retirement of the RECA certificate would determine which state may count the renewable energy in its state emission rate calculation.

Commenters f urther recommended that EPA permit the interstate trade of RECA certificates with or without the associated energy and irrespective of electrical boundaries; c ommenters explained that this would not result in double

- counting because a state may only count renewable energy in its state emissions calculation if it owns and retires the RECA certificate. Commenters warned that if importation of renewable energy from out

- of

- state is prohibited, this would cause the unintended effect of inhibiting growth in the r enewable energy industry.

Comment 6 : Comments stating that t he EPA should provide the infrastructure necessary to facilitate basic tracking of allowances for intrastate and interstate trading for any state that does not currently have a registry system, s uch as through a default, opt

- in national trading program.

Response 6 : States participating in a trading program must include in their state plan regulatory provisions that address the tracking of ERCs or emission allowances through the use of a joint tracking system, interoperable tracking systems, or an EPA

- administered (or approved) tracking system , as described in section VIII.C.5.c of the preamble to the final rule

. A s described in subsection VIII. K.2 , t he EPA is explorin g options for providing an EPA

- administered tracking system and is conducting an initial scoping assessment of tracking system support needs and functionality. The final rule also includes specific requirements for tracking systems under rate

based emissio n trading approaches in section VIII. K.2 of the preamble to the final rule

. Regarding the proposal of a national registry, the EPA’s approach provides flexibility to the states on how to design their registries and therefore will not require states to sub mit to a national registry. To ensure the credibility of state registries for trading programs, the EPA provides recommended criteria in the draft EM&V guidance document.

The following are summaries of the specific public comments under this comment:

Sever al commenters recommended that EPA provide the infrastructure necessary to facilitate basic tracking of allowances for intrastate and interstate trading for any state that does not currently have a registry system, such as through a default, opt

- in nationa l trading program. Commenters noted that EPA has established similar programs for other pollutants, such as under the Acid Rain Program and the NOx Budget program. Commenters recommended that EPA could provide a platform, support a third party to provide a platform, or work with states to build on existing platforms to alleviate the administrative and cost burden of developing a trading program for states. Commenters urged that EPA consider such standardized credit trading or agreements to minimize "pervers e market incentives or disincentives" that may result from state programs with difference compliance requirements. Commenters stated that the national program52 should allow for the participation of states that are using either rate

- based or mass

- based compliance plans, and should provide the infrastructure for states to accomplish multi

- state approaches, such as providing or approving credit

- tracking systems for states that wish to implement trading programs or accept credits from other states for compliance.

Commenters also recommended that the EPA could assist the states by establishing a standard for credits and trading that can be used for compliance purposes

. Commenters stated that it would be appropriate to have trading systems for both emissions (pounds or tons of CO 2 ) and energy (megawatt

- hours) from renewables and demand

- side savings for rate

- based programs and trading systems for emissions (pounds or ton s of CO 2 ) for a mass

- based program. Commenters stated that the EPA or some other agreed upon entity could manage the trading systems, and an optional credit tracking system for emissions and energy could be provided for states.

Comment 7 : Comments suggest ing that t he EPA encourage expansion/linking of current tracking systems and/or consider guidance for development of tracking mechanisms

. Response 7 : A s described in subsection VIII. K.2 of the preamble to the final rule , t he EPA is exploring options for providing an EPA

- administered tracking system and is conducting an initial scoping assessment of tracking system support needs and functionality. The final rule includes specific requirements for issuance, use and tracking of ERCs under rate

- based emission trading approaches in section VIII. K.2 of the preamble to the final rule . The final rule further provides eligibility requirements for resources that can be used to adjust a CO 2 emission rate in

s ection VIII. K .1 of the preamb le to the final rule.
The following are summaries of the specific public comme nts under this comment:

Commenters requested that EPA encourage the expansion of the existing framework for the tracking/crediting renewable energy to allow for further verification and quantification of emissions reductions from renewable energy. Commenters recommended that current REC tracking systems be linked to reduce the possibility for double counting; c ommenters asserted that the existing tracking systems were wri tten by APX and linking the systems should be relatively straightforward. Commenters recommended the use of single

- state and multi

- state credit programs and other market

- based systems, as well as the use of emission reductions that are secured outside of t he power sector, provided the reductions are made by facilities tied to the grid. Commenters recommended that REC system operators collaborate to make a unified web

based tool available to stakeholders and EPA to verify the origin and trading history of a particular REC using the serial number. Commenters supported development of a regional trading system for the Southeastern states that will allow for tracking of renewable energy generated in the region for purposes of compliance with the Clean Power Plan. Commenters asserted that this database could be used to track renewable energy that is generated in

- state and used by load

- serving entities in that state for compliance, as well as renewable energy generated
out

- of

- state and transferred to a load

- serving entity with in the state. Commenters requested that the final rule should allow for both interstate and international trading, including the purchase of RECs from other nations such as Canada, which could be tracked using WREGIS, M

- RETS, and NEPOOL GIS. Commenters als o noted that power purchase agreements (PPAs) could be used53 for importing RE from Canada. Commenters supported the inclusion of RPS standards and climate programs into state plans as an option to allow states to import Canadian RECs.

C ommenter s recommende d guidance for development of tracking mechanisms. Commenters suggested that EPA consider its January 2001 "Improving Air Quality through Economic Incentive Programs (EIP)" draft guidance to provide clarity to states regarding the creation of and tracking of EE and RE credits. Commenters argued that the EIPs contain elements to ensure their integrity; include adequate monitoring, record keeping, and reporting; recommend tracking mechanisms; and prevent double counting. Commenters noted that in some cases, t he EIP principles would need to be amended or clarified to satisfy CPP requirements.

Commenter s requested that the EPA consider how non

- ratepayer funded solutions to energy savings could be incorporated into EE trading mechanisms. Commenters stated that p rivate sector actors have played a driving role in developing a market for residential solar energy installations. Commenters believed that the private sector could play a similar role in residential energy efficiency installations if appropriate incentive s were provided. However, c ommenters stated that to realize the potential of the private market to contribute to the creation of residential energy efficiency savings, EPA must:

• Permit states to set up market mechanisms that allow private parties to develo p and sell energy efficiency projects into such markets;

• Provide specific guidance to allow states to encourage private

- sector undertaking or catalyzing the installation of residential energy efficiency measures;

• Provide details in 111(d) guidance on speci fics of crediting and enforcement mechanisms and program implementation models that would be acceptable from an EPA perspective for purposes of meeting compliance requirements; and

• Support the creation of energy efficiency registries to ensure that the car bon dioxide emission reductions from energy efficiency measures is first registered and then retired (i.e. is not counted twice.) Presumably, such a registry will be necessary for the savings that result from ratepayer funded programs; we ask that the regi stry be designed to register and retire savings from all recognized sources, not only ratepayer

- funded programs.

Comment 8 : Comments suggesting the EPA should clarify how REC trading works between
states.
Response 8 : In the final rule, quantified and veri fied MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or out side the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines, the54 MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, th e accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see s ection VIII.K.1 of the preamble to the final rule . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, and a discussion of addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the preamble to the final rule . Section VIII.K.3 of the preamble to the final rule describes the requirements a nd criteria related to proper quantification and verification of MWhs from renewable electricity generation.

The following are summaries of the specific public comments under this comment:

Commenters believe d the rule should provide more specific details o n how REC trading and crediting would work between states. C ommenters stated that the proposed rule is unclear as to how EPA will credit RE generation. Commenters asserted the proposed rule only treats RE and EE by requiring the quantification of CO 2 reduc tions, but does not clearly explain how RECs will be treated. Commenters urged that it is unclear whether a state can comply through long

term power purchase agreements of out

- state

- power or RECs.

Several commenters stated that EPA should issue clear and certain crediting guidelines to reduce uncertainty, avoid double

- counting, and avoid conflict between states regarding how renewable energy generation should be allocated. Commenter s stated that EPA's approach should reinforce incentives for states to full y leverage their programmatic and regulatory tools (e.g., tax credits; codes and standards), and for utilities and their regulators to be willing to invest ratepayer dollars in RE measures and projects. Commenters specifically wanted to know which state would get credit for renewable generation, for instance, if a renewable generator in one state sells RECs out of state, or if RE is generated outside of a state but meets in

- state purchase agreements. Commenters stat ed the proposal is uncertain as to whether EPA will only approve state plans that allow for the interstate transfer of renewable attributes, or whether states may develop plans that mandate that the environmental attributes of renewable generation within t he state be used for that state's compliance. Commenters stated that it is unclear whether a developer that owns the55 RECs from a project located in the state has the ability to sell them outside of the state and whether or not the RECs would count solely f or projects located within the state. Commenters questioned how renewable resources will be treated if those resources are used for RPS requirements in another state and if the RPS is part of the other State's compliance plan (State Plan)

. Commenters spec ifically asked about the case of a multi

- state power company, and whether the power company which owns or purchases the renewable energy would be able to choose which state receives credit. Commenters specifically requested that EPA mandate that each SIP p ermit the use of RECs from out of state

. Commenters expressed concerns that the proposed rule does not tell states to cooperate in the use, purchase, or sale of RECs, which may result in some states keeping all RECs generated in the state. Commenters spe cifically requested that EPA allow excess renewable generation or credits to be sold to utilities in other
states. Commenters were also concerned that the uncertainties in the rule, as written, would subject retail electric providers to enforcement by th e EPA and citizen lawsuits.

Commenters made multiple recommendations regarding the accounting of and treatment of credits for renewable energy. Commenters noted that the state limits were based assuming the renewable energy generated in a particular state would get the full credit for that generation. If a state that receives the renewable energy gets to claim credit for it, Commenters believed they would also have to claim the CO 2 from fossil fueled units designated to generate power for that
state. C omme nters also believe d the simplest approach is for states to claim all of the renewable energy within their borders and the CO 2 produced within their state regardless of the ownership of the energy. Commenters argued that allowing states to use renewable ene rgy generated in other states for compliance could place significant compliance burdens on states that have historically been the source of renewable generation but are not large consumers of this generation; specifically, a generating state may not be abl e to benefit from renewable energy generation it incentivized. Commenters requested that EPA should provide guidance clarifying that unless a contract specifies that the environmental attributes of a REC follows the purchaser, the compliance credit under 1 11(d) stays with the generating state.

Commenters suggested that credits be issued for all avoided carbon emissions resulting from state measures, regardless of where the avoided emissions occurred. C ommenters noted that because the tradable credit system would be limited to affected EGUs, use of credits by these entities when complying with rate

- based emission limits would apply the avoided carbon emissions to the state that was responsible for the me asure. Commenters recommended that EPA consider renewable resources on a load served basis for credit rather than based on geography. Commenters referred to Washington State's Energy Independence Act (RCW 19.285), which allows utilities to purchase renewa ble resources or RECs from out of state to comply. Commenters reiterated that the decision should be based on REC ownership to avoid double counting between states wherever RECs and electricity are not in the same place

. C ommenters recommended that EPA pro vide states direction on determining REC ownership and that such ownership be tracked in REC accounting systems.

Commenters argued that entities that own out of state RECs should get credit for those RECs in the states in which they are headquartered in o rder to ensure that the entity that invested in the RE asset receives the value of that asset . C ommenters expressed doubt that multi

- state compliance arrangements are a feasible means for utilities to receive credit for out of state RECs. Commenters assert ed that allowing purchases of credits from out of state will broaden the market56 of renewable resources and encourage construction of new projects

. Commenters wanted that limiting the transfer of renewable attributes within state boundaries would hold renew able generation captive within state lines and be disruptive to wholesale renewable markets and power producers.

Commenters stated that the rule should require that compliance credit goes to the states where the purchasers of renewable energy generation or credits reside, whether the state plan is mass

based or rate

- based. Commenters stated that credit for RE should follow the renewable funding source (e.g., energy certificates (RECs) obtained from those resources and/or power purchase instruments that di rectly led to the development or continued operation of those resources.) Commenter s stated that EPA should include a mechanism to insure that ratepayer investments accrue to their goals, similar to how RECs apply today. Commenter s stated that for the smal l number of RE generation projects for which ownership of the environmental attributes are not apparent from the contract or REC, the EPA should clarify that the off

- taker of the energy from such projects is entitled to claim credit for the emission reduct ions attributable to the project.

Commenters urged that a state should be able to take credit for reductions provided that RECs are the required tracking mechanism and that RECs are not counted for multiple states' 111(d) compliance (e.g. in multiple stat e RPSs), under multiple state programs within a state plan, or by multiple compliance entities within a state. Commenter s stated that EPA should strongly encourage states to use an environmental attribute accounting system when demonstrating that the zero

- carbon attributes of that RE are dedicated to that state. Commenters stated that REC programs that allow a utility to allocate RECs to states should be used to determine which state gets credit for the renewable energy generation in its compliance calcula tion. Commenters also specified that any state wishing to use renewable energy MWhs to demonstrate compliance should establish an environmental attribute credit accounting system wherein the state where that credit is ultimately retired is the state able t o count the credit towards demonstration of compliance.

Several commenters also supported applying the credit only to the state where the REC is retired

. C ommenters reiterated that it is the consumption and not the generation of renewable electricity tha t qualifies for 111(d) compliance credit. Commenters asserted that RECs represent all the environmental attributes associated with the renewable generation and are the primary mechanism for state RPS compliance, and noted that several states are already de pendent on out

of

- state renewables to meet their RPS. Commenters iterated that states would need to demonstrate to EPA sufficient REC retirement to satisfy the RPS or other measure included in the state plan. Commenters supported a requirement that states set up or participate in accounting systems or registries that will allowing for trading of renewable credits (similar to RECs) to prevent double

- counting of credits. Commenters stated that EPA should retain the authority to find a state out of compliance if the state fails to procure the required number of allowances to cover their emissions.

Commenter s suggested that EPA may want to provide an accounting option for those states that decline to adopt a credit policy so that they can nonetheless use renewa ble power to comply with their target. Commenters stated that a state electing this option should be required to otherwise establish that the environmental attributes associated with the renewable power it uses to demonstrate compliance were not also used by another state.57 Commenters asked whether they w ould be able to receive credit for existing renewable sources to calculate their rate. Commenters also asked what options exist for net

- metering customers and how energy savings (e.g., from rooftop solar) would be credited to the State Plan.

Comment 9 : Co mments regarding the u se of trading systems other than RECs

. Response 9 : In the final rule, to the extent qualifying RE generation measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. The final rule includes general eligibility requirements for

resourc es, including RE resources which can be used to adjust the CO 2 emission rate and specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE, see s ection VIII. K .1 of the final rule preamble of the CPP

. The final rule allows states to participate in interstate trading programs and specifies a unique acceptable unit of trading under a rate

- based approach, the emission rate credit (ERC), a tradable compliance unit representing one MWh of electric generation (or reduced electricity use) wi th zero associated CO 2 emissions. Requirements for
rate

- based emission trading programs, including those related to issuance or ERCs for RE generation and the tracking of ERCs

, is described under section VIII. K.2 of the final rule preamble of the CPP . Sect ion VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings
The following are summaries of the specific public comments under this comment:

Commenters expressed concern that the proposed rule provided little guidance about how states that do not include a REC trading system can account for renewable generation. Commenters provided as an example the use of power purchase agreements (PPAs) for out

- of

- state renewables to satisfy RPS requirements, which leads power producers that own generation in multiple states to use the environmental attributes of generation in one state to help meet RPS obligations in another state, as well policies such as feed

- in tariffs, tax credits, and grants. Commenters asserted that without clear accounting rules from EPA, it could be impossible to distinguish between renewable energy generated in a state due to renewable ene rgy measures implemented by another state, policy measures implemented by the state where generation is located, or non

- policy market reasons. Commenters stated that the RECs associated with these types of power purchase agreements can vary and may lead to REC ownership uncertainty. Commenters suggested that for states choosing not to use a REC tracking system, EPA should establish a default rule that would only allow the state to include renewable energy MWhs in its compliance plan if it can demonstrate th at an entity in that state has submitted credits for those MWhs. Commenters suggested a similar approach for voluntary REC purchases in rate

- based state plans. C ommenters argued that if federal and/or state agencies allow a state to take claiming rights away from a voluntary REC consumer, then the voluntary REC owner would have had its property rights taken without compensation. Commenters disagreed with this appr oach, arguing that this system would fundamentally disrupt the demand and financing for renewable energy projects. For voluntary REC purchases, commenters requested that EPA provide guidance58 similar to California's AB 32 cap and trade program, which retire s emission allowances equivalent to the avoided emissions associated with voluntary REC purchases.

Comment 10 : Comments expressing concerns regarding double

- counting , conflicts between state approaches.

Response 10 : The EPA agrees with commenters that it is important to minimize the risk of double

- counting of emission impacts of measures, particularly across state plans, and has incorporated elements into the rule that seek to minimize it.
For example, s tates have the option to adopt multi

- state plans, f or either rate

- based or mass

based plans, that reflect regional interactions. These plans engage multiple states in the same system for purposes of tracking mass

- based allowances or issuing and trading unique rate

- based Emission Rate Credits (ERCs) as desc ribed below.

Mass

- based plans rely exclusively upon reported stack emissions for determin ing whether a

m ass

- based CO 2 emission goal is achieved and avoids concerns about counting the same mass reductions in two different mass

- based states.

For rate

- based plan compliance, t he final rule specifies a general accounting approach that inherently acts to minimize state rate differences that may influence distortionary investments and ensures that quantified and verified MWh impacts of qualifying zero

- emitting a nd low

emitting resources are applied consistently across all affected EGUs. The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal to better reflect the regional na ture of the grid among other things. C onsisten t with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines q uantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory

. Double

- counting of CO 2 emission reductions is
prev ented, however, because the reported emissions from each unit are represented in the numerator of each of those unit’s emission rates and the method disallows any adjustment to any EGU’s reported emissions. The EPA will work with states using the rate

- base d approach that are interested in allowing the use of RE from outside the U.S. to adjust CO 2 emission rates and documents the necessary conditions in Section VIII.K.1.a.(2)(c).

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of MWh

- denominated ERCs in the rate

- based emission trading framework spec ified in this rule. Th is MWh accounting method creates a crediting system or rate adjustment process that is simpler to implement than one that requires an approximation of avoided CO 2 emissions and indifferent to the rate

- based CO 2 emission goals of indiv idual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards.59 An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy sa vings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state

renewa ble portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in vo luntary markets may interact with ERCs.

The EPA acknowledges in the final rule that there may be interactions between mass

- based and
rate

- based plans regarding counting measures, specifically where measures that provide substitute or avoided generation, su ch as RE and demand

- side EE, are located in a mass

- based state and can also be used by a rate

- based state in meeting the CO 2 performance rates or state goals. The EPA has determined that, in the context of interactions among rate

- based and mass

based plans , there is not explicit double

- counting of the CO 2 emission reductions associated with counting measures located in mass

- based states, considering the accounting methods outlined in this final rule. Though there is no risk of double

- counting emissions, in response to commenter

concern that overall CO 2 emissions reductions would be foregone in situations where a source in
a rate

- based state counts the MWh from measures in a mass

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

- based state

, the EPA is restricting the ability of
rate

- based state to claim emission reduction measures, such as RE and demand

- side EE, located in mass

- based states. In order to avoid cut ting some states off from regional RE supplies that are

assu med in the BSER building block 3 and incorporated in the CO 2 emission performance rates
or state rate

- based CO 2 goals in the emission guidelines , the EPA has determined that it is appropriate for rate

- based states to count MWhs from RE located in mass

- based states, subject to the condition that the generation in question was intended to meet electricity load in a state with
a rate

- based plan

. For a discussion about the elements incorporated into the final rule to minimize double

- coun t ing,

see s ect ion VIII.L of the final rule preamble of the CPP

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP

. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects

, addressing the potential f or interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP

. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to
proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings to avoid overestimation as suggested by commenters . For information about mass

- based emission standards with a market

- based emission budget trading program, see

s ectio n VIII.C. 2 and VIII. J.2 of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Several commenters expressed concern that the proposed rule presents potential for double

counting of emission r eductions resulting in undermining the rule. Commenters stated that compliance and voluntary markets can only ensure environmental and contractual integrity if60 there is a single end

- user or claimant for each specific REC and the emissions and environmental attributes it represents. Commenters added if there is explicit or implicit duplicate ownership claims to a REC for compliance or voluntary purposes the REC is double counted and environmental and contractual integrity is compromised, and its value is lost. Commenters stated that double counting erodes the renewable energy market by eliminating the value of the REC, thereby turning customers away and eliminating a revenue stream for renewable generators; no
one wants

-- or is willing

-- to pay for something they do not get. Commenters requested EPA to explain how its position that RECs would be a potential mechanism for tracking energy savings and emission reductions from RE would prevent double

- counting. Commenters stated that if EPA finalizes the proposal based on a state's generation, the use of RECs will increase the chance for double counting of emission reductions. Commenters stated that RECs provide a means for renewable portfolio standards established by the states to be used as enforceable mechanisms as part of compliance plans. Commenters recommended that EPA set the renewable energy goal portion of the BSER based on retail sales of electricity, stating that this would reduce any potential for states to double count emission reductions.

Commenters also noted that "EPA should adopt measures that address the proper accounting for all imports and exports of electricity, not merely the special cases of imports an d exports associated with renewable energy and energy efficiency. The potential for double

- counting exists for all such transactions."

Commenters expressed concerns regarding double

- counting that could arise in regional trading agreements that include bot h rate

- based and mass

- based approaches. Commenters expressed that since state rates and masses under the Proposed Rule include only in

- state generation from affected EGUs, imported and exported generation as well as renewable energy generation are not refl ected in state rates; as such, Commenters asserted that while state masses will automatically reflect the emissions impact of imported generation and renewable energy generation (both in

state and imported), rate

- based states could need to make manual adju stments for reductions from RE (e.g., claims for out

- of

- state reductions from RPS programs) that would result in double

- counting. Commenters also argued that trading of RE between states using the same reporting method (i.e. rate

- to

- rate or mass

- to

- mass tr ading of RE or RECs) could result in double counting of avoided emissions between the Clean Power Plan and state compliance markets for RE (RPS programs) and/or the voluntary RE market wherever RECs (which convey avoided emissions as the compliance mechani sm used in state RPSs and also as the currency for the voluntary market) and displaced generation (that is counted as avoided emissions under 111(d)) are not in the same state.

Commenters stated that EPA should provide guidance regarding the requirements for RECs and adjustments to rates and masses to avoid double counting. Commenters recommended that EPA provide the states with a template or checklist containing all the required components for plans that rely on interstate trading to comply with the rates

. Commenters asserted that states using
rate

- based systems must be required to track RE megawatt

- hours (MWh) to avoid emissions from a single RE MWh being applied under multiple state mechanisms/programs. Commenter s asserted that adjustments to rates cause d by renewable energy must be limited to renewable energy generation that has avoided emissions at affected EGUs, that has not been double counted, and that was included in the state plan.61 Several commenters supported the use of RECs, with standards for s tate verification set by the EPA, to avoid double

- counting. Commenters argued that RECs are the best way to track and account for RE and therefore are the best way to avoid double

- counting. Commenters stated that EPA should provide that no adjustments be m ade to rates for renewable energy without RECs and for renewable energy not included in a state plan. Commenters argued that the RECs presented to the state for compliance should be either associated with the interconnect region (Eastern, Western or ERCOT) served by the utility, or should include documentation that ensures that the RECs are properly associated with power transferred from one interconnect to the other. Commenters asked that EPA clarify that it will require an upward adjustment to masses for renewables without RECs (e.g., power that is imported without the RECs and in

- state renewable generation where RECs are sold out of state) and for renewable energy not included in a state plan, unless the state can demonstrate that the renewable energy is not affecting the mass. Commenters stated that the zero

- carbon generation underlying a REC may vary in the extent to which it results in actual aggregate emissions reductions. Commenters explained that the EPA cannot simply rely on RECs as a surrogate for those reductions. Commenters also proposed that all RECs used for compliance be valued based upon the carbon emissions they avoid.

Commenters noted that there may not be a need for evaluation, monitoring and verification (EM&V) and tracking of every MWh of RE or EE savings included in a mass

- based plan to prevent double counting, while c ommenters asked that EPA clarify that adjustments will still be necessary under a mass

- based approach to address interstate effects. Commenters urged that EPA must also require mass

- based multi

- state regions to make similar adjustments as mass

based states. Commenters provided as an example an instance where RGGI states may submit a multi

- state, mass

- based plan , and noted there is trading of elec tricity between RGGI and surrounding non

- RGGI states, which could result in double counting unless the RGGI states adjust their mass.

Commenters questioned the proposed suggestion that a mass

- based state could adjust the overall CO 2 emissions to account f or the "export" of avoided CO 2 emission credits

. Commenters argued that RE and EE benefits are automatically accounted for under a mass

- based program, which rends it impossible to unravel the location and type of fossil fuel

- fired generation the specific unit of RE or EE has displaced. Commenters noted that any adjustment to overall CO 2 emissions from a mass

- based state's fleet would be derived from an arbitrary assumption because the state could not artificially subtract the RE or EE benefit from its comp liance demonstration. To address this issue, commenters recommended that EPA prohibit rate

- based states from taking credit for renewable generation that is already accounted for under the cap of a mass

- based state, or develop an alternative approach that a ddresses the issue.

Commenters stated that whether a state adopts a mass

- based or rate

- based program should not make a difference as long as the associated REC is retired appropriately, with the use of REC tracking systems. Commenters recommended that for states utilizing a mass

- based approach, EPA should require the state to monitor its net energy imports over the compliance period of the proposed rule. Commenters noted that if a state realizes a significant increase in net imports relative to its consump tion, then EPA could require an analysis of the cause of the imports to ensure that the state is not implicitly crediting RE and/or EE measures adopted by another state. Commenters reiterated that a state should also require utilities to provide evidence, and evaluate62 outside evidence, to reasonably estimate the amount of actual power from renewable energy resources that was actually delivered to the utility system and used.

Commenters argued that rate

- based systems could create the potential for "seams co nflicts" with

mass

- based systems ; specifically, c ommenters argued that states within a single RTO using these different systems could meet their emissions goals by shifting generation from the mass

- based state to the rate

- based state, instead of reducing e missions. Commenters provided as an example that coal plants in a rate

- based system that rely on heat

- rate improvements could be dispatched before (rather than after) lower emitting natural gas units in a mass

- based system, because the production incentive s in the rate

- based state enable those units to lower their dispatch bids.

Commenters stated EPA's final rule

- or, at a minimum, formal guidance to states

- should include rules governing how states may account for interstate trades of zero

- carbon credit s and allowances to avoid double

- counting. Commenters provided a set of rules that EPA could include in the final rules to ensure that mass

- and rate

- based states alike can use trading to respond more nimbly to evolving market conditions, and can harness R PS and CO 2 allowance programs to this end: (1) when a CO 2 allowance is sold from a mass

- based state, the pool of available allowances in that state is reduced, and generators in that state thus must reduce their emissions by one ton: the buyer state may de duct one ton of carbon from the numerator of its compliance function (if it has a rate

- based system) or may emit one more ton of carbon (if it has

a mass

- based system); (2) when a zero

- carbon credit is sold from a rate

- based state, that state may not take credit for the underlying zero

- carbon generation, so as to avoid double

- counting: the buyer state may deduct 0.5 ton of carbon from the numerator of its compliance function (if it has a rate

- based system) or may emit another 0.5 ton of carbon (if it has a mass

- based system); (3) zero

- carbon credits issued in mass

- based states that use CO 2 allowances may not be used for compliance in any other state: using these credits for compliance outside their state of origin would necessarily result in double

- counting of the emissions

- reduction benefit, for the underlying zero

- carbon generation would automatically "count" towards that state's mass

- based emissions goal simply by not emitting carbon and not requiring the purchase of allowances; (4) when a zero

- carbon cred it is sold from a mass

- based state that does not use allowances, that state must reduce its emissions budget by 0.5 ton, so as to avoid double

- counting: the buyer state may deduct 0.5 ton of carbon from the numerator of its compliance function (if it has a rate

- based system) or may emit another 0.5 ton of carbon (if it has a mass

- based system). Commenters also provided 8 accounting rules designed to count each emission reduction once and only once: 1) when a mass

- based state sells a CO 2 allowance, the selli ng state's generators must reduce their emissions by one ton; 2) when a mass

- based state buys a CO 2 allowance, the buying state's generators may emit one more ton of carbon; 3) when a rate

- based state buys a CO 2 allowance, the buying state may deduct one t on of carbon from the numerator of its compliance calculation; 4) when a rate

- based state sells a REC, the selling state may not take credit for the REC or the underlying zero

- carbon generation; 5) when a mass

- based state that does not use allowances sells a REC, the selling state must reduce its emissions budget by 0.5 tons (assuming that the mass value of a REC is 0.5 tons of CO 2 ); 6) a mass

- based state that uses allowances may not sell a REC to be used for Clean Power Plan compliance in another state; 7) When a rate

- based state buys a REC, it may deduct 0.5 tons of carbon from the numerator of its compliance calculation (assuming that the mass value of a REC is 0.5 tons of CO 2 ); and 8) when a mass

- based state buys a REC, its generators may emit another 0.5 tons of carbon (assuming that the mass value of a REC is 0.5 tons of CO 2 ).63 Commenters suggested that EPA provide clear and effective guidance regarding double

- counting and how EPA will address complications that arise due to differences between state programs, regardless of the approach chosen to address interstate effects. Commenters requested that EPA address how to handle w hen one state implements an RE program through an RPS, but the actual reduction of emissions occurs in another state. Commenters stated that the proposal appears to presuppose that states will either agree on how to proportion credit for RE reductions or t hat RE emission reductions for compliance will not be used where states cannot agree on distribution and the reduction may be double

- counted. Commenters stated that this approach could increase compliance costs by rendering certain reductions unusable. Com menters inquired what requirements EPA would include to discourage double

- counting and whether the requirements would interfere with existing markets or contracts.

Commenters differentiated between duplication and double

- counting. Commenters stated that i f both states include the same generation (individual MWh) and resulting reductions in their state plans, then this is duplicative, but if both states report the same reductions in their emissions performance, then that is double counting. Commenters encou raged EPA to differentiate between double

- counting and double

- claiming. Commenters defined double claiming as an instance when two or more states (or entities within a state) take credit for having been responsible for a single RE/EE investment (e.g., a st ate or entity that compels an RE investment in another state could claim the investment, while the state where the renewable energy is built will try to claim responsibility for the same action). In contrast, commenters cited double counting as occurring w hen the marginal emissions reductions reduced on the power grid (as estimated by dispatch modeling or AVERT) indicate that the emissions reduced as a result of the RE/EE investment occur outside the state that credits the RE generation towards its complian ce goal. Commenters argued that EPA's proposed treatment of RE addresses double claiming but not double counting, making it highly likely that more than one state will take credit for emissions reduced. Commenters further argued that EPA's proposed treatme nt of EE addresses only double counting, and does not acknowledge the potential for double claiming that can happen within a state. Commenters stated that EPA should adequately address double

- claiming through default rules and guidance: in the case of rene wable energy, commenters recommended the state (or entity) that purchases the RE and/or the RE attribute should be able to take credit for the resulting emissions reductions. Commenters also recommended that in the case of EE, the credit be granted to the utility or to a government entity that offers incentives for the EE investment, or if there are no incentives, the private sector investor could keep the credit. Commenters further noted that double

- claiming could be accounted for through the use of rules and tracking systems. Commenters urged that a federal rule could clarify that the state that compels an RE investment in another state should get credit for it (and not the state where the clean energy is built, if different), or the rules could be applied at the state level to allocate EE emissions reductions between a utility energy efficiency program and an ESCO. Alternatively, commenters suggested that a tracking system such as MRETS could ensure that credits are only claimed once.

To avoid double

- counting, commenters recommended that RE and EE in a jurisdiction without any affected EGUs (where those measures have not otherwise been accounted for) should be able to be credited to another state (e.g., through a multi

- state plan or agreement). Commenters also suggested prohibiting rate

- based states from taking credit for RE or EE that is already accounted for under a mass

- based program in another state or multi

- state group.64 Commenters stated that EPA should attempt to prevent double counting of renewable energy before it occurs by cross

- referencing state plans to check for double

- counting and duplicative standards, and accounting for expected interstate impacts of RE when reviewing and approving plans. Commenters noted that EPA can jointly asses s state plans and use regional modeling to identify potential double

- counting. Commenters also pointed out that double counting between states due to rate

- and mass

- based compliance interstate effects could be avoided by using RECs in combination with EPA' s cross

- refere nce of state plans. Commenters recommended that EPA could avoid double

- counting by providing guidance on EM&V methodologies that would be acceptable for states to demonstrate and take credit for emissions reductions achieved by EE and RE prog rams.
Commenters suggested that EPA consider a multi

- state modeling approach to avoid double

counting, which would seek to recognize emissions reductions expected from EE/RE investments across all region, allowing all such investments to count towards com pliance. Commenters described the approach as follows: states in a region would model all of planned EE/RE investments together, and determine the resulting marginal emissions reductions in each state; each state would then assign an emissions reduction va lue for each kWh of clean energy investment assumed in the state. Commenters noted that to demonstrate compliance, each kWh of EE/RE would earn emissions reductions at the in

- state rate. Commenters asserted that although states would need to collaborate on modeling, they would not need to rely on each other for compliance. Additionally, Commenters asserted that this approach would capture all the emissions reductions from planned activities in the region that occur in each state, offering more credit than w hat would occur only through in

- state investments.

Commenters did not consider there to be significant double

- counting concerns. Commenters noted that although the generating units displaced by RE generation may not always be in the same state that implem ents the RE measure or where the RE is physically located, the displacement results in a reduction of mass emission, but not a reduction of the unit's emission rate. Commenters asserted that unless the displaced unit also takes credit for the RE generation

, the reduced dispatch does not help the unit meet its emission rate target. Commenters did not consider displaced generation and the generation of RECs to be double

- counting. Commenters also acknowledged that there may be modest effects on the overall emi ssion rate on the state level due to the displacement, but pointed out that the proposed approach to exclude peaking plants from the BSER rate would mean that displacement of peaking turbines would not change the state's emission rate; commenters disagreed with this exclusion. Commenters further noted that as long as all states involved in an exchange use rate

- based plans, or all states within the same ISO or RTO adopted a mass

- based system, there would be no double

- counting concerns provided EPA adopts ann ual "true

- up" procedures. Commenters noted that for certain states without their own emission reduction targets, double

- counting is not a concern. Commenters argued that it is not necessary to ensure against double

- counting of out

- of

- state RE, due to the
p resence of regional tracking systems already in place which would account for the RE produced to support compliance with state goals.

Some commenters Commenters (22768, 23450) asserted that EPA's Proposed Guidelines would impose unfair or unequal obligati ons or engender conflict among the states. One commenter Commenters (22768) argued that EPA has proposed conflicting approaches to crediting RE and EE reductions and for the treatment of individual state vs. multi

- state plans. The commenter65 Commenters (227 68) provided as an example the difference between the proposed approach for states to take into account all RE measures implemented for purposes of compliance with a RPS (regardless of whether the RE is generated in

- state or out

- of

- state) and the proposed approach to limit credit for EE

- related emission reductions to in

- state activities only. The commenter Commenters (22768) argued that the proposed rules are overly simplistic and, as proposed, would create serious problems for states. Another commenter (23 450) expressed concerns that states may have significantly different proposed carbon intensity goals and other unique characteristics, which would impose unworkable interstate compliance demonstration and recordkeeping obligations on utilities.; the commen ter Commenters specifically noted that utilities with regional territory or ownership crossing the state lines of New Mexico, Texas, and Arizona could result in impossible compliance demonstration.

Commenters expressed concern that any trading system must be designed to ensure double counting is avoided , and that adequate safe guards are in place to verify that purchased RECs do ultimately displace fossil fuel

- fired emissions in the United States. Commenters noted that if participation is expanded across na tional borders such that the EPA allows use of RECs generated outside of the United States for compliance, then the EPA should require such agreements be tied to delivery of the associated electricity into the United States for displacement of domestic fos sil fuel

- fired generation.

Comment 11 : Comments requesting clarification on how to address unbundled RECs.
Response 11 : In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or dema nd

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines, the MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts req uiring explicit adjustments, the accounting method corresponds with the use of unique MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation from a qualifying measure, such as a renewable energy certificate (REC), whether bundled or unbundled . An ERC may be issued, however, based on the same data and verification requirements used by existing RE C tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existin g instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eli gibility requirements for resources that can be used66 to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP . Requirements for rate

- based emission tra ding programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, and a discussion of addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation. For additional information regarding how the final rule explic itly addresses double

- counting concerns through the MWh accounting approach and the allowance of multi

- state plans, see section VIII.L of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Co mmenters stated that the proposal fails to adequately consider unbundled RECs. Commenters urged that because the proposal does not distinguish between unbundled RECs and the typically bundled RECs, significant double

- counting issues could occur. Commenters noted that the existing REC trading system allows for RECs to be sold separately from the underlying MWh of renewable energy generated ("unbundled"), resulting in remaining MWh of "null power" that may be consumed by customers on the grid in the form of m ore carbon

- intensive energy sources. Commenters also noted that unbundled RECs may be generated when the utility to which the resource is interconnected has elected not to purchase the REC; specifically, they noted that the Public Utilities Regulatory Poli cy Act ("PURPA") requires utilities to purchase the output from small renewable energy generators, called qualifying facilities ("QFs"), but that the Federal Energy Regulatory Commission allows that a sale of this nature does not necessarily encompass RECs . Therefore, c ommenters asserted that RECs generated by a QF do not always transfer to the utility even though the utility purchases the power, which could create a possible double

counting situation if the interconnected utility tries to take credit for t he null power. Commenters also noted that many net metering customers are not required to transfer the RECs generated by their systems to the utility. Commenters stated that compliance would be complicated based on the ownership of unbundled RECs by entiti es such as independent power productions that are not regulated by state utility commissions. Commenters noted that the proposed rule is unclear on its intent regarding the treatment of these renewable energy attributes and is ambiguous on how states may c ount the bundled or unbundled RECs for compliance. Commenters reiterated that an implementing state or entity should be able to claim the environmental attributes of purchased renewable electricity from out

- of

- state generation, regardless of where it occur s, in its state compliance plan. Commenters requested that EPA provide clarification on which state retains the ability to claim emission reductions attributable to RE and RECs on a bundled or unbundled basis and how states should avoid double counting in instances in which one state claims credit for emissions reductions caused by renewable generation and another state that holds the environmental attributes of the same energy also claims credit.

Commenters requested that EPA limit double

- counting by ensu ring that the carbon

- free attributes and the energy itself are not separated (i.e., EPA should only allow bundled RECs). C ommenters argued that a bundled REC follows the proposed idea that limits credit of RE to states that actually consume the electricity

. Commenters recommended that EPA not allow stand

- alone (decoupled) Renewable Energy Certificates (REC's) to fulfill the proposed state goals, but instead evaluate the energy that is actually delivered to the utility or state claiming67 credit for those emis sions reductions. Commenters argued that allowing REC's that are not combined with actual energy delivery would allow already over

- performing states to monetize already existing or planned renewable energy generation with limited additional reductions in

c arbon dioxide emissions. Commenters asserted that companies that are already purchasing RE from out

- of

- region and receiving the RECs associated should be credited for those purchases. Commenters requested that where RECs and electricity are bundled, the co ntract for purchase of the RECs should accompany the purchase of the electricity to ensure that multiple parties are not using the same MWh of renewable energy generation to comply with their RPS obligations.

Commenters recommended that EPA specify that P PAs, where RECs are tied to electricity consumed, should be included as a compliance option for Section 111(d) state compliance plans. C ommenters also requested that EPA 1) clarify that a generating state is not permitted to avoid emissions if the RECs are sold to another state, separate from null power, for RE generating capacity, and 2) assign an attribute profile for null power (i.e., an average or marginal grid emission value minus the renewable attributes for the purpose of calculating emissions from t his null power). Commenters cautioned against using RECs as a form of emission offsets for which they were never intended.

Commenters argued that EPA should not constrain states as to whether credits are bundled with electric power or not, but should leav e the option to the market and individual states. Commenters contended that such decisions should be left to the market and individual state policies and that states should allow private actors to freely contract for environmental attribute credits associa ted with renewable power separate from the power itself, letting the market determine the best use of the attribute. Commenters also requested that EPA not disaggregate avoided emissions from RECs for 111(d) compliance. Commenters stated that disaggregating avoided emissions would 1) not avoid the need for tracking such emissions, 2) disrupt RPSs if the RPS could not claim the full benefit of the avoided emissions, 3) limit the use of RPSs for 111(d) where the RPS currently allows u nbundled RECs, and 4) increase the costs of compliance for states which would have to pay for avoided emissions that are currently separate from the REC. Commenters asserted that both RECs and the carbon reduction attributes of RE are distinct from the ele ctricity and should be separately traded; Commenters stated that the REC should be able to be used to comply with a utility's RPS obligation as well as for purposes of compliance with CAA section 111(d). Commenters asserted that allowing unbundled GHG attr ibutes is consistent with current state renewable programs which allow interstate movement of renewable or environmental attributes to meet supply and demand, and would allow states to develop their compliance strategy through a diverse mix of renewables t hat is not dependent on state

- specific renewable resources. Commenters further argued that allowing unbundled environmental attributes would foster more efficient and robust GHG emission reductions and lead to lower costs, less regulatory burden, and great er technological innovation.

C ommenters argued that restrictions or prohibitions on imports and exports, including any requirement that those attributes be bundled with the electricity itself, would have unintended consequences for both individual states and states participating in multi

- state arrangements, including artificial price signals and other barriers. Commenters asserted that any federal limits on the interstate flow of renewable attributes would skew in favor of a small subset of renewable techn ologies, decrease cost

- effectiveness, and decrease flexibility to the states. Commenters requested that EPA encourage states to establish broad markets beyond geopolitical or NERC68 grid regions and work with ISOs to help align the various generation attribu te tracking systems with each other and properly track RECs.

Commenters noted that EPA should require the continued use of tracking systems for these environmental attributes, which are already used to support state RPS programs, for compliance
purposes. Commenters argued against the creation of a new credit system for trading low

- carbon attributes; Commenters urged that the RE and low carbon attributes significantly overlap, and a separate tracking system for each is unnecessary. Commenters reiterated tha t in markets where RECs and electricity are sold separately, the REC should only be retired once and used to satisfy one state's RPS compliance requirement. Commenters urged that if a state does not use a tracking system for environmental attributes, the s tate should only be allowed to include renewable energy MWhs in its compliance plan if it can demonstrate entities in the state have submitted environmental attribute credits for them.

Comment 12 : Comments regarding l evels of credit.

Response 12 : In the final rule, to the extent qualifying RE generation and demand

- side energy efficiency measures are tied to a state plan, the q u antified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. It is not necessary to determine the emission impacts of the MWhs as they will be reflected in the reported stack CO 2 emissions of affected EGUs. The M Wh accounting method addresses interstate effects, because it inherently accounts for how generation replacement and CO 2 emission reduction impacts may cross state borders and is indifferent to avoided CO 2 emission rates; it creates the same number of zero

- emitting credits or adjustment for each MWh of energy generation or savings, wherever they occur. Details regarding the accounting approach for adjusting CO 2 emission rate is included in Section VIII. K .1 of the final rule preamble of the CPP

. A full discu ssion of treatment of interstate effects under the final guidelines is included in Section VIII.L of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commenter s suggested that different l evels of credit should be awarded to RE and EE resource types based on each resource type's output profile and the region to which its generation is physically delivered, during both the plan approval and the compliance phase. Commenters stated that carbon emission reductions provided by RE and EE vary significantly depending on the time and location in which the resource is delivered. Commenters requested that the impact of location and time of production on emissions reductions should be accounted for, us ing either emissions calculation tools (such as AVERT) or standardized regional estimates. Commenter s further requested that in the process of retiring a REC in the compliance phase, states should be required to demonstrate the type and region of the resou rces that produced the REC.

Comment 13 : Treatment of RECs for distributed generation

.69 Response 13: See section VIII.L of the final preamble to the CPP for the response to this
comment.
The following are summaries of the specific public comments under this comment :

Commenters asserted that the EPA must address cases where a load

- serving utility treats distributed generation as a load

- side resource and adjusts load forecasts to reflect anticipated growth in customer

- sited generation. Commenters stated th at if a utility adjusts load forecasts to reflect anticipated growth, it should not count the full capacity

- based generation under Building Block 3, otherwise the generation would be double

- counted.

Comment 14 : Comments that the EPA should not impose re strictions on RECs/REC markets.

Response 14 : In the final rule, t he MWh accounting method corresponds with the use of Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. The accounting method is consistent with the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals in the final rule, requires a quantification and verification of the MWh generated or avoided by an eligible measure, and thus Emission Rate Credits (ERCs) or adjustments are denominated in MWh.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC) or an energy efficiency credit (EEC). An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy effici ency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages but does not require the states to consider, when developing their state plan, how existing instruments that are used to meet other re gulatory requirements or in voluntary markets may interact with ERCs and if they want to amend their policies in some way to reflect their priorities and circumstances

. The final rule also describes a wide variety of ERC providers or entities implementing EE/RE programs or projects that could potentially be issued ERCs provided that the measures meet the eligibility requirements described in Section VIII.K.1 of the final rule preamble of the CPP and the measurement and verification requirements in Section VIII.K.3 of the final rule preamble of the CPP

. For more information about the requirements for ERC issuance related to rate

- based emission trading approaches and ERC providers, see Section VIII.K.2 of the final rule preamble of the CPP

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, address ing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP . Section70 VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to
proper ex p ost quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings

The following are summaries of the specific public comment s under this comment:

Several commenters expressed that EPA should not impose restriction s on the form of credits or interrupt existing markets. Commenters noted that although some state RPSs require that electricity from qualifying renewable energy sources be produced or delivered within the state or a specified grid region, EPA should not im pose these restrictions. Commenters also requested that EPA not dictate the form of the credit, but allow states to use renewable energy generated as part of a new or existing RPS program, as part of the voluntary renewable energy market, or as separate cr edits developed specifically as part of a state plan. Commenter s describ ed their vision of the accounting framework, stated that the environmental attributes would start with the RE generator for each unit of RE generated and then the environmental attribu tes could then be transferred using any instrument consistent with the law of the state where the generator was located. Commenters provided some examples of how instruments could be structured, including bundled with power in a bilateral contract; unbundl ed and sold separately from power; kept and retired by the owner of the renewable facility (such as if that owner were a utility or also owned EGUs); transferred or sold as part of a net metering agreement for distributed renewable generation. Commenters a sserted that EPA should not dictate the form of acceptable environmental attribute credits. Commenters requested that EPA not promulgate any restrictions on the fungibility of allowances in regional credit markets (such as in RGGI), even if it means that the total allowances held by affected units with one state might exceed the individual state budget; Commenters asserted that EPA must apply an emissions cap to all of the states included in the plan. Commenters argued that a state plan that claims the cre dit for all in

- state renewable energy generation would invalidate existing contracts that have already transferred all environmental attributes out

- of

- state, introducing significant uncertainty into the marketplace. Commenters requested that EPA should mak e clear that state plans do not alter current contractual agreements between renewable energy project developers and purchasers of power and/or environmental credits. Commenters urged that a final rule should encourage new markets and avoid disrupting curr ent and expanding interstate markets, including the cross

- border sale of renewable energy and attributes.

Commenters noted that in some cases, load

- serving utilities do not receive RECs from customer

sited generation (e.g., rooftop solar panels). Commenter s stated that depending on the states, RECs may be transferred to a utility without any additional payment, the REC may be transferred to the utility only if it has offered an incentive to the customer, or the REC may be retained by the customer. Commenter s stated that in order to avoid double

- counting, utilities or states may need to amend rules or laws to take possession of the RECs.

Comment 15 : Comments suggesting that EPA p rovide option s for cooperatives to sell credits for RE.71 Response 15 : In the final rule, the MWh accounting method corresponds with the use of Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. The final rule includes requirements specific to rate

- based emission trading programs that states must include in their plan to ensure the integrity of a rate

- based approach that includes an emission trading program. These requirements include, among other things, provisions for issuance of ERCs by the state and/or its designated agent. Th e final rule also describes a wide variety of ERC providers or entities implementing EE/RE programs or projects that could potentially be issued ERCs provided that the measures meet the eligibility requirements described in s ection VIII.K.1 of the final ru le preamble of the CPP and the measurement and verification requirements in s ection VIII.K.3. For more information about the requirements for ERC issuance related to rate

- based emission trading approaches and ERC providers , see s ection VIII.K.2 of the fina l rule preamble

. The following are summaries of the specific public comments under this comment:

Commenters suggested that the EPA develop a rule option that specifically lays out the opportunity for cooperatives to sell credits that would encourage cooperatives to transition to renewable energy sources. Commenters urged that cooperatives provide electric service to much of rural America.

Comment 16 : Comments suggesting the f inal rule should assign RECs to IPPs to credit shutdown of EGUs.

Response 16 : Consistent with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, quantifie d and verified MWh impacts of qualifying zero

emitting and low

- emitting resources that substitute for or avoid generation from an affected EGU and are tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission
rate

. The accounting approach requires a quantification of the MWh generated or avoided by an eligible measure, and thus Emission R ate Credits (ERCs) or adjustments are denominated in MWh.
A rate based trading program would provide for the implementation and en forcement of rate based emission standards for a state plan that allows its affected EGUs to adjust a rate by the use of an ERC . For states that choose a rate

- based emission trading program, t he EPA is finalizing requirements specific to the program a stat e mus document including: provisions for issuance of ERCs by the state and/or its designated agent; provisions for tracking ERCs, from issuance through submission for compliance; and the administrative process for submission of ERCs by the owner or operato r of an affected EGU to the state, in order to adjust its reported CO 2 emission rate when demonstrating compliance with a rate

- based emission standard. These requirements must be submitted for inclusion in the federally enforceable plan, per t h e statutory requirement that states provide for the implementation and enforcement of emission standards

. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a re newable energy certificate (REC) or an energy efficiency credit (EEC). The EPA is aware of the potential for interactions72 between ERCs and RECs or EECs and encourages but does not require the states to consider, when developing their state plan, how existi ng instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs

. If a state wants to include in their state plan the planned retirement of an individual affected EGU, the retirement could be codified in the state plan by adopting an emission standard of 0 CO 2 lb/MWh as of a certain date. The state would thus include in the state plan an emission standard of 0 CO 2 lb/MWh for that affected EGU that applies after a specified date. The owners of the affected EGUs could apply for ERCs through the appropriate state ERC trading system.

For more information about specific metho ds to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible , see Section VIII.K.1 of the final rule preamble of the CPP . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions betwee n ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MW hs from renewable electricity generation or demand

- side EE savings

. The following are summaries of the specific public comments under this comment:

Commenters stated t h at the final rule should account for a way for independent power producers (IPPs) to be issued a tradable REC for measures such as early shutdown of EGUs or agreements to dispatch an EGU under a state or EPA program. Commenters recommended that these credits, which are needed to meet the early reduction goals of the CPP, should be given direc tly to IPPs, dispatched stations, and regulated utilities. Commenters also requested that if an EGU voluntarily reduces emissions more than required to meet state goals, that EPA track such "overcompliance" to allow EE claims and RECs to be traded across s tates or to be utilized as adjustments to achieve compliance for other states.

Comment 17 : Comments suggesting the proposal d oes not support market

- based plans or cap

and

- trade plans.

Response 17 : EPA disagrees with the comments opposing the use of market

- based plans. As discussed in Section VIII.C of the final rule preamble of the CPP , m any commenters suggested that states should be encouraged to join or form market

- based programs. Many commenters touted the economic efficiency benefits of such approaches, and noted that such programs have features that support electric reliability. The EPA agrees with these comments, and notes that it encouraged such approaches in the proposal. While the EPA is not requiring states to join and/or form regional market

- based programs, we note that such programs can be helpful for many reasons, including features that support reliability. Market

- based programs allow greater flexibility for affected EGUs both in the sho rt

- term and long

- term. Under a market

- based program, affected EGUs have the ability to obtain sufficient allowances or credits to cover their73 emissions in order to comply with their emission standards. Additionally, we continue to encourage states to coope rate regionally. Regional cooperation in planning and reliability assessments is an important tool to meeting system needs in the most cost

- effective, efficient, and reliable way.

The final rule addresses the use of emission budget trading programs, inclu ding provisions required for such programs and the design of such programs in the context of a state plan. This includes program design approaches that ensure achievement of a state mass

- based CO 2 emission goal (or mass

- based CO 2 goal plus new source CO 2 e mission complement) (section VIII.J.2.b), as well as how states can use emission budget trading programs with broader source coverage and other flexibility features , like out

- of

- sector offsets and certain cost containment requirements , such as the programs currently implemented by California and the RGGI participating states (section VIII.J.2.c). Achievement of the state mass

- based CO 2 goal would be determined based solely on stack CO 2 emissions from affected EGUs. Where a state program includes the ability of an affected emission source to use GHG offsets to meet a portion of its allowance compliance obligation, no “credit” is applied to reported CO 2 emissions by the affected EGU. The use of offset allowances or credits in such programs merely allows an affected EGU to emit a ton of CO 2 in the amount of submitted offset allowances or credits. In all cases, there is no adjustment applied to reported stack emissions of CO 2 from an affecte d EGU when determining compliance with its emission limit.

Section VIII.J.2.d addresses other considerations for the design of emission budget trading programs that states may want to consider, such as allowance allocation approaches. Section VIII.J.3 addr esses multi

- state coordination among emission budget trading programs used in states that retain their individual state mass

- based CO 2 goals. The rule also includes in Section VIII.K.2 provisions required for states that choose to implement a market

- based rate

- based trading program to ensure the integrity of the program.

See section V.A of the final rule preamble of the CPP for EPA’s response to the comment's concern that trading programs increase emissions;

The following are summaries of the specific pub lic comments under this comment:

Commenters did not support the use of market

- based trading programs, or cap and trade programs, to account for emissions reductions. Commenters argued that such an approach would not actually prohibit polluters from polluti ng, but would merely require them to purchase the right to pollute more by buying "credits". Commenters also asserted that such an approach would not actually reduce pollution, and that a cap

- and

- trade approach would not drive emission reduction, as it doe s not force large polluters to clean up their emissions. Commenters pointed to a comparison of EPA's Acid Rain Program with European Union and Japan regulatory "command and control" systems as an example of where trading has resulted in lower emissions red uctions that would be acquired by strict regulation.

Commenters further argued that the allowance of offsets is counterproductive to such plans

. Commenters noted that although EPA denies the use of offsets in the proposed rule, it allows states to join e xisting market programs that may already allow for offsets. Commenters argued that by allowing states to join existing markets, these offsets would be introduced into an even74 larger market, including international markets, and therefore EPA would be unable to limit such offsets.

Comment 18 : Comments requesting the EPA establish credit trading systems for EE, similar to RECs.

Response 18 : In the final rule, consistent with the calculation of CO 2 performance rates and state
rate

- based CO 2 goals in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources, tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renew able generation or demand

- side EE savings occur inside or outside the state or territory.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requirin g explicit adjustments, the accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. This MWh accounting method creates a crediting system or rate adjust ment process that is indifferent to the
rate

- based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards.

An ERC represents one MWh of zero

- emitt ing generation and is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs. When demonstrating compliance with a rate

- based standard, an affected EGU would report its CO 2 lb/MWh emission rate to the state regulatory body and would also surrender to the state any ERCs it wishes to use to adjust its reported emission rate.

The EPA received a number of comments from states and stakeholders about the value of the EPA’s support in developing and/or administering tracking systems to support state administration of rate

- based emission trading systems. This could include regional systems and/or a national system. The EPA is exploring options for providing such support and i s conducting an initial scoping assessment of tracking system support needs and functionality.

The EPA acknowledges in the final rule that there may be interactions between mass

- based and
rate

- based plans regarding counting measures, specifically where mea sures that provide substitute or avoided generation, such as RE and demand

- side EE, are located in a mass

- based state and can also be used by a rate

- based state in meeting the CO 2 performance rates or state goals. The EPA has determined that, in the contex t of interactions among rate

- based and mass

based plans, there is not explicit double

- counting of the CO 2 emission reductions associated with counting measures located in mass

- based states, considering the accounting methods outlined in75 this final rule. Th ough there is no risk of double

- counting emissions, in response to commenter concern that overall CO 2 emissions reductions would be foregone in situations where a source in
a rate

- based state counts the MWh from measures in a mass

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

- based state, the EPA is restricting the ability of
rate

- based state to claim emission reduction measures, such as RE and demand

- side EE, located in mass

- based states. In order to avoid cutting some states off from regional RE supplies that are assumed in the BSER building block 3 and incorporated in the CO 2 emission performance rates
or state rate

- based CO 2 goals in the emission guidelines, the EPA has determined that it is appropriate for rate

- based states to count MWhs from RE located in mass

- based states, subject to the condition that the generation in question was intended to meet electricity load in a s tate with
a rate

- based plan.

For a discussion about the elements incorporated into the final rule to minimize double

- counting, see Section VIII.L. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect de mand

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifyin g measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2. Section VIII.K.3 of the rule describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings to avoid overestimation as suggested by commenters. For information about mass

- based emission standards with a market

- based emission budget trading program, see Section VI II.C.2 and VIII. J.2

. The following are summaries of the specific public comments under this comment:

Commenters stated they think the proposal also lack clarity regarding which entities and states would be able to use EE credits, whether interstate trading could be used to comply with the Clean Power Plan, and how out

- of

- state EE would be credited. Commenters disagreed with EPA's approach to EE that would credit only the share of the savings that are expected to reduce emissions at in

- state EGUs. Commenters felt that the EPA's approach would result in EE being considered a less desirable compliance option. Commenters recommended that the EPA allow states to take credit for the full value of the energy efficiency investments with a state.

Several commenters provided comments on accounting and tracking interstate emission reductions due to EE and avoiding double counting. Commenters referred to the option for states to take credit for emission reductions achieved out of state due to in

- state EE, stated that th is option would not result in double counting if it is combined with a clear accounting mechanism. Commenter s stated that EPA should reinforce incentives for states to fully leverage their programmatic and regulatory tools (e.g., tax credits; codes and sta ndards), and for utilities and their regulators to be willing to invest ratepayer dollars in EE measures and projects.

Commenters stated that EPA should craft an accounting protocol for states to take credit for out

of

- state emission reductions due to in

- state EE. Commenters attached a C2ES brief to their comment letter, entitled Cross

- State Electricity Load Reductions Under EPA's Proposed Clean Power Plan (also available at http: //www.c2es.org/publications/ cross

- state

- electricity

- load

reductions

- under

- e pas

- proposed

- clean

- power

- plan). Commenters stated that the brief discusses76 options for claiming credit for emission reductions that occur across state lines. Commenters encouraged EPA to work with states to determine an accounting protocol. Commenters
cont ended that due to these interstate effects, simply measuring emissions and generation within a state may not be enough to show that reductions are being made. Commenters stated that a state may have to demonstrate what steps it took to cut generation to pr event two states claiming credit for the same emission reduction. Commenters stated that making sure there are no inadvertent disincentives will ensure effective efficiency programs that could even exceed EPA's targets.

Commenters stated that states shoul d have the ability to work with one another to determine the best method for accounting of such credits and costs, without having to be in a regional program, ensuring there is no double counting of reductions among states. Commenter s stated that EPA

can a ssist the states through detailed guidance on the ways it considers most effective to identify, allocate and ensure the integrity of EE credits shared among states, but without taking on a more substantive oversight role.

Commenter s recommended the EPA al low states to establish credit

- trading platforms similar to those used for RECs (i.e., NEPOOL, PJM EIS GATS) that enable energy savings to be traded. Commenters also recommended that EPA identify or facilitate an optional standardized credit tracking system for energy savings that states could join if they do not already have a system in place. Commenter s stated that while such an interstate system does not curre ntly exist, a clear signal from EPA that such a system would allow states to take full advantage of low

- cost emission reduction measures from energy savings would likely

facilitate the creation of such a system. Commenters stated that such a system, which states could join at their discretion, would particularly help those states without a tracking system already in place. Commenters stated that this would allow states acting together to take advantage of the lowest cost emission reduction opportunities th rough EE without having to participate in full multi

- state compliance plans. Commenters urged EPA to provide a clear signal of its support for an interstate energy savings trading platform.

Commenters also recommended that EPA build on the existing REC tr acking system concepts to provide verification, tracking, and banking of EE avoided generation in MWh at the national level. Commenter s stated that EPA should consider creating and maintaining its own system of tracking compliance for interstate credits an d trading to ensure appropriate and consistent treatment of compliance actions and avoiding errors in crediting of results.

Commenter s stated that unlike with RE, where there is a risk that a competing claim may be staked by the state where the RE resourc e is located, or by the purchaser of "null power," when all states are rate

- based there is no reason that another state would lay claim to those reductions, since they would only be identified by the entity implementing the EE program. Commenters stated th at , even where a fossil unit is displaced in a state other than the state taking credit for the EE, that will not result in double counting so long as EPA adopts the annual true

- up procedure that Commenters recommended for states with mass

- based limits . C ommenters stated that because the mass

- limited unit will have less generation factored into its rate

- to

- mass conversion, its overall mass target will be lower, neutralizing the benefit it received by having its emissions reduced due to an out

- of

- state EE p rogram. Commenters contended that no double

- counting will77 occur due to displacement of affected EGUs in rate

- based states. Commenter s stated that crediting 100% of EE results would not result in double

- counting if EPA requires states using a

mass

- based com pliance plan to account for any potential double counting issues in its state compliance plan by discounting its emission reduction compliance number by any emission reductions that are the result of out

- of

- state investments in EE or RE. Commenter s also

me ntioned that this may provide incentive for states to participate in a multi

- state compliance approach. Similarly, commenter s stated that double counting EE savings can be addressed by requiring any states that opt for a mass

- based target and that export e lectricity to rate

- based states to adjust the baseline generation they use to set the mass

- based target to ensure that no double counting occurs.

Commenter s stated that rate based compliance states that are investing in EE measures should include a commit ment in the state compliance plans to provide any necessary data to mass

- based compliance states upon request and EPA should verify the cross

- state emission reductions resulting from EE measures in its review of each state's compliance plans. In addition,

c ommenters stated that this approach may provide an incentive for states to participate in a multi

- state compliance approach.

Commenters stated that there is a legitimate concern of double counting when a state chooses a
rate

- based approach and gets full credit for energy savings achieved in the state, but then imports a significant amount of electricity from a state that chooses a mass

- based approach. Commenters stated that it would be reasonable for the EPA to require an energy savings adjustment within the state where the savings occurs in this case. Commenters suggested that EPA could set a threshold for applying an adjustment factor during the implementation phase (e.g., it is required if a state that chooses the rate

- based approach imports more than 5 % of its electricity from a state that chooses the mass

- based approach in any particular year). Commenters stated that this adjustment would not be necessary if an importing state chooses the mass

- based approach for compliance.

Commenters stated that EPA should require states to include provisions in their state plans to avoid double counting of energy savings among the various EE policies and programs included in the plans (e.g., for projects that participate in both utility and non

- utility programs). Commenters contended that states should be given the flexibility to determine which programs will receive the credits where there is overlap, and to indicate how double counting will be avoided.

Commenter s stated that their state i s in the process of discussing how to avoid double

- counting emission reductions from EE with other states, and encouraged EPA to continue to work with states on this critical issue prior to finalizing the rule so that the CPP provides a workable solution f or all states.

Comment 19 : C omments regarding c arbon pricing through RTOs/ISOs.

Response 19 : In the final rule, the EPA offers states the flexibility to choose the state plan approach that works best for their priorities and circumstances. States can choose an emissions standards approach by placing federally enforceable emissions standards on their affected EGUs78 but implement complementary energy efficiency programs don’t explicitly receive credit under the final guidelines but lower the c ost of compliance. Under the state measures approach, states

can adopt a plan that does not place all th e obligations on affected EGUs but includes measures implemented by the state, or by entities other than affected EGUs, that result in avoided generatio n and CO 2 emission reductions at affected EGUs.

Measures implemented under the state measures plan type could include RE and demand

- side EE requirements and deployment programs. This type of plan could align with existing state resource planning in the e lectricity sector, including RE and demand

- side EE investments by
state

- regulated electric utilities. The state measures plan type also can accommodate emission budget trading programs that address a broader set of emission sources than just affected EGUs subject to CAA section 111(d) and could accommodate imposition by a state of a fee for CO 2 emissions from affected EGUs, an approach suggested by a number of commenters.

This plan type would allow the state to implement a suite of state measures that are a dopted, implemented, and enforceable only under state law, and rely upon such measures in achieving the required level of CO 2 emission performance from affected EGUs. The state measures under this plan type could be measures involving entities other than a ffected EGUs, or a combination of such measures with emission standards for affected EGUs, so long as the state demonstrates that such measures will result in achievement of a state’s mass

- based CO 2 goal (or mass

- based CO 2 goal plus new source complement)

. For more information about the specific requirements related to the emissions standards and state measures approaches, see Section VIII.C.

The following are summaries of the specific public comments under this comment:

Commenter s requested that EPA expli citly allow for carbon pricing as a "beyond the fenceline" compliance option for states and consider drafting a model rule for states on the adoption of carbon pricing schemes. Commenters argued that this approach would utilize the existing market structure to determine least

- cost compliance solutions and would explicitly reflect reliability contributions of plants. Commenters stated that carbon pricing would incorporate both long

- term and short

- term operational and reliability concerns and could be used to incentivize lower

- carbon emitting resources. Commenters suggested that EPA could translate the proposed carbon emission reduction targets into targets for regional power markets (RTOs/IS Os) and apply those reductions through a market

- based carbon price. Commenters argued that implementing carbon prices through RTOs/ISOs would provide for a "predictable and stable system" and could be more efficient and cost

- effective than direct control o f individual generation sources or a state

by

- state carbon pricing approach.

Comment 20 : Comments Oppos ing RTOs leading trade markets.

Response 20 : In the final rule, the EPA offers states the flexibility to choose the state plan approach that works best for their priorities and circumstances. It does not create new authorities or requirements for regional transmission organizations but does acknowledge that RTOs may have or be able to provide data, analyses and/or expertise that can support state decisio n making,79 particularly with respect to multi

- state plans as described in Section VIII.C.5 and demonstrating performance as described in VIII.D.2.a.(3) of the final rule preamble of the CPP

. The following are summaries of the specific public comments unde r this comment:

Commenters opposed giving regional transmission organizations (RTOs) the authority to create new markets as a compliance vehicle. Commenters stated that RTOs have currently assumed the operation of competitive energy, capacity, ancillary service, and other markets, in which they currently centrally dispatch EGUs based on the marginal cost of operation of each individual unit based on EGU bids submitted to the RTO. Commenters noted that factoring CO 2 compliance costs into existing EGU bids could result in dispatch of EGUs on a lower CO 2 emission rate if the focus remains on consumers and transparency. However, c ommenters stated opposition to RTO s running these trading platforms or other new markets based on concerns regarding a lack of consumer focus or transparency in existing energy and capacity markets. Commenters further iterated that if new markets or trading platforms are rule by RTOs, this would significantly complicate the competitive energy market and could add unnecessary costs.

Comment 21 : Comments supporting "alternative compliance payments" in interstate trading.

Response 21 : The final rule addresses the use of emission budget tradin g programs, including provisions required for such programs and the design of such programs in the context of a state plan. This includes program design approaches that ensure achievement of a state mass

- based CO 2 emission goal (or mass

- based CO 2 goal plus new source CO 2 emission complement) (section VIII.J.2.b), as well as how states can use emission budget trading programs with broader source coverage and other flexibility features, like out

- of

- sector offsets and certain cost containment requirements, suc h as the programs currently implemented by California and the RGGI participating states (section VIII.J.2.c).

In the case where an emission budget trading program contains elements that functionally expand the emission budget in certain circumstances, suc h as the inclusion of an alternate compliance payment option, compliance by affected EGUs with the mass

- based emission standards would not necessarily ensure that CO 2 emissions from affected EGUs do not exceed the state’s mass

- based CO 2 goal (or mass

- based CO 2 goal plus new source CO 2 emission complement). S tates could modify such programs to remove flexibility mechanisms that functionally expand the emission budget, such as out

- of

- sector offsets and certain cost containment reserve mech anisms, and submit the program under an emission standards plan type.
Where a state chooses to retain such flexibility mechanisms as part of an emission budget trading program, the program may only be implemented as part of a state measures plan type becau se these state flexibility mechanisms would not assure CO 2 emissions from affected EGUs do not exceed the state’s mass

- based CO 2 goal (or mass

- based CO 2 goal plus new source CO 2 emission complement). A description of the state measures plan type and relate d requirements is provided in section VIII.C and Section VIII.J.2

. The following are summaries of the specific public comments under this comment:80 Commenters supported interstate emissions credit trading and a concept of "alternative compliance payments" t hat facilities could use when compliance costs exceeded the level of compliance payment. Commenters stated that this would create state

- based clean technology funds that could be used for projects to reduce carbon pollution in these states.

Comment 22 : Co mments suggesting that Tribal lands should not be precluded from participating in carbon trading programs or required to have a 111(d) plan to sell RE to other
states.
Response 22 : See section VIII.G of the final rule preamble of the CPP for the EPA’s response to comments associated with RE sources on tribal lands that can be used for CPP compliance in a
state. See section I.A of the final rule preamble of the CPP for the EPA’s response to the comments regarding continued EPA engagement with Tribes on t he CPP.
The following are summaries of the specific public comments unde r this comment:

Commenters noted that the proposed rule allows states to use qualifying renewable energy sources in other states to count towards meeting the state renewable portfolio standards. Commenters requested that this same opportunity be provided to Indian Tribes that sell renewable energy generated on tribal lands. Commenters requested that EPA engage Tribes in a discussion about this opportunity and how it may fit under the p roposed rule. C ommenters requested that EPA clarify the role that RECs will play in determining which jurisdiction or affected entity receives credit for renewable energy generation. Commenters asked whether RE would be counted in cases where renewables ar e built on tribal land and purchased by a utility for use beyond tribal land.

Commenters asserted that EPA must clarify that tribal lands are not precluded from participating in carbon trading programs. Commenters requested that tribes should have the maximum flexibility to participate, with or without a tribal 111(d) plan, partial plan, or federal plan. Commenters also requested that EPA permit a hybrid approach and clarify that electric utilities are also able to participate in carbon credit trading plans separate and apart from the tribal government. Commenters argued that allowing such trading would be consisten t with Section 111(d) and existing emissions trading programs, similar to the Municipal Waste Combustor 111(d ) rules. Commenters urged that EPA could also permit this hybrid approach through its discretionary authority under CAA section 301(d) and the Trib al Air Rule.

Commenters noted that some tribal authorities may want to ensure that the tribe receives tradable REC allowances for any RE developed on tribal land, regardless of who owns or operates the renewable resource. Commenters asked EPA to clarify w hether a state, tribal nation, territory, or regulated entity can claim credit to renewable energy without holding the REC. Commenters noted that should a tribal authority choose to seek authority for and develop an implementation plan that includes the de velopment of renewable energy, it would need to negotiate with its business partners concerning REC ownership from renewable energy resources located on tribal lands.81 Commenters recommended that EPA allow a Tribal set

- aside as part of an interstate emissio ns credit trading program. Commenters suggested the program be modeled after a similar annual SO2 set

- aside that grew out of the Western Regional Air Partnership. Commenters reiterated that this set

- aside what intended to help ensure equitable treatment fo r tribal economies and prevent barriers to economic development

. Commenters affirmed that the same rationale exists today and a set

- aside should be incorporated into any national trading program under the proposed rule.

Commenter s also asserted that EPA should not inhibit the sale or exchange of tribal allowances in any state , such as by requiring the tribe to have a federal 111(d) plan or participate in a multi

jurisdictional plan in order of the allowances to be used. Commenters noted that tribes may ha ve or develop excess carbon allowances that it could sell or trade in an open market, and that tribes should have the right to participate in such markets (such as the RGGI program). Commenters strong opposed any rule that would condition a tribe's ability to have RE resources on tribal lands count toward a state's 111(d) goal on the premise that the tribe has a 111(d) plan, Commenters argued that such requirements did not exists prior to the proposed rule and would be overly burdensome to tribes.

5.7.5 Re gional demonstration by states of emission performance

This section addresses comments on regional development and implementation of a plan to comply with the CPP.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments supporting regional demonstration by states of emission performance; the EPA should encourage coordination between states for regional programs to reduce costs; supports regional emissions cap that allows for diversity in state portfolios; RGGI as a prime example of a successful regional program; regional demonstration should be an option, not compelled.
Response 1: The EPA recognizes that there are multiple incen tives for states to collaborate by implementing a multi

- state plan. That is why EPA has promulgated a final rule that allows states to meet an aggregated joint goal, regardless of the specific level of their individual goals, because states share grid regi ons and impacts from plan implementation will be regional in nature. Further, multiple analyses, including those by ISOs and RTOs, indicate that regional approaches could achieve state goals at lesser cost than individual state plan approaches. However, th e EPA also recognizes the value in allowing for collaboration where states retain individual goals. These approaches could provide some of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi

- state plan wit h a joint goal. As a result, the EPA has finalized the additional multi

- state approaches described above in section VIII.C.5 of the final rule preamble of the CPP to provide for coordination while82 maintaining individual goals. These approaches would allow for interstate transfer of energy rate credits ( ERCs ) or emission allowances while retaining individual state goals.

The EPA is allowing for streamlined multi

- state trading approach, states can develop their own programs and trade eligible RE or demand sid e EE with other states through a trade

- ready system. The EPA is providing maximum flexibility in the types of state plans states can use to implement the emission guidelines. For states wishing to participate in a multi

- state plan, the EPA is finalizing th ree forms of submittal that states may choose for the submittal of a multi

state plan. See Section VIII. C.5 of the final rule preamble of the CPP for details on the different multi

- state plan approaches the EPA finalized in this final CPP rule

In terms of how EE is can be used for compliance, states can adjust their CO 2 emissions rate from eligible demand side EE and do not need to be implemented in its home states. This approach has changed from the proposal as suggested by the commenter below. See Section VIII.K.1 of the final rule preamble of the CPP for further detai ls on how to use demand side EE in rate based plans.

The following are summaries of the specific public comments under this comment:

Commenters support an approach where states are allowed to demonstrate compliance with emission performance on a regional basis. Commenters believe d the EPA should encourage interstate coordination and collaboration because an interstate approach can reduce costs and help avoid challenges that arise when limiting systems to a specific state.

Commenters noted that while the E PA has suggested a regional approach under which states' individual rate

- based goals would be replaced by a single regional goal that would be equal to the weighted average of the state goals, it may not receive support from states whose goals are less str ingent than the regional weighted average. Commenters stated a regional approach more likely to secure support would allow states to retain their individual goals, but would provide for credit trading between the states as a compliance measure. Commenter s noted that interstate cooperation can lower the administrative burden on states and compliance entities, and help resolve equity issues that arise between power

- exporting and power

- importing states. Commenters (23597) noted that interstate programs have al ready been successful in a variety of contexts and specifically mentioned the Acid Rain Program, Cross

- State Air Pollution Rule, regional haze initiatives, programs to address ozone transport issues, and RGGI. Commenters believed that RGGI has demonstrated that a regional program that is closely aligned with the borders of an electricity grid is more efficient than programs that are constrained by state borders. Commenters also noted that a regional program can avoid market distortions. As an example, c omme nters mentioned the situation that would arise if one state's energy efficiency investments reduce emissions in a neighboring state. Commenters noted that in a regional program both states would be able to reap the emission reduction benefits of that energ y efficiency. Commenters also highlighted RGGI as a successful multi

- state program that includes features of mass

- based caps and interstate trading, and noted the economic benefits of the
program.

Commenters recommended that EPA allow and assist states pr eferring a multi

- state approach the flexibility to design one that does not by necessity mirror RGGI. Commenters stated that a state's83 participation in a multi

- state agreement should not require that state's compliance goal to be absorbed, or blended, into a regional goal.

Commenters stated t he final rule should also ensure that states making energy efficiency or renewable energy investments be given credit for those efforts. Commenters believe d that individual states participating in a regional program ma y reduce emissions through a variety of
state

- specific energy programs like renewable portfolio standards and energy efficiency
programs. Commenters suggest ed that the regional emission cap can operate as an umbrella, encompassing and accounting for the em ission reductions from these complementary programs. Commenters note d that because overall emissions are limited by the emissions cap, the complementary programs would not need to be federally enforceable. Commenters also stated that complementary programs would also serve to reduce the cost of complying with the regional emissions cap. Commenters noted that RGGI is one example of this approach being successfully implemented. Commenters stated that the RGGI states are well

- positioned to comply with the
prop osed CPP by using the existing RGGI model. Commenters noted, however, that in order to demonstrate that the RGGI cap will be adequately stringent to comply with EPA's targets, the RGGI states will have to 1) Extend the RGGI cap to 2030, 2) Correct the cap decline trajectory, and 3) Restructure the cost containment reserve. Commenters stated that whether through direct participation in RGGI or through the creation of a similar program, states should take advantage of the successful blueprint that already exi sts in the Northeast. Commenters stated that a s an alternative to participation in RGGI, groups of states may choose to develop their own mass

based trading program as a CPP compliance mechanism. Commenters also stated s hould states choose this option, EPA should draw on the RGGI experience to facilitate interstate trading. Commenters requested that EPA make it as easy as possible for regional approaches to emerge. Commenters stated that this would allow interested states to incorporate policies that envision the development of regional linkages over time, rather than requiring states to work out all the details by the plan submission deadlines. Commenters also requested that EPA indicate that state plans that rely on disc rete multi

- state agreements would be approvable. Commenters stated that EPA should be explicit in the final rule about this regional flexibility, and provide guidance on a model approach, as it will achieve the goals of the Clean Air Act without putting an unnecessary burden on utilities.

Comment 2: Comments suggesting that the EPA should not compel RE regionalization

. Response 2: The final rule continues to give states significant flexibility in how they comply with requirements, including single state an d multi

- state plans and using both BSER and non

BSER measures as a means to comply. For example, RE measures can greatly assist states and affected EGUs in meeting the standards and/or state plan. Many studies assume that state plans will simply apply the BSER and do not recognize the large number of compliance approaches and opportunities that states and affected EGUs have available to them. States do not need to adopt the assumptions the EPA uses to set BSER.

EPA disagrees with the commenter that EPA’s r enewable energy targets are too stringent. The global market for RE is projected to grow to $460 billion per year by 2030. RE growth is further encouraged by the significant amount of existing natural resources that can support RE84 production in the United States. In the Energy Information Administration’s Annual Energy Outlook 2015, RE generation grows substantially from 2013 to 2040 in the reference case and all alternative cases

. The basis for quantifying building block 3 generation has been modified to incorporate historical deployment patterns for RE technologies as well as the economic potential identified through modeling projections. The introduction of historical capacity additions to the final methodology further grounds building block 3 generation in demonstrated levels of RE deployment that have been successfully incorporated into the power system. This adjustment also serves to harmonize the approach across all three building blocks in which historical data is the primary basis for identifying em ission reduction opportunities under the BSER.

For further details on the EPA’s assumptions for RE under BB3 See Section V.E of the final rule preamble of the CPP

.

T he following are summaries of the specific public comments under this comment:

Commenters requested that EPA not compel regionalization of renewable energy targets as a means for enabling states to adapt to EPA's Block 3 renewable energy target. Commenters stated that MISO analysis indicates that EPA renewable targets have been set too stringen t for the MISO states, due to high costs per ton CO 2 reduction. Commenters suggested that states should have the option of entering into regional collaborations that help develop mutually beneficial renewable deployment measures.

Comment 3: Comments suggesting that i mplementation of the rule should be delayed.
Response 3: Commenters observed and EPA agrees that due to the interconnected nature of the power sector, units are not limited to such emission reduction measures within their state, and indeed any operational decisions that units take necessarily influence operational decisions at other units throughout the interconnected grid. As a result, in the final rule, we are finalizing CO 2 emission performance rates, informed by regional emission reduct ion potential, for fossil fuel

fired electric utility steam generating units and stationary combustion turbines that are applied consistently across all affected EGUs. As the same source category

- specific performance rates are applied to all units in the c ontiguous U.S. regardless of the state in which they are located, any differences between state goals in this final rule stem only from the relative prevalence in each state of fossil fuel

- fired electric utility steam generating units and stationary combus tion turbines. The EPA has determined that commenters received ample time for response to comments to all information related to regionalize RE targets.

The EPA disagrees with the commenter’s concern that the rule needs to be delayed because of reliabilit y concerns. For example, t he Analysis Group recently analyzed reliability considerations in MISO as the region considers how to comply with the final rule. The Analysis Group found that despite the large amount of coal that will likely retire in MISO in the coming years, the entities responsible for electric system reliability in MISO are prepared to collaboratively address any reliability issues that arise a nd that there is a “strong tool kit for managing `Essential Reliability Services‘ needed to assure high

- quality electric service .”85 The following are summaries of the specific public comments under this comment:

Commenters stated that the issuance of the final rule should be delayed until EPA provides specifics on regional goals. Commenter s were concerned that allocating renewable energy on a
state

- by

- state basis is problematic based on the lack of specificity set forth in the NODA. Commenters noted that the absence of any demonstration that such an approach represents BSER precludes EPA from pursuing such an approach in the final rule. Commenters stated that if EPA wants to pursue this approach in the final rule, then it must delay issuance of the final r ule and issue a revised proposed rule that specifies the proposed regions, the proposed regional goals, the methodology for apportioning goals and renewable energy to individual states, and the impact of this approach on states' emission rate requirements.

Commenters stated that until NERC has validated the reliability impacts of the proposed rule, implementation must be delayed. Commenter s noted that Regional Transmission Organizations have indicated that the rule will cause thermal overloads and low volt age, while at the same time jeopardizing the reserve margin required for continued reliable operation. Commenters also noted concern about the compliance problems the proposed rule presents for a utility that relies on a single, coal

- fired power plant in one state to serve load in completely different states.

Comment 4: Comments suggesting the proposed rule discourages regional cooperation.
Response 4: The EPA disagrees with the commenter’s concern. The final rule encourages regional cooperation in many ways. T here are multiple incentives for states to collaborate by implementing a multi

- state plan to meet an aggregated joint goal, regardless of the specific level of their individual goals, because states share grid regions and impacts from plan implement ation will be regional in nature. Further, multiple analyses, including those by ISOs and RTOs, indicate that regional approaches could achieve state goals at lesser cost than individual state plan approaches.

The accounting approach described by the comm enter is also inaccurate and does not reflect the final CPP rule accounting structure. The EPA is finalizing the ability for states to choose to implement a rate based or mass based approach. Naturally

, the accounting structure for rate based plans are dif ferent than mass based plans, but in neither case does the same state have to assess both the emissions and clean energy generation for their individual plan

. In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

emitt ing resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory.

See Section VIII.C of the fi nal preamble that describes the different rate and mass based plans. Section VIII.K.2.a of the final rule preamble of the CPP below describes the basic accounting method for adjusting a CO 2 emission rate, as well as eligibility requirements for measures th at may be used for adjusting a CO 2 emission rate. See Section VIII.J of the final rule preamble of the CPP on additional considerations for mass based plans.86 The following are summaries of the specific public comments under this comment:

Commenters argued that although the proposed rule appears to encourage regional cooperation, the structure of the proposed rule discourages regional cooperation by pitting utilities against utilities and states against states. Specifically, c ommenters asserted that the pro posed rule limits each state to counting both carbon

- emitting and clean generation located within the state, which would make regional cooperation difficult.

Comment 5: Comments suggesting that the EPA should not allocate RECs at a regional level, but allow states to verify RECs and use a power delivery review.

Response 5: Under all types of state plans, states must ensure that the emission reduction measures counted as part of meeting their plan requirements are not duplicative of any measures that are counted by another state, in order to avoid double counting of the MWhs of generation or energy savings that these measure produce. See Section VIII.L of the final rule preamble of the CPP that addresses the commenter’s concern about avoiding double count ing between rate based and mass based plans.

The EPA is finalizing requirements specific to rate

- based emission trading programs as requirements the EPA has determined are necessary to assure the int egrity of a rate

- based approach. These specific requirem ents for a rate

- based emission trading program include provisions for issuance of ERCs by the state and/or its designated agent; provisions for tracking ERCs, from issuance through submission for compliance; and the administrative process for submission of ERCs by the owner or operator of an affected EGU to the state, in order to adjust its reported CO 2 emission rate when demonstrating compliance with a rate

- based emission standard.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing th eir state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying m easures, programs or projects and addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation and demand

- side EE.

The following are summaries of the specific public comments under this comment:87 Commenters argued that allocating RE targets at a regional level, as opposed to state level, would introduce unnecessary complexity. Commenters suggested that states take responsibility for verifying RECs and the RECs presented by utilities to demonstrate compliance

. Commenters asserted that using RECs would avoid confusion between states with major RE generation and the states that import that power. Commenters also recommended that utilities purchasing delivered RE and RECs should receive the credit for compliance p urposed. Rather than using a regional REC compliance target, c ommenters favored a power delivery review to ensure that states provide guidance and incentives that ensure delivery of RE to their states while facilitating continued commerce in energy among t he states. Commenters asserted that a power delivery review would encourage regionalization while avoiding the severing of single utilities with integrated planning, transmission and distribution systems into multiple regions. Commenters noted that EPA sho uld ensure there is no double

- counting resulting from power transfers in or out of states with mass

- based emission targets.

Comment 6: Comments supporting regional emission targets; states should be allowed to apportion the regional emissions cap among s tates as they see fit

. Response 6: The EPA disagrees that regional emission goals should supersede individual state goals. The EPA has promulgated a final rule that allows states to meet an aggregated joint goal, regardless of the specific level of their individual goals, because states share grid regions and impacts from plan implementation will be regional in nature. However, the EPA also recognizes the value in allowing for collaboration where states retain individual goals. These approaches could provi de some of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi

- state plan with a joint goal. As a result, the EPA has finalized the additional multi

- state approaches described above in section VIII.C.5 of the final preamble to provide for coordination while maintaining individual goals. These approaches would allow for interstate transfer of energy rate credits (ERCs) or emission allowances while retaining individual state goals. See s ection VIII.K.2 of the final rule preamble of the CPP for EPA’s tracking system requirements.

The following are summaries of the specific public comments under this comment:

Commenters stated that meeting a regional emission cap should supersede individual state emission limits. Commenters believed that it should not matter how the participating states elect to apportion the regional emissions cap among the states provided the overall re gional emissions cap complies with the guidelines. Commenters stated that a lthough a particular state's actual emissions could theoretically exceed its individual state emission budget, they stated that this should not affect EPA's decision to accept a reg ional program as a pathway for compliance. Commenters questioned how states are to address interstate issues in their plans, as EPA has no authority to require states to join interstate emission reduction efforts. Commenters agreed that states should be ab le to design programs to account for the interstate nature of electricity generation through existing state public utility commissions and environmental regulatory institutions. Commenters stated that under a mass

- based approach, a state that joins an inte rstate88 plan should be able to establish emission targets for the broad group of participating states rather than an individual state target, provided EPA can track compliance in the same way as an individual state plan.

Comment 7: Comments regarding e nfo rcement of regional plans; enforceability of emission
caps

. Response 7: The EPA agrees with these commenters’ suggestions. For a mass

- based emission trading program approach, the state plan would include as its federally enforceable emission standards requ irements that specify the emission budget and related compliance requirements and mechanisms. These requirements would include: CO 2 emission monitoring, reporting, and recordkeeping requirements for affected EGUs; provisions for state allocation of allowances; provisions for tracking of allowances, from issuance through submission for compliance; and the process for affected EGUs to d emonstrate compliance (allowance “true

- up” with reported CO 2 emissions). Mass

- based emission standards that take the form of an emission budget trading program must be quantifiable, verifiable, enforceable, non

- duplicative and permanent. This includes the requirement for an affected EGU to surrender emission allowances equal to reported CO 2 emissions, and meet monitoring and reporting requirements for CO 2 emissions, among other requirements. These requirements may be submitted as part of the federally enfor ceable state plan through mechanisms with the appropriate legal authority and effect, such as state regulations, title V permit requirements for affected EGUs, and other possible instruments that impose these requirements specifically with respect to affec ted EGUs.

For additional information about different mass based trading program designs that are allowable under this final CPP rule see Section VIII.J of the final rule preamble of the CPP

. The following are summaries of the specific public comments unde r this comment:

Commenter s believed that a regional budget trading program is easily enforced. Commenters stated that u nder a budget trading program like RGGI, they noted enforceability, measurement, and verification are already incorporated into the progr am, since sources are required to obtain and hold a sufficient amount of allowances by the compliance deadline to cover emissions over the compliance period. Commenters noted this is a regulatory requirement that is generally incorporated as a federally en forceable condition in each source's operating permit. Commenters stated t he emission cap is enforceable directly against individual sources, with the failure of a source to hold sufficient allowances being a violation of the state's program and the source 's permit. Commenters stated c ompliance with the 111(d) emissions cap is then confirmed through "true

- up" process in which states deduct allowances to cover emissions. Commenters believed this same approach could be incorporated into an approved Section 11 1(d) plan.

Comment 8: Cost escalation limits for regional programs; states must demonstrate that these limits do not result in excess emissions

.89 Response 8: The final rule addresses the use of emission budget trading programs, including provisions required for such programs and the design of such programs in the context of a state plan. This includes program design approaches that ensure achievement of a state mass

- based CO 2 emission goal (or mass

- based CO 2 goal plus new source CO 2 emission complement) (section VIII.J.2.b), as well as how states can use emission budget trading programs with broader source coverage and other flexibility features, like out

- of

- sec tor offsets and certain cost containment requirements, such as the programs currently implemented by California and the RGGI participating states (section VIII.J.2.c).

Under this approach, the full set of regulations establishing the emission budget tradi ng program that applies to affected EGUs and other fossil fuel

- fired EGUs and other e mission sources (if relevant) must be described as supporting documentation in the state plan submittal. This structure is appropriate to ensure that states with an emissi on budget trading program that addresses both affected EGUs and other fossil fuel

- fired EGUs do not inappropriately submit requirements regarding entities other than affected EGUs for inclusion in the federally enforceable state plan.

Such state programs could include a number of different design elements. This includes broader program scope, where a program includes other emission sources beyond affected EGUs subject to CAA section 111(d) and new fossil fuel

- fired EGUs, such as industrial sources. Progra ms might also include design elements that make allowances available in addition to the established emission budget. This includes project

- based offset allowances or credits from GHG emission reduction projects outside the covered sector and cost containme nt reserve provisions that make additional allowances available at specified allowance prices.

In the case where an emission budget trading program contains elements that functionally expand the emission budget in certain circumstances, such as the inclus ion of an alternate compliance payment option, compliance by affected EGUs with the mass

- based emission standards would not necessarily ensure that CO 2 emissions from affected EGUs do not exceed the state’s mass

- based CO 2 goal (or mass

- based CO 2 goal plus new source CO 2 emission complement). States could modify such programs to remove flexibility mechanisms that functionally expand the emission budget, such as out

- of

- sector offsets and certain cost containment reserve mechanisms, and submit the program unde r an emission standards plan type.
Where a state chooses to retain such flexibility mechanisms as part of an emission budget trading program, the program may only be implemented as part of a state measures plan type because these state flexibility mechanis ms would not assure CO 2 emissions from affected EGUs do not exceed the state’s mass

- based CO 2 goal (or mass

- based CO 2 goal plus new source CO 2 emission complement). A description of the state measures plan type and related requirements is provided in secti on VIII.C and Section VIII.J.2 of the final rule preamble of the CPP

.

E mission budget trading programs that include unaffected EGUs must be submitted as a part of a state measures plan type. Where an emission budget trading program addresses affected EGUs and other fossil fuel

- fired EGUs, the requirements that must be included in the state plan are the federally enforceable emission st andards in the state plan that apply specifically to affected90 EGUs, and the requirements that specifically require affected EGUs to participate in and comply with the requirements of the emission budget trading program.

I f a state chooses to implement a ma ss

- based program including both affected EGUs and new EGUs, and the total allowable emissions is in excess of the presumptively approvable power sector mass budget for that state, the state must provide a projection of CO 2 emission performance. Likewise, i f a state chooses a state measures state plan approach, a projection of CO 2 emission performance is required. For details on the requirements for all state plans that must do CO 2 performance demonstration see Section VIII.D.2 . ( a) of the final rule preambl e of the CPP

. The following are summaries of the specific public comments under this comment:

Commenters stated that r egional budget trading programs may have design elements intended to limit sharp cost escalations. Commenters noted that RGGI allows sour ces to use offsets for a small portion (three percent) of their compliance obligations, and the program revisions that will take effect in 2014 include a Cost Containment Reserve (CCR) allow the distribution of a limited amount of additional allowances if prices exceed specified levels. These elements, c ommenters noted, are intended to respond to unforeseen market conditions, such as greater

- than

- anticipated demand growth, but they may lessen emission reductions. Commenters stated that States participating in RGGI or similar regional programs should be able to either demonstrate that these design elements will not allow emissions in excess of those allowed by EPA's emission guideline, or include supplemental measures to ensure consistency with EPA's guidelin e.

Commenters recommended the EPA develop a mechanism to address any differences in the scope of sources covered by the Section 111(d) guidelines and the scope of sources subject to the requirements of the emission budget trading program. Commenters noted, for example, that RGGI may include certain smaller sources that may not be covered by the section 111(d) guidelines. Commenters noted if the additional sources cause the regional budget to be higher than the guidelines, then participating states would hav e to demonstrate that emissions from the sources covered by section 111(d) comply with the guidelines. Commenters believed the EPA should provide a rigorous and equitable methodology to determine compliance in these situations.

Comment 9 : Comments suggesting the f inal rule should allow for non

- contiguous states to form multi

- state plans; rule should consider that current markets do not match state boundaries.
Response 9 : The EPA agrees that non

- contiguous states can form multi

- state agreements. The EPA is finalizing a multi

- state plan approach that enables states to retain their individual state goals for affected EGUs and submit individual plans, but to coordinate plan implementation with other states through the interstate transfer of ERCs or e mission allowances. This approach facilitates interstate emission trading without requiring states to submit joint plans.

The EPA further clarified how multi

- state plans with a joint goal for affected EGUs may be implemented. S tates may participate in mor e than one multi

- state plan, if necessary, for example, to address affected EGUs in states that are served b y more than one ISO or RTO. For example, a91 subset of affected EGUs in a state may participate in a multi

- state plan. These clarifications are discus sed in section VIII.C.5.d of the final rule preamble of the CPP

. In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emis sion rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory, and is unrelated to import or export of neighboring states. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for i ssuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when develo ping their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect re newable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation and demand

- side EE.

In terms of electric grid regions used for determining BSER. The EPA recognizes that t he North American electric grid has developed into a large, interconnected system. Electricity from a diverse set of generation resources such as natural gas, nuclear, coal, and renewables is distributed over high

- voltage transmission line s divided across the continental United States into three synchronous interconnections

– the Eastern Interconnection, Western Interconnection, and the Texas Interconnection. These three synchronous systems each act like a single machine.

The following are summaries of the specific public comments under this comment:

Commenters provided comments on the appearance that the proposed rule does not allow regional agreements between non

- contiguous states. Commenters stated that the proposal only appears to allow contiguous states to participate in a regional demonstration of emission performance, which would obviate the need to specifically assign RE reductions to specific
states. Commenters asserted that there are states that are not contiguous but that may want to participate in multi

- state plans or that may want to use out of state RECs or RE generation from

non

- contiguous states to demonstrate compliance. Commenters noted that many states allow the purchase of RECs over large, multistate regions, as well as th e acquisition of RE or zero

emissions attributes of RE through bilateral contracts or building in

- state

- or out

- of

- state

- RE generation, and are not limited to actions in "neighboring" states. Commenters stated that limiting regional demonstrations to cont iguous states would increase the cost of compliance. Commenters requested that imports/exports of renewable energy not be limited to contiguous92 states or ISO regions, but not extended to international imports. Commenters further remarked that additional re strictions or prohibitions on imports and exports (including requirements that attributes be bundled with generation) could result in artificial barriers and price signals in the market which could impede interstate flow of renewable energy. Commenters no ted that the State where the renewable attribute is applied should be the state that applies that renewable electricity to their carbon intensity reductions, following the renewable attribute contract path. Commenters argued that the proposed rule does not recognize that regional power markets and balancing authorities do not match state geographic boundaries; c ommenters also argued that many states are split among multiple balancing authorities and will require additional guidance to comply with the rule. Commenters further noted that EPA did not define " electric grid region".

Comment 10 : Role of FERC, impacts on consumer rates, and inequities in assigning state emission rates.

Response 10 : In the development of the final rule, EPA officials worked closely with DOE and Federal Energy Regulatory Commission (FERC) officials to ensure, to the greatest extent possible, that actions taken by states and affected EGUs to comply with the final rule mitigate potential electric system reliability issues. Senior EPA o fficials met with each of the FERC Commissioners and EPA staff had frequent contact with FERC staff throughout the development the rule. FERC held four technical conferences to discuss implications of compliance approaches to the rule for electric reliabil ity. EPA staff attended the four conferences and EPA leadership spoke at all of them. The EPA, DOE, and FERC will continue to work together to ensure electric grid reliability in the development and implementation of state plans. For more information about reliability considerations, see Section II.D and for more detail about EPA consultations about reliability, see s ection II.K of the final rule preamble of the CPP

.
The EPA recognizes that there are multiple incentives for states to collaborate by implementing a multi

- state plan

. That is why EPA has promulgated a final rule that allows states to meet an aggregated joint goal, regardless of the specific level of their individual goals, because states share grid regions and impacts from plan implement ation will be regional in nature. Further, multiple analyses, including those by ISOs and RTOs, indicate that regional approaches could achieve state goals at lesser cost than individual state plan approaches. However, the EPA also recognizes the value in allowing for collaboration where states retain individual goals. These approaches could provide some of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi

- state plan with a joint goal. As a result, the EP A has finalized the additional multi

- state approaches described above in section VIII.C.5 of the final rule preamble of the CPP to provide for coordination while maintaining individual goals. These approaches would allow for interstate transfer of energy r ate credits ( ERCs ) or emission allowances while retaining individual state goals.

The final CPP is also allowing a state plan design that allows states to include new sources under certain conditions. A state may elect to use is mass

- based emission standar ds applied to affected EGUs. Under this approach, the plan would include federally enforceable emission standards for

mass CO 2 emissions from affected EGUs. The plan would be designed to achieve the mass

- based93 CO 2 goal for a state’s affected EGUs (see sect ion VII) or a level of CO 2 emissions equal to or less than the mass

- based CO 2 goal plus the new source complement CO 2 emi ssions (see section VIII.J.2.b of the final rule preamble of the CPP for details.) For example, a state plan designed to
meet a state m ass

- based CO 2 goal for affected EGUs plus a new source complement could include a mass

- based emission budget trading program that applies to both affected EGUs, as well as new fossil fuel

- fired EGUs. The program requirements for affected EGUs would be fede rally enforceable, while the program requirements for other fossil fuel

- fired EGUs would be
state

- enforceable. This approach is described further in section VIII.J.2 of the final rule preamble of the CPP

. The following are summaries of the sp ecific public comments under this comment:

Commenters stated that through FERC, the federal government has been actively encouraging, and in some instances requiring, the regional and inter

- regional coordination of electric industry construction, operation, and markets. Commenters stated FERC has aggressively encouraged the creation and membership in regional transmission organizations (RTOs). Commenters stated that the Proposed Regulation challenges the regional economic dispatch currently employed by PJM and that u nder the Proposed Regulation, CO 2 dispatch considerations may vary from State to State. Additionally, commenters stated that States must make significant decisions about whether fossil

- fuel units will be forced to retire or operate under substantial enviro nmental constraints, both of which can detrimentally affect reliability and customer rates regulated by FERC. Commenters also stated that while parts of the Proposed Regulation encourage the States to band together to achieve compliance on a regional scale , the inequity of the disparate carbon emission rates and the uncertainty regarding compliance complicates attempts at regional compliance through cooperation. Commenters stated that b y assigning disparate State emission rates, the Proposed Regulation tilt s the playing field against States that are assigned excessively low carbon emission rates for existing units below the emission rates required of new units

.

5.7.6 Assessment of interstate effects by the EPA in the course of state plan review

This section addresses comments on EPA's assessment of interstate effects during state plan review.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comm ent 1: Assessment of interstate effects by the EPA may create uncertainty for individual states; EPA must address how it will assess interstate effects for RE/EE; the EPA should provide a mechanism for states to evaluate plans that would be acceptable

. Response 1 : In the final rule, EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal to better reflect the regional nature of the grid among other things. In order to e nsure consistency with the94 calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, to avoid double

- counting or inconsistent adjustment approaches across states, and to provide certainty to states regarding acce ptable accounting methods, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

- emitting resource. Quantified and verified MWh impa cts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the stat e or territory. This ensures that affected EGUs receive full recognition for their investments, even if the impacts occur elsewhere, removing the need to determine exactly which EGUs reduced and changed power generation in response to the zero

- emitting or low

- emitting resource.

The final rule does not preclude states from determining resource adequacy and conducting integrated resource planning but may provide an opportunity for collaboration on resource planning and priorities as states develop their state plans.

For a discussion about the elements incorporated into the final rule to minimize double

- counting, and how the rule addresses interstate effects, see s ection VIII.L of the final rule preamble of the CPP

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP . Section VI II.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE. For information about state plan approaches, see Section VIII.C of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment :

Commenters stated that if EPA is the final assessor of interstate effects, it may create uncertainty for individual state s. Commenters asserted that states would not know whether they could include all RE generation included in a plan until after an EPA assessment of all submitted plans. They argued that this could undermine a state's ability to achieve target emission rates

. Commenters suggested that EPA provide clear guidance as to how states should attribute RE reductions. Specifically, c ommenters requested that EPA provide guidance on how to allocate RE built by electric utilities to serve customers in multiple states, considering customer consumption patterns.

Commenters raised several questions related to how EPA would assess interstate effects in the course of a state plan review. Commenters asked how statewide strategies would become a part of utility plans and how EE measures would be treated by EPA in their evaluations. Commenters suggested that EPA provide examples of strategies and how they might count towards emissions reductions, as well as offer a mechanism for states to consistently evaluate plans and strategies to determine if they will constitute an acceptable plan. Commenters also stated that EPA should not intrude on the right of sta tes to determine resource adequacy and integrated resource planning.95 Comment 2: The EPA should provide guidance on how to allocate RE that serves customers in multiple states

. Response 2: In the final rule, EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal to be based upon three building blocks and better reflect the regional nature of the grid. In order to ensure consistency with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, to provide consistent and transparent approach to accounting for RE and demand

- side EE, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

- emitting

resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

- em itting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. This ensures that affected EGUs receive full recognition for their investments, even if the impacts occur elsewhere, removing the need to determine exactly which EGUs reduced and changed power generation in response to the zero

- emitting or low

- emitting

resource.

For a discussion ab out the elements incorporated into the final rule to minimize double

- counting, and how the rule addresses interstate effects, see Section VIII.L. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect dema nd

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE. For information about state plan approaches, see Section VIII.C of the final rule preamble o f the CPP

. The following are summaries of the specific public comments under this comment:

Commenters urged that EPA provide clear and unequivocal guidance to states regarding renewable energy and energy efficiency in order to ensure that plan approval pr ocesses are consistent. Commenters stated that otherwise, EPA will invite disparate treatment of renewable energy and energy efficiency among states, and may lead to states rushing to submit plans in order to be the first to get their approach to RE and EE approved and thus, setting a "standard" for what can be approved. Commenters stated t his will force EPA to follow the approach adopted in the first approved plan or risk creating conflicts with subsequent approved plans.

Commenters noted that this can oc cur not only within the same EPA Region (for example, between North Dakota and South Dakota), it is likely to occur between Regions (such as Iowa and Minnesota). Commenter s gave an example whereby Minnesota and North Dakota disagree over whether Minnesota can count North Dakota wind under building block 3, Minnesota could expedite its rulemaking process in a race to beat North Dakota's plan submission and approval. Commenters stated that a ssuming Minnesota did so, and included a provision that allows it to
count out

- of

- state wind in North Dakota (and elsewhere), the approval of Minnesota's plan would effectively prohibit North Dakota from counting wind located in its own state and owned by utilities that operate fossil facilities in North Dakota. Commenters stated that b ecause96 Minnesota is located in EPA Region 5 and North Dakota is in EPA Region 8, it not only sets up a conflict between the states themselves, but potentially creates a Region by Region conflict. Commenter s also stated that unless EPA states i n uncertain terms that all renewable energy and energy efficiency is the property of the utility owner and freely transferable for use in any state, it creates a regulatory morass where Wyoming, for example, could allow a utility to use RE and EE generated elsewhere to offset CO 2 emissions in the state, while Minnesota claims that it is entitled to use for its own compliance all RE and EE within its state borders.

Comment 3: The EPA must ensure emission reductions are not eroded due to changes in electrici ty generation between neighboring states with different plan structures.
Response 3: EPA acknowledges in the final rule that there may be interactions between mass

based and rate

- based plans regarding counting measures, specifically where measures that
pro vide substitute or avoided generation, such as RE and demand

- side EE, are located in a mass

based state and can also be used by a rate

- based state in meeting the CO 2 performance rates or state goals. EPA has determined that, in the context of interactions among rate

- based and mass

based plans, there is not explicit double

- counting of the CO 2 emission reductions associated with counting measures located in mass

- based states, considering the accounting methods outlined in this final rule.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of MWh

- denominated ERC s in the rate

- based emission trading framework specified in this rule. This MWh accounting method creates a crediting system or rate adjustment process that is indifferent to the rate

- based CO 2 emission goals of individual states, or the specific CO 2 emiss ion rate standards that states may apply, and the relative stringency of those goals or standards.

Though there is no risk of double

- counting emissions, in response to commenter concern that overall CO 2 emissions reductions would be foregone in situations where a source in a rate

- based state counts the MWh from measures in a mass

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

- based state, the EPA is restricting the ability of rate

- based state to claim emission reduc tion measures, such as RE and demand

- side EE, located in mass

based states. In order to avoid cutting some states off from regional RE supplies that are assumed in the BSER building block 3 and incorporated in the CO 2 emission performance rates or state

ra te

- based CO 2 goals in the emission guidelines, the EPA has determined that it is appropriate for
rate

- based states to count MWhs from RE located in mass

- based states, subject to the condition that the generation in question was intended to meet electricity load in a state with a rate

- based plan.

For a discussion about the elements incorporated into the final rule to minimize double

- counting, see Section VIII.L. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU t o reflect demand

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see s ection VIII.K.1 of the final rule preamble of the CPP . Requirements for rate

- based emission trading programs and the issuance97 and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the fi nal rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings to avoid overestimation as suggested by commenters. For i nformation about mass

- based emission standards with a market

- based emission budget trading program, see Section VIII.C.2 and VIII. J.2 of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Com menters stated that in order to fulfill the statutory mandate to address harmful air pollution through limitations on emissions, the EPA must ensure that states achieve the necessary reductions through the actions taken in their plans and that emission red uctions are not eroded due to changes in electricity generation between neighboring states that have different plan structures (rate vs. mass) or different target rates.

Comment 4: Guidance needed on accounting for CO 2 emissions from owned or purchased generation located in different states.
Response 4: In the final rule, EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal to be ba sed upon three building blocks and better reflect the regional nature of the grid. In order to ensure consistency with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

emitting resource. Quantifi ed and verified MWh impacts of qualifying zero

- emitting and low

emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur in side or outside the state or territory. This ensures that affected EGUs receive full recognition for their investments, even if the impacts occur elsewhere, removing the need to determine exactly which EGUs reduced and changed power generation in response to the zero

- emitting or low

- emitting resource

. EPA offers states the flexibility to choose the state plan approach and assign the responsibility for CO 2 reductions and emission performance rates across the fleet of their affected EGUs in a

manner that work s best for their priorities and circumstances and still meets the emission guidelines . States can choose an emissions standards approach by placing federally enforceable emissions standards on their affected EGUs but implement complementary energy efficien cy programs don’t explicitly receive credit under the final guidelines but lower the cost of compliance. Under the state measures approach, states can adopt a plan that does not place all the obligations on affected EGUs but includes measures implemented b y the state, or by entities other than affected EGUs, that result in avoided generation and CO 2 emission reductions at affected EGUs.98 For a discussion about the elements incorporated into the final rule to minimize double

- counting, and how the rule addres ses interstate effects, see s ection VIII.L of the final rule preamble of the CPP

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see s ection VIII.K.1. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable el ectricity generation or demand

- side EE. For information about state plan approaches, see Section VIII.C of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commenter s stated that EPA should apply 111(d) standards at the EGU, limited to technologies that can be implemented specifically at the EGU. Given the EPA's approach to proposing BSER as the entire electric system, c ommenters suggested that a state plan for impleme ntation should equitably distribute the burden of required improvements, emission reductions and the cost of implementing emission reductions across all electric customers and utilities within a state. Commenters stated that all electricity customers and u tilities should fairly share and contribute to carbon dioxide reductions in order to meet the energy policy being proposed by the EPA.

Commenters stated that language should be added to the proposed CPP in the State Plan Components section, clarifying how owned or purchased generation, and associated CO 2 emissions, from generating units located in different states should be accounted, regardless of the development and implementation of multi

- state plans

. Commenters noted that item 8 of 12 in that section d iscusses possible accounting for renewables including wind and EE for distribution utilities that operate in multiple states.

5.7.7 Other

This section contains comments on the treatment of interstate effects that are not addressed in other subsections of 5.7.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: General support for multi

- state approaches. Proposed rule did not provide en ough information on how states may develop multi

- state agreements

. Response 1: In the final rule, t he EPA views the ability of a state to implement an individual plan or a multi

- state plan as a significant flexibility that allows a state to tailor implementation of its plan to state policy objectives and circumstances. The EPA sees particular value in m ulti

- state plans, which allow states to implement a plan in a coordinated fashion with other states. Such approaches can lead to more efficient implementation, lower compliance costs for affected EGUs99 and lower impacts on electricity ratepayers. Coordinate d approaches also will help states identify and address any potential electric reliability impacts when developing plans.

The EPA received broad support in comments for allowing states to implement multi

- state plan approaches, and has made multiple changes in the final rule to address many suggestions outlining different approaches states may want to take. These changes are intended to provide streamlined approaches for multi

- state coordination while maintaining transparency and assuring that the CO 2 emissi on performance rates or state CO 2 emission goals are achieved.

The EPA is finalizing two approaches that allow states to coordinate implementation in order to meet the emission guidelines , as d e scribed in s ection VIII.C .5 of the final rule preamble of the CPP

. In response to comments, the EPA is also further clarifying how multi

- state plans with a joint goal for affected EGUs may be implemented. The EPA is clarifying that states may participate in more than one multi

- state plan, if necessary, for example, to address affected EGUs in states that are served by more than one ISO or RTO. The EPA is further clarifying that a subset of affected EGUs in a state may participate in a multi

- state plan. These clarifications are discussed in section VIII.C.5.d of the f inal rule preamble of the CPP and the forms of submittal that states may choose for a multi

- state plan are discussed in Section VIII.E.4 of the final rule preamble of the CPP

. The EPA agrees that the development of a multi

- state plan may require additional time and , in this final rule the EPA is allowing for states participating in a multi

- state plan to submit a request for a 2 year extension as described in Section VIII.E.2 of the final rule preamble of the CPP

. While the final rule does not explicitly req uire numerous state agencies and other organizations to work together in a regulatory context , the EPA encourages states to work engage key stakeholders as they develop their plan. EPA does not require the inclusion of an interstate enforcement mechanism. Specific details regarding the elements required in a multi

- state plan are described in Section VIII.E.4 of the final rule preamble of the CPP. In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources
t ied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines which better reflects the regional nature of the grid and does not include demand

- side EE in the calculation of BSER , the MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with th e use of MWh

- denominated Emission Rate Credits (ERCs) in the
rate

- based emission trading framework specified in this rule. The MWh accounting method addresses interstate effects, because it inherently accounts for how generation replacement and CO 2 emissio n reduction impacts may cross state borders and is indifferent to avoided CO 2 emission rates; it creates the same number of zero

- emitting credits or adjustment for each MWh of energy generation or savings, wherever they occur.100 An ERC is issued separately f rom any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourag es the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

The EPA received a number of comments from states and stakeholders abo ut the value of the EPA’s support in developing and/or administering tracking systems to support state administration of rate

- based emission trading systems. This could include regional systems and/or a national system. The EPA is exploring options for pro viding such support and is conducting an initial scoping assessment of tracking system support needs and functionality.

The EPA will also provide support and technical resources to assist states as they develop For more information about specific methods t o adjust the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for interactions between E RCs and RECs, are in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation and demand

- side EE.

The following are summaries of the specific public comments under this comment:

Commenter s supported multi

- state coordination for compliance, stating that multi

- state approaches will encourage more efficient and cost

- effective compliance options. Commenters noted that there have been several successful multi

- state programs, such as regional haz e regulations and RGGI. Commenters supported allowing states the flexibility to design programs that allow for multi

- state collaboration, including mechanisms to trade RE and EE credits, or agreements to allocated avoided emissions from RE and EE. Commente rs suggested that EPA clarify the variety of collaborative options available to states to encourage participation in multi

state plans. Commenters inquired whether multi

- state arrangements needed to include an interstate enforcement mechanism. Commenters a sked that EPA provide guidance on the full range of potential multistate approaches, including agreements about renewable energy and energy efficiency, frameworks allowing emission reduction credits to cross state lines, and joint state plans. Commenters s uggested that EPA and DOE make available information about regional electricity flows and interstate impacts of state programs to support collaboration, and provide guidance on how states can collaborate regionally. Commenters also supported providing an e xtended timeline for development of a multi

- state plan.

Commenters supported multi

- state coordination to address multi

- state utilities. Commenters stated that a utility with compliance obligations arising from both 111(d) and RPS laws in multiple states c annot retire a REC for RPS compliance in one state (where the RPS is part of the101 state's plan) and submit the same REC or MWh for another state's 111(d) compliance, without a multi

- state agreement that ensures the total level of emissions reductions remain s the same. Commenters noted that if states have combined their compliance obligations in a manner that ensures equivalent total emissions reductions, this approach could provide a low cost, efficient course of action.

Commenters asserted that the proposed rule did not provide enough information on how states may develop multi

- state agreements. Commenters urged that in states where no multi

- state program currently exists, EPA's proposed guidelines will require numerous state agencies and other organizations to work together in a regulatory context. Commenters noted that due to the complexity of these multi

- state arrangements, the widespread usage of this approach in the near

term is unlikely. Commenters further agreed with the proposed approach to apply actu al CO 2 emissions to the state in which they are generated. However, c ommenters also stated that it is problematic to limit compliance to only those actions within a state's borders when it comes to renewable electric generation. Commenters requested that t he state's compliance plans allow for interstate transfer of carbon

- free generation (MWH) or the credit for this type of generation, and that EPA establish procedures in their final regulations that provide clear guidance on the process in which carbon

- fre e generation could be tracked on an interstate basis. Commenters further suggested that EPA consider being "the clearinghouse" for carbon

- free generation tracking, to ensure the transferred MWH are accounted for. Commenters argued that this approach would expedite the use of interstate renewable generation without the need for lengthy negotiations between state agencies.

Finally, Commenters expressed concern with the proposed rule's recommendation to require states that are net importers of power to transf er or discount the reductions achieved by end

- use EE programs to the states where the generation occurs. Commenters argued that the transferring or discounting process was unnecessarily burdensome; specifically, Commenters argued that it is unnecessary to add the burden of determining the generating source for each MWH consumed in every state, since Building Block 4 establishes the same 2030 annual cumulative energy efficiency target of 1.5% for all states. Commenters requested that EPA allow states to adju st their MWH generated by the state's achieved level of end

- use EE.

Comment 2 : Multi

- state approaches should include a process to address states joining/leaving the arrangement.

Response 2 : The EPA agrees that a multi

- state approach should include a process to address states joining or leaving a collaborative process or arrangement and provides explicit details in Section VIII. E.7.a of the final rule preamble of the CPP

. The following are su mmaries of the specific public comments under this comment:

Commenter s stated that multi

- state approaches should include a process to address states joining or leaving a collaborative process or arrangement. Commenters recommended that EPA work with states to identify "on

- ramps" and "off

- ramps" in multi

- state plans. Commenter s recommended that EPA provide guidance on how states could use a plan revision or other102 mechanism to join or form future multi

- state collaborations. Commenters expressed concern with h ow complying states in a multi

- state arrangement would deal with potentially non

- complying
states.

Comment 3 : Comments on how state compliance play s into compliance in other regional markets.

Response 3 : In the final rule, mass

- based plans rely exclusively upon reported stack emissions for determining whether a mass

- based CO 2 emission goal is achieved by the state or affected EGUs while for rate

- based plan compliance, the final rule specifies a general acc ounting approach where quantified and verified MWh impacts of qualifying zero

- emitting and low

emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate. The final rule does not explicitly require an asse ssment of how state compliance plays into the compliance of other regional markets as it is not relevant to compliance with the final rule. For more information about plan performance demonstration, see Section VIII.F.2 of the final rule preamble of the CP P

. The following are summaries of the specific public comments under this comment:

Commenters asked the EPA to consider not only whether states are meeting their own compliance goals, but also how state goals would play into the compliance of other regional markets.

Comment 4 : The EPA should emphasize model plan components to facilitate state dep loyment of renewable energy and demand

- side energy efficiency

. Response 4 : In the final rule, the EPA encourages the use of renewable energy and energy efficiency to meet a mass

- based or rate

- based approach. Construction and use of renewable energy in a ma ss

- based state can replace affected EGU generation and help bring the state closer to compliance. Under a rate

- based approach, t he final guidelines provide specific detail regarding criteria, eligibility and measurement and verification requirements relate d to the renewable energy and energy efficiency measures that may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Th e final rule also describes how and under what circumstances , under a rate

- based state plan approach, eligible renewable energy and demand

side energy efficiency may be issued an emission rate credit that can be used in a rate

- based trading program.

EPA i s proposing a rate

- based and a mass

- based model rule for potential use by any state. The proposed model rule includes a set of presumptively approvable EM& V provisions that, if adopted, will likely satisfy the broad requirements for quantifying and verifying savings established in the final emissions guidelines. These provisions address a broad range of EM&V components, such as the application of protocols a nd guidelines, usage of EM&V methods,103 determination of effective measure life (EUL), and others. Taken together, these provisions constitute a presumptively approvable approach for using demand

- side EE to generate “emission rate credits” (ERCs) for use in state

- led emission trading programs, and to otherwise adjust an EGU or statewide emission rate (consistent with the state plan submittal). To help states and EE providers satisfy the model rule provisions for EM&V, the draft EM&V guidance provides addition al detail on options and approaches for implementing the provisions.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to ad just a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings

. For more information about the EM&V provisions proposed for the model rule an d the draft guidance document, see S ection IV. D .8 of the preamble to the proposed Federal Plan and the draft guidance document.

The following are summaries of the specific public comments under this comment:

Commenters asserted that EPA should emphasize model plan components to facilitate state deployment of renewable energy and demand

- side energy efficiency

. Commenters also requested that EPA specify minimum criteria or requirements for each policy approach to ensure enforceability.

Comment 5 : Concerns with state

- by

- state approach; rule must recognize complexity of ownership of EGUs generating RE and differing regulatory structures between states

. Response 5 : EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- bas ed CO 2 goals from the one used in the proposal to better reflect the regional nature of the grid among other things. Consistent with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines quantified and ver ified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or ou tside the state or territory. The final rule allows interested states to participate in interstate trading programs depending upon the type of approach the state selects and specifies a unique acceptable unit of trading under a rate

- based approach, the emi ssion rate credit (ERC), a tradable compliance unit representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state r enewable portfolio104 standards. The EPA is aware of the potential for interactions between ERCs and RECs and
encourages but does not require that the states to consider, when developing their state plan, how existing instruments that are used to meet other r egulatory requirements or in voluntary markets may interact with ERCs.

As described in the summary of major provisions section of the final rule (Section I.A.3), the EPA recognizes that each state has differing policy considerations

– including varying reg ional emission reduction opportunities and existing state programs and measures

– and that the characteristics of the electricity system in each state (e.g., utility regulatory structure and generation mix) also differ. Therefore, as in the proposal, each state will have the latitude to design a program to meet source

- category specific emission performance rates or the equivalent statewide rate

- or mass

- based goal in a manner that reflects its particular circumstances and energy and environmental policy obj ectives. Each state can do so on its own, or a state can collaborate with other states and/or tribal governments on multi

- state plans, or states can include in their plans the trading tools that EGUs can use to realize additional opportunities for cost

sav ings while continuing to operate across the interstate system through which electricity is produced. A state would also have the option of adopting the model rules for either a rate

- or a

mass

- based program that the EPA is proposing concurrently with this action.

The final rule clarifies a role for ISO/RTO assessment of reliability implications as states develop their plans as specified in Section VIII.G.2.c of the final rule preamble of the CPP

. For more information about specific methods to adjust the C O 2 emission rate of an affected EGU to reflect renewable energy generation and energy efficiency, including eligibility requirements for resources that can be used to adjust a CO 2 emission rate, see Section VIII.K.1 of the final rule preamble of the CPP

. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, and a discussion of addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 o f the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of t he CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings.

The following are sum maries of the spec ific public comments under this comment:
Several commenters expressed concerns regarding the use of a state

- by

- state approach to achieve compliance given the presence of interstate effects. Commenters noted that the proposed goals, which are state

- based, fail to account for the fact that the national electricity system operates across both state and/or tribal lines.

Commenters asserted that EPA must clarify that all non

- emitting energy and associated credits/attributes may be used in any state for compliance, and that the owner of the generation has the sole right to determine when and where to use the eligible generation and/or its105 credits/attributes for compliance. Commenters argued that no state should be able to unilaterally claim a ri ght to utilize generation, credits, or attributes to which it does not directly have title. Commenters asserted that utilities have developed their portfolio of resources to achieve certain goals and have been free to choose such resources based on where t he resource is located, the nature of the resource, the capital costs, the operating costs, available transmission, permitting and land use acquisition, and other factors. As such, Commenters argued that the final rule should in no way authorize the interf erence with contract or property rights of utilities to their own generation, and that utilities should be free to use the non

- emitting resources and attributes in interstate commerce without fear of any state

- imposed restrictions. Commenters made similar comments with respect to energy efficiency, stating that EPA must make explicit that energy savings must also be available for compliance in any state, regardless of where the savings occur, and that the proposed rule does not authorize states to interfere with the contract, property rights, or usage of energy savings in which utilities have made investment. Commenters urged EPA to provide in the final rule that renewable energy credits would be initially allocated to the entities that own the right to use or sell the renewable power associated with such credits.

Commenters expressed concern that the state

- by

- state approach negatively affects resources located in states and owned by entities that do not serve retail load or have retail service territory in t hat state. Commenters noted that if each affected resource in a state must comply with the state's plan, the entity would not have the ability to apply lower

- cost compliance methodologies without EPA support of flexible allocation of RE and EE compliance a ttributes among entities in the state. Commenters argued that the approach in the proposed rule will prevent utilities from constructing renewable resources, because there are no assurances that those resources can be used to achieve compliance with CO 2 reduction goals in the various states in which they operate. Commenters remarked that the proposed rule limits utilities to the interests of states, which could limit renewable resources to those located within state borders. Commenters urged that this co uld discourage utilities from investing in clean energy in a state if the energy credits are not transferable, and would force utilities to locate renewables only in the states where they emit CO 2 , which could increase costs.

Commenters asserted that ener gy

- importing states would be at the mercy of another state's plan to comply with the rule. Commenters suggested that a neighboring state could consider moving a large share of the compliance costs to consumers in an energy

- importing state to meet its goals

. Commenters stated that this could have unintended impacts on organized markets that cross state borders, and give certain states and unfair economic advantage. Commenters stated that the proposed rule requires states to make substantial carbon reduction s to in

- state generation fleets that often include units that serve only other States

. Commenters stated that the proposed rule potentially places those facilities at a disadvantage compared to in

- state facilities that are used to serve in

- state customers. Specifically, c ommenters urged that the proposed rule could create substantial additional stranded costs for these facilities.

Commenters provided that utilities in a tribal area may be owned by participants in neighboring states, by both private and publ ic participants, and may include utilities with operating facilities located in multiple jurisdictions. Commenters argued that the proposed rule fails to provide clear rules on how multi

- jurisdictional entities will be regulated and receive credit for redu ctions. Commenters ) also asserted that the proposed rule only proposes default rules on calculations for states plans as a whole, and ignores non

- state entities that operate across state line or multi

-106 jurisdictional entities. Commenters argued that utiliti es which reduce coal by increasing low

emitting or zero

- emitting generation do not receive any credits for such reductions because they are not the EGU operator.

Commenters also stated that the proposed rule appears to assume that the procurement of RE
sto ps at state boundaries, and does not recognize the complexity of sources and ownership partners that must be taken into consideration with developing an implementation plan. Commenters reiterated that states procure electricity through RECs from EGUs that are diverse in terms of geographic location, fuel source, and ownership partners, including large for

- profit investor owned utilities, municipal utilities, and multi

- state cooperatives. Commenters also noted that these states may include EGU and transmissi on facilities within multiple regional transmission organizations. Commenters argued that the complexities of EGU ownership will complicate development of appropriate state plans, and may warrant more time for development.

Commenters asserted that the sta te

- by

- state approach is at odds with an interconnected, inter

state wholesale market where power is routinely produced in one state and consumed in another, and where a transmission system may be interconnected with several transmission and power authoriti es. Commenters also noted that the FERC has been actively establishing policies and regulations that encourage vibrant wholesale markets and it is not clear how to reconcile these policies with EPA's emissions reduction proposal.

Commenter s stated that the way the Proposed Guidelines are written, EE and CO 2 reduction requirements are calculated on a state basis; but EE impacts generation requirements that are realized on a cross

- state border system basis. Commenters stated that EE benefits (avoided
energy a nd capacity) impact a utility operating company's entire system. Commenters noted that the generation system for a utility may be located in different states, whereby establishing carbon reduction goals on a state

- by

- state basis may lead to cross

- subsidiza tion between states with respect to EE program costs. Commenters stated that the Proposed Guidelines do not include the specifics for utilities in RTOs/ISOs, other than that the RTOs/ISOs will help the states develop their plans. Commenters contended that the Proposed Guidelines are so vague on this point that it is difficult to provide meaningful comments regarding RTOs/ISOs and the impact of EE. Also,

c ommenters stated that the Proposed Guidelines do not differentiate between retail choice states and vertically integrated states, which will greatly impact the extent to which RTOs/ISOs will need to participate. Commenters stated that in retail choice states like O hio, where the utility customers are purchasing retail generation from Competitive Retail Electric Service (CRES) providers, it is unclear how the CO 2 requirement will be calculated as the CRES provider may be located in a different state. Therefore, Comme nters encouraged EPA to develop guidelines that contain sufficient detail so that electric utilities have the opportunity to understand how these rules impact them and their customers before being implemented. Commenters contended that the lack of detail i n the Proposed Guidelines has the effect of creating significant uncertainty as to how these requirements will impact their electric power producing company and in turn, will likely increase the costs of providing electric service.

Commenters stressed the importance of recognizing the inherent differences in rate

- based versus competitive energy markets and the need to provide for electric grid reliability. Commenters noted that there will be issues between EGUs in states that operate in a competitive energy market and EGUs in states that operate in a rate

- based market that EPA must consider in a107 balanced way. As an example, c ommenters asked how the Clean Power Plan Rule will achieve economic and regulatory parity based on the expanding zone of influence of R egional Transmission Organizations (RTOs). Commenters questioned whether EPA could extend its regulatory authority in order to influence decisions made by RTOs, and how state agencies are to regulate decisions made by RTOs.

Comment 6 : Unfair or unequal obligations among states; proposed rules would engender conflict among states.

Response 6 : In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. This ensures that affected EGUs receive full recognition for their investments even if the impacts occur elsewhere

, removes the need to determine exactly which EGUs reduced and changed power generation in response to the zero

emitting or low

- emitting resource and ensures that quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitt ing resources are applied consistently across all affected EGUs . T he accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. The accounting method only requires a quantification of the MWh generated or avoided by an eligible measure, and thus credits or adjustments can be denominated in MWh and do not need to represent an approximation of the CO 2 emission reductions that result from those MWhs. This creates a crediting system or rate adjustment process that is simpler to implement than one that requires an approximation of avoided CO 2 emissions. The MWh accounting method also creates a crediting s ystem or rate adjustment process that is indifferent to the rate

- based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards.

For more informatio n about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP . Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewabl e electricity generation or demand

- side EE savings . For more information about Interstate effects, see section VIII.L of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commenters asserte d that EPA's Proposed Guidelines would impose unfair or unequal obligations or engender conflict among the states. Commenters argued that EPA has proposed conflicting approaches to crediting RE and EE reductions and for the treatment of individual108 state vs . multi

- state plans. Commenters provided as an example the difference between the proposed approach for states to take into account all RE measures implemented for purposes of compliance with a RPS (regardless of whether the RE is generated in

- state or out

- of

- state) and the proposed approach to limit credit for EE

- related emission reductions to in

- state activities only. Commenters argued that the proposed rules are overly simplistic and, as proposed, would create serious problems for states. Commenters expr essed concerns that states may have significantly different proposed carbon intensity goals and other unique characteristics, which would impose unworkable interstate compliance demonstration and recordkeeping obligations on utilities

. Commenters specifica lly noted that utilities with regional territory or ownership crossing the state lines of New Mexico, Texas, and Arizona could result in impossible compliance demonstration.

Comment 7 : Rule does not credit non

- RE energy and should treat all power fairly for accounting purposes.

Response 7 : The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal. In order to ensure consistency with the calculation of CO 2 performance r ates and state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

emitting resources

, tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. This ensures that affected EGUs receive full recognition for their investments, even if the impacts occur elsewher e, removing the need to determine exactly which EGUs reduced and changed power generation in response to the zero

- emitting or low

- emitting resource

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect renewable energy and eligibility requirements for resources that can be used to adjust a CO 2 emission rate , including the eligibility of nuclear, hydropower and international RE in Section VIII.K.1 of the final rule preamble of the CPP

. For more informatio n about how the rule and accounting method addresses interstate effects, see Section VIII.L of the final rule preamble of the CPP

. .
The follow ing are summaries of the specific public comments under this comment:

Commenters stated that EPA did not address interstate accounting of CO 2 reductions associated with interstate implications related to the trading/transmission of all power, not just RE and EE measures and regardless of the fuel used to generate it . Comment er s stated that EPA also did not address accounting of CO 2 reductions associated with international implications.

Commenters stated that nuclear power is transmitted across state and international boundaries and are one way that states reduce the need to build higher

- emitting in

- state base load resources.109 Commenters stated that, to the extent that power from new and existing nuclear units could be included in state compliance plans, interstate "imports" of nuclear generation could be a potentially importan t compliance tool that EPA should recognize. Commenters (stated that EPA should treat different types of generation (e.g., fossil or nuclear generation) fairly for "crediting" purposes, and treat MWh as they are purchased or conveyed across state lines in a similar manner for accounting purposes.

Commenter s stated that failure to recognize the interstate impacts of nuclear generation could create significant compliance challenges for neighboring states. Commenters stated that if nuclear units that serve mu ltiple states are prematurely retired, before the estimated 80 year operating period used in the proposal, all of the states that consume power from these units could face unexpected compliance challenges. Commenters stated that these states may have to in crease generation from existing affected fossil

- based units to replace the nuclear generation and the state may no longer be able to demonstrate that it is reducing its emission rate consistent with its projected compliance glide path, unless the additiona l fossil

- based units were accounted for in the state plan.

Commenter s stated that many states rely on that region's extensive network of federal and Canadian hydropower facilities to keep emissions low and to minimize the need to build higher

emitting bas e load resources. Commenters stated that these important interstate and international uses of hydropower generation have no role in compliance under the proposed section 111(d) guidelines. Commenters contended that, to the extent that EPA allows hydropower to be used for compliance, the Agency should recognize that, like other renewable generation, this power is transmitted and traded across interstate and international boundaries. Commenters stated that the continued operation of existing hydropower genera tion is critical to the achievement of the state emission rate goals for many states and if this generation had to be replaced, this could create significant compliance challenges for many states.

Commenter s stated that some states have taken steps to dec rease imports of coal

- based electricity by replacing this power with that generated by new, in

- state NGCCs. Commenters stated that not only do the proposed guidelines not recognize this interstate issue, they saddle states that already have made investment s in new NGCCs with stringent standards, which decreases CO 2 emissions, but increases in

- state emission rates.

Commenter s stated that EPA's proposed guidelines place the entire burden of reducing emissions from existing affected units on the state in whic h an affected EGU is located. Commenters stated that this does not recognize that power from in

- state EGUs often serves customers in other states and unfairly saddles some states with the obligation to reduce emissions related to the power consumed in othe r states.

Commenter s stated that energy with and without renewable characteristics is imported and exported across state boundaries and EPA must put forward a workable solution for EGUs that participate in multiple state markets. Commenters stated that th e liability for emissions is tied jurisdictionally to the state in which the emissions are generated even though the energy may be, consumed across a wide geographic region. Commenter s stated this forces an exporting state to accept the emissions burden of an exporting unit, including the burden to achieve the necessary reductions to achieve the state goal, even though the state itself uses only a portion of the energy.110 Commenters stated that because EPA has developed a system approach one that crosses stat e boundaries

- but relies on states to address emissions from units whose benefits cross borders, the liabilities and benefits are mismatched. Commenter s stated that unlike RECs which states will seek to claim, fossil fuel energy consumed in another state will be perceived as a liability in the state in which the energy is generated, creating another set of equity issues for EPA to resolve.

Commenter s stated EPA's proposed model for dealing with multistate projects envisions that CO 2 would be accounted for in the state in which it was emitted even though that may burden the ''jurisdictional" state and provide no benefit. Commenters stated that an owner who has paid for a low

- carbon

- intensity resource located in another state should get the benefit of that l ow intensity

resource. Commenters asserted that transferring a portion of that liability to a purchasing state must be done by rule. Commenters stated that no state would voluntarily add to its compliance reduction burden or allow a low intensity resource to be pilfered away.

Commenter s believed that under the proposed state

- by

- state compliance approach the CO 2 emissions from fossil

- fired units should be credited to the state where the electricity from that unit is consumed.

Commenter s stated that the EPA has been unclear on how types of generation including nuclear will be credited to states in meeting carbon dioxide emission targets. The commenter s stated the EPA should provide clear standards for how each type of generation resource will be credited, and ensure that credit is consistent with goal setting.

Commenter s stated that the draft rule offers no credit or recognition of nuclear power plants'

zero

- emission generation to owning partners outside of the states in which these plants are located The commenter s stated that the proposed rule does not appropriately recognize nuclear assets as a whole or to its owner and their customers. The commenter s recommended to provide

zero

- emission credit for their commitment. The commenter s sugges ted that the final rules should ensure that the states establish credit for compliance purposes by allowing the MWh obtained from nuclear power, as delivered based on ownership, to those corresponding states. The
commenter s stated that this approach would directly serve and support the EPA's principal objective of ensuring continued operation of the nation's largest source of carbon

- free generating capacity.

Comment 8 : The EPA should clarify how to split emissions for co

- owned fossil

- fuel utilities that pr ovide power to multiple states ; address reliability concerns
Response 8 : On reliability concerns, during t he development of the final rule, EPA officials worked closely with DOE and Federal Energy Regulatory Commission (FERC) officials to ensure, to the gr eatest extent possible, that actions taken by states and affected EGUs to comply with the final rule mitigate potential electric system reliability issues. Senior EPA officials met with each of the FERC Commissioners and EPA staff had frequent contact with FERC staff throughout the development the rule. FERC held four technical conferences to discuss implications of compliance approaches to the rule for electric reliability. EPA staff attended the four conferences and EPA leadership spoke at all of them. Th e EPA, DOE, and FERC will111 continue to work together to ensure electric grid reliability in the development and implementation of state plans. For more information about reliability considerations, see Section II.D and for more detail about EPA consultation s about reliability, see Section II.K of the final rule preamble of the CPP

. The following are summ aries of the specific public comments under this comment:

Several commenters requested clarification on how to split emissions from co

- owned fossil

- fuel fired plants that provide power to multiple states. Commenters stated that it is unclear how compliance requirements for these utilities would be addressed, especially where a utility may have conflicting compliance requirements based on the regulations of two different states. Commenters requested whether a specific agreement or trading scheme with each state would need to be negotiated, or whether one state would be required to absorb all emissions.

Commenters stated that failure to account for electric utilities whose operations traverse state boundaries and serve r etail customers in multiple states will result in stranded costs and additional costs. Commenters provided as an example the state of Virginia, which may be affected by the carbon emission rates set in West Virginia, Ohio, and North Carolina based on

co

- ow ned operations that traverse these states and serve Virginia customers.

Commenters urged that if states are not provided with reasonable emission rates and flexibility to achieve compliance, states could face additional costs for the construction and oper ation of new generation need to replace generation affected in other states. Commenters argued that the reliance on developing state plans with respect to generation located within the state borders does not match up with how electricity flows between stat es. Commenters specifically expressed concerns about North Carolina's system

- wide dispatch, which is based on ownership by multiple investor

- owned utilities that are located in and serve portions of both North and South Carolina, and uses least

- cost dispat ch to cycle EGUs between the states to reduce costs. Commenters provided as an example a case where South Carolina's compliance plan may require early retirements of the IOU generating units in its state (without needing North Carolina's input on the devel opment of the plan), which could result in North Carolina ratepayers paying for both early retired generation plants as well as for new generation to meet demand, as well as disruptions in reliability.

Commenters stated that the heavy reliance on state pla ns without clear guidance fails to address

cross

- border issues for utilities, such as the interstate transfer of RE/EE credits by the owner of the generation or energy savings. Commenters argued that RE and EE credits/attributes must be treated fairly and the utility or third party that owns the credits must be allowed to exercise its property rights to use those credits in any state of its choice. Commenters asserted that this fairness is essential to the effectiveness of integrated resource planning in wh ich utilities carefully plan how to meet their obligation to provide reliable electric service in an economical and environmentally sensitive manner.

Commenters noted that the proposal specifically fails to take into account the issues that may arise among co

- owners of NGCC units for compliance with building block 2. Specifically, Commenters noted that each owner of an NGCC unit would have a different set of needs, expectations, and contractual obligations, especially where owners have competing interests a nd112 obligations in other states. Commenters provided as an example a situation where a partial owner of NGCC units may prefer to operate an out

- of

- state NGCC unit to meet its demand instead of an in

- state unit, even if the in

- state unit is needed to comply with the in

- state reduction goals. Commenters provided a scenario in which a utility located in one state builds an NGCC unit in another state where the affected EGU would be in one RTO and the NGCC and load in another. Commenters stressed that the propose d rule does not provided guidance on how the utilities or the RTO must deal with dispatching power from a generator in one RTO to reduce emissions of an EGU in another RTO.

Comment 9 : Proposed rule does not address interstate reserve

- sharing agreements.

Response 9: EPA believes it has been clear that sources are responsible for emissions; if the source is in a state, its emissions will be covered under the state plan

. See the section VIII.C of the final preamble to the CPP

. However, the rule gives considerable flexibility to states to determine just how the emissions from the source will be treated in the context of a sharing arrangement

. For example, the source could purchase emissions rate credits, or some other means of complying decided upon by the state plan. These arrangements could address the specifics of existing agreements to ensure that sharing commitments amount parties to the agreements could be met.
The following are summaries of the specific public comments under this comment:

Comme nters expressed concerns that the proposed rule does not address interstate reserve

sharing agreements that are designed to ensure reliability for customers. Specifically, Commenters discussed North Carolina's membership in a regional reserve sharing agree ment that allows its members to pool reserve generation resources on a prorated basis, which commits multiple balancing authorities to maintain a share of sufficient reserves to maintain system stability. Commenters provided that North Carolina's balancing authorities meet their reserve obligations by having hydro, including pumped storage hydro power plants and fast

- starting combustion turbine plants, available to start or ramp up, which are not affected EGUs under the proposed rule. Commenters stated that the proposed rule raises the question of whether the emissions related to the power that is used to replenish the pumped water would be attributed to North Carolina, or to other states in the reserve

- sharing agreement that benefit from the reserve

sharing event.

Comment 10 : The EPA should prohibit states from discriminating against out

- of

- state imports of electricity.

Response 10 : In the final rule, to the extent qualifying RE generation and demand

- side energy efficiency measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. It is not necessary to determine the emission impacts of the MWhs as they will be reflected in the reported stack CO 2113 emissions of affected EGUs. The MWh accounting method addresses interstate effects, because it inherently accounts for how generation replaceme nt and CO 2 emission reduction impacts may cross state borders and is indifferent to avoided CO 2 emission rates; it creates the same number of zero

- emitting credits or adjustment for each MWh of energy generation or savings, wherever they occur.

Details re garding the accounting approach for adjusting CO 2 emission rate is included in Section VIII.K.1 of the final rule preamble of the CPP

. Requirements related to measurement and verification of qualifying MWhs are described in Section VIII.K.3. A full discus sion of treatment of interstate effects under the final guidelines is included in Section VIII.L of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenters expressed concern that based on the proposed rules requirement for states to implement programs that reduce carbon emissions from generation sources within state borders, some states may attempt to shift compliance costs by shifting those reductions to imported
power. Commenters noted th at an issue may arise where an entity with a compliance cost for generation in one state exports that power into another state and is charged additional compliance costs for the export of power into the receiving state. Commenters requested that EPA prohib it states from discriminating against out

- of

- state imports of electricity; specifically, Commenters requested that for power generated in an exporting state where there is a price on carbon emissions from generation sources, the importing state should be r equired to deem the generated power to have a zero carbon footprint upon being imported. Commenters recommended that EPA require each SIP to contain a non

- discrimination clause for any state importing or exporting power from another state when both states are compliant with the rule

. Commenters further urged that EPA could enforce such a provision by withholding approval of a SIP if the state plan is not set up with such a clause.

Comment 11 : Tribal & Territorial Treatment of energy flows from international generation (RE and fossil

- fuel).

Response 11 : T he final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

- emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. The EPA will work with states using the rate

- based approach that are interested in allowing the use of RE from outside the U.S. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, see section VIII.K of the final rule preamble of the CPP

. The same section also describes the eligibility requirements and conditions for resources to be used to adjust a CO 2 emission rate, including specif ic discussions regarding hydroelectric power and eligibility for the use of RE from outside the U.S . The rule describes the requirements and114 criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in Section VIII.K.3 of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Several commenters remarked on the appropriate treatment of energy flows across international borders. Commenters noted that Canada is a significant supplier of RE to the United States, while other c ommenters noted that Mexico has the potential to increase its export of RE to the United States in the form of wind energy. Commenters n oted many Ameri can utilities rely on Canadian hydropower to offset fossil fuel

- fired generation, and that Canadian hydropower is already sold into regional electric markets. Commenters commenting on the Tribal and Territories Supplemental Notice, stated that internationa l imports of RE (or other qualifying resources) should be equally recognized as CPP compliance options. Commenter s also stated that EPA should also allow the use of RE purchased from other countries for compliance with the CPP. Commenters stated that there is large potential for expansion of wind and hydropower capacity in Canada and if EPA does not allow cross

- border RE to count towards compliance, these carbon

- free resources may go undeveloped.

Commenters stated that if a state or region relies on intern ational RE, then the RE potential should be identified and included in the state or region's target setting and state plan. C ommenters supported treating RE imported to the United States similarly to RE generation within the United States, and be allowed t o take credit for the imported RE. Commenters iterated that because the rule allows for out

- of

- state renewables to be counted toward a state's emissions targets, the rule should be expanded to explicitly include out

- of

- country renewable resources. Commente rs stated that states should be allowed to include policies in their state plans that take into account existing hydropower generation, just as existing wind and solar energy resources are available as options for state goal compliance. Commenters also sta ted that the plan should allow a state to designate out

- of

- nation hydro as an eligible renewable resource. Commenters stated that hydropower should count without limitation on size. C ommenters specified that the rule should include international renewable resources which meet Renewable Portfolio Standards (RPS) requirements. Commenters requested that EPA provide a clear statement that international renewables can be included in SIPs. Commenters noted that U.S., Mexican, and Canadian electric grids and infra structure currently rely on each other for energy supply and should continue to be leveraged to encourage the advancement of renewable energy. Commenters further argued that allowing cross

- border trade in electricity would enable states to gain access to

a more diversified portfolio of renewable resources, produced over a wider geographic area, which would mitigate issues associated with variability in renewable resources. Commenters noted that three REC registries currently encompass Canadian provinces and Mexican states. Additionally, commenter s stated that to allow out

- of

- country RE would support states which are currently looking to collaborate on the expansion of bi

- national energy markets, as well as coincide with President Obama's U.S

- Mexico Bilateral Framework on Clean Energy and Climate Change, which seeks to expand RE development along the U.S.

- Mexico border. Commenters specifically stated that RE emissions offsets should be calculated using a rigorous marginal resource modeling exercise that consid ers various scenarios and future GHG policies. Commenters provided as an example a recent study of Manitoba Hydro exports to the United States out to 2030.115 Several c ommenters also provided comments on allowing the use of RE, especially hydropower, purchas ed from Canada and other countries. Commenters argued that the ability to access hydro capacity in Canada is an important and often cost

- effective means to reduce emissions from affected EGUs. Commenters specifically noted that if they were to enter into a new PPA with Manitoba Hydro, this would be considered in their dispatch offerings and Integrated Resource Planning process and lead to lower emissions. Commenters expressed concern that if the final rule suggested that such a PPA would not have 111(d) com pliance value, or leaves this uncertain, utilities will have less incentive to shift to zero

- carbon generating resources. Commenter s recommended that imported Canadian hydroelectricity be fully credited towards achieving CPP compliance when it can be demon strated that the environmental attributes of the hydroelectricity is not being double counted. Commenters referred to a letter from Canadian Ambassador Gary Doer to EPA Administrator McCarthy that the Canadian Government's view is that the lower emissions from Canadian

- sourced electricity can serve as a useful resource to help some US regions to achieve compliance with EPA's proposed CPP requirements. Commenters also stated that Ambassador Doer also affirmed that the environmental attributes from Canadian

- sourced electricity can satisfy documentation requirements that the resource is not being double counted for the environmental benefits. Commenters stated that EPA should enable the unrestricted use of imported Canadian hydroelectricity as an approved resource creditable for satisfying EPA's CPP state BSER target compliance requirements. Commenter s stated that EPA must reevaluate the decision to not allow RE, spe cifically hydropower, imported from across national borders as a compliance option. Commenters stated that hydropower is a zero

- carbon source of energy regardless of where it is generated, and atmospheric carbon does not respect national borders. Commenter s stated that whether RE is imported or generated locally, it negates in direct one

- to

one correspondence the necessity to generate electricity through combustion of fossil fuels. Commenters stated that given the expressed purpose of the proposed rule, all such options should be allowed as compliance mechanisms, to the extent that overall carbon production from fossil fuel combustion is reduced. Commenter s added that the CPP should not create any artificial barriers to electricity trade between the U.S. and Canada, and it should facilitate the use of all clean resources. Commenters supported counting international RE towards compliance, but requested that generation from any renewable energy resource existing as of the date of the proposed rule not count tow ards compliance. Commenters stated that EPA excluded existing hydropower resources from the RE baseline and has made clear that states will not be able to take renewable energy credit for existing hydropower, and the same restriction must apply to imported hydropower. Commenters stated that although states may wish to take credit for new imports (as in new contracts) from existing renewable sources rate, for non

- hydro renewables, energy from existing sources should be treated similarly in the international and interstate
contexts.
Several commenters supported EPA's proposal to examine mechanisms to ensure that international RE generation actually offsets fossil

- fuel fired generation in the jurisdiction taking credit for that generation

. Commenters noted tha t because of the risk of cross

- border leakage, and because EGUs outside of the U.S. are not subject to the CPP, such safeguards are appropriate. Commenters suggested that EPA could address this situation by requiring the entity seeking to take credit to pr ovide evidence that the electricity generated was intended for U.S. consumption, such as through the existence of a power purchase agreement or firm transmission service rights. Commenters stated that EPA should only require that states demonstrate the dis placement of fossil

- fuel fired generating units by international resources to the extent that they116 demonstrate displacement of in

- state resources. Commenters also stated that EPA may need to work with states in order to verify increased RE imports are coup led with a decrease in power sector emissions, and that the environmental benefits of these imports are not double counted. In making these determinations, c ommenters recommended that EPA and states consider Canadian and provincial air regulations and gree nhouse gas goals, renewable energy credit tracking, economics, and other factors. Commenter s stated that for rate

- based systems, EPA could set forth appropriate parameters and safeguards to ensure that in

- state or in

- region emissions are actually reduced b y the imported RE.

Commenters addressed concerns with double

- counting resulting from imported renewable

. Commenters urged that double

- counting can be avoided either through PPA provisions that establish clear and unique ownership of the environmental attr ibutes of purchased generation, or through REC tracking on established registries, such as M

- RETS. Commenters stated that tracking systems have operating procedures in place to prevent double counting by tracking the RECs within the system and between othe r tracking systems. Commenters described the procedures that Canadian hydropower producers use to register RECs and transfer energy into the US. Commenters stated that the rules applicable to REC markets strictly preclude double counting and that the RECs allocated to U.S. customers are no longer available for any use or claims within Canada. Commenters urged that the well

- established systems of RECs have proven to be an effective means of preventing "double counting" of renewable generation. Commenters sup ported counting international RE towards compliance, particularly imported hydroelectric generation from Quebec

. C ommenters noted that because Quebec is subject to an emission cap, this helps to avoid potential double

- counting issues that may arise when

c onsidering the crediting of imported renewable power. Commenters also argued that because over 99% of the energy produced in Quebec is derived from non

- emitting hydroelectric power, importing hydroelectric power would not lead to increased generation of ca rbon emissions to meet Quebec's domestic power needs.

Commenters stated that it is inappropriate to allow international imports. Commenters stated that international imports should not be allowed because they will not reduce GHG emissions from the U.S. Co mmenters argued that if a state or region chooses to take advantage of international energy, it should not be allowed to take credit for reduced utilization of international facilities that emit more CO 2 than is allowed for designated facilities within its jurisdiction. Commenters reiterated that if U.S. jurisdictions are allowed to increase reliance on electricity generated by international fossil

- fuel EGUs to decrease utilization on U.S. facilities, the n it could create a perverse incentive that increases dirtier energy flows. Commenters requested that EPA clarify in the final rule that a designated facility may not comply by shifting generation from designated facilities to international fossil

- fuel pla nts with equal or higher CO 2 rates. Commenters acknowledged that although EPA cannot treat generation from international sources less favorably than domestic sources (per NAFTA and GATT regulations), it can treat international energy flows as though they a re domestic flows. Therefore, c ommenters reasoned that the final rule should make clear that regardless of the source (domestic or international), states must not comply by replacing generation with higher CO 2 emitting sources.

Commenters argued that the proposed rule should also consider exported carbon emissions. Commenters urged that states that export fossil fuel should be required to count the impacts of117 those exports against their progress towards the targets if the exports go to locations outside th e jurisdiction of the proposed rule.

Some commenters stated that imports and exports of RE should not be limited to contiguous states or ISO regions.

Comment 12 : Imports and exports of RE should not be limited to contiguous states or ISO regions.

Response 12 : This final rule does not in any way restrict the imports and exports of RE generation across states. Regarding whether such RE is eligible for the issuance of ERCs under a
rate

- based state plan, section VIII.K of the preamble states that all e ligible emission reduction measures, including RE generation, may occur in any state, with certain limitations. To the extent these measures are tied to a state plan these measures may be used to adjust a CO 2 emission rate, regardless of whether the associated generation or electricity savings occur inside or outside the state. Once a state has issued ERCs for that RE, then the ERCs can only be traded with state with compatible trading rules.
The following a re summaries of the specific public comments under this comment :

Commenters stated that imports and exports of RE should not be limited to contiguous states or ISO regions.

Comment 13 : The EPA should develop a model electric utility code to support RE/EE incentives.

Response 13 : The EPA appreciates the comment. RE and demand

- side EE are an integral part of this final rule, and can play a significant role in state

- plan compliance. In the discussion of state plans in section VIII, the final rule provides si gnificant detail on how states can have RE and demand

- side EE play a strong role in state plans.

The following are summaries of the specific public comments under this comment:

Commenters urged the EPA, the Department of Energy, and FERC to jointly develop a state

level model of electric utility code that incorporates RE/EE incentives for utilities (e.g., allowing higher rates of return on investments in carbon

- free power, allowances to collect a bounty on green systems connected to the grid, or being allow to keep a percentage of the savings for each kWh avoided by end

- use efficiency programs). Commenters urged that such a model electric utility code is needed for states to spur reforms and encourage utility participation in the CPP.118 Comment 14 : When modeling its compliance plan, a state should consider what its neighboring states are doing and how that might affect them.

Response 14 : The EPA agrees that, when developing their plan, a state would benefit from considering what its neighboring states are doing and how that might affect them. In the final rule, the EPA encourages states to collaborate formally or informally, considering the potential benefit of a regional or multi

- state plan. For more information about multi

- state plans, see Section VIII.C .5 of the final rule preamble of the CPP

. For specific requirements related to developing a state plan projection, see Section VIII.D.2.a . ( 3) of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this co mment:

Commenter s mentioned that "state compliance plans should address how their compliance activities affect and interact with neighboring states" including "the expected change in the net electricity imports to a state." Commenter s stated that quantitat ive modeling should be done if practical and qualitative and analytical evaluation might be sufficient as long as the state considers its own and neighbors plans with regard to: complying with assigned emissions rate targets; participating in a regional em issions rate averaging program; converting assigned emission rate targets into state

- specific emissions caps; and converting assigned emission rate targets to caps to join a regional cap

- and

- trade program.

Comment 15 : Commer ce Clause implications of interstate trading

Response 15 : EPA assumes that commenters’ reference to the “potential Commerce Clause issues” with cross

- state crediting is a reference to the “ dormant ” or “negative” Commerce Clause doctrine. That doctrine concerns limitations on the po wer of states

— absent federal authorization

— to enact laws that discriminate against interstate commerce either facially or in

effect. With respect to interstate crediting, s ection VIII.K.1.a(2) of the final rule preamble explains the eligibility requirement s for resources used to adjust a CO 2 emission rate, including the geographic eligibility requirements. Eligible emission reduction measures may occur in any state, with certain exceptions described in that section. For the reasons stated in sections V.A

– B and VIII.L of the final rule preamble, and in the Legal Memorandum accompanying the final rule, trading of credits or allowances

— both interstate and intrastate

— is permissible under the federal regulatory scheme authorized by Clean Air Act section 111(d ). A ccordingly, there are no dormant Commerce Clause issues for a trading program included in a satisfactory state plan approved pursuant to federal law. See, e.g., Hillside Dairy, Inc. v. Lyons, 539 U.S. 59, 66 (U.S. 2003) (citing Prudential Ins. Co. v. Benja min, 328 U.S. 408 (1946) ) (“Congress certainly has the power to authorize state regulations that burden or discriminate against interstate commerce”) ; Ne. Bancorp. v. Bd. of Governors of Fed. Reserve Sys., 472 U.S. 159, 174

– 75 (1985) (state action authoriz ed by federal law is “invulnerable to constitutional attack under the Commerce Clause).
The following are summaries of the specific public comments under this comment:119 Commenters asked, in the context of cross

- state crediting for EE and RE, if the EPA has evaluated potential Commerce Clause issues.

Comment 16 : Emissions leakage from state to state; States should have additional compliance obligations to account for inter

- state leakage. CPP will limit leakage and level the playing field.

Response 16 : There are other ways in which differing characteristics across states and sources could create risks of increased emissions under this rule through double counting of emission reduction measures or through foregone emission reductions due to movement of ge neration from one affected EGU to another affected EGU

. The final rule addresses these concerns: first, through the characteristics of goal

- setting and the framework of state plans, and second, through specific requirements intended to minimize the risk of double counting and increased emissions. More information on these concerns is provided in section VIII.L of the preamble.

The final rule also specifically deals with the issue of emissions leakage to new unaffected sources, and how it affects the equivalence of rate

- based and mass

- based goals to the CO2 emission performance rates as an expression of BSER. Under this final rul e, states have the opportunity to adopt rate

- based or mass

- based state goals as their emission standards as an alternative to the CO2 emission performance rate s. The final rule demonstrates how the rate

based and mass

- based state goals that the EPA has c alculated are an equivalent expression of BSER as compared to the CO2 emission performance rates. As part of this demonstration, the EPA shows how the goals equivalently provide incentives to generate to existing affected EGUs and new sources, otherwise th e form of the goal could result in emission leakage (defined in section VII.D)

.
The rate

- based goals included in the final rule minimize leakage because under a rate

- based state goal, similar to the subcategory

- specific emission performance rates, existing lower

- emitting affected EGUs, primarily NGCC, are incentivized to increase thei r utilization in order to improve the average emission rates of affected EGUs overall. New units that are not subject to the rate

based state goal, and that are not an allowable measure for adjusting an EGU’s CO 2 emission rate, will not experience this inc entiv e to increase utilization. A s a result, the imposition of a
rate

- based goal on affected EGUs is unlikely to encourage increased generation and emissions from unaffected new EGUs as compared to the CO2 emission performance rates

.

Mass

- based goals for existing sources, incur a leakage risk to the extent that they incent generation shifts from affected EGUs to unaffected fossil fuel

- fired sources in a way that has a potential for leakage and may not be an equivalent expression of BSER. This occurs becaus e, unlike in a rate

- based system where rate

- based averaging lowers the cost of generation from existing NGCC units relative to generation from new NGCC units, in a mass

- based system the allowance price increases the cost of generation from existing NGCC un its relative to generation from new NGCC units. The final rule addresses this concern by requiring states that adopt mass

based state goals to demonstrate that they have addressed leakage in their state plan. In Section VII.D of the final rule preamble of the CPP , the EPA details the concerns regarding leakage in state goals and specifies that potential emission leakage must be addressed in a state plan with120 mass

- based emission standards. Specific options states can use to demonstrate that potential leakage has been addressed are in Section VIII.J.2.b of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commenter s stated that the CPP will strengthen the RGGI program by reducing the potential for leakage. Commenter s noted that by regulating carbon emissions in other US states (beyond the RGGI states), the CPP will strengthen the RGGI program by leveling the economic playing field between in

- region EGUs regulated under RGGI and EGUs in neighboring states that do not currently regulate carbon emissions from EGUs. Commenters noted that regardless of location, reducing carbon emissions from EGUs will benefit all states, so it is appropriate that the CPP will subject all EGUs to similar requirements. Commenters stated that particularly perverse potential outcome of the status quo is emissions " leakage ," in which EGUs in adjoining states increase generation (and emissions) in response to any economic signal provided by the RGGI
program. Commenters stated that strengthening RGGI by reducing the potential for leakage is therefore an important benefit of the CPP.

Commenter s said that EPA should require states to have additional compliance obligations if there were substantive changes in inter

- state electricity transmissions. Commenter s suggested three approaches: (1) "If a state increases its net electricity exports by more than 10 percent from a base year period the emissions r ate standard that should apply to the associated incremental increase in electricity generation should be the more stringent of the state's standard or the average standard in the state's power region." (2) "States might be required to hold electricity
tra nsfer credits for electricity imports or exports that are greater than those observed in a base year period." And (3) "State's might be required to adjust the emissions rate calculation that is applied within their states compliance plan to provide incenti ves for greater utilization of low or nonemitting resources so that there is no increase in total emissions." Commenter s also said that "to mitigate leakage the state standards could be calibrated to achieve greater conformity in the production incentive w ithin a region or across the nation." Commenter s also suggested that if needed states should use an output based allocation. Commenter s calculated a net production incentive and did modeling to show that transmission limitations and location on the electri city grid are factors that need to be considered when looking at emissions leakage. In order to minimize leakage

, commenter s suggested a uniform credit price or having emissions rate standards adjusted to align with production incentives. Commenter s also m odeled many cap and trade program scenarios and suggested only giving a production incentive to lower

- emitting or

non

- emitting resources if an output based allocation was used.

Commenter s encouraged EPA to take action "to reduce the variation in state targ ets by increasing the GHG emissions reductions required in states that currently have less ambitious targets" to reduce the level of emissions leakage from state to state. Commenter s defined environmental leakage as the "transfer of emissions from one regi on to another." Commenters stated that the regulations should be crafted in a way that ensures overall reduction in emissions and does not merely transfer emissions from one state to another. Commenter s stated that analysis suggested that leakage could be "14

- 19% of the total GHG emissions reductions" as proposed. Commenters explained that there are two forms of leakage: rate to rate leakage and rate to mass leakage. Commenter s presented four subsections on leakage entitled: rate to rate leakage; rate to ma ss leakage; NRDC modeling of leakage potential; and policy options for states121 to address emissions leakage. Commenters described rate to rate leakage and recommended "that EPA exclude existing renewables from its calculations of a state's initial emissions level." Then,
commenter s stated, "If EPA does this, and expands building block 1 to include opportunities for

co

- firing natural gas at coal plants or new natural gas plants in Building Block 2, then the risk of leakage will decrease. However, some risk of leakage will remain unless EPA standardizes state emissions targets across grid regions." Commenters described rate to mass leakage and affirmed that they believe that "mass based programs are superior to rate based programs." However,
commenters were con cerned because "there are boundary challenges between a state employing
a rate

- based program and a state employing a mass

- based program." Commenters gave an example using West Virginia and Maryland (which is in RGGI) and stated that "under the Clean Power Plan, shifting 10 MWh of natural gas generation from Maryland to West Virginia would generate a credit equal to approximately 7,480 lbs CO 2 in West Virginia without resulting in a commensurate decrease in the RGGI cap (assuming the natural gas plant has an emissions rate of 1,000 lbs CO 2 /MWh)." Commenter s used the IPM model to analyze the potential for leakage using the NRDC Reference Case (RC3) and analyzing two scenarios, the Mass Equivalents Case where all states were assumed to adopt a mass

- based progra m, and a Leakage Case where all states were assumed to adopt mass

- based programs, except for Pennsylvania and New Mexico. Commenter s stated that "Pennsylvania and New Mexico were assumed to adopt the proposed June 2014 rate

- based state targets. These two s tates were selected for this study because they may represent pronounced opportunities for leakage in their respective interconnected grid systems. The rate

- based targets in Pennsylvania and New Mexico exceed the emissions rate of new natural gas combined cycle units, and they are located in proximity to states participating in
cap

- and

- trade programs like the Regional Greenhouse Gas Initiative (RGGI) and California's AB32, respectively. The combination of these effects mean that each state could choose to b uild significant amounts of new NGCC units and export some of this generation to neighboring states, while still complying with its own rate target." Commenter s stated that "in this analysis, we observed dynamics reflecting emissions leakage in Pennsylvani a prior to the 2030 final compliance date" and that "in New Mexico, we observed minimal emissions leakage". Commenter s concluded that "the potential for emissions leakage is significant and must be addressed by EPA and states in their plans. The potential for leakage may be sensitive to natural gas price differentials and transmission capacity between rate

- based and mass

- based states." Commenters presented policy options for states to address emissions leakage and recommended that "EPA describe a methodolog y for how they will measure and evaluate leakage over time." Commenters also recommended "that the responsibility to address leakage be placed on the states that increase electricity production, as they are the states that otherwise benefit from their less stringent emissions rate." Commenters presented four approaches to address leakage: first jurisdictional delivery approach, ex post evaluation and adjustment of state

- level emissions reductions, require all states to evaluate statewide power sector perfor mance against mass

- based targets, and ex ante adjustment to level the playing field for generation. Under the first jurisdictional delivery approach c ommenters stated that "an entity that exports power out of a given state is required to submit credits to the state equal to the emissions leakage that would otherwise occur absent the submission of emissions credits." For the ex post evaluation and adjustment of state

- level emissions reductions approach commenters stated that "EPA could require states to eva luate shifts in their balance of electricity supply and demand on an annual or bi

- annual basis and account for any shifts through automatic ex

- post adjustment of their GHG programs." For the require all states to evaluate statewide power sector performance against122 mass

- based targets approach c ommenters stated that "EPA could eliminate the threat of leakage by requiring all states, including those that adopt a rate

- based approach, to evaluate whether the state's actual emissions exceeded the mass

- based target that the state would have been subject to had it adopted a mass

- based approach. States that exceeded their mass

- based target would be required to adjust for excess emissions." For the ex ante adjustment to level the playing field for generation appr oach, commenters stated, "all new generation would be compared to the emissions rate for new units established under 111(b) or the state rate standard, whichever is lower, in order to prevent sources from taking advantage of less ambitious state emissions targets." Commenters further stated that there are advantages to the ex ante approach because if "EPA applies an up

- front adjustment at the plant level" it "provides greater certainty for project developers." Commenters also said, "There is an advantage to placing them on plants whose generation increases: doing so avoids further penalizing plants that are already being outcompeted in the marketplace "

.
Commenter s stated that "EPA has the authority and responsibility to require state plans to address leakag e", that " requiring states to prevent leakage does not compromise state flexibility " and that leakage could eliminate about 30% of the expected reductions from the Clean Power Plan. Commenter s recommended that EPA adopt the following policies in the final rule: "1. All state plans must have provisions to prevent leakage: a. Responsibility could be assigned to states that increase net exports or reduce net imports; b. Alternatively, responsibility could be assigned to states that increase net imports or redu ce net exports. 2. Set consistent rules for the treatment of all new fossil resources: a. Allowing states to elect to include or exclude new sources results in high leakage potential; b. If it is not feasible to require all states to account for new source s then all states should be required to exclude both new source emissions and generation from their compliance demonstrations. 3. Consistent with EPA's proposed methodologies for translating rate standards to mass standards, states that adopt a mass

- based standard must either

- a. Exclude generation served by new sources from the load used to convert from a rate standard to a mass standard; or b. Adopt a standard that is based on the inclusion of these megawatt

- hours and count the emissions from new source s against the standard. 4. EPA should revise the methodology for treatment of Energy Efficiency as a component of BSER to credit states for 100% of reduced generation to support statewide sales, regardless of whether the state is a net importer or exporter (provided that EPA requires states to prevent leakage due to interstate electricity trades)." Commenter s also stated that "all state plans should be specifically required to include a process for maintaining the required level of performance reflected in the original BSER if net import levels fluctuate by more than a de minimis amount. Commenter s also proposed several options that EPA could use to address leakage including the following: provide each state with a mass standard that reflects the BSER; allow states to adopt a rate standard, but provide a mass

- based backstop for states that adopt rate standards in order to ensure that no state increases emissions beyond a level environmentally equivalent to BSER; or impose an average emissions rate standard fo r each grid region or the whole nation. Commenter s also noted that

" the best state

- driven solution to prevent leakage caused by incremental electricity imports/exports would be for states to join regional programs with a uniform emission rate standard with in the power markets in which they participate."123 5. 8 PROJECTING EGU CO 2 EMISSION PERFORMANCE

This section addresses comments on Projecting EGU CO 2 Emission Performance. We have organized the comments in this section under seven subsections, 5.8.1 to 5.8.7 . Responses to the comment topics of these subsections are discussed below along with summaries the specific public comments.

5.8.1 Electricity System Modeling Approaches for Projecting EGU CO 2 Emissions

This section addresses comments on electricity system modeling approaches for projecting EGU CO 2 emissions. We have organized the comments in this section under four subsections, 5.8.1a to 5.8.1d. Responses to the comment topics of these subsections are discussed below along with summaries the specific public comments.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) bel ow. Responses are also provided for these topics.

Comment 1 : Comment s regarding IPM accounting of decommissioning expenses.

Response 1 : IPM accounts for decommissioning of nuclear units, but not other types of units.
The following are summaries of the spe cific public comments under this comment :

Commenter s asked if the EPA has considered the extent to which IPM accounts for decommissioning expenses for units.

Comment 2 : Comment s regarding a reliability safety valve.

Response 2 : The EPA has addressed reliability safety valve comments in Section VIII. G .2 of the final rule p reamble of the CPP

. P lease refer to this section for EPA’s rationale and considerations related to reliability safety valve.
The following are summaries of the specific public comment s under this comment:

Commenter s stated that they supported "the concept of a reliability safety valve as proposed by PJM and other RTOs." Commenter s thought that if there was no reliability safety valve, "there is no means for RTOs to ensure availability of short

- term capacity during times of peak usage." Furthermore, c ommenters stated that, "If the safety valve is evoked to ensure reliability of the electric grid, state rates should be adjusted to account for the trigger of the safety valve."124 Commenters requested that the following option (among others) be implemented to improve the workability of the proposed guideline rule and to provide additional compliance flexibility to meet the emission targets established in the proposal: c ommenters urged EPA to include a safety valve or "off

- ramp" to address both unexpected scenarios and to address electric system reliability or adverse rate impacts.

Comment 3 : Comment s regarding IPM assumptions for Florida.
Response 3 : The EPA disagrees. For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. See th e RIA chapter 3. IPM is a multi

- regional, dynamic, deterministic linear programming model of the U.S. electric power sector that the has been successfully used by EPA and private companies for over two decades to evaluate the economic and emission impacts of prospective environmental policies. Projections reflect the most recent and accurate information available. EPA has reviewed comments on IPM and has updated the model for use in the fin al rule; EPA believes the model results used in the final rule are reasonable.

The commenter statement that IPM uses nameplate capacity is incorrect; IPM uses net dependable capability.

The following are summaries of the specific public comments under this comment:

Commenter s stated that the IPM has "flaws that result in inaccurate and unachievable compliance projections for Florida." Specifically, commenter s said that IPM has errors because it used nameplate capacity instead of net capacity. Commenter s sai d that EPA's model inter mixes nameplate capacity and net generation for projecting natural gas fired units resulting in an almost 19% overstatement of summer net MWh from natural gas and leads to an exaggeration in coal

fired retirements. Commenter s state d that the IPM Base case has 160 Florida units retiring by 2016 when the owners have identified that only 81 of these units will retire by 2016. Commenters provided a table listing out the units. Commenter s stated that this results in lower projected compl iance costs for the Clean Power Plan. Commenters requested EPA correct the errors in NEEDS and EMP, rerun the Base Case and Policy Case, recalculate the compliance costs, and give stakeholders an opportunity to comment on the revisions. Commenter s further stated that IPM showed "dramatic impacts on Florida" which are different from the FPSC's projections. Commenter s said that IPM predicts in 2025, natural gas would provide over 85% of Florida's electricity and coal would only provide 2% while FPSC predicts that in 2022, natural gas fired combined cycle units will provide 59% of Florida's electricity and coal fired will produce 22 % of Florida's electricity.

Comment 4 : Comments regarding IPM modeling results.

Response 4 : The EPA disagrees. For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. See the RIA chapter 3. IPM is a multi

- regional, dynamic, deterministic linear125 programming model of the U.S. electric power sector that the has been successfully used by EPA and private companies for over two decades to evaluate the economic and emission impacts of prospective environmental policies. Projections reflect the most recent and accurate informati on available. EPA has reviewed comments on IPM and has updated the model for use in the final rule. Although opinions of future coal production and use in individual areas will differ, IPM projections will reflect general industry trends, such as increasin g coal production in areas like the Illinois basi n and decreasing coal production in Central Appalachia in West Virginia and Kentucky referenced in the comment. EPA believes the model results as used in the final rule are reasonable.
The following are sum maries of the specific public comments under this comment:

Commenters questioned the reliability of EPA's economic modeling of the electricity sector since they believed that some IPM modeling results in "odd and unlikely projections, such as that by 2020, 37% of the coal used for electricity generation in West Virginia will come from Illinois (none is now), and that only 11% of the coal used in Kentucky will come from that state (as opposed to 66% at present)."

Comment 5 : Comments regarding modeling and revisiting models due to changing circumstances.
Response 5 : In response to comments about state policy and analytic needs, the EPA, in consultation with U.S. DOE and other federal agencies, continued to refine its toolbox of decision support resources at: http://www2.epa.gov/ www2.epa.gov/cleanpowerplantoolbox. The site includes information on regulatory requirements, including state plan guidance and state plan decision support. The state plan guidance section serves as a central repository for the final emission guidelines, RIA, guidance documents, TSDs and other supporting materials. The state plan decision support section includes information to help states evaluate different approaches and measures they might consider as they initiate plan development. This section includes, for example, a summary of existing state climate and RE and demand

- side EE policies and programs, information on electric utility actions that reduce CO 2 , and tools and information to estimate the emissions impact of RE and demand

- s ide EE programs , including the AVERT model

. For more information about Resources for States to Consider in Developing Plans, see Section VIII.H of the final rule p reamble of the CPP

.
The EPA is not requiring specific tools or emission quantification method ologies which states and/or affected EGUs must use when demonstrating the emission guidelines will be met as long as the method is technically sound and meet the criteria in the preamble

. Energy storage technologies could be used to facilitate achievement of the CO 2 emission performance levels for affected EGUs, or a state rate

- based or mass

- based CO 2 goal for affected EGUs, in the emission guidelines. However, MWh output from an energy sto rage technology could not be used to adjust the reported CO 2 emission rate of an affected EGU. It could facilitate greater grid penetration levels of RE generating technologies that are eligible for use in adjusting the reported CO 2 emission rate of an aff ected EGU. The treatment of energy storage under a rate

-126 based state plan, and the rationale for this treatment is discussed in section VIII.K.1 .a.(5) of the final rule p reamble of the CPP

. The following are summaries of the specific public comments under t his comment:

Commenter s stated that, "With the development of all types of storage, solar can substantially displace natural gas and coal EGUs, and play an even more significant role in reducing carbon emissions." Commenter s recommended that methodologies and models be developed for states to account for the benefits provided by storage that increase the use of solar power. Furthermore,
commenter s recommended that "EPA and the states periodically revisit the applications and models in the plan to account fo r new technologies and improved valuation curves

, " s ince they expect that the costs associated with storage will come down as energy storage increases.

Commenter s stated that EPA may recommend tools such as AVERT and provide methodologies to calculate and apply emission impacts of energy efficiency projects, programs, and policies, but that EPA should also allow states to submit their own calculation methodologies and conversion approaches to EPA.

Commenter s stated that "the final rule should reduce its dep endency on modeling" due to the uncertainty with the forecasts and the approximations that go into modeling algorithms. Commenter s also pointed out that "the calculation of avoided emissions is a very complex, uncertain, and nontransparent process" and ass igning CO 2 credits for RE and EE requires regional level modeling. Commenter s further stated that if states choose a mass

- based limit then the state "would develop RPS/EE mandates to reduce the fossil generation requirements in order to stay under the CO 2 mass limit" or "establish CO 2 and offset markets" which should give people incentives to develop RE/EE.

Comment 6 : Comment s regarding IPM pollution control equipment life.

Response 6 : The use of a 15 year life rather than a longer life for retrofits in I PM is based on comments from industry and others about the most appropriate period, given issues of physical life of the asset, life of the underlying facilities, and financing issues.
The following are summaries of the specific public comments under this comment:

Commenter s stated that for the Clean Power Plan IPM analysis EPA assumed a fifteen year life for recently installed pollution control equipment but for other rules, such as the Regional Haze Rule, EPA assumed a twenty

- year life. Commenters stated that " If there is a basis upon which EPA believes it is appropriate to use different assumptions for different programs, EPA should clearly explain why it has done so."

Comment 7 : Comments regarding Regional Transmission Organizations (RTOs)

.127 Response 7 : The EPA recognizes in the Preamble Section A.3.b that Regional Transmission Organizations contribute to ensuring reliability of the electric system and keeping the grid in balance. The EPA staff met with RTO council on several occasions to collect their id eas. The EPA encourage s states that reside in an RTO to have discussion with their RTO as they develop their plans. As described in Section II.J of the final rule preamble of the CPP , in all state plans, as part of the supporting documentation, states must include a description of their required consultation with relevant ISOs/RTOs and/or planning/reliability authorities during plan development, including any recommendations and other comments provided by those authorities.
The following are summaries of th e specific public comments under this comment:

Commenter s asserted that the proposed Clean Power Plan does not adequately address the role of Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) in the transmission and distribution of electricity , or how they may factor into implementing a state plan. Commenters stated that most of Nebraska's utilities are members of the Southwest Power Pool (SPP)

, a RTO that spans all or parts of Arkansas, Kansas, Louisiana, Mississippi , Missouri, Nebraska, New Mexico, Oklahoma, and Texas. [ FERC, Electric Power Markets, SPP (http://www.ferc.gov/market

- oversight/mkt

- electric/spp.asp) ] Commenters noted that the SPP manages the sale

, transmission

, and distribution of electricity, and is res ponsible for transmission system maintenance and expansion planning; supply forecasting

, reliability coordination, and load balancing; and energy market operations within its service area. [ Southwest Power Pool/ About SPP (http://www.spp.org/section.asp?pa geid=1) ] Commenters noted that the SPP also retains regional dispatch authority over member utilities, deciding when to dispatch which power plants and to what degree on a daily basis, which can cause significant changes in power plant utilization from day to day as member states export or import power to and from other states depending on regional conditions.

In short, c ommenters stated that RTOs and ISOs form a crucial component of electric grid management, and their regional dispatch and balancing auth ority is essential to achieving the objectives of the Clean Power Plan, particularly with respect to any multi

- state plans that may be put in place. Commenters stated that RTOs and ISOs do not recognize state boundaries in determining dispatch, which is at odds with the single

- or multi

- state plan approach of the Clean Power Plan. Commenters therefore requested that the EPA revise the Clean Power Plan to adequately address the role of these organizations.

Commenter s agreed with EPA that "ISO/RTO analytic support would allow the state to monitor the effects of its plan on the regional electricity system..." and "...could help states assure that their plans are consistent with region

- wide system reliability." Hence, c om menters respectfully submitted that consultation with relevant system operators and planners (such as ISOs/RTOs) can provide substantial value in the development of the Final Rule and State Plans. Commenters stated that appropriate consultations will allow EPA, states, and other entities responsible for grid reliability to identify potential reliability impacts, taking into consideration the intra

- state, inter

- state, and regional transmission and generation characteristics of system operations and planning that are critical to grid reliability. Further, because the Proposed Rule already sets forth a continuum of steps and processes, c ommenters stated that there are a wide variety of potential128 paths to compliance and substantial flexibility with respect to th e timing and stringency of any interim goals. Accordingly, c ommenters recommended that consultation occurs as early as possible and throughout all stages of Final Rule implementation, as necessary. Commenters stated this sort of "rolling" consultation will help ensure that the Final Rule does not negatively impact state, multi

- state, and/or regional grid reliability. Additionally, commenters stated that the incorporation of the commenter s ' proposals discussed elsewhere into the Final Rule would facilitate such consultation with ISOs/RTOs.

Commenter s requested that EPA require State Plans to include a component that describes the evaluation of impacts to state, multi

- state, and/or regional grid reliability from the implementation of the proposed State Plan

. Commenters explained that, in organized market regions, ISO/RTOs would perform the evaluation. Commenters noted that in vertically integrated regions, the registered entities responsible for reliability in the state and/or region, e.g., reliability coordin ator, planning coordinator, etc., with independent review by the North American Electric Reliability Corporation ("NERC") or the Regional Entity, would perform the evaluation. Commenters stated that this component would also describe the assessment results and how the State Plan considered and/or addressed any identified impacts to grid reliability during the development of the State Plan. Commenters stated that appropriate NERC

- registered entities (i.e., Reliability Coordinators and Planning Authorities) c an facilitate the identification and consideration of electric system reliability in the development of State Plans (these are typically system operators and planners

- e.g., ISOs/RTOs in organized market regions of the country).

Commenter s stated that EPA must rely on RTOs and utilities to determine what changes to generation mix are feasible while still ensuring reliability of the electric grid.

Commenter s stated that given both the complexity of the electric generating sector and the vital importance of a reliable supply of electricity for the Nation's security and the economic well

being and physical safety of its citizens, any final EPA emission guideline must allow the States to respond dynamically to the wide range of sometimes unpredictable conditio ns involving the Nation's electrical generating resources, and the final guideline should be developed in full coordination with the Federal Energy Regulatory Commission and North American Electric Reliability Corporation.

Commenters r equested EPA hold an RTO summit. Commenter s stated that they believe that "compliance through fuel

- shifting is most cost effective when implemented over a wide geographic area." Commenters encouraged EPA to hold an "RTO Summit" so utilities could explore this concept further.

Comment 8 : Comment s regarding public utility commissions.

Response 8 : The EPA in the final emission guidelines is not requiring states to change their existing processes for interact ing with their public utility commissions or divisions with their
state. States will need to demonstrate they have adequate legal authority and funding to implement the measures in a state plan. The EPA recognize s that multiple stakeholders within a state wil l need to be a part of the state plan development and encourage s that interaction. See129 section VIII. D.2.a (6) of the final rule preamble of the CPP that discusses the details surrounding stakeholder engagement.
The following are summaries of the specific p ublic comments under this comment:

Commenter s stated that a primary tenet of the enabling legislation that created public utility divisions (PUDs) is governance by a locally

- elected Board of Commissioners. Commenters stated that implementation of the 111(d ) rule should be structured in a manner that allows states to use existing processes to interact with PUDs, thereby minimizing the impact on local, publicly

- owned utilities

- particularly when their GHG emissions are de minimis.

Comment 9 : Comment s regarding public participation.

Response 9 : In the final emission guidelines , states must meet the minimum public participation requirements of the final guidelines including a public hearing, and meaningful engagement with all member s of the public and a ffected parties. One of the requi r ed components of an initial plan submittal to the EPA is a description of the public participation opportunities such as stakeholder and community meetings or public hearings throughout the 2 or 3 year plan development
pro cess. The EPA recognize s the importance of engaging community members like the NASUCA members and the state public utility commissions. The EPA can not require states to meet with specific organizations however, there should be ample opportunity for these important stakeholders to comment and engage with the environmental state agencies and inform the state plan process. Refer to section VIII. D.2.a of the final rule preamble of the CPP for details on this topic.
The following are summaries of the specific public comments under this comment:

Commenter s asked that EPA ensure that National Association of State Utility Consumer Advocates (NASUCA) members, and the utility customers they represent, are included in the
state

- level implementation process and resource decisions resulting from the Clean Power Plan. Commenters suggested that the EPA should require any state

- level environmental agency cha rged with implementation of any final version of the Clean Power Plan to seek input from the state NASUCA member concerning the components of a state

- level compliance plan prior to finalizing its terms

. Commenters provided the following rationale for their request:

• Commenters noted, according to the EPA, meeting the emission reductions proposed in the Clean Power Plan will require electric utilities and electric generators to, in some mixture, increase generation efficiency, change generation fuel mix, whi ch may include building new natural gas fired generators and/or closing existing coal fired generators, increase the use of renewable energy generating sources and increase the use and availability of energy efficiency and/or conservation measures.

• Comment ers noted that state

- level implementation of any final version of the proposed Clean Power Plan will generally reside at a state

- level environmental130 agency. Commenters noted that in most cases, the state

- level environmental agency in charge of implementing the Clean Power Plan will have different objectives, obligations and expertise than the state

- level agency that regulates electric utility resource planning and rates (i.e., Public Utilities Commission).

• Commenters noted that state

- level environmental ag encies are not primarily focused on identifying and promoting lowest reasonable cost solutions to ratepayers.

Commenters stated that the number of NASUCA member offices that have clear jurisdiction to participate before a state

- level environmental agency i s less than the number of NASUCA members that have jurisdiction to participate before the state

- level agency that regulates electric utility resource planning and rates. As such, c ommenters stated that many NASUCA member offices, and the utility customers they represent, may be specifically excluded from participating in important decisions affecting changes to electric utility resource planning, the resources used to meet customer energy needs, the cost of these resources and impacts on customer rates that result from these resources changes.

Comment 1 0 : Comment s regarding interim, final budgets

, and state plans.
Response 1 0 : The EPA has made many significant changes to the state interim and final budget goals. There is a wide range of flexibility available in the type and design of a state plan so it can meet the needs of individual utilities, such as the ones in the City of Tallahassee. The EPA in the final rule is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the emission guidelines. For example, states can enter into Multi

- state plans, multi

state coordination while retaining their individual state goals

, and emission budget trading
programs. Certain rate based state plan s can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. These flexibilit ies provide enough latitude for all states to comply with this rule. See section VIII.C of the final rule
p reamble of the CPP for details on the different state plan approaches.

For adjustments made to states’ the interim and final budgets, see the changes from proposal to final and the GHG Mitigation Measures TSD which describes the technical aspects of setting the interim and final goals in the Final CPP Guidelines. The Final CPP also addresses commenters concerns that state plans must include credible and appropriate calculation methods. We describe the accounting approaches in VIII.K of the final rule p reamble of the CPP and are requiring all demand

- side EE and RE measures used to adjust the rate to have an Evalu a tion Measurement and Verification Plan (see the Evaluation, Measurement and Verification Guidance for Demand

Side Energy Efficiency TSD for more information) to ensure the measures meet EPA’s quantifiable and verifiable requir e ments.
The following are summaries of the specific public comments under this comment:

Commenter s stated that "the interim and final budget is unachievable for the City of Tallahassee utilities" and is a key part of Florida's goal. Commenter s also stated that " EPA's interim and final budget goals need to be adjusted to reflect the corrections in the technical data to reflect the131 achievable CO 2 emission goals while still having a reliabl e electric network. These adjustments also need to take into account the timing required to implement the significant changes that would be required by the electric industry. Commenter s also stated that the state plans must be credible and use appropriate calculation methods."

Comment 1 1 : Comments regarding IPM assumptions about transmission, dispatch and reliability.

Response 1 1 : The EPA disagrees. IPM is a n interregional dispatch and planning model (See model documentation at http://www.epa.gov/airmarkets/powersectormodeling.html http://epa.gov/powersectormodeling )

. IPM imposes interregional transmission limits on the dispatch solution, and has increased the number of regions in recent versions to better capture transmission flows. For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. Contrary to the comments, EPA bel ieves the model is sufficiently granular for this purpose.
With respect to the use of IPM for reviewing resource adequacy and reserves, the model is a planning model and enforces the planning reserve requirements. It is used in the context to provide a bro ad view of generation and transmission energy and capacity flows to assess potential concerns about reliability. EPA believes it is an appropriate tool for this purpose ( s ee Resource Adequacy and Reliability Analysis TSD)

. The following are summaries of th e specific public comments under this comment:

Commenter s stated that "EPA's IPM erroneously assumes that transmission is a dequate within all the IPM regions" and that "prior to the implementation of the final rule, this assumption should be corrected, and transmission constraints within, as well as between, the IPM regions should be taken into account." Commenter s noted that new transmission investment will probably be needed especially for coal generation replacement and to maintain reliability.

Commente r s noted that "IPM is categorically not a dispatch model" and had concerns about "the ability of the IPM to ac curately predict and demonstrate grid reliability under the proposed rule." Commenter s urged "EPA to engage in outreach with the various RTOs, FERC, NERC, and other entities capable of adequately modeling dispatch scenarios under the proposed rule" to demonstrate grid reliability.

Commenter s stated that "EPA's use of the Integrated Plannin g Model does not assess the impact of the proposed rule on system reliability because the model is not capable of incorporating operating reserve requirement s, actual transmission system constraints, or variable resources with sufficient granularity." Comm enter s noted that "EPA should incorporate utility planning principles into its proposed rule is to support utility reliability assessments rather than exclusively relying on the Integrated Planning Model (IPM) to determine reliability impacts." Commenter s also stated that "IPM does not ensure that generation plants are dispatched to maintain sufficient operating reserves among all hours in the year." Furthermore, commenter s132 said that "IPM assumes significant coal unit retirements by 2020 but does not adequa tely model transmission constraints that may be associated with retiring and adding generation resources." Commenter s also stated that " IPM is similarly insufficient to address reliability issues associated with increased wind and other variable resources. Generation may only be added if it does not compromise the stability or reliability of the transmission system."

Comment 12: Comment about coal usage in Florida.
Response 12: For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. See the RIA chapter 3. IPM is a multi

- regional, dynamic, deterministic linear programming model of the U.S. electric power sector that the has been successfully used b y EPA and private companies for over two decades to evaluate the economic and emission impacts of prospective environmental policies. Projections reflect the most recent and accurate information available. EPA has reviewed comments on IPM and has updated t he model for use in the final rule. Although opinions of future coal production and use in individual areas will differ, IPM projections will reflect general industry trends, but future projections can differ considerably depending on the case and the scen ario. EPA believes the model results as used in the final rule are reasonable

.
The fol lowing are summaries of the specific public comments under this comment:

Commenter s stated that in 2012 Florida generated 221,096 GWh from coal and EPA's model has this decreasing by 99% in 8 years to 2,898 GWh in 2020. Commenters stated that load dispatching, reserve margins, transmission loading will all be impacted by this and need to be evaluated.

Comment 13: Comment regarding IPM assumptions

. Response 13: The IPM assumptions are available at http://www.epa.gov/airmarkets/powersectormodeling.html http://epa.gov/powersectormodeling

. I PM imposes interregional transmission limits on the dispatch solution, and has increased the number of regions in recent versions to better capture transmission flows; in particular, the number of regions covering Louisiana has been increased. For this rul e, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. EPA believes the model is sufficiently granular for this purpose.
The following are summaries of the specific public comments under this comment:

Commenters stated that states should be able to review IPM assumptions because IPM failed to "capture the reality of a number of significant transmission constraints throughout Louisiana, but especially in Sout h Louisiana; recognize the need to utilize older, less efficient EGUs located within transmission

- constrained "load pockets" to meet the electricity demands of both industrial and residential ratepayers; and consider power generators in the state (i.e., qu alifying facilities)133 that, by federal mandate, have the right to sell power into the grid and the corresponding requirement on host utilities to purchase such power."

Comment 14: Comment regarding an explanation of seven key variables and appropriate

sources in determining EGU CO 2 projections

. Response 14: States can obtain the necessary information from the following organizations. U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook (AEO), North American Electric Relia bility Corporation (NERC), Regional transmission organizations (RTOs)/independent system operators (ISOs) (e.g., PJM Interconnection, ISO

- New England, NYISO), Vertically integrated utilities (e.g., a large power company that operates the electricity system for a specific region), State energy agencies (e.g., State Energy Office or Public Utility Commission (PUC)), and Regional councils that coordinate energy planning (e.g., Northwest Power and Conservation Council) or any othe r publically available data sou rce. If a state wants to use another data source, they need to justify why it is more appropriate. The EPA clarifies what assumptions will be required as part of the CO 2 emissions projections in Section VIII.D.2.(a)(3) of the final rule preamble of the CPP

. The agency has added additional assumptions that are needed for projections and describes which state plans require a projection and which state plans do not require one.

The following are summaries of the specific public comments under this comment:

Commenter s stated that EPA mentioned seven key variables that may determine EGU CO 2 projec tions on page 17 of EPA's TSD titled "Projecting EGU CO 2 Emission Performance in State Plans" (June 2014) but did not explain "where the data for each of the variable s will or should come from." Commenters requested that the following sources be considered:

- Electricity load growth projections (energy peak and demand)

- State PUCs, EIA's AEO)

- Fuel supply, delivery, and pricing assumptions

- RTO/ISO, EIA

- Cost and p erformance of electric generating technologies

- EIA

- EGU firm builds and retirements (e.g., those scheduled with a RTO/ISO)

- RTO/ISO

- Transmission capability and RTO/ISO transmission expansion plans

- RTO/ISO

- Applicable federal regulations (other tha n the EPA emission guidelines)

- RTO/ISO, NERC, FERC

- Applicable state regulations and programs (other than those that are included in the state plan)

- State where generation occurs or state where demand occurs."

Comment 1 5 : Comment s regarding energy market trend projections

. Response 1 5 : The EPA in the final rule is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the emission guidelines. For example, states can enter into Multi

- stat e plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Certain rate based state plan s can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. These flexibility provide enough latitude for all states to comply with this rule. See Section VIII. C of134 the final rule preamble of the CPP for details on different state plan approaches states can use to comply with the emission guidelines.

The EPA will allow states to use a reliability safety valve for when emergency situations arise, with certain restrictions. Section VIII.G.2 of the final rule p reamble of the CPP provide s examples to illustrate several key attributes of the kinds of circumstances in which the reliability safety valve would apply

. The following are summaries of the specific public comments under this comment:

Commenter s stated that it is a challenge to project energy market trends for the next 15 years and therefore pr oposed "that EPA include a framework for providing appropriate flexibility to head off potential unforeseen impacts to electricity affordability and reliability." Commenters added that the flexibility should be limited to minimize exploitation of a " safety valve ."

Comment 16 : Comments concerning the use of AVERT and EGRID and consider AVERT results questionable until EPA conducts a more thorough quality review of the tool.

Response 16 : In the final rule, the EPA allows for the adjustment of a CO 2 emission rate based on avoided MWhs, not avoided CO 2 so avoided CO 2 calculations using emission rates are not
necessary. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE and how the methods ensures consistency with the goal setting calculations in the final rule, see Section VIII.K.1 of the final rule preamble of the CPP

. In the final rule, EPA does not re quire a projection of CO 2 emission performance for all state plan approaches. For those that do require a projection, EPA does not require that states use specific models, like AVERT, but gives states flexibility provided they use technically sound methods that are reliable and replicable. EPA addresses what types of state plan approaches require a projection and requirements related to methods and tools in Section VIII.D.2.a.(3) of the final rule p reamble of the CPP

. The EPA disagrees with the commenters c laims that AVERT has not gone through the proper quality control procedures. The EPA conducted an official peer review process as required by EPA for all tools that could be used for regulatory purpose. It also was benchmarked against an industry standard dispatch model and includes the appropriate caveats in its user manual. Although AVERT is most appropriate as a screening tool for the final CPP, it is available for states to use for NAAQS compliance.

The following are summaries of the specific public co mments under this c omment:

Commenters noted concerns with the Avoided Emissions and Generation Tool (AVERT), including 1) it does not provide forecasting beyond five years which limits a state's ability to make long term assessments and agreements with sta tes required for multi

- state plan development; 2) it assumes that dispatching in the future will be similar to the recent past so does135 not support planning beyond a few years and does not reflect that the rule will probably result in substantial changes to electricity dispatching and/or allow for the use of projected economic behavior; 3) approximates historical dispatch behavior using a statistical algorithm that does not represent transmission constraints or significant changes in grid structures or futur e economic conditions; 4) does not capture inter

- regional transmissions and requires coordinating with all the other states in the electric grid region to estimate the expected reduction in MWhs and the hourly load profile for those MWhs in the reporting/p lanning period; and 5) commenters identified errors in the AVERT tool, notes that it produces unusual results, and does not believe that EPA followed a quality assurance and quality control plan in the development of AVERT and therefore considers the resul ts generated to be questionable.

Commenters noted that EPA's AVERT is relatively simple and does not require a great deal of resources to use but noted that both the AVERT and EGRID models are not appropriate due to their limited short term forecasting ca pability and that EGRID factors are usually 2 years older than the most current year.

Commenters felt that the model limitations will not allow for educated projections for EE/RE quantification for state plans.

5.8.1a National

- scale capacity expansion and dispatch planning models

[No comments were received on this topic.]

5.8.1b Utility

- Scale Capacity Expansion and Dispatch Planning Models

[No comments were received on this topic.]

5.8.1c Electricity System Dispatch Simulation Model

Comment 1: Comment regarding IPM assumptions and results

. Response 1 : For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national review and for assessments of program costs and impacts. See the RIA chapter 3

. IPM is a multi

- regional, dynamic, deterministic linear programming model of the U.S. electric power sector that the has been successfully used by EPA and private companies for over two decades to evaluate the economic and emission impacts of prospective environmental policies. Projections reflect the most recent and accurate information available. EPA has reviewed comments on IPM and has updated the model for use in the final rule; EPA believes the model results used in the final rule are reasonable.136 The following are summaries of the specific public comments under this comment:

Commenter s stated " that the assumptions used in EPA's Reliability and Cost Modeling Analysis are unrealistic, particularly with respect to electricity imports, power plant ownership, and energy efficiency." Commenters mentioned that it understand "that states can determine the ultimate path forward" which can be different from the IPM results but believe that it is inappropriate for EPA to rely on IPM results based on unreal istic assumptions to show "that the Agency's proposal is feasible and cost effective." Commenter s stated that "EPA's Reliability and Cost Modeling Analysis predicts that Arizona would adopt a significantly different approach to meet the state's CO 2 goals t han EPA assumed in setting those goals." Commenter s mentioned that "the goal setting approach assumes that all coal

- fired generation would be displaced with existing, in

- state NGCC generation, and that renewable energy and energy efficiency measures would increase according to the assumptions EPA made in establishing Building Blocks 3 and 4" but that "EPA's Reliability and Cost Modeling Analysis predicts that Arizona would import more than 5,800 MW of electricity from outside of the state, achieve even grea ter energy efficiency savings than assumed in setting the state goals, and keep 1,500 MW of coal generation online."

Commenter s also stated that "IPM predicts that Arizona will transition from a net exporter of energy to a significant net importer by 2020 only 2.5 years after EPA takes action on the state's compliance plan. Even more problematic, the IPM assumes that the imported electricity would come from California and the Pacific Northwest during the peak hours," and c ommenters asserted that EPA has no t conducted a transmission infrastructure study to determine if this is possible. Furthermore, commenter s stated that due to Arizona Corporation Commission's (ACC) IRP rules, utilities would not be able to rely on power from the Pacific Northwest for peak demand and that utilities might "construct new in

- state generation and potentially new transmission to ensure adequate reliability at peak load conditions and minimize risk to customers that might be introduced by heavier reliance on energy markets or powe r that is generated several states away." Commenters mentioned that IPM does not properly account for power plants that are jointly owned and gave examples of how some of Arizona's generation goes out of state.

Commenter s also mentioned that "The model as sumes that all power generated by a plant located within Arizona is available to meet Arizona's peak demand, regardless of whether a portion of that plant is owned by an out

- of

- state entity and their portion of electricity is exported out of
state to serve that entity's load obligations. For example, the IPM assumes that the entire capacity of PVNGS (3,937 MW) is available to meet Arizona's peak demand. However, less than 50% of PVNGS is owned by Arizona utilities. In addition, some of Arizona's largest coa l

- fired power plants are jointly owned. For these resources, the portion of capacity that is not owned by Arizona utilities likely does not serve Arizona load. The IPM inaccurately assumes that the entire generation capacity from these plants is available to serve Arizona load, whereas in reality, a large fraction of this energy is owned by out

- of

- state entities and therefore leaves the state. Additionally, many of Arizona's existing NGCC plants are owned or partially owned by merchant providers. It is inac curate to assume that generation from merchant

- owned NGCC plants serves Arizona load unless a long

- term purchased power contract is in place with an Arizona utility serving Arizona load."137 Commenter s said that a problem with Building Block 2 analysis is th at it does not take into account needs to run generators on peak demand but focuses on annual data. For Building Block 3, commenter s pointed out that the Building Block analysis RE target is 3.7 million MWh in contrast to the IPM Model projection of 2.7 mi llion MWh due to the differences in implementation of the state RPS targets in IPM versus the Building Block analysis. For Building Block 4, commenter s said that some EE should be part of the IPM Base case analysis and that IPM overstates EE related peak l oad reductions. Commenter s also stated that since no EE is part of the Base case the Clean Power Plan appears to be less expensive in the RIA since there is a lower electricity demand. Commenter s stated that using the Building Block 4 Case as the baseline provides "a better estimate of the actual cost of the Policy." Commenter s also stated that IPM ignores existing transmission reservations to transfer power among utilities and states, ignores the lack of centralized reserve sharing and dispatch among utili ties and ignores the cost of contractual arrangements for imported capacity.

5.8.1 d Multi

- Sector Models

This section addresses comments on Multi

- Sector Models specifically with regards to transportation electrification.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments regarding transportation electrification

. Response 1: The commenters asked EPA to consider transportation electrification in their methodology for rate to mass conversion and be able to recognize its impacts on electricity demand. In section VIII.K of the final rule preamble of the CPP

, the EPA describes whether
trans porta tion electrification can be used as a measure that impacts CO 2 emissions performance given that it is a measure that reduce s CO 2 outside of the electric power sector.
The following are summaries of the specific public comments under this comment:

Commenter s stated that, "The final guidelines should ensure that states are not penalized for reducing emissions from the transportation sector." Commenters argued that due to electrification of transportation vehicles affected units may emit more than the capped level of emissions but that overall em issions would be reduced. Commenters stated that EPA guidelines need to be adaptable depending on state circumstances and gave California as an example where electrification of vehicles is already being used to meet air quality goals. Commenters stated that they want EPA's final guideline to "recognize that states may adjust annual reports to reflect emissions increases related to transportation sector electrification, if necessary." Commenter s recommended that if there is a mass

- based program op tion that includes both existing and new generation then EPA should "allow states that choose a mass

- based equivalent target to adjust the target consistent with the actual transportation electrification load if appropriate."138 Commenter s recommended if ther e is a mass

- based program option that includes both existing and new generation then EPA should allow the states to use the following formula to account for the actual transportation electrification load. "MBEGA = MBEGF+TE*ERBG Where: MBEGA is the adjusted final Mass

- based Equivalent Goal, (Acronym changed for simplicity. It has "adjusted final" instead of A.) MBEGF is the final Mass

- based Equivalent Goal adopted by EPA in its final rule, (Acronym changed. It has "final" instead of F) TE is the actual trans portation electrification load in excess of the transportation electrification load already included in the load forecast used to determine the Mass Equivalent Generation Level, and (Acronym changed, it had "additional" as subtext.) ERBG is the Emission Ra te

- Based Goal." Commenter s suggested using this formula because projections of new transportation electrification load vary. Commenter s noted that EPA used AEO 2013 projections of 2.03 million electric vehicles in 2025 and thought this was conservative giv en CARB's estimate for 10 states with ZEV programs is 3.1 million electric vehicles in 2017

- 2025 and Navigant Research's projection of 2.75 million electric vehicles by 2023.

Commenter s urged "EPA to take into consideration California's efforts to reduce c riteria pollutant and greenhouse gas (GHG) emissions through transportation electrification if California sets a mass

- based goal." Commenter s noted that "increased transportation electrification will, however, lead to increased electricity demand and incre ased CO 2 and criteria pollutant emissions at fossil

- fueled EGUs within the South Coast Air Basin, although overall emissions will significantly decrease." Therefore, c ommenter s stated that EPA should take transportation electrification into account when ap proving state emissions projections.

Commenter s asked that EPA "ensure that 111(d) standards do not create disincentives to transportation electrification. Commenter s further stated, "Transportation electrification is well

recognized by experts, air regula tors and others as a key strategy to reduce GHGs and other criteria pollutants. (For the purposes of this section, transportation electrification includes both

on

- road vehicles (including light

- , medium

- , and heavy

- duty vehicles) as well as off

- road equipm ent (such as forklifts, commuter and transit rail, ship shore power, airport ground support equipment, truck stop electrification, and transportation refrigeration units). Recognizing its importance, EPA and state air pollution regulators have programs to promote transportation electrification, such as EPA's light

- duty vehicle GHG rules and state NAAQS attainment SIPs that include Zero

- Emission Vehicle programs. EPA should ensure that the final rule is consistent with the goal of electrifying the transporta tion sector to reduce GHGs and other criteria pollutants."

Commenter s further stated that "transportation electrification is a key strategy to reduce carbon pollution and criteria pollutants."

Commenter s wrote, "Since the electricity sector has the potent ial for greater GHG emissions reductions through the transition of generation to renewable energy, electrifying vehicles is a key long

- term strategy for deep GHG, as well as criteria pollutant emission, reductions in the transportation sector."

Commenter s noted, "According to the International Energy Agency (IEA), achieving the climate stabilization goal of 450 ppm by the end of this century requires half of the global light

- duty vehicle s sold in 2050, about 100 million vehicles, to be battery electric or p lug

- in electric139 vehicles. The IEA's 2020 sales target for North America is about 1.5 million vehicles. IEA calls this decade a "make or break" period for plug

- in electric vehicles ("PEVs") and that "EV/PHEV sales must reach substantial levels by 2015 and r ise rapidly thereafter."

Commenter s stated, "EPA has recognized the "game changing" nature of PEVs in reducing GHGs by providing two temporary incentives in its model year 2017 to 2025 light

- duty vehicle ("LDV") GHG emiss ion standard program. First, it all ows auto manufacturers to treat a certain number of electric vehicles, plug

- in hybrid electric vehicles, and fuel cell vehicle s as "zero emissions" by ignoring power plant and other upstream emissions. Second, it provides temporary sales multipliers for al l battery electric vehicles, plug

- in hybrid electric vehicles, and fuel cell vehicles sold in model years 2017 through 2021."

Commenter s concluded that "Ten states have included PEVs in their state ozone SIPs, in the form of zero

- emission vehicle ("ZEV") p rograms as part of their adoption of California's Low

Emission Vehicle Program ("CA LEV III")" and "Clearly, ZEVs are an integral component of Clean Air Act emissions compliance generally."

5.8.2 Growth Tools for Projecting EGU Utilization and CO 2 Emissions

This section addresses comments on growth rates.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comment s regarding growth rates.
Response 1: In the Final CPP rule the EPA is not requiring states to use EIA growth rates. The EPA lists the eligible sources states can use to inform their growth rates, ISOs and RTO’s are valuable resources and their growth rates can be used in state’s projected performance so long as they are properly representing the growth rates and demand assumptions. See the Incorporating RE and Demand

- Side EE Impacts into State Plan Demonstrations TSD for further information about acceptable sources for growth rate s, including ISO and RTOs

. The following are summaries of the specific public comments under this comment:

Commenters said States should determine growth rates and not have to use EIA growth rates. Commenter s asserted that states should be able to determine the growth rate to apply to EGUs in their state based on forecasted future growth by the ISOs and RTOs. Commenter s also stated that EPA "should not require states to use EIA growth rate estimates."140 5.8.3 T ranslating from a rate

- based emission performance goal to a mass

- based emission performance goal

This section addresses comments on translating rate

- based performance goals to mass

- based performance goals. We have organized the comments in this section un der three subsections, 5.8.3a to 5.8.3c. Responses to the comment topics of these subsections are discussed below along with summaries the specific public comments.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comments regarding factoring demand in rate

- based and mass

- based standards and conversions and allowing enough time for comments.

Response 1 : The EPA is providing both rate

- based and mass

- based statewide goals in this final rule in place of having states determine the mass values themselves, in order to assure that the mass goals are an equivalent expression of the BSER. The mass goals provided enable growth in generation fr om affected EGUs. The new source complements to the mass

- based goals are derived based on the expected future demand levels projected by the EIA’s AEO2015. See the CO2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for details on th e calculations of these goals.

This final rule allows states to alternatively establish emission standards that meet rate

- based or

mass

- based state goals. The EPA supports having the flexibility to use rate

- based goals or mass

based goals as part of state plans.

The EPA will consider allowing states, via State Plan submittal or revision, to adjust their statewide rate or mass goal if such a change is necessary. See s ection VII of the final rule preamble of the CPP for further details on allowable adjustments to state wide mass

- based CO 2 goals.

In the June proposal, EPA took comment on a number of ways that States could convert rate based targets to mass based targets. Following the proposal, EPA received signifi cant input from a wide variety of commenters that more detail on a methodology for calculating mass based equivalent targets based on historical data would be helpful. Many stakeholders also developed methodologies. Based on this large response, EPA supp lemented the record on this limited portion of the rule. In particular, EPA proposed a methodology (similar to methodologies a range of commenters had developed independently) to convert the rate based targets to mass based targets. EPA believes the amo unt of time that commenters had to provide additional comment on the November TSD was sufficient because: 1) the methodologies provided were consistent with the proposed methodological construct for converting rate based targets to mass based targets; 2) n o new data was introduced in the TSD describing this conversion; 3) the fact that a range of commenters independently developed similar approaches to the approach that EPA requested additional comment on demonstrates how much EPA's methodology built off of141 the original proposal and the fact that even absent the supplemental proposal, many stakeholders were already actively considering this issue as part of their comments; 4) the fact that the methodology that EPA was requesting comment on, was merely a calc ulation methodology and did not change any of the underlying control assumptions.

The following are summaries of the specific public comments under this comment:

Commenters stated that "the Mass

- Based Equivalents TSD describes an approach for translating
t he rate

- based goals that does not assume any increase in generation at existing units." Commenter s stated they think states like California may have an increase in generation due to electrification of vehicles and that to support renewable integration they suggest that EPA "assign some of the increased generation associated with expected load growth to existing units."

Commenter s suggested that EPA switch from a rate

- based standard to a mass

- based standard or a
rate

- based standard with some baseline year's generation, say 2012, in the denominator. Commenter s said this will eliminate three big problems with the proposed rate

- based standard which are that energy conservation usually overestimates savings, states can subsidize solar or wind to meet their rate

- based target, and during recessions electricity demand goes down making it harder to meet a rate

- based target.

If EPA decided to follow one of the approaches in the Rate

- to

- Mass TSD, then commenter s suggested two adjustments to account for future load gro wth and to ensure equivalency between
rate

- based and mass

- based goals. Commenter s suggested that EPA should allow states to incorporate reasonable assumptions for future load growth in option one in the Rate

- to

- Mass TSD. For option two in the Rate

- to

- Mass TSD, commenter s suggested EPA provide a mechanism for the states to revise load growth if the EIA demand forecasts turn out to be incorrect. Commenters thought this might happen in California where transportation electrification could increase demand. Comm enter s also stated that for both approaches in the Rate

- to

- Mass TSD Building Blocks three and f our do not match the proposed rate

- base approach presented by EPA in June 2014.

Commenter s asserted that EPA did not provide enough time to analyze the rate

- to

- mass conversion in the Rate

- to

- Mass TSD and that any regulatory requirements and guidance of such an important aspect of the rule cannot be finalized without public comment and due process. Commenter s also noted that RGGI, which was cited by EPA as an exam ple program, needed flexibility to adapt and change its program , therefore, they stressed the need for "true flexibility to adjust state goals and plans when warranted."

Commenter s stated that the Rate

- to

- Mass TSD was released late in the notice

- and

- comment process and that if the stringency of the goals increase there should be an additional opportunity
to comment.
Commenters stated that they believe that the assumption "that elec tricity demand will hold steady or grow from now until 2030 is false" and EPA should modify the CPP, in order for the states to modify their plans if actual demand or a newly released electricity demand forecast deviates by more than 10% from the forecast used in a state's rate or mass based Implementation Plan. Commenters also stated that "conversion to mass

- based goal via use of 2012 E

- Grid142 emissions should not be permitted." Commenters also stated that, "EPA should condition rate

based to mass

- based comp liance upon inclusion of all sources, both new and existing, within the

mass

- based compliance framework. A state would then be free to elect rate

- based compliance for existing sources only, or to opt for mass

- based compliance for both new and existing sour ces."

"Can EPA provide clarity in regards to a state using a mass

- based rate (cap on tonnage for CO 2 emissions) in its plan and the flexibility in this approach to support an increased generation demand (if it should occur during the interim phase)? Page 17 of the "Projecting EGU CO 2 Emission Performance in State Plans" TSD suggests that mass

- based goals may account for increases in generation at existing affected units projected to occur as a result of load growth. Is this correct?"

Comment 2 : Comments regarding R ate to Mass conversion questions.

Response 2 : The EPA is providing both rate

- based and ma ss

- based statewide goals in this final rule in place of having states determine the mass values themselves, in order to assure that the mass goals are an equivalent expression of the BSER. See the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for details on the calculations of these goals.

This final rule allows states to alternatively establish emission standards that meet rate

- based or

mass

- based state goals. The EPA suppor ts having the flexibility to use rate

- based goals or m ass

based goals as part of state plans. The EPA notes that it is the emission performance rates in section VI of the final rule p reamble of the CPP that constitute the application of the BSER to the affected EGUs and serve as the chief regulatory requireme nt of this rulemaking. The statewide CO 2 rate

- based and mass

- based emission performance goals provided in the final preamble as metrics that states may choose to adopt when demonstrating compliance at the state level, and states may consider these goals when determining how to set unit

- level compliance requirements. See Section VII of the final rule p reamble of the CPP for the sta tewide CO 2 goals.

Since the EPA is providing these state

- wide CO 2 goals the individual comments related to how to translate from rate to mass based targets are no longer relevant to the final CPP rule.

T he EPA will consider allowing states, via State Pla n submittal or revision, to adjust their statewide rate or mass goal if such a change is necessary. See Section VII of the final rule
p reamble of the CPP for further details on allowable adjustments to state wide mass

- based CO 2 goals.

The following are s ummaries of the specific public comments under this comment:

Commenter s co

- sponsored a 111(d) webinar on September 24, 2014 and generated the following questions on rate to mass conversion.

Question 1: "EPA did not use modeling to calculate rate

- based goa ls, but EPA's "Projecting EGU Emission Performance in State Plans" TSD discusses modeling in the context of mass

- based goals. Why? Should states use EPA's IPM base case for the power sector through 2030 in order to develop business

- as

- usual baseline for m ass goal conversion?"143 Question 7: "If a state were to multiply the interim goal by the total generation of affected sources and "affected entities" in a specific year to calculate the mass

- based emission cap, is this method acceptable? (For example, Penns ylvania's interim goal is 1,179 lb/MWh net. If our net generation in 2020 is equal to our 2012 net generation of 150,858,087 MWh, our cap will be 88,930,842 tons. If our net generation in 2020 is equal to EPA's projected net generation in 2020 of 162,699,8 81 MWh, our cap will be 95,911,580 tons.)"

Question 8: "Can a state use their year

- to

- year goals used in determining their interim goal (columns AQ to AZ in the 20140602tsd

- state

- goal

- data

- computation spreadsheet) to calculate the mass based cap? a. For e xample, in the attached spreadsheet, 2020

- 2029 rate based goals are converted by taking the numerator from columns AQ

- AZ and setting that equal to the mass based goal. When you do that, the numerator is a constant value for 2020

- 2029, so the mass based goa l is a constant value for 2020

- 2029 (column BC). Does EPA agree with this approach? If not, how should the calculation be changed?"

Question 9c: "How do we address new renewable generation or new incremental hydro generation that is both scheduled to be c ompleted and on

- line after 2020 and all of the generation will serve out

- of

- state load?"

Question15: " If a state elects to convert their rate

- based goal to a mass

- based goal and the effected entities consist only of those that own or operate affected EGU s, how much qualitative and quantitative detail on the various CO 2 emission reduction and avoidance mechanisms (e.g., heat rate improvement, re

- dispatch to natural gas, renewable energy, energy efficiency) that would be used by the affected entities to mee t the mass

- based goals needs to be included in the state plan?"

Commenter s co

- sponsored a 111(d) webinar on November 20, 2014 and had the following question related to rate to mass conversion.

Question 6: "By using Table 1 of the rate

- to

- mass goal transl ation TSD, GA EPD calculates that Georgia fossil generation in 2030 would shrink to 51 % of fossil generation in 2012. By comparison, data from the Annual Energy Outlook 2014 for the SERC

- SE region project that 2030 fossil generation will be 123 % of 2012 generation. See Table GA

- 2. How does EPA account for this very large disparity and is the fossil generation projected by the TSD realistic?"

Commenter s stated that while the rule allows use of either a mass

- ba sed or rate

- based goal, many states will likely use mass

- based approach because it is more simple, however mass

- based targets do not account for load growth, which creates incentive to rate

- based because the rate remains the same regardless of fluctuations

. Commenters suggested that to equalize the 2 options, EPA should consider population changes and load growth when setting target emission standards.

Commenters requested that the following option be implemented to improve the workability of the proposed guideline rule and to provide additional compliance flexibility to meet the emission target s established in the proposal: s tates should be provided the opportunity to seek future adjustments to their state targets based on changing circumstances.144 Comment 3 : Comment regarding CO 2 reductions after 2030.

Response 3 : In the Final CPP Rule, the EPA is requiring states to submit projected CO 2 perform ance demonstrations through 2031

. We are also requiring th at the measures in place in 2031 should not sunset

. In addition, the state plan must identify requirements that continue to apply after 2030 and are likely to maintain affected EGU emission performance meeting the final goal. This provision will continue to protect public health and the environment after 2 03 0 and beyond

. The following are summaries of the specific public comments under this comment:

Commenter s stated that EPA should require CO 2 reductions after 2030 to reflect BSER and mitigate climate change.

Comment 4 : Comment s regarding EM&V protocols.

Response 4 : The preamble to the proposed Federal Plan describes the use of EM&V protocols for Energy Efficiency. Refer to section IV.D.8 of the preamble to the Federal Plan for more details

. In addition the EPA will release a draft guidance on EM& V protocols and the public will have the opportunity to comment on this guidance document. The EPA welcomes stakeholder input on the guidance document.
The following are summaries of the specific public comments under this comment:

Commenter s said that "s tates that choose to use energy efficiency for compliance need to develop and provide EPA with a plan for evaluating energy savings" and that a challenge to impose an emissions rate target is that "state approaches to EM&V differ". Commenter s encouraged EP A to impose strong guidance on EM&V practices since differences "in EM&V practices may provide an incentive to convert to a mass

- based approach."

Comment 5 : Comment s regarding use of renewable energy credits.

Response 5 : The EPA addresses this concern in the final rule. See section VIII.C.(1) of the final rule preamble of the CPP for details on the rationale for our true

- up period for emission budget trading programs. See section VIII.K of the final rule preamble of the CPP for EM&V protocol discussion and the EPA’s criteria for preventing double counting of RECs.
The following are summaries of the specific public comments under this comment:

Commenter s mentioned that each state's mass target limit should be based "on the actual regulated generation in th at st ate during the compliance interval" with a "true

- up" period similar to the Acid Rain Program. Commenter s also stated that like RGGI there should be an annual readjustment to the mass

- based program. Commenter s also stated that in order for a state to

r eceive credit for their EE measures under either a rate or mass based system the states would145 need to do EM&V. Commenter s also proposed a rate to mass based conversion that prevents double counting renewable energy credits because a state can either sell t he REC or use it during "true

- up".

Comment 6 : Comment regarding Rate to Mass interstate issues.

Response 6 : The Final CPP Rule does address Rate to M ass interstate issues. See Section VIII.L of the final rule preamble of the CPP for the EPA’s rationale for the treatment of interstate effects and the interaction between rate and mass based state plan approaches.
The following are summaries of the specific public comments under this comment:

Commenter s stated that EPA should address potent ial interstate issues caused by having some states using a rate

- based approach and other states using a mass

- based approach for compliance.

5.8.3a Reference Case Scenario

This section addresses comments on EIA reference case scenarios.

Commenters have ra ised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments regarding EIA’s electric demand growth projections.
Response 1: The commenters are concern ed about the uncertainty of using EIA demand growth projections and the inability to revise their plan if the future turns out different than expected given projections and demand growth uncertainty. The EPA is finalizing that states may revise their plan under certain situations. See Section VIII.E. 7 of the final rule preamble of the CPP for further details. States do not need to use EIA for their demand growth projections, the EPA lists a number of sources states can use, including the Regional Planning Organizations among others. See section VIII. D of the final rule preamble of the CPP for details on the available data sources states can use for their demand projections.
The following are summaries of the specific public comments under this comment:

Co mmenter s recommended that EPA should "use the US EIA Low Electric Demand Case for forecasting future electric demand." Commenters stated The Low Electric Demand Case assumed that electric demand will be flat through 2040 just like it was from 2008

- 2012 and it "results in faster coal fired power plant shutdowns, and lower total electric generation." Commenters mentioned that the reference case used by EPA assumed 1% growth in electric demand. Commenters stated that there is a likelihood that EIA will use a n o growth reference case in the 2015 Annual Energy Outlook.146 Commenter s stated that the "EPA made the assumption that there will be no electricity demand growth in the future in contrast to EIA's Annual Energy Outlook 2014 with projections to 2040 released April 2014" and commenter s also stated that they have concerns about the EPA's "expertise in the area of energy forecasting." Furthermore, commenter s stated that they have concerns about the accuracy of the tools EPA is proposing the states use to project CO 2 emissions, electric demand, and the growth of RE and EE for the next ten years. Commenter s pointed out that 5 out of 9 ten

- year AEO projections have a greater than 10% margin of error. Commenter s stated that "despite the EIA's substantial expertise, th e accuracy of their projections is in many cases limited. Commenters stated that i n the proposed rule, states, whom have far less, or in some cases no expertise in the projection of CO 2 emissions or electricity demand or sales, would be tasked with develop ing a similar projection. Commenters stated t his projection would then become federally enforceable, and the states held accountable for any errors or mis

projections. Furthermore, commenters stated that once federally enforceable, the projections and
requ ired measures taken in the state to meet them become relatively inflexible, which raises great concerns should such measures impact grid reliability or introduce unforeseen or substantial costs to the states." Commenter s also stated that "EPA does not have the expertise or authority to require states to develop plans that essentially micromanage the electric grid."

Comment 2: Comment regarding unit retirements.
Response 2: The baseline inventory the EPA u ses relies on historical data and does not incorporate anticipated future retirements. The EPA and most commenters supported this treatment as they viewed those scheduled retirements (and corresponding emission reductions) as an alternative compliance flexibility based on already schedule d reductions

. The fo llowing are summaries of the specific public comments under this comment:

Commenter s stated that "EPA should expressly allow states to rely on unit retirements occurring after the baseline year(s) to meet Section 111(d) goals. Commente rs stated that retirements should be given equal credit under a rate

- based or a mass

- based program."

Commenter s said that " even if the retirement was planned before the Proposed Rule ," the EPA should not include it in the reference case because this penal izes the state.

Commenters wanted EPA to clarify that "retirement of coal

- fired power plants after 2012 would count toward compliance under a mass

- based cap." Commenters stated that EPA should allow full credits for retirements occurring after the baseline year and that the "retirements should be given equal credit under a rate

- based or a mass

- based program." Commenters asserted that under the current proposed rule states that use a rate

- based goal will not fully benefit from a unit's retirement if the repl acement generation comes from out of state. Commenters also stated that the state's "reference case" should include all EGUs that a company or state has agreed to retire and then this reference case should be used to determine the mass based goal.

Commen te r s asked how states could account for retirements and other changes as the states are developing their plans and projecting emissions performance over the compliance period (keeping in mind that not all states have modeling tools available).147 5.8.3b Mass

- B ased CO 2 Emission Goal Policy Scenario

This section addresses comments on mass

- based CO 2 emissions goals.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for t hese topics.

Comment 1 : Comment regarding mass

- based plans with administrative adjustments.

Response 1 : The EPA is allowing mass based plans to be an option for state plan compliance. See section VIII.E. 7 of the final rule preamble of the CPP that describes when and how states can submit plan revisio ns to the EPA under certain circumstances.
The following are summaries of the specific public comments under this comment:

Commenter s stated that EPA should allow mass

- based plans for state plan compl iance as long as the states are allowed to make administrative adjustments if there are increases or decreases in electricity demand from fossil fuel

- fired generators due to EE and RE efforts.

Comment 2 : Comment regarding mass

- based approach and controls

. Response 2 : The commenter has expressed his support for certain types of BSER approaches. States have the flexibility to choose a rate based or mass based goal to comply with the EPA emission guidelines in this final CPP.
The following are summaries of the specific public comments under this comment:

Commenter s do not "support the levels of control proposed in either the rate

- based or mass

based approach" but do "support the use of a mass

- based approach that is reflective of the level of emission control achievable through the application of BSER at all existing power plants."

5.8.3c State Plan Policy Scenario

[No comments were received on this topic.]

5.8.4 Projecting CO 2 emission performance under a state plan

This section addresses types of projections that will be required in a state plan.148 Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comment s regarding the types of projections that will be required in a state plan.

Response 1 : The EPA has further clarified the types of projections that will be required in state plan submittals. The performance projection will differ depending on the type of st ate plan a state chooses to submit. The way energy efficiency and renewable energy (EE/RE) will be accounted for in a state plan also is dependent on the type of state plan a state chooses to use to comply with EPA’s emission guidelines. See section VIII. D

. 2(a)(3) State Plan Performance Demonstration and Section VIII. K

. of the final rule preamble of the CPP for details on requirement related to performance projections and how to account for EE/RE in a rate based plan.
The following are summaries of the spe cific public comments under this comment:

Commenter s stated that the Missouri Department of Natural Resources supported only projecting "the statewide average emission performance levels of affected entities, which can include credit for renewable generation an d avoided generation from energy efficiency und er a rate

- based approach" in the state plan s.

5.8.5 Applied Considerations for Different Types of State Plans

This section addresses considerations for different types of state plans.

Commenters have raised a number of issues related to this subsection w hich are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comment s regarding enforceability requirements

. Response 1 : The EPA has clarified the key components related to state based allowance trading and how t he enforceability requirements differ depending on if the state plan is a n e missions

s tandards plan, which is federally enforceable and a state measures state plan that may have both federally enforceable and state enforceable elements. Please refer to Section VIII. C. for an overview of state plan approaches and Section VIII. J

. of the final rule preamble of the CPP for details on the additional considerations for mass based plans

. The following are summaries of the specific public comm ents under this comment:149 Commenter s asserted that EPA should consider making some specific key components of state

based allowance systems federally enforceable such as total allowances in the system and requiring sources to hold allowances. Commenters als o stated that implementation details should be subject to state law and be enforceable by the state.

5.8.5a Approaches for Estimating the Future Effects of State Energy Efficiency Requirements, Programs, and Measures

[No comments were received on this top ic.]

5.8.5b Potential Uses of Energy Efficiency Projections for State Plan Emission Projections

This section addresses energy efficiency projections uses in state plans.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comment s regarding energy efficiency and BSER.

Response 1 : The EPA has determined not to include demand

- side energy efficiency (building block four) in the BSER of this final rule . Although we do not need to determine the overall scope of the phrase “system of emission reduction,” we recognize that commenters have raised extensive legal concerns about building block 4. We recognize that building block 4 is di fferent from building blocks 1, 2, and 3 and the pollution control measures that we have considered under CAA section 111. Accordingly, in light of our past practice and current policy in implementing section 111, as well as the legal concerns raised in pu blic comment, today’s final action excludes building block 4 from the BSER. Since we are not including BB4 in BSER and we do not need to address this concern. This determination is discussed in section V. B of the final rule preamble of the CPP.

The followi ng are summaries of the specific public comments under this comment:

Commenter s stated that they believe that "EPA's BSER determination should not include reductions attributable to energy efficiency programs because these programs are not under the direct control of the utility and cannot be traced to solely offsetting CO 2 emissions from existing affected EGUs." Furthermore, c ommenters stated that if EPA wanted to use energy efficiency then EPA should do a generating unit

- by

- generating unit analysis that w ould demonstrate a direct correlation to a specific affected EGU. Commenters also stated that if EPA includes energy efficiency as a component of BSER then EPA should take into consideration Florida

specific technical and achievable energy efficiency accor ding to Florida Statues and the CAA. Commenters also stated that "EPA's proposed ten percent reduction in net retail electric sales as a150 result of Building Block 4 is unreasonable, in terms of both proposed cost and achievability, based on Florida's actual historic data."

5.8.5c Data Issues and Considerations for Using and Developing Energy Efficiency Projections

This section addresses data issues to use and develop energy efficiency projections.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comment s regarding energy efficiency projections in state plans.

Response 1 : The EPA has included requirements in the final rule that descr ibes the assumptions, methods and emission quantification methodologies state s could use in their projected performance demonstration. The elements of the projection and whether EE would need to be explicitly account ed for will depend on the type of state plan a state chooses to submit to EPA. Refer to section VIII. D .2(a) of the final rule preamble of the CPP and the Incorporating RE and Demand

- Side EE Impacts into State Plan Demonstrations TSD that describes the type of data sources and evidence a state would need to provide.
The following are summaries of the specific public comments under this comment:

Commenter s asked the following questions regarding BB4 :

• What evidence would EPA want in o rder for a state to demonstrate that the proposed EE trajectory is unreasonable for their circumstances?

• What evidence should be submitted if a party wanted to demonstrate that a higher or lower annual EE reduction is feasible?

Comment 2 : Comments regar ding Reported/Projected EE vs. Actual Savings

Response 2 : The final CPP allows broad flexibility in how to comply with the emission standards or state goals in the final guidelines. Sources have the ability to purchase ERCs as a way to adjust the CO 2 emissions rate and mass based states can join emission budget trading
program s or coordinate through multi

- state plans. Even if the projected energy savings doesn’t happen exactly as expected these additional flexibilities will allow states and sources th e latitude to still meet their future goals.
The following are summaries of the specific public comments under this comment:151 Commen ters stated that EPA needs to account for differences in reported and projected energy efficiency savings versus actual savings, as well as acknowledge the potential consequences if projected savings are not met.

Commenter s urged EPA to acknowledge that projected savings from a demand

- side program or measure cannot be forecasted with exact precision. Commenter s stated that EPA should provide leniency in the case that energy efficiency measures do not meet the projected savings. Commenter s noted that the inconsistency between projected and actual savings is usually a result of many factors effecting EE programs that are outsi de the control of those implementing the technologies. Commenter s stated that in the event that a state does not meet its goal due to the difference between projected and actualized savings from an EE measure, where the cause of the difference is not a res ult of an error on the states' part, EPA should have an alternative means of compliance. Commenter s cited a paper, which includes almost half of the programs included in the analysis, that shows utility reported savings as being substantively higher than t he evaluated savings and that predicted savings were also significantly different than evaluated savings (Resources of the Future, "Energy

- Efficiency Program Evaluations) (see Figure 21 of their comment letter, Total Resource Cost (TRC) Test (Program Benef its/ Program Costs)) (see http://www.rff.org/documents/rff

- dp

- 10

- 16.pdf). Commenter s cited a table showing the realization rates, which is the ex

- post estimated savings divided by ex

- ante projected savings (see Energy

- Efficiency Program Evaluations. http:/ /www.rff.org/documents/rff

- dp

- 10

- 16.pdf); the realization rates show the significant difference in actual or real savings and the forecasts. Commenter s stated that by basing the majority of the proposed plan analysis on reported data, EPA did not provide a cushion for situations in which the reported savings from energy efficiency measures do not accurately reflect the actual savings. Commenter s stated the difference can be a result of the many factors on which effective programs are dependent, many of whi ch are outside the control of those implementing the technologies.

5.8.5d Approaches for Estimating the Future Effects of State Renewable Energy Requirements, Programs, and Measures

This section addresses the effects of state renewable energy requirements.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comment s regarding biomass

. Response 1: Biomass is not considered p art of the best system of emission reduction in this rule and therefore it is not included in goal

- setting or compliance evaluations. However, similar to other technologies outside of BSER, biomass may be considered as a part of a state’s plan to meet the emission guidelines.152 For more information regarding Building Block 3, refer to Section V.E of the final rule p reamble of the CPP

. A discussion regarding the use of some biomass feedstocks for compliance purposes can be found in Section VIII.I.2.c and Sec tion VIII.K.1 of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenter s quoted studies showing that forest

- derived biomass can increase net atmospheric CO 2 compared to fossil fuels. Commenters said that "EPA included biomass in RE and erroneously assumed that burning biomass does not lead to CO 2 emissions." Commenter s urged EPA to establish a framework that distinguishes between biomass feedstocks that will increase atmospheric CO 2 an d those that will decrease CO 2 over a 10

- 20 year timeframe.

5.8.5e Renewable Portfolio Standards

This section addresses renewable portfolio standards.

Commenters have raised a number of issues related to this subsection which are organized by topics (comm ents) below. Responses are also provided for these topics.

Comment 1: Comment s regarding a renewable portfolio standard scenario.
Response 1: T he final guidelines say that a state can use renewable energy as a part of their state plan compliance. The EPA agrees there is more opportunity to adopt RE. The global market for RE is projected to grow to $460 billion per year by 2030. RE growth is further encouraged by the significant amount of existing natural resources that can support RE production in the Unit ed States. In the Energy Information Administration’s Annual Energy Outlook 2015, RE generation grows substantially from 2013 to 2040 in the reference case and all alternative cases. In the reference case, RE generation increases by more than 70 percent fr om 2013 to 2040 and accounts for over one

- third of new generation capacity. See the final CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for further details on EPA’s renewable energy goal calculations.
The following are summarie s of the specific public comments under this comment:

Commenter s conducted a comparison analysis of a business

- as

- usual (BAU) scenario against a 30% Renewable Portfolio Standard (RPS) scenario, and a natural gas fuel switching scenario, using a spreadsheet model and the MyPower modeling software developed by researchers at the Wisconsin Energy Institute (WEI). Commenters stated that "Both models show that the 30% RPS can reduce Wisconsin's CO 2 emissions below EPA's targets, at a lower cost than the fuel swi tching scenario." Commenters said that these runs were done with the assumptions that fossil fuel prices rise steadily at 2% annually, and where natural gas prices reflect historical volatility153 observed from 1998

- 2013. Commenters stated that this illustrat ed "the value of renewables as a hedge against price volatility."

Comment 2: Comment s regarding renewable energy potential and RPS obligations.
Response 2: The final guidelines state that a state can use renewable energy as a part of their state plan compliance. See the final CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for further details on EPA’s renewable energy goal calculations.
The following are sum maries of the specific public comments under this comment:

Commenter s said that "EPA Fails to Adequately Acknowledge State RE Potential" and take into account states' RPS obligations. Commenter s presented examples for several states such as Illinois, Hawai i and Iowa where commenter s said "even though Iowa produced 14.2 million MWh of renewable electricity in 2012, its 2030 RE target is just 8.6 million MWh." Commenter s recommended that at a minimum, "EPA's approach assume that states reach their own indepen dently

- set RPS targets." Commenter s had the following comment of how EPA should credit renewable energy, "If EPA chooses to retain its preferred methodology of crediting each state with the renewable energy that it has "implemented," then the baseline RE s hould be recalculated to reflect that compliance criteria. On the other hand, if EPA credits a state with all of the renewable energy generation within its borders, then no state should be assumed to lose RE generation as part of its state target calculati on."

5.8.5f RPS as an Input to Electricity Sector Modeling

This section addresses RPS and modeling.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comment s regarding RPS design.

Response 1 : The EPA agrees that states with different electricity market structures would design their RPS requirements in a way to meet their unique needs. In the final CPP rule the EPA also makes it clear that RE from RPS should be non

- duplicative. In Section V III.D.2.b (3) of the final rule preamble of the CPP , the EPA describes an example of when a duplicative emission standard would occur, which is prohibited under this final CPP rule. For example, it is prohibited to apply a quantified and verified MWh from a wind turbine to more than one state’s CAA section 111(d) plan to adjust the CO 2 emission rate of an affected EGU, except in the case of a multi

- state plan where CO 2 emission performance is dem onstrated jointly for all affected EGUs154 subject to the multi

- state plan. For furt her details see Section VIII.D.2.b. of the final rule preamble of the CPP.
The following are summaries of the specific public comments under this comment:

Commenter s suggeste d that "infrastructure development under these state

- level RPS programs is essential." Commenter s said that "states with a deregulated wholesale power markets have the ability to engage in integrated resource planning, while also benefitting from a competi tive generation market, allowing a wide amount of latitude for RPS design." Commenter s also said that "many states allow the procurement of renewable energy to count toward RPS requirements if it is delivered into the RTO, ISO, or other organized market" a nd that "a renewable energy developer in a large wholesale market can then theoretically sell into multiple states with RPS requirements."

5.8.5g Data Needs for Estimating Generation Resulting from State RPS

This section addresses data needs for RPS development.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comment s regarding data needs from EGUs

. Response 1: Not all state p lans require a projection of CO 2 emissions performance, section VIII. D.2.(a)(3) of the final rule preamble of the CPP describes which state plan designs require a projection. The Final rule also provides a list of all affected EGUs that are subject to the emission guidelines and EPA is not requiring a specific methodology that states must use to project their future emissions. See Section IV. D of the final rule preamble of the CPP for the definition of an affected EGU. The EPA provides a list of key assum ptions and data requirements for projections in Section VIII. D.2.(a)(3) of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

I n order to answer the question, "What kind of data do states need to gather regarding emissions from their power plants

, " c ommenter s stated that states should "first identify and categorize the existing electric generating units covered by the rule, "gather historical CO 2 emissions data from 40 CFR Part 75 reports, and "identify the methodology used to measure future GHG emissions."

5.8.5h Feed

- In Tariff

[No comments were received on this topic.]155 5.8.5i Data Needs for Estimating Generation Resulting from Feed

- In Tariff and Performance

- Based Tax Incentives

[No comments were received on this topic.]

5.8.5j Emission Budget Trading Programs

This section addresses cap and trade program design.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comment s regarding cap and trade system design.
Response 1: The final guidelines describe different state plan approaches states can choose to implement to achi eve the interim and final goals outlined in EPA’s guidelines. There is flexibility within the state plan approach options that would allow a state to use the type of
program Commenters suggested above. Refer to Section VIII.C of the final rule preamble of the CPP for details on the design features of these types of programs.
The following are summaries of the specific public comments under this comment:

Commenter s stated that they support the Clean Power Plan Proposed Rule. Commenter s also stated that any cap and trade system designed should have the following characteristics: permits auctioned to upstream companies (not given away for free); an escalating price floor on permit prices; revenues returned to consumers as a dividend; and limited offsets and lo opholes.

5.8.5.k Addressing the Sectoral Scope of Emission Budget Trading Programs

[No comments were received on this topic.]

5.8.5l Addressing Multi

- Sector Emission Trading

[No comments were received on this topic.]156 5.8.5m Addressing Emission Offsets

This section discusses emission performance and the use of offsets as emission reduction strategies.
Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for thes e topics.

Comment 1: Comments regarding emission offset issues.
Response 1: The EPA disagrees with the commenters that out

- of

- sector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because ou t

- of

- sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII. K.1 of the final rule preamble of the CPP. However, state plans may accommodate emission budge t trading programs that may include out

- of

- sector GHG offsets, which we are finalizing as an option under the state measures plan type. See Section VIII.J.2.d of the final rule preamble of the CPP. For these reasons and other reasons discussed in section 1.2 of this document, as well as in section VIII of the Legal Memorandum, this rule provides states more flexibility than the “real choice” the D.C. Circuit has required in the context of CAA section 110. Accordingly, we disagree with some commenters that the final emission guidelines impermissibly restrict states’ flexibility in plan design, and we further disagree with the commenters’ characterization of this rule as encroaching upon the federal

- sta te balance of the CAA. The EPA will not be providing out of scope carbon offset methodology given that they may not be counted toward CPP compliance, the re fore these comments are out of scope to the final CPP.

The following are summaries of the specific p ublic comments under this comment:

C ommenter s stated that EPA should consider recognizing "each state's existing initiatives and programs that can count toward their offsets, such as electric vehicle incentives and energy efficiency requirements."

Comment er s recommended that EPA allow "offset programs as a potential compliance strategy in the final rules."

Commenter s stated that "Out

- of

- sector carbon offsets have proven to be a simple and verifiable means to reduce greenhouse gases and should be included in EPA's compliance calculations."

Commenter s recommended that "Statements suggesting that out

- of

- sector offsets cannot be included in a State's compliance calculation should be removed from the Rule." Furthermore

, commenter s said that "a state should be able to count ANY GHG emission reductions from projects that meet sufficiently stringent standards of environmental integrity. The Agency could avoid further ambiguity by providing guidelines to states on the establishment of state administered programs or utilizing pre

- existing voluntary offset programs."157 Commenter s wanted clarification from EPA as to why carbon offsets could not be used to achieve for the Clean Power Plan.

Commenter s recommended that EPA "clarify that states may use GHG offsets to achie ve any emission reductions their state plan."

Commenter s stated that in refusing to "count" out

- of

- sector offsets, EPA is limiting the states' legal ability to craft their own preferred plans. Commenter s said section 111(d) of the CAA directs EPA to "presc ribe regulations which shall establish a procedure similar to that provided by Section 110." Commenter s said courts have interpreted Section 110 to impose a "federalism bar" which underscores state discretion to choose a SIP that best suits its needs. Comm enter s said that under Section 110, states must have "real choice" with regard to the control measure options available to them to meet their SIP requirements. Commenter s said the court in Michigan went on to say it would disfavor a rule that left the stat es with alternatives that the states "would consider unreasonable or impracticable."

Commenters stated that failing to include out

- of

- sector offsets as a compliance method unreasonably restricts a state's ability to design its own plan. Commenter s said th e exclusion is especially limiting where offset programs currently exist and capture very real and very positive GHG reductions. Commenter s said that allowing out

- of

- sector offsets to be used only for non

compliance purposes will essentially render them mo ot in practice, serving to undermine the goal of both the CPP and existing cap

- and

- trade programs. Commenter s said existing programs now must alter the way these important projects are treated. Commenter s said they must make up for any reductions from out

- of

- sector offsets currently recognized through other policies or set a stricter emissions standard than the one set forth in the CPP that would then allow out

- of

- sector offsets to be used only in the headroom above the EPA

- required goal. Commenter s said th ese are both "unreasonable and impracticable" alternatives that will force a state's hand in how to treat these offsets

- they will simply not include them.

Comment 2: Comments regarding offsets and additionality.
Response 2: The EPA agrees with commenters who asserted that out

- of

- sector offsets may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out

- of

- sector offsets are not connected to the electrical grid and so cannot reliably addre ss stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1. b of the final rule preamble of the CPP. However, state plans may accommodate emission budget trading programs that may include out

- of

- sector GHG offsets, which we are finalizing as an option under the state measures plan type. See Section VIII.J.2.d of the final rule preamble of the CPP.
Regarding the use of allowances or Emission Rate Credits from other states or countries, see Section VIII.K.1 of the final rule preamble of the CPP.

A discussion regarding the use of some biomass feedstocks, including waste

- derived feedstocks, for compliance purposes can be found in VIII.I.2.c and Section VIII.K.1 of the preamble.158 The following are summaries of the specific public comments under t his comment:

Commenter s asserted that "EPA's Criteria For Acceptable Offsets In A State Plan To Be "Additional" Is Arbitrary And Unnecessary And Will Penalize Affected Sources For Making Investment Decisions That Reduce GHGs Prior To The Establishment Of T he State Plans." C omment ers agreed with EPA "that out

- of

- sector offsets can provide flexibility to States." However, commenter s stated that "EPA appears to apply this concept in an arbitrary manner by incorporating a so

- called "additionality" requirement: A key criterion that must be met for the award of offset allowances or credits is a demonstration that the offset project is "a dditional" (i.e., that it would not have occurred absent the incentive provided through the award of the offset allowance or credit)." Commenter s said that one of their members made a decision to convert a unit to natural gas combustion in anticipation of EPA's rule and now would be penalized by not getting offsets since they were an early mover. Furthermore, commenter s stated that in order to "allow companies to reduce GHG emissions in a cost

- effective manner" EPA should "allow multi

- s tate companies that g enerate offsets to use them in any State where they have affected EGUs that are regulated under Section 111(d)" and "EPA should explicitly permit the use of international offsets under the same conditions that it permits domestic offsets."

Commenter s also asserted that "EPA's c riteria f or a cceptable o ffsets i n a s tate p lan t o b e

" a dditional" i s a rbitrary a nd u nnecessary a nd w ill p enalize a ffected s ources f or ma king i nvestment d ecisions t hat r educe GHGs p rior t o t he e stablishment o f t he s tate p lans." Commen ter s stated that the "additionality" requirement was "unfair to those entities that have made investment decisions since the baseline year (2012) that, in part, were made in anticipation of regulatory programs such as this one to reduce GHG emissions." Com menter s also said that states should be able to incorporate out of sector offsets into a trading program as long as the offset credits were generated after 2012. Commenter s also said that EPA should allow multi

- state companies that generate offsets to use them in any other state.

Commenter s stated that they believe that EPA has proposed the wrong definition of "additionality

. " Commenter s urged EPA to fix the definition of "additionality" so that "beneficial carbon savings projects" reflecting best practices even if they pre

- date the proposal could be counted.

Commenters noted "that EPA has allowed inclusion of "offsets" from renewables an d other sources in meeting the targets." Commenters recommended that EPA allow EPA "streamlined bilateral trading arrangements between states" and not require formal regional coalitions in order to trade offsets.

Commenters stated that the rule should "not allow states to let polluters buy pollution offsets to meet emissions requirements." Commenters asserted that offsets caused the families living near power plants to "continue to breathe toxic emissions" and that "given the 50

- year lifespan of carbon in t he atmosphere after is it released, offsetting also poses a real risk to long

- term climate stability."

Commenters stated that carbon offsets from outsid e the power sector must not count towards compliance with the emission reduction requirements of the Cle an Air Act.159 Commenters stated that "out

- of

- sector offsets should be permitted to be used for compliance." Commenters also stated that the proposed rule appears to present "conflicting guidance regarding the use of offsets for compliance" and requested cla rification. Commenters asserted that "if unrelated out

- of

- sector offsets are not allowed, EPA should allow the use of offsets that are directly related to generating units, such as methane destruction credit for generators utilizing landfill gas or biogas from anaerobic digesters."

Commenters stated that all different kinds of offsets should be offered as options in the final rule as "alternatives to direct reductions from our EGUs." Commenters recommended that the "beneficial reuse of coal ash," terrestri al carbon sequestration, improving nitrogen application efficiency by farmers, landfill gas generating and use of low or zero emitting vehicles be considered as offsets and ways to achieve carbon reduction goals. Commenters also stated that renewable power including wind and solar power will be needed to achieve "meaningful GHG reductions."

Commenters recommended "including a clear and explicit recommendation that gives states the power to use both in and out

- of

- sector offsets in establishing state targets for the Clean Power Plan and in meeting emission performance compliance goals." Comment ers recommended that EPA allow for "offsets from the land use and agricultural sectors" because these "Offsets are a cost effective way for states to meet their goals, while working towards more long term solutions focused solely on EGU reductions." Commen ters also encouraged "EPA to complete the Biogenic Emissions Accounting Framework in a way that accounts for the lifecycle GHG reduction potential of biomass" to "further support the development of offset projects and markets."

Commenters stated that fore st carbon offsets would provide flexibility to meet emissions reduction targets and an added incentive to keep working forests intact.

Commenters stated that "The Final Rule should state explicitly that offsets from outside the electricity generation indu stry, while allowable for crediting in state plans, must be justified in relation to the Clean Power Plan." Commenters said that "States should have the flexibility to use emissions reductions of methane in the oil and gas industry to the extent that natur al gas use is increased in that state to offset some of the carbon dioxide emissions reductions required in the CPP. Similarly, states that begin to work toward electric transportation options could also be allowed offsets to the extent that overall emissi ons will be reduced. Generic offsets, however, such as tree planting, should not be allowable within the CPP, regardless of the benefits, because they are not related to the CPP. The language in 79 Federal Register 34910 should be made clearer and should s pecifically allow certain offsets as an option."

Commenters urged EPA to clarify that forestry based offsets would be allowed as a means of compliance and noted that RGGI allows forestry based offsets. Commenter s recommended that "EPA should clarify that out

- of

- sector offsets, including those from forestry projects, should be eligible for inclusion in 111(d) state implementation plans for the purpose of complying with EPA's proposed emission reduction goals."160 Comment 3: Comment s regarding industrial energ y efficiency and offsets.
Response 3: Demand

- side EE measures including industrial efficiency programs and demand response may be used to adjust a CO 2 emission rate, provided they meet the general eligibility requirements outlined in Section VIII.K of the final rule preamble of the CPP and the MWh electricity generation or electricity savings are properly quantified and verified. Eligible Demand Side Measure actions are those that are non

- emitting and avoid, rather than shift, the use of electricity by an e lectricity end

- user. The quantified and verified MWh that may be used for such an adjustment are determined based on the MW of demand reduction multiplied by the hours during which such a demand reduction is achieved

. DSM measures must be appropriately
qua ntified and verified, in accordance with requirements in the emission guidelines, as discussed in section VIII.K.3 of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commenter s stated that guidelines should allow for flexibility in implementation. Commenter s expressed that in order "to achieve the best overall result, state implementation plans should let all forms of energy efficiency and demand response activities from industrial sources ('outside

the

- fence line') compete with other emission reduction technologies." Along these lines,

c ommenter s encouraged "existing state and regional GHG programs to include industrial energy efficiency and demand response as offsets with compensation adeq uate to support expansion of those programs."

C omment 4 : Comment regarding offsets

. Response 4 : The final CPP is publishing uniform emission guidelines in the sense that the rate

based goals and mass

- based goals are equivalent to each other

, and therefore the emission guidelines are uniform while still allowing states flexibility to comply with these uniform targets in the emission guidelines. The EPA disagrees with this commenter’s point of view that the final rule should promulgate uniform state plans for compliance. Rather

, we ha ve determined that maximum flexibility in choosing a state plan pathway allows states to meet their CO 2 emission performance rates or state CO 2 emission goal s while reducing costs, maintaining reliability and achiev ing reasonable emission reductions in a reasonable time frame.

As for GHG offsets, out

- of

- sector offsets may not be counted toward meeting a CO 2 emission performance level for aff ected EGUs or a state CO 2 goal because ou t

- of

- sector offsets are not
connect ed to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Section s V.B.3.c and VIII. K.1.b of the final rule preamble of the CPP. However, the state plans may accommodate emission budget trading programs that may include out

- of

- sector GHG offsets, which we are finalizing as an option under the state measures plan type. See Section VIII.J.2.d of the final rule preamble of the CPP. For these reasons and other reasons discussed in section 1.2 of this document, as well as in section VIII of the Legal Memorandum, this rule provides states more flexibility than the “real choice” the D.C. Circuit has r equired in the context of CAA section 110. Accordingly, we disagree with some commenters that the final emission guidelines impermissibly restrict states’ flexibility in plan design, and we further161 disagree with the commenters’ characterization of this rul e as encroaching upon the federal

- state balance of the CAA.

The EPA disagrees with the commenter s that the EPA made conflicting statements with respect to offsets in the proposed rule. For clarification, the proposed rule did not propose to allow out

of

- se ctor offsets to demonstrate CO 2 emission performance by affected EGUs but did propose to allow both in

- sector offsets that would achieve the required level of emission performance for affected EGUs and emission budget trading programs including out

- of

- sect or GHG offsets.

T he following are summaries of the specific public comments under this comment:

Commenter s wanted uniform guidelines in the regulations especially for offsets so the law would be "fair and effective."

Commenters said another stark example o f regulatory ambiguity is EPA's incomprehensible offset policy. Commenters stated , in some places within EPA's preamble and TSDs, EPA specifically notes that 'out of sector' offsets would not be approvable. Commenters stated , in other places, EPA seems to indicate the offsets can be used in existing trading plans at the state level for compliance. Commenters said, in still others, EPA seems to indicate that offset programs can be used in mass

- based programs but not in rate

- based programs. Commenters
asserte d that this ambiguity must be eliminated from the final rule and states should be afforded the flexibility of fully utilizing both sector and out

- of

- sector offsets provided that appropriate quantification methodology is employed. Commenters noted that thes e ambiguities become more acute because state plans are to be approved by regional staff personnel. Commenters questioned, while the approval process follows headquarters direction, how will that process work in this case? Commenters said states are expect ed to propose unique and creative compliance options. Commenters said some may represent cutting edge technologies, programs or new types of incentives. Commenters noted that inclusion in state plans of innovative compliance mechanisms could face disapprov al by regional staff that are operating without clear and consistent regulatory guidance, defeating the very purpose of the creative "state laboratories of invention." Commenters said such a result again would upset the political and policy choices made at the state government level. Commenters asserted that EPA must include sufficient guidance in the definition of affected entities to ensure that states are allowed to experiment and that companies acting to implement the CPP are allowed to invest capital i n new units and technologies with the certainty that such measures are consistent with the CPP. Commenters noted, absent this additional specificity in the rule itself, EPA exposes states and sources alike to the actions or opinions of federal regional per sonnel. Commenters said, worse, lawsuits from members of the public who disagree about the value of a project would create even more uncertainty in the development of a compliance plan that is already full of uncertainty. Commenters stated that this infirm ity in the proposal stems from the "square peg, round hole" that underpins the whole CPP . The commenters said that EPA is using an existing source performance standard to jump start a change to a lower carbon economy. Commenters said the CAA may not be str etched this far.

Commenters stated that in not counting out

- of

- sector offsets, EPA is limiting the states' legal ability to craft their own preferred plans. Commenters explained that Section 111(d) of the CAA directs EPA to "prescribe regulations which sha ll establish a procedure similar to that provided162 by Section 110." 42 U.S.C. Section 7411(d), and the cases which have interpreted Section 110 have imposed a "federalism bar" which underscores state discretion to choose a SIP that best suits its needs. EME Homer City Generation, L.P. v. EPA, 696 F.3d 7, 29 (D.C. Cir. 2012). Specifically, under Section 110, commenters noted, states must have "real choice" with regard to the control measure options available to them" to meet their SIP requirements. Michigan , 213 F.3d at 687 (D.C. Cir. 2000), and the court in Michigan went on to say it would disfavor a rule that left the states with alternatives that the states "would consider unreasonable or impracticable." Michigan , 213 F.3d at 688. Commenters continued, st ating that by not including
out

- of

- sector offsets as a compliance method a state's ability to design its own plan is unreasonably restricted, and the exclusion is especially limiting where offset programs currently exist and capture very real and very posi tive greenhouse gas reductions. Commenters remarked that allowing out

- of

- sector offsets to be used only for non

- compliance purposes will essentially render them moot in practice, serving to undermine the goal of both the CPP and existing cap

and trade prog ram. Commenters stated that existing programs now must alter the way these important projects are treated, and they must make up for any reductions from out

- of

- sector offsets currently recognized through other policies or set a stricter emissions standard than the one set forth in the CPP that would then allow out

- of

- sector offsets to be used only in the headroom above the EPA

- required goal. Commenters agreed with the court in believing that offsets are a dynamic and important way to control greenhouse gas emissions. Commenters said, at the same time, in understanding the unique nature of offsets, state and regional approaches appropriately limit and control them. Commenters explained (verbatim) State and regional programs which have adopted cap and trade pr ograms have made concerted efforts to tightly regulate and control out of sector offsets in order to alleviate any uncertainty. Commenters said one way in which they have done this is by only allowing very specific types of offsets to be included. Commente rs noted the Regional Greenhouse Gas Initiative ("RGGI"), comprised of states and provinces in the Northeastern United States and Eastern Canada, allows for offsets in only five categories: (1) landfill methane capture and destruction; (2) reduction in emi ssions of sulfur hexafluoride; (3) sequestration of carbon due to U.S. forest projects (reforestation, improved forest management, avoided conversion) or afforestation (for CT and NY only); (4) reduction or avoidance of CO 2 emissions from natural gas, oil, or propane end use combustion due to end use energy efficiency in the building sector; and (5) avoided methane emissions from agricultural manure management operations. Commenters noted, similarly, California's cap and trade program, promulgated by the Ca lifornia Air Resources Board ("CARB") pursuant to the Global Warming Solutions Act of 2006, includes offsets in one of only five categories: (1) livestock projects; (2) urban forest projects; (3) U.S. forest projects, (4) ozone depleting substances project s; and (5) mine methane capture projects. By limiting the scope of projects that can be considered, commenters stated that these programs are able to include only those offsets that are viable and verifiable. Commenters said another way to ensure the relia bility of out of sector offsets is through the concept of "additionally." Commenters stated, in California, CARB included offsets and provided credit only for those reductions that are "additional, quantifiable, permanent, verifiable and enforceable." Comm enters stated the Global Warming Solutions Act defined "additionally" as reductions that are "in addition to . . . . any other [GHG] emission reduction that would otherwise occur." Global Warming Solutions Act, S.35862(d)(2) (2006). Commenters noted that C ARB refined this definition to mean reductions are additional if they "exceed any [GHG] reductions or removals that would otherwise occur in a conservative business as usual scenario." Cal. Code Regs. tit. 17, S.9582(a)(4). In Citizens Climate Lobby and163 Ou r Children's Earth Foundation v. California Air Resources Board, commenters said the environmental advocacy organizations challenged the program on the grounds that CARB's additionally standard was insufficient. Citizens Climate Lobby and Our Children's Ea rth Foundation v. California Air Resources Board, No. CGC 12 519554 (San Francisco Sup. Ct., filed March 27, 2012). Commenters stated, in rejecting their claim and upholding the program, the Superior Court of California stated that "additionally is essenti al to the environmental integrity of an offset program because if reductions are not additional, then the cap and trade program will not reduce GHG emissions beyond what would have occurred anyway." Citizens Climate Lobby at 6. Commenters stated that the c ourt also acknowledged the fundamental importance of offsets to any cap and trade program, claiming "offsets reduce the cost of emission reductions because uncapped sources can reduce their GHG emissions at a lower cost than the covered source making the s ame reduction," and that "offsets incentivize innovation and bring about GHG emission reductions in sectors of the economy that are difficult or impossible to directly regulate." Id. Commenters stated the company agrees with the court in believing that off sets are a dynamic and important way to control greenhouse gas emissions, and at the same time, in understanding the unique nature of offsets, state and regional approaches appropriately limit and control them.

Comment 5 : Opposition to allowing offsets a s an emission reduction strategy.

Response 5 : We agree with the commenters that (out

- of

- sector) offsets should not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, but for a different reason: measures that r educe CO 2 emissions outside the electric power sector may not be counted because ou t

- of

- sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Section s V.B.3.c and VIII. K.1.b of th e final rule preamble of the CPP. We note, however, that the final emission guidelines allow state measures like emission budget trading programs to include out

- of

- sector GHG offsets. Regarding the commenters’ concerns about offsets potentially increasing emissions, the final emission guidelines require that state plans that include state measures also include a backstop of federally enforceable standards on affected EGUs that fully meet the emission guidelines and that would be triggered if the plan failed to achieve on schedule the required emission reductions. Regarding the commenters’ concern about permanence, the final guidelines require states using the state measures plan type to demonstrate that state measures are permanent. See Section VIII.D.2 of t he final rule preamble of the CPP

. Regarding the commenters’ concerns about verification, the final emission guidelines require states with state measures plans to report annually on their pr ogress toward milestones. See Section VIII.C. 3 and VIII.D.2 of the final rule preamble of the CPP

. The final guidelines also require verification measures for EE and RE. See Section VIII.K.3 of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commente rs argued that offsets do not offer a reliable solution to emissions reductions, and are in fact a significant liability and loophole to achieving real, additional, and permanent reductions. The commenters stated that the primary interest in offsets is the ir potential to make it easier and cheaper for polluters to meet emissions reduction requirements because offsets cost less per164 credit than emissions credits. The commenters argued that, even though offsets cost less than an emissions credit, the non

- monet ary costs are not reflected in the price. The commenters stated that offsets create pollution hot spots that cause significant public health and environmental costs for nearby communities. The commenters stated that offsets are not comparable to direct emi ssions reductions because they allow companies to pay to continue polluting at the source, while an emissions reduction supposedly occurs elsewhere.

The commenters argued that allowing companies to pay to pollute does very little to discourage or decrease emissions in the present and in future generations. According to the commenters, the U.S. Government Accountability Office points out that, "[i]n theory, offsets allow regulated entities to emit more while maintaining the emissions levels set by a cap and trade program or other program to limit emissions."

The commenters noted that offsets also risk causing increased emissions. The commenters noted that several verification requirements must be met for an offset to be valid, but indicated that it is
very hard to meet all of the requirements. In particular, the commenters stated that the requirement to ensure offset permanence is highly problematic

-- forest offsets easily risk impermanence due to destruction from wildfires and other natural disasters. The co mmenters indicated this creates opportunities for fraud, corruption and minimal emissions reductions

-- if not increased emissions

-- because of illegitimate offsets that are still released into the market. According to the commenters, a company in California could purchase an offset elsewhere that might not create an emissions reduction, leading to a net increase in emissions because the company continues to pollute at the source.

The commenters also noted that offsets can take a long time to create, but the c redits for offsets are in demand now. According to the commenters, the remedy to this has been to create systems of forward crediting and forward selling. The commenters stated that forward crediting requires allocating an offset before it can have produce d the expected emissions reduction. The commenters argued that this form of "I

- owe

- you" offset is another liability and leaves the door open to the possibility of no emissions reduction and even increased emissions.

Comment 6 : Support for allowing out

- of

- sector offsets.

Response 6 : The EPA disagrees with the commenters that out

- of

- sector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because ou t

- of

- sector offsets are not connected to the electr ical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. We disagree that out

- of

- sector offsets should be counted as “coming from” EGUs because EGUs implement out

- of

- sector offset programs; the question is not whether EGUs fund or i ncentivize emission reductions in other sectors but whether measures result in a reduction of CO 2 emissions produced by affected EGUs. See Section s V.B.3.c and VIII. K.1.b of the final rule preamble of the CPP. We also disagree that by excluding out

- of

- sect or offsets as a compliance option, EPA is specifically limiting compliance
to BSER. See Section VIII.K.1.a of the final rule preamble of the CPP

. However, the EPA agrees with the commenters that state plans may accommodate emission budget trading programs that165 may include out

- of

- sector GHG offsets, which we are finalizing as an option under the state measures plan type. See Section VIII.J.2.d of the final rule preamble of the CPP.

The EPA disagrees with Commenters that the proposed rule seemed to give conf licting guidance regarding the use of offsets. For clarification, the proposed rule did not propose to allow out

- of

sector offsets to demonstrate CO 2 emission performance by affected EGUs but did propose to allow both in

- sector offsets that would achieve t he required level of emission performance for affected EGUs and emission budget trading programs including out

- of

- sector GHG offsets.

In response to commenters’ recommendations that the EPA let states incorporate carbon offset options in their CPP complian ce plans if "outside the fence" alternatives are mandated and the commenter’s statement that the EPA would be specifically limiting compliance to its proposed BSER by excluding out

- of

- sector offsets as a compliance option, we note that the final guidelines allow but do not require states to use the state measures plan type, a state plan approach that includes state

- enforceable measures that apply to entities besides affected EGUs. See Section VIII.C. 3 of the final rule preamble of the CPP. Under the state m easures plan type, emission budget trading programs may include out

- of

- sector GHG offsets. See Section VIII. J.2.d of the final rule preamble of the CPP.

We disagree with commenters that EPA should allow states to use a 'Weight of Evidence' approach for ou t

- of

- sector offsets because, as noted above, ou t

- of

- sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs.

The following are summaries of the specific public comments under this comme nt:
Commenters stated that the proposed rule seems to give conflicting guidance regarding the use of offsets for compliance, initially stating (at 79 FR 34910) that "the EPA is not proposing that out

of

- sector GHG offsets could be applied to demonstrate CO 2 emission performance by affected EGUs in a state plan," then stating in the next sentence that "emission limits for affected EGUs that are included in state plans could still include provisions that provide the ability to use GHG offsets for compliance w ith the emission limits, provided those emission limits would achieve the required level of emission performance for affected EGUs." The commenters stated that out

- of

sector GHG offsets represent one of the most powerful mechanisms for flexibility and cost containment available in existing cap

- and

- trade programs, and can deliver significant economic and environmental (wildlife habitat, water quality, air quality, etc.) co

- benefits. The commenters recommended that the EPA should clarify that out

- of

- sector of fsets may be used for compliance.

Commenters stated that the CPP does not allow any offsets to carbon emissions such as foresting or green space accounting. The commenters stated that power cooperatives cover vast amounts of territory and the ability to e ngage in offsets would give us a very viable option to reduce our carbon footprint. The commenters recommended that the EPA let states incorporate carbon offset options in their CPP compliance plans if "outside the fence" alternatives are mandated.

The com menters stated that the EPA errs in not including "out

- of

- sector" offsets. The commenters stated that the EPA fails to allow out

- of

- sector offsets, foreclosing a compliance option of unquestionable environmental benefit. The commenters noted that the Agenc y166 concedes, however, that every existing cap

- and

- trade program allows for offsets to be used for compliance purposes. The commenters stated that the EPA reconciles this discrepancy by allowing out

- of

- sector offsets to be retained under those plans and incl uded under new plans

- but not for compliance with the CPP. The commenters noted that the EPA justifies this unusual and contradictory policy on the basis that "all of the emission reduction measures included in the agency's BSER reduce CO 2 emissions from affected EGUs," whereas out

- of

- sector offsets apparently do not. The commenters stated that by excluding out

- of

- sector offsets as a compliance option, EPA is specifically limiting compliance to its proposed BSER.

Commenters stated that the EPA's failure to consider out

- of

- sector offsets belies the rule's purported flexibility.

Commenters stated that while the Agency has dramatically expanded the scope of its BSER and state goal calculation, it has severely constricted a state's ability to comply with it. T he commenters stated that by excluding out

- of

- sector offsets for compliance in an effort to stay between the very loose "source category" lines it has drawn for itself, EPA has abandoned its "all hands on deck" approach to regulating GHG emissions from pow er plants. The commenters stated that the EPA treats energy efficiency and demand response programs, which are really "offset" programs, differently than "out of sector" offset programs. Even though not directly in the power sector, the commenters stated t hat the EPA's newly

- created expansive source category,
out

- of

- sector offsets are a proven and accepted means to reduce and manage GHG emissions and should logically be included as a compliance measure. The commenters stated that the EPA draws the distincti on that its BSER building blocks "reduce CO 2 emissions from affected EGUs." Specifically, commenters stated that the EPA says that for emission budget trading programs that regulate EGUs and include offsets, which it defines as "emissions reductions from s ources not regulated by the trading program," emissions reductions from offsets would not be counted when evaluating CO 2 emission performance because "those reductions would not come from affected EGUs." The commenter s stated that interestingly, these stat ements are not in the proposed rule, while the "additionality" criteria discussed above is in the proposed rule.

Commenters stated that but for EGUs taking the initiative to implement carbon

- offset programs, these offset programs

- which reduce carbon emi ssions

- would not exist. Logically, the commenters stated that these EGUs are reducing the overall emission of this global pollutant into the atmosphere. The commenters stated that it is difficult to understand how EPA can determine that reductions from o ffsets owned and operated by EGUs do not "come from" EGUs, yet theoretical reductions resulting from convoluted market string

- pulling from demand

- side energy efficiency and renewable energy

- much of which is not in any way controlled by EGUs

- do "come fr om" EGUs. Meanwhile, the commenters stated that out

- of

- sector carbon offsets have proven to be a simple and verifiable means to reduce carbon emissions. The commenters stated that while EPA abandoned its traditional technology

- based standard in this expans ive proposal, EPA falls back on this traditional line of thinking in refusing to consider out

- of

- sector offsets for compliance with the CPP.

Commenter s stated that EPA should allow states to use a 'Weight of Evidence' approach for out

of

- sector offsets.167 C omment 7 : Comments supporting out

- of

- sector offsets from the agricultural sector.

Response 7 : The EPA disagrees with the commenters that out

- of

- sector offsets from agricultural practices may be counted toward meeting a CO 2 emission performance level for affected EGUs
or a state CO 2 goal, because ou t

- of

- sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Section s V.B.3.c and VIII. K.1.b of the fina l rule preamble of the CPP.

However, the EPA agrees with commenters that state s should be allowed to emulate existing programs like the California Air Resources Board's Compliance Offset Program and RGGI in developing their state plans and that state plan s may accommodate emission budget trading programs that may include out

- of

- sector GHG offsets

. We are finalizing this as an option under the state measures plan type. See Section VIII. J.2 of the final rule preamble of the CPP.

The EPA disagrees that the re gulation is likely to increase prices for rural ratepayers , while we
agree that states should be able to join multistate plans . States will be able to address the economic interests of their utilities and ratepayers by using the flexibilities in this final action to reduce costs to consumers, minimize stranded assets, and spur private investments in renewable energy and energy efficiency technologies and businesses. They may also, if they choose, work with other states on multi

- state approaches that reflect the regional structure of electricity operating systems that exists in most parts of the country and is critical to ensuring a reliable supply of affordable energy.

The following are summaries of the specific public comments under this comment:

Commenter s stated that the preamble to the proposed rule argues that the proposed rule provides states with the flexibility to structure their programs as they see fit and indicates the EPA's intent to allow states to comply with their specific emission goals witho ut relying entirely on emitting EGUs. However, the commenters stated that the proposed rule does not allow states to consider emission offsets occurring anywhere other than EGUs in building state compliance plans. The commenters stated that the EPA has imp lemented emission reduction trading systems under different sections of the CAA before, and there is no language in 111(d) preventing EPA from implementing such a system for GHGs. The commenters stated that the final rule should create, or at least verify states' authority to create, offset trading programs for agricultural conservation practices. The commenters stated that otherwise, EPA is missing an opportunity to increase flexibility and ensure GHG emissions are mitigated by those in the best position t o do so. The commenters stated that the EPA could attain even more flexibility, nationwide, by establishing a federal offsets program in the final rule.

In particular, the commenters stated that farmers can provide significant flexibility in reducing
gree nhouse gasses in the atmosphere, mitigating the harmful effects of climate change. The commenters stated that the option to sell offsets to EGUs will also provide another source of income for rural communities, which is important since the regulation is li kely to increase prices for rural ratepayers.168 Commenters encouraged EPA to include clear language in the rules allowing the use of out

- of

sector offsets by states to meet their emission performance targets, and to ensure that carbon offsets are included as reduction mechanisms.

Commenters stated that EPA should consider carbon offsets from agriculture. According to the commenters, to ensure equitable treatment of states, the EPA should allow states that currently do not have carbon offset programs to devel op individual plans that are functionally equivalent to acceptable state plans. The commenters stated that such plans would emulate existing programs that include agricultural offsets (i.e., California Air Resources Board's Compliance Offset Program, RGGI and the Western Climate Initiative, Inc.). In addition, the commenters stated that the possibility of merging state programs should be considered in acknowledgement of the administration's interests in promoting energy and carbon exchanges to meet regulato ry compliance.

Comment 8 : Support for use of out

- of

- sector offsets from the forest sector as a compliance

measure.
Response 8 : The EPA disagrees with the commenters that out

- of

- sector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because ou t

- of

- sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII. K.1.b of the fina l rule preamble of the CPP. However, the EPA agrees with the commenters that state plans may accommodate emission budget trading programs that may include out

- of

- sector GHG offsets, which we are finalizing as an option under the state measures plan type. S ee Section VIII.J.2.D of the final rule preamble of the CPP.

The EPA disagrees with commenters that EPA failed to provide a clear position with respect to offsets in the proposed rule. For clarification, the proposed rule did not propose to allow out

- of

s ector offsets to demonstrate CO 2 emission performance by affected EGUs but did propose to allow both in

- sector offsets that would achieve the required level of emission performance for affected EGUs and emission budget trading programs including out

- of

- sec tor GHG offsets.

The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA allow states to consider out

- of

- sector offsets as a compliance measure. Commenters pointed to EPA's recognition in the proposed rule that America's forests provide a wide range of environmental benefits beyond the production of biomass feedstocks that can be combusted for energy in place of fossil fuels. In particular, the commenters pointed to EPA's statements that growing forest s act as a carbon "sink" and that "America's forests currently play a critical role in addressing carbon pollution, removing nearly 12 percent of total U.S. greenhouse gas emissions each year." 79 FR 34,924. If used appropriately, the commenters indicated the increased carbon benefits associated with working forests could provide states with additional flexibility to achieve EPA's emission reduction in a low

- cost manner. The commenters pointed to EPA's acknowledgement that market

- based emission trading prog rams (and potentially other compliance mechanisms) can incorporate out

-169 of

- sector, project

- based emissions offsets as additional flexibility mechanisms to comply with GHG emission reduction goals. The commenters stated that forestry

- based offsets and other innovative out

- of

- sector emissions reducing mechanisms that recognize forest carbon benefits from forests and wood products (collectively, "offsets") could provide a degree of flexibility in state implementation plans, and recommended that EPA adopt an exp ansive view of the types of compliance options that states can include in their implementation plans.

However, according to commenters, EPA failed to provide a clear position with respect to offsets in the proposed rule, and the commenters urged EPA to cl arify in the final rule the role that offsets can play in implementing the state emission reduction targets. For example, the commenters noted that EPA asserted in the proposed rule that " the EPA is not proposing that
out

- of

- sector GHG offsets could be app lied to demonstrate CO 2 emission performance by affected EGUs. " But the commenters further noted that EPA immediately followed by asserting that " emission limits for affected EGUs that are included in state plans could still include provisions that provide the ability to use GHG offsets for compliance with emission limits .... "). According to the commenter, EPA made similar conflicting statements in the technical support documents, stating " Under this approach, state plans would ignore the CO 2

- equivalent em issions reductions projected to be achieved through offsets, when projecting the CO 2 emissions performance that will be achieved by the affected EGU source category through implementation of the state plan. This does not mean that an emission budget traini ng program included in a state plan could not include an offset component. "). Based on these statements, the commenter s argued that it is difficult to determine the role, if any, that offsets can play in state implementations, particularly since EPA is pro posing to set emission reduction goals on an aggregate basis for each state and not for individual affected EGUs.

To resolve this uncertainty, commenters suggested that EPA clarify that out

- of

- sector offsets, including those from forestry projects, should be eligible for inclusion in state implementation plans for the purpose of complying with EPA's proposed emission reduction goals. The commenters argued that to do so would be consistent with EPA's stated objective of providing states with flexibility in a chieving GHG emission reductions. The commenters also noted that, by looking beyond fossil fuel

- fired EGUs and considering emissions reductions from other parts of the electricity sector (including reduced demand by consumers), EPA is already incorporating emissions reductions from sources outside of the regulated source category, and the commenters argued that there is no principled reason for drawing the line in a manner that excludes forestry

based offsets. The commenters further noted that, since GHGs a re well

- mixed in the atmosphere, there are no geographic concerns with any difference in the location between the forests that sequester carbon and the fossil fuel

- fired EGUs that comprise the regulated source category. Thus, to the extent that forest sequ estration offers a lower

- cost option for reducing net GHG emissions than the options included in EPA's Building Block approach, the commenters suggested that states should be free to incorporate forestry offsets and other innovative out

- of

sector emissions reducing mechanisms that recognize forest carbon benefits from forests and wood products into their implementation plans.

Commenters made a similar argument. The commenters noted that EPA proposed to limit how the states can credit the use of out

- of

- secto r CO 2 offsets. The commenters noted that the proposal allowed states to use offsets for meeting EGU

- specific emission limits but did not allow states to
use out

- of

- sector CO 2 offsets to project how states would meet their emission reduction targets.170 If the proposal is finalized as proposed, the commenters recommended that EPA allow states to consider voluntary offset projects as a compliance measure that can reduce CO 2 emissions. According to the commenters, growing and expanding forests sequester carbon fr om the atmosphere, resulting in a reduction in GHGs. The commenters recommended that EPA clarify that voluntary offset projects such as product and permanent wood structure sequestration, active forest management, afforestation, reforestation, and recyclin g are cost

- effective and viable options to reduce CO 2 emissions. The commenters also recommended that states be allowed to count emission reductions from measured and verified sequestration of additional carbon stock from sustainably managed forests relati ve to a state's baseline in meeting their emission reduction targets.

Comment 9 : Request that out

- of

- sector offsets involving clean electrification not be eliminated or disincentivised in state plans.

Response 9 : The EPA disagrees with the commenters that out

- of

- sector offsets like electrification that displaces petroleum fuels for transportation may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because ou t

- of

- sec tor offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII. K.1.b of the final rule preamble of the CPP. However, the EPA agrees with the commenters that state pl ans may include out

- of

- sector GHG offsets, but only as part of emission budget trading programs, which we are finalizing as an option under the state measures plan type. We also agree that certain opportunities supported by the commenters would be appropri ate under the state measures plan type, such as improved efficiency in the use of electricity and substitution of low

- GHG emitting electricity production processes. See Section s VIII.C.3 and VIII.J.2.d of the final rule preamble of the CPP.

The following a re summaries of the specific public comments under this comment:

Referring to state plans, commenter stated that as the electric sector decarbonizes and generates electricity with a lower carbon emissions intensity, electrification of more carbon

- intensiv e sectors has the potential to cost

- effectively reduce GHGs across the U.S. economy. The commenter stated that electrification has been long recognized in the energy

- economics literature, technology studies, and the climate policy area as a cost

- effective approach to mitigate GHGs. For example, the commenter noted that while the implementation of an electrification strategy could cost

- effectively reduce GHG across multiple sectors, the CO 2 emissions from the power sector could remain flat or even slightly i ncrease. The commenter stated that while it is understood that compliance for out

- of

- sector reductions is challenging, the commenter stated such reductions should not be excluded if appropriate rigor and durability can be demonstrated. The commenter recomm ended that care should be exercised so that state plans do not to eliminate or disincentivize clean electrification.

The commenters concluded that the most substantial opportunities for near

- term GHG reductions, using technology that is deployable now or is likely to be deployable soon, include the following:171 • Improved efficiency in the use of electricity and fuels, especially in the buildings sector, but also in industry and transport vehicles.

• Substitution of low

- GHG emitting electricity production proc esses, which may include renewable energy sources, fuel switching to natural gas, nuclear power, and electric power plants equipped to capture and sequester CO 2

.

• Displacement of petroleum fuels for transportation with fuels with low

- or zero

- (net) GHG em issions.

Comment 10 : Commenters suggested that states should be allowed to count towards compliance goals all activity that captures carbon, including verifiable offset s

. Response 10 : The EPA disagrees with the commenters that out

- of

- sector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because ou t

- of

- sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Section s V.B.3 .c and VIII. K.1.b of the final rule preamble of the CPP. However, the EPA agrees with the commenters that state plans may include out

- of

- sector GHG offsets, but only as part of emission budget trading programs, which we are finalizing as an option under the state measures plan type. See Section VIII.J.2.d of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters suggested that states should be allowed to count towards compliance goals all activity that captures carbon, including verifiable offset, which at a minimum must include CO 2 emissions captured and sequestered from industrial facilities.

Commenters stated opposition that as a matter of policy that RE generating resources must be located in a state to offset CO 2 emissions for that state's 111(d) plan.

Comment 11 : Comments suggesting that the EPA should ensure that states have maximum flexibility to incorporate offset programs into their SIPs that allow use of direct air capture ( DAC) technologies.

Response 11 : The EPA disagrees with the commenters that out

- of

- sector offsets such as DAC technology may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because ou t

- of

- sector offsets like DAC technologies are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. Given the reason that we are not permitting out

- of

- sector offsets to be counted toward meeting a CO 2 emission performance leve l or state CO 2 goal, strict standards on out

- of

- sector offsets could not ameliorate the issue. See Section s V.B.3.c and VIII. K.1.b of the final rule preamble of the CPP. However, the EPA agrees with the commenters that states may continue to operate cap

an d

- trade and offset programs that use out

- of

- sector and non

- source

- based GHG offsets . We are172 finalizing that state plans may accommodate emission budget trading programs (which may include out

- of

- sector GHG offsets) as an option under the state measures pla n type. See Section VIII.J.2.d of the final rule preamble of the CPP. We are not finalizing the proposed portfolio approach. See Section VIII.C.4 of the final rule preamble of the CPP.

The EPA disagrees with the commenters that EPA made conflicting stateme nts with respect to offsets in the proposed rule. For clarification, the proposed rule did not propose to allow out

- of

sector offsets to demonstrate CO 2 emission performance by affected EGUs but did propose to allow both in

- sector offsets that would achieve the required level of emission performance for affected EGUs and emission budget trading programs including out

- of

- sector GHG offsets.

The following a re summaries of the specific public comments under this comment:

Commenters stated that, because they are not necessarily implemented at EGUs, DAC technologies may be incorporated into state and regional cap

- and

- trade and/or offset programs that allow EGUs and other regulated entities to take advantage of the environmental benefits of the technologies as part of a broader regulatory program. The commenters stated that EPA needs to be clearer, therefore, about the degree to which it will give states the flex ibility to continue to develop and implement innovative GHG capture technologies such as DAC technology and incorporate them into existing and future cap

- and

- trade and offsets programs as part of their SIPs.

On the one hand, the commenters noted that the EPA claims that the proposed rule gives states wide leeway to construct a broad variety of GHG reduction programs in their SIPs. For example, the commenters noted that the EPA states that "this proposal would ... provid[e] states with ample opportunity to design plans that use innovative, cost

- effective strategies that take advantage of investments already being made in programs and measures that lower the carbon intensity of the power sector and reduce GHG emi ssions." On the other hand, the commenters noted that the EPA has also stated that it "is not proposing that out

- of

- sector GHG offsets could be applied to demonstrate CO 2 emission performance by affected EGUs in a state plan." The commenters noted that the EPA also states, however, that "emission limits for affected EGUs that are included in state plans could still include provisions that provide the ability to use GHG offsets for compliance with the emission limits, provided those emission limits would ach ieve the required level of emission performance for affected EGUs." Given these seemingly conflicting statements, the commenters pointed out that it is not clear how and to what extent existing regional and state plans, such as those in the Regional Greenh ouse Gas Initiative in the northeastern United States, and the Compliance Offset Program in California, will retain the ability to allow out

- of

- sector and non

- source based GHG offset programs under this rule, and the degree to which innovative technologies such as DAC technology could be incorporated into the states' plans.

The commenters suggested that the EPA clarify its intent in the final rule. According to the commenters, without the flexibility to include emissions trading or out

- of

- sector offsets, s tates incorporating such programs in their GHG regulations would be required to set more stringent
state

- only standards to ensure some regulatory "nudge" toward use of DAC and similar technologies. The commenters stated that this should not be necessary. T he commenters stated that the EPA has already laid the groundwork for allowing states to allow excess GHG emissions173 reductions generated by DAC and similar technologies to be credited in an emissions trading or offset program. For example, the commenters n oted that in its 2005 Clean Air Mercury Rule, the EPA determined that a "standard of performance" for mercury under Section 111(d) may include a mercury emissions trading program as part of a "best system of emissions reduction." The commenters suggested t hat EPA should allow the same flexibility for GHGs.

The commenter s explained that states have already provided a workable model to incorporate offsets into a GHG SIP that ensures that GHG reductions generated from offsets can be tracked. According to the c ommenter s , the California Compliance Offset Program, for example, includes rigorous standards for ensuring that any reductions in GHG in the atmosphere are "real, permanent, quantifiable, verifiable, enforceable, and additional." The commenter s noted that requiring that states incorporate similar standards with respect to the use of offsets generated by
out

- of

- sector or "beyond the fence line" DAC technologies should ameliorate EPA's concerns that such offsets and related strategies are not "self

- correcting ."

At a minimum, the commenters stated that the EPA should give full weight to Section 116 of the Act and continue to allow states to operate cap

- and

- trade and offset programs and create the regulatory opportunity for innovative technologies such as DAC t echnology to be developed to meet state GHG reduction goals that may be more stringent than the emissions limitations in the proposed rule. The commenters stated that the EPA should make explicit in the final rule that the "portfolio approach" available to states would not penalize states or regions from implementing GHG reduction strategies that are not determined by EPA to be BSER or are not specifically included in the building blocks for compliance that EPA has identified.

Comment 12 : Comments suggesti ng that the EPA should include an allowance for states to regulate other pollutants that have global warming potential s

. Response 12 : The EPA disagrees with the commenters that out

- of

- sector offsets that reduce pollut ion that is not emitted by affected EGU s, such as replacing oil

- fired hot water heaters with time

- controlled electric heaters

, may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal . This is because ou t

- of

- sector offsets are not connected to the ele ctrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Section s V.B.3.c and VIII. K.1.b of the final rule preamble of the CPP. However, the EPA is finalizing that state plans may accommodate emission budget trading programs (which may include out

- of

- sector GHG offsets) as an option under the state measures plan type. See Section VIII.J.2.d o f the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that because the EPA is proposing the states can include measures that decrease power demand, and therefore dispatch, of coal

- fired power plants and regulated NGCC affected units, it should also include an allowance for the state to establish new regulations for other pollutants that have an established global warming potential not now regulated by sections 110 or 112 in th e power plant sector as an offset to continuing carbon emissions. The commenters provided as an example the replacement of older, inefficient oil

- fired hot water174 heaters with time

- controlled electric heaters, which would increase electric power demand but decrease global warming gases. The commenters noted that this type of a project should be allowed as an offset.

5.8.5n Multi

- State Emission Trading Programs

This section addresses multi

- state emissions trading programs.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comment s regarding interstate trading of RE and EE credits.
Response 1: The EPA has taken all of these comments into consideration and the EPA has incorporated many of the comments from this commenter below in the final CPP rule. The EPA is allowing for streamlined multi

- state trading approach, states can develop their own programs and trade eligible RE or demand si de EE with other states through a trade

- ready system. EPA is providing presumptively approvable EM&V protocols. The EPA is providing maximum flexibility in the types of state plans states can use to implement the emission guidelines. States can also see an extension in their initial plan as long as have proper justification. See section

, VIII. C of the final rule preamble of the CPP for state plan approaches including multi

- state plans

. S ee Section VIII.E of the final rule preamble of the CPP for plan submi ttal and approval process and timing

. See Section VIII. K of the final rule preamble of the CPP on EM&V information and eligible RE and demand side EE measures for further details.
The following are summaries of the specific public comments under this com ment :

Commenter s stated that "a streamlined multi

- state trading approach should be allowed" and that formal interstate agreements should not be required. Commenters also said that states should be able to develop their own programs to trade RE or EE credit s with other states and thought a federal tracking system for credits could be developed. Commenters further thought that "federally

- approved evaluation, monitoring and verification protocols" would give plausibility to the credits. Commenter s also stated that they would like the EPA final guideline to provide a lot of flexibility and not exclude credit or trading programs like the EPA proposal does. Commenters would also like a two year extension for submittal and approval of section 111(d) plans for state s that are working to develop alternative approaches to trading RE and EE credits

.

Comment 2: Comment s regarding multi

- state trading, interim goals and more time for compliance.175 Response 2: T he EPA is finalizing that state plan submittals are due on September 6, 2016, which is 13 months after finalization of the emission guidelines, with the option of an extension to submit final state plans by September 6, 2018, which is three years after finalization of this rule

. The first interim goal has been mov ed to 2022, two years later than what EPA proposed. The compelling nature of the climate change challenge, and the need to begin promptly what will be a lengthy effort to implement the requirements of these guidelines, warrant this schedule. The EPA believ es this will give states ample time to develop multi

- state emission plans.

The following are summaries of the specific public comments under this comment:

Commenter s supported the development of multi

- state emissions trading programs to trade carbon emis sion allowances but stated that the proposed rule does not allow for enough time to develop multi

- state emissions trading programs and suggested that "the CPP should delay interim goals until these programs can be established."

Comment 3: Comment s regarding EPA administering a trading program for EE credits, renewable energy credits , and emission credits

. Response 3: The EPA received a number of comments from states and stakeholders about the value of the EPA’s support in developing and/or administering tracking systems to support state administration of rate

- based emission trading programs. The EPA is exploring options for providing such support and is conducting an initial scoping assessment of tracking system support needs and functionali ty. See Section VIII.C of the final rule preamble of the CPP for further details.
The following are summaries of the specific public comments under this comment:

Commenter s suggested that EPA could "administer programs that track emission or generation

cr edits or instruments to support and facilitate trading between states such as an emission reduction tracking system, renewable energy certificates (RECs) and Evaluation, Measurement and Verification (EM&V) for trading EE credits."

Comment 4: Comments rega rding multistate agreements.

Response 4: The EPA recognizes that there are multiple incentives for states to collaborate by implementing a multi

- state plan. That is why EPA has promulgated a final rule that allows states to meet an aggregated joint goal, r egardless of the specific level of their individual goals, because states share grid regions and impacts from plan implementation will be regional in nature. Further, multiple analyses, including those by ISOs and RTOs, indicate that regional approaches co uld achieve state goals at lesser cost than individual state plan approaches. However, the EPA also recognizes the value in allowing for collaboration where states retain individual goals. These approaches could provide some of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi

- state plan with a joint goal.176 As a result, the EPA has finalized the additional multi

- state approaches described above in section VIII.C.5 of the final rule preamble of the CPP to p rovide for coordination while maintaining individual goals. These approaches would allow for interstate transfer of energy rate

cr e dits ( ERCs ) or emission allowances while retaining individual state goals.
The following are summaries of the specific publi c comments under this comment:

Commenter s stated that "states should also be allowed to enter into multistate agreements that allow for emissions budgeting so long as the emission reductions are real, verifiable, and are not being claimed by another entity or state" because it may make more sense for a state to use a regional budgeting approach instead of Renewable Energy Credits (RECs).

Commenter s stated that "EPA should be open to approving multi

- state compliance arrangements so long as the collective outcome, for the states involved, results i n emissions reductions equal to or greater than the sum of those required of each state complying independently within its boundaries." Commenter s also stated that EPA should be flexible and allow multi

- state arrangements that are different from the "RGGI" design, "encompass all the covered emissions of two or more states," allow states to do a single exchange with one state or multiple exchanges with multiple states.

5.8.6 Process Considerations for conducting EGU CO 2 emission projections

This section add resses EGU CO 2 emission projections.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comments regarding controlled performance testing.

Response 1 : The EPA has analyzed the technical feasibility, costs, and magnitude of CO 2 emission reductions achievable through heat rate improvements at coal

- fired steam EGUs based on engineering studies and on these EGUs’ reported operating and emissions data. We conclude that taking action to improve heat rates is a common and well

- established practice within the industry that is capable of achieving meaningful reductions in CO 2 emissions at reasonable cost, although, as discussed earlier, we al so conclude that the quantity of emission reductions achievable through heat rate improvement measures is insufficient for these measures alone to constitute the BSER. The EPA’s quantification of the CO 2 emission reductions achievable through heat rate imp rovements as a component of the BSER (building block 1) is discussed in S ection V.C. of the final rule preamble of the CPP and in the GHG Mitigation Measures TSD for the CPP Final Rule.

Many actions will reduce the reported CO 2 emissions or CO 2 emission r ate of an affected EGU, without the need for additional accounting or monitoring and reporting requirements beyond the required CEMS tracking of actual stack CO 2 emissions and tracking of actual energy output. The177 effect of these actions will result in cha nges in reported CO 2 emissions and/or energy output by an affected EGU.

As one of many examples of a fossil

- fuel fired EGU taking restrictions on hours of operation for the purpose of avoiding CAA obligations, Manitowoc Public Utilities in Wisconsin obtained a title V renewal permit that limited the operating hours of the single simple

- cycle combustion turbine to not more than 194 hours per month, averaged over any consecutive 12 month period, as part of limiting its potential to emit for volatile org anic compounds below the title V threshold of 100 tpy, and carbon monoxide, nitrogen oxides and sulfur dioxide below the PSD threshold of 250 tpy. As another example, Sunbury Generation LP in Pennsylvania obtained a minor new source preconstruction permit, called a plan approval, for a repowering project from the Pennsylvania Department of Environmental Protection in 2013 that limited the hours of operation of three combined cycle combustion turbines that were planned for construction in order to remain bel ow the significance threshold for GHGs. The Legal Memorandum includes numerous other examples of power plants accepting permit limits that reduce generation to meet, or avoid the need to meet, emission limits.

The following are summaries of the specific pu blic comments under this comment:

Commenter s stated that plants require testing to understand current performance and to establish the degree of available heat rate improvement opportunities. Commenters were concerned plants may lack good instrumentation a nd measurements, or they may have run for a significant period since their most recent controlled performance test was conducted. Commenters stated that major changes to the configuration and operation of the plant, major equipment changes, and/or changes in the type of fuel burned can also change the opportunity for improvements. Commenters noted that performance testing plays a significant role in establishing an accurate baseline to enable plant owners to make good decisions to improve heat rate through O&M improvements and/or upgrades. Commenters stated that periodic testing can also be effective in verifying that improvements are sustained, or aiding the owner/operator in determining when corrective actions are needed to sustain performance. C ommenter s stated that there is currently a wide variation in types of testing performed at coal plants and no common guidelines exist for evaluating unit performance across the fleet. Commenters stated that the most rigorous test is typically applied during commerci al acceptance of new plants or during major rebuilds, upgrades, or retrofits. Commenters stated that while it may not be necessary, practical, or cost

effective to require that level of testing on a periodic basis, they suggested some reasonable means of t esting and monitoring could be very helpful in determining and sustaining heat rate improvements at individual plants. Commenters recommended the EPA consider developing guidance on testing, with participation and input from industry stakeholders

Comment ers stated that it is unclear how EPA's assumptions within building block 1 could be implemented and enforced and that it is infeasible to identify or develop a set of heat rate or CO 2 emission rate limitations that could be applied to all designated facilities within the regulated source categories, given the diversity of existing sources and the large number of known and unknown, controllable and uncontrollable variables that impact h eat rate performance. Commenters noted they had evaluated recent permits issued for both coal

- fired and NGCC units across the nation, and found no examples of a permit where a heat rate standard has been imposed as an operating limit.178 Improvements made t hrough BB1 cannot be reliably projected or enforced

5.8.6a Provision of the EPA Guidance

[No comments were received on this topic.]

5.8.6b Party that Translates the Rate

- Based Goal to a Mass

- Based Goal

This section addresses translating rate

- based goals to mass

- based goals.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comment s regarding EPA providing a mass

- based CO 2 goal for each state and clarifying whether these goals can be adjusted

. Response 1: The EPA is providing both rate

- based and mass

- based statewide goals in this final rule in place of having states determine the mas s values themselves, in order to assure that the mass goals are an equivalent expression of the BSER. See the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for details on the calculations of these goals.

This final rule allows states to alternatively establish emission standards that meet rate

- based or

mass

- based state goals. The EPA suppor ts having the flexibility to use rate

- based goals or mass

based goals as part of state plans. The EPA notes that it is the emission performan ce rates in section VI of the final rule preamble of the CPP that constitute the application of the BSER to the affected EGUs and serve as the chief regulatory requirement of this rulemaking. The statewide CO 2 rate

- based and mass

- based emission performance goals provided in the final preamble as metrics that states may choose to adopt when demonstrating compliance at the state level, and states may consider these goals when determining how to set unit

- level compliance requirements. See Section VII of the fi nal rule preamble of the CPP for the statewide CO 2 goals.

The EPA does acknowledge that state

- level rate

- based goals or mass

- based goals may be sensitive to inventory changes within a state’s fleet. That is, the EPA used a representative baseline that agg regated data for “likely affected” units. However, if subsequent applicability review or formal applicability determinations change the status of these units as of 2012 in regards to their inclusion or exclusion in the state’s inventory of affected EGUs, t he EPA will consider allowing states, via State Plan submittal or revision, to adjust their statewide rate or mass goal if such a change is necessary. See Section VII of the final rule preamble of the CPP for further details on allowable adjustments to sta te wide mass

- based CO 2 goals.179 The following are summaries of the specific public comments under this comment:

Commenter s argued that including only rate

- based limits in the rule may discourage a state from

a mass

- based system. Commenters argued that a state will know the precise rate

- based goal it must meet in advance of submitting its implementation plan, but cannot know the precise mass

based goal since the translation from the rate

- based goal to a mass

- based goal must first be approved by EPA. For th ese reasons, commenter s recommended the EPA provide a presumptive

mass

- based CO 2 annual emission goal in the final, but permit the state to adjust it or translate it into a rate

- based goal.

Commenters suggested the EPA provide "presumptive" translations o f rate

- based goals to mass

based goals for each state, but allow states to either adopt EPA's mass

- based limit or propose an alternative mass

- based limit as part of the state plan.

Commenters recommended the EPA establish mass

- based standards in the rule to prevent states from setting high mass

- based limits by overestimating their business as usual growth in electric demand or by exaggerating transmission constraints that might overestimate business as usual capacity factors in high emitting units.

Commen ters urged "EPA to continue working with states on appropriate approaches to converting EPA's rate

- based goals to reasonably equivalent mass

- based goals." Commenters stated that EPA should allow "states to propose their own methodology" and the final rule should let states "calculate interim and final mass

- based goals that match the emission performance that would be expected under EPA's rate

- based approach."

Commenters stated that "EPA should make it as easy for a state to convert to a mass

- based target b y including a set of mass

- based targets for existing sources within each state. These mass

- based targets would be those regarded as equivalent to the rate

- base standard currently in the proposed Plan."

Commenters a sked EPA to provide more clarity for stat es in translating emission rate to mass

based goals. Commenters stated that EPA should provide more "clarity for states to translate the emission rate goals to mass

- based caps

. Commenters also would like EPA to state that EPA "would approve a state cap bas ed on 2012 generation multiplied by the 2030 target emission rate goal."

Commenters urged EPA to calculate mass

- based targets for the states so that they can compare the "rate

- based and mass

- based carbon targets for the states and how a state's regulators and electric utilities could implement carbon reductions under each approach."

Commenters a sked EPA to provide more guidance to translate emission rate to mass

- based goals. Commenters declared that EPA needs to continue to work with states to provide cle ar guidance on how to translate rate

- based goals into mass

- based goals.

Commenters requested that "EPA provide all states with the mass

- based calculation of the state goal." Commenters further stated that "state

- by

- state calculation of a rate

- based approac h to a

mass

- based approach presents unnecessary complication and inconsistency state goal

- setting, and results in regulatory uncertainty on the part of states and affected utilities, who must await180 EPA approval to determine whether their goal calculation i s sufficient. The EPA could avoid such difficulties by providing each state with the mass

- based emissions goal, providing the states with the substantive opportunity to provide comments and corrections on the mass

- based goals, as they have with the rate

- ba sed goals."

Commenters stated that EPA's "final guidelines should allow states to convert the rate

- based goals to mass emissions budgets that are comparable in stringency to the rate

- based state goals" and that mass budgets are needed to implement trading programs like RGGI.

Commenters recommended that EPA "allow states to choose a methodology for translating the
rate

- based goal to a mass

- based goal, as long as the rate

- based stringency is maintained." Commenters also stated that the methodology should be transparent.
Commenters stated that "EPA must ensure in its final rule that any mass

- based translation is truly equivalent to a corresponding rate

- based goal." Commenters stated that a mass

- based protocol encourages states to replace retiring fossil units with new foss il (gas) units and therefore, believe that a rate

- based rule is environmentally preferable since retiring fossil units would be replaced with RE and EE.

Commenters recommended that EPA allow states to calculate mass based goals that are equivalent to EPA' s rate

- based goals.

Commenters supported that the states should have the flexibility to use state specific data and assumptions to convert to rate

- based goals to mass

- based goals.

Commenters asked EPA to be clear in the final rule about what the states "m ust provide to ensure their formula for translating the rate

- based goals to mass

- based goals is approvable."

Commenters also stated that "EPA's guidance should specify acceptable analytical methods" and "default input assumptions" but that "states should be allowed to deviate from these default methods and assumptions with justification."

Commenters stated that EPA should be clear on "the distinctions between rate

- and mass

- based targets for developing EPA

- approvable compliance plans. Commenters stated th at this would have "implications for how states determine their EE and other compliance strategies and policies."

Comment 2: Comments regarding mass

- based and rate

- based goals.
Response 2: The EPA is providing states the ability to choose to comply with t he final emission standards by implementing a rate based or mass based state plan. States can decide the best approach that meets each state’s individual need, while maintaining the goals in the final CPP rule. See Section VIII.C of the final rule preamble of the CPP for different state plan approaches.181 The EPA is providing both rate

- based and mass

- based statewide goals in this final rule in place of having states determine the mass values themselves, in order to assure that the mass goals are an equivalen t expression of the BSER.

T he fact that mass goals for existing sources are themselves quantified in a way that is an equivalent expression of the BSER, the form of mass goals is only equivalent if leakage from

new sources is addressed. The EPA is therefor e requiring that states adopting a mass

- based implementation include a strategy that addresses leakage, or the state may otherwise provide justification that leakage would not occur under the state’s implementation. The required demonstration and options t o minimize leak age are discussed in detail in S ection VIII.J of the final rule preamble of the CPP

. To address the potential for emission leakage to new sources under a mass

- based plan approach, the EPA is requiring that a state submitting a plan that is designed to meet a state mass

- based CO 2 goal for affected EGUs must demonstrate that the plan addresses and mitigates the risk of potential emission leakage to new sources. Section VIII.J of the final rule preamble of the CPP describes the options that wou ld provide sufficient demonstration that potential emission leakage has been addre ssed in a mass

- based state plan.

The EPA is also providing an EPA

- provided mass budget that includes the state mass

- based CO 2 goal for affected EGUs plus a new source CO 2 emission complement, this option could be presumptively approvable. The EPA will evaluate the approvability of this aspect of an individual state plan using the model rule through independent notice and comment rulemaking.

A state could establish federall y enforceable, mass

- based emission standards for affected EGUs, complemented by state

- enforceable mass

- based emission standards for new fossil fuel

- fired EGUs. This approach could involve an emission budget trading program that includes affected EGUs as we ll as new fossil fuel

- fired EGUs.

The following are summaries of the specific public comments under this comment:

Commenter s stated they believe the EPA should encourage states to adopt the mass

- based limits and believe that including mass

- based limits in the rule will make it easier for states to do so. Commenter s also noted that even though a state may prefer a mass

- based goal, it nevertheless may be led by administrative convenience combined with resource constraints to settle for a rate

based approach.

Commenter s stated they believe the EPA should allow states to propose mass caps that are comparable to their rate

- based goals. Commenter s believed states should have the flexibility to determine how to make the conversion from rate

- based to mass

- based li mits, including how to handle different measures under the mass

- based goals (e.g., how to treat new natural gas combined cycle (NGCC) units).

Commenter s believed the EPA should not reject any state plan that proposes a mass

- based limit that does not achie ve the same emissions levels as achieved under the rate

- based goal. The two method s of achieving emissions goals, c ommenters argued are entirely different and states should be allowed to determine their mass

- based goal in any way they see fit since signifi cant discretion is afforded to states under Section 111(d). C ommenter s recommended the EPA make a182 det ermination that mass

- based goals codified in a state plan or plans will be approved with no further need for review.

Commenter s recommended that EPA "take active steps to lower the barriers to regional cooperation on mass

- based compliance for both new and existing sources." C ommenters stated that "EPA should also provide an alternative mass

- based target that incorporates emissions from new sources." Commenters said this will help states because "providing states with these targets rather than asking them to develop them will significantly lower the burden and perceived legal risk of states opting for a mass

- based approach."

Commen ters proposed that "EPA reject any call to adopt new gas for goal

- setting and compliance purposes."

5.8.7 Other

This section addresses a variety of comments with regards to state plans and projecting EGU CO 2 emission performance.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments regarding more time for modeling , whether specific tools can be used and reliability of CO 2 data projections

. Response 1: The EPA is not requiring specific tools or emission quantification methodologies states and/or affected EGUs must use when demonstrating the emission guidelines will be met as long as the method is technically sound and meet the criteria in the preamble. For these details refer to S ection VIII.D.(2) in the final rule preamble of the CPP under the State Plan Components Approvability Criteria where we answer these comments. For state plan submittal timing see Section VIII.E of t he final preamble of the CPP.

The EPA is not requiring specific tools or emission quantification methodologies states and/or affected EGUs must use when demonstrating the emission guidelines will be met as long as the method is technically sound and meet the criteria in the preamble. For these details refer to Section VIII.D.(2) of the final rule preamble of the CPP under the State Plan Components Approvability Criteria where we answer these comments.

The following are summaries of the specific public co mments under this comment:

Commenter s stated that if EPA requires states to provide detailed modeling with the state plans then the state must be provided more time. Commenter s stated that they thought EPA "is seeking to impose unnecessary burdens on state s that the Agency is not authorized under section 111(d) to require. States should determine the manner in which they will evaluate the performance of their plans. At the very least, EPA must provide more time to states if it wants to encourage183 states to u ndertake the sort of detailed modeling and related work EPA appears to prefer." Commenter s recommended "that EPA develop guidance that describes acceptable projection approaches, tools, and methods for use in an approvable plan" and also recommended "that EPA accept collective state CO 2 projection tools such as Eastern Regional Technical Advisory Committee (ERTAC) EGU."

Commenter s asserted that with regard to projections of future CO 2 emissions the states should be able to use data that is "most reasonably available" or EPA should provide guidance. Commenters recommended that EPA should "not require IPM modeling for state

- level emissions projections."

Comm enters stated that Carnegie Mellon is developing a tool that can be used by States in developing their state

- specific plan. Commenters stated the tool will evaluate emissions and costs associated with different carbon mitigation methods.

Can states use a non

- IPM model to project generation by affected EGUs?

Comment 2 : Comment regarding developing a model r ule.

Response 2 : The EPA is proposing model rules for both mass

- based and rate

- based emission trading programs. State plans that include the finalized model rule for a rate

- based emission trading program could be presumptively approvable as meeting the req uirements of CAA section 111(d) and these emission guidelines. The EPA would evaluate the approvability of such plans through independent notice and comment rulemaking. States would be able to choose whether they are implementing a single or multi

- state pl an.
The following are summaries of the specific public comments under this comment:

Commenter s recommended EPA develop a model trading rule and "clarify whether states incorporating by reference would be considered subject to single or multi

- state plan

re quirements."

Comment 3 : Comment regarding using established regional frameworks and multi

- state arrangements

. Response 3 : The EPA agrees with this comment, and notes that it encouraged such approaches in the proposal. While the EPA is not requiring states to join and/or form regional market

- based programs, we note that such programs can be helpful for many reasons, including features that support reliability. Market

- based programs allow greater flexibility for affected EGUs both in the short

- term and long

- term. Under a market

- based program, affected EGUs have the ability to obtain sufficient allowances or credits to cover thei r emissions in order to comply with their emission standards. Additionally, we continue to encourage states to cooperate regionally. Regional cooperation in planning and reliability assessments is an important tool to meeting184 system needs in the most cost

- effective, efficient, and reliable way. See Section VIII. C.5 where the EPA describes mult i

- state plan options in the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commenter s also supported t he option "to use established regional renewable energy credit tracking systems and processes in multi

- state arrangements." Commenter s strongly supported "allowing states to use the Western Renewable Energy Generation Tracking System (WREGIS) for complianc e with renewable energy programs, and further note that it is already well suited to use in multi

- state arrangements." Commenter s also said, "States should work cooperatively to avoid double counting of emissions reductions from renewable energy and energy efficiency, and should address double counting in their EM&V plans."

Comment 4 : Comment regarding credit for prior CO 2 reductions.

Response 4 : The EPA received many comments requesting that the agency recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of this comment , and as a result has determined to
pr ovide a program

– called the Clean Energy Incentive Program

– in which states may choose to participate. The Clean Energy Incentive Program is designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effe ctive date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. State participat ion in the program is optional.

Under the Clean Energy Incentive Program, states may set aside allowances from their interim targets or gen erate early action emission rate credits (ERCs, as defined in section VIII.K.2 of the final rule preamble of the CPP ), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For further details, see section VIII.B .2 for details in the in the final preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenter s stated that the Clean Power Plan "should provide states with credit for prior CO 2 reductions as option toward s meeting a reasonable national target for reducing CO 2 emissions."

Commenter s stated that the proposed rule's "ambiguity and lack of incentives to offset carbon pollution with non

- emitting generation in the short term is counter to the purposes of regulat ory policy to reduce carbon emissions as soon as possible." Commenters further stated that the proposed rule does "not provide clear incentives to states to continue the expansion of the existing renewable energy standards and energy efficiency standards, especially between now and 2020" and that this could cause state legislatures " to postpone legislation to increase renewable energy and energy efficiency standards."185 Comment 5 : Comment regarding modeling and analysis data availability for renewable energy and energy efficiency.

Response 5 : The EPA agrees with the commenter for renewable energy. In the final rule the EPA increased the amount of RE in building block for for BSER. The basis for quantifying building block 3 generation has been modified to incorporate historical deployment patterns for RE technologies as well as the economic potential identified through modeling projections. The introduction of historical capacity add itions to the final methodology further grounds building block 3 generation in demonstrated levels of RE deployment that have been successfully incorporated into the power system. T he EPA revised its data for onshore wind and solar technologies to reflect the mid

- case estimates from the National Renewable Energy Laboratory’s (NREL’s) 2015 Annual Technology Baseline. The EPA selected the NREL 2015 Annual Technology Baseline (ATB) estimates based on the quality of its data as well as NREL’s demonstrated succe ss in both reflecting and anticipating RE cost and performance trends. All modeling and analysis are provided in the GHG M itigation Measure s TSD for the CPP Final Rule and RIA for the final CPP.

As for energy efficiency. The EPA determined to not include EE as a part of BSER. See Section V.A. of the final rule preamble of the CPP for details on EPA’s rationale for why we did not include EE in the final CPP. However, Demand Side EE is still generally available for compliance purposes. Section VIII. K of the final rule preamble of the CPP addresses demand side EE and eligible measures that can be used in state plan compliance.

The following are summaries of the specific public comments under this comment:

Commenter s stated that "EPA's model significantly und errates the potential growth of renewable energy and energy efficiency" and that all of the modeling and analysis should be made available.

Comment 6 : Comment regarding expanding mass

- based system to include new natural gas plants.

Response 6 : The final CPP emission guidelines provide states with a number of potential plan pathways for meeting the emission guidelines. A plan pathway represents a specific plan design approach used to meet the emission guidelines. These plan pathways are discussed in section VIII.C.2 through C.5 of the final rule preamble of the CPP , and further elaborated in sections VIII.J of the final rule preamble of the CPP (for mass

- based emission standards) and VIII.K of the final rule preamble of the CPP (for rate

- based emi ssion standards). For example, a state could establish federally enforceable, mass

- based emission standards for affected EGUs, complemented by state

- enforceable mass

- based emission standards for new fossil fuel

- fired EGUs. This approach could involve an em ission budget trading program that includes affected EGUs as well as new fossil fuel

- fired EGUs. This approach facilitates interstate emission trading, through either a “trading

- ready” single

- state plan approach or through a multi

- state plan. Under a “trad ing

- ready” plan, interstate emission trading may occur without the need for a multi

state plan.186 The following are summaries of the specific public comments under this comment:

Commenter s encouraged EPA to allow "states that choose mass

- based systems to ex pand their budgets to cover new natural gas plants and to regulate them, entirely under state authority, within the same mass

- based system the state uses to regulate existing power plants under Section 111(d)."

Commenters stated that the mass

- based limit s hould be the only federally enforceable provision in a mass

- based state plan. Commenters stated that if a state or states propose a mass

- based plan, "the mass

- based limit should be the only federally enforceable provision." Commenters further stated that i f the state's mass

- based plan addresses emissions from EGUs that may become affected units then, "these units should not be subject to additional regulation as they pass the 111 (d) affected unit threshold."

Comment 7 : Comments regarding energy efficiency data, eligibility of energy storage, transmission and distribution and granting credit for energy efficiency for state plans.

Response 7 : In Section VIII.K.1(a) of the final rule preamble of the CPP , t he EPA discusses the broad categorie s of measures that are available to reduce CO 2 emissions from affected EGUs under a rate

- based state plan. All state plans must demonstrate that measures included in the plan are quantifiable and verifiable. Solar power is an eligible RE measures for state plans.

Energy storage may not be directly recognized as an eligible measure that can be used to adjust a CO 2 emission rate, because storage does not directly substitute for electric generation from the grid or avoid electricity use from the grid. The ele ctric generation that is input to an energy storage unit may be used to adjust a CO 2 emission rate, but the output from the energy storage unit may not. However, energy storage can be used as an enabling measure that facilitates greater use of RE, which ca n be used to adjust a CO 2 emission rate.

The EPA determined that for RE and demand

- side EE measures in state plans the state will also need to include quantification, monitoring, and verification provisions in its plan for these

measures. The EPA will rel eas e a draft Evaluation Measure and Verification EM&V Guidance Document for comment along with this final CPP rule.

See section VIII.K.3 of the final rule preamble of the CPP for discussion of EM&V requirements for use of RE and demand

- side EE in a state plan

. For additional details for incorporating demand side EE and RE in state plan projections see the Incorporating RE and Demand

- Side EE Impacts into State Plan Demonstrations TSD

. EPA agrees with the commenter that states should not be required to subm it time differentiated savings from their EE programs and EPA is not prohibiting states to include more detailed hourly data MWh data in their state plans.

Not all state plans are required to conduct a projection. If a state decides to implement certain plans that doesn’t require a projection then modeling is not required. States using demand Side EE and RE for rate based plans do not need to estimate the emission impacts of these measures.187 The EPA understands that it can be analytically challenging to e stimate the quantity of GHG emissions that may be reduced or avoided by implementing demand

- side energy efficiency projects. In the final CPP rule, states can get credit for eligible zero or low emitting by adjusting the reported CO 2 emissions rate of affe cted EGU as described in Section VIII.K.1.a (2)

- (10) of the final rule preamble of the CPP . For rate based plans, t hese MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. There fore , adding MWh from these resources to the denominator of an affected EGU CO 2 emission rate allows mass CO 2 emission reductions from these measures to be fully reflected in an adjusted CO 2 emission rate.

The EPA’s draft guidance on EM&V for measures and quantifying EE will be going through a notice and comment period. Commenters can comment on this draft EM&V guidance, which will be released at the same time as this final CPP rule.

The following are summaries of the specific public comments under this comment:

Commenter s stated that Concentrating Solar Power and "other energy supply, storage, transmission and management measures, are making it increasingly possible to reduce greenhouse gas and other emissions from the power sector while maintaining reli ability and reasonable cost." Commenters recommended that EPA, DOE, NERC, ERCOT and ISO/RTOs, and other governmental entities, "should provide as much guidance as possible for planning, implementing, monitoring and measuring the effectiveness of measures t o be incorporated in State Plans."

Commenter s stated "that states should not be required to submit time differentiated savings from their EE programs." However, since "the impact of EE programs on CO 2 emissions can vary greatly according to the time of day and by season" commenters recommended "that states that can demonstrate that they have high quality load shape data be given the option to include time differentiated energy savings in their implementation plans."

Commenter s stated it is analytically chal lenging to estimate the quantity of GHG emissions that may be reduced or avoided by implementing demand

- side energy efficiency projects. Commenter s stated that to estimate reduced GHG emissions in this context requires complex modeling designed to calculat e (i) the change in electricity load for each hour of the day an EE project is expected to operate, and (ii) the "marginal" emissions reductions associated with the marginal electric generation unit in a region that can be expected to reduce its output in response to the change in electric load. Commenters stated accomplishing this requires the use of regional electric generation dispatch modeling tools and other sophisticated analysis methods that not all entities have at their disposal. Commenters stated instead of requiring these burdensome methods, to the extent that states can credibly show that these emission reductions have occurred, EPA should grant credit for these actions under a state plan.

Commenters noted that if the EPA restricts the types of efficiency measures that are eligible for credit towards compliance with a rate

- based target, this may cause a discrepancy in how energy efficiency is treated under the two approaches. Commenters further recommended that the EPA can address this by 1) prom ulgating detailed guidance for incorporating energy efficiency measures that would not qualify for credit under a rate

- based approach into baseline emissions188 projections in the determination of a mass

- based target, 2) allowing for the revision of projectio ns and mass

- based targets to reflect new information during the implementation period, and/or 3) allowing states to receive credit for the broadest possible range of energy efficiency measures reducing the sorts of measures that would receive passive credi t in a mass

- based state but no credit in a rate

- based state.

Commenters said the EPA must adopt approaches that ensure that final regulations, should they be issued, rely on those guidelines that treat energy efficiency and DSM programs as complementary means of achieving emission reductions and are not included as federally enforceable mandatory components of state plans. Commenters said that given the differences between the proposed rule under section 111(d) and the existing section 110 programs, any

e xisting EPA guidance and explanatory texts on the possible inclusion of energy efficiency in a state implementation plan under section 110 must not be used as a proxy for the treatment of energy efficiency under this proposal. Commenters said that not only are these documents irrelevant, they are not regulations and have not been subject to notice and comment.

Comment 8 : Comment regarding GHG leakage with other countries.

Response 8 : This final CPP rule demonstrates to other countries that the United States is taking action to limit GHG emissions from its largest emission sources, in line with our international commitments. The impact of GHGs is global, and U.S. action to reduce GHG emissions complements and encourages ongoing programs and efforts in o ther countries.

The State Department Special Envoy for Climate Change Todd Stern, the lead U.S. climate change negotiator, noted the connection between domestic and international action to address climate change in his speech in New Haven, CT on October 1 4, 2014:

“ This mobilization of American effort matters. Enormously. It matters because the United States is the biggest economy and largest historic emitter of greenhouse gases. Because, here, as in so many areas, we feel a responsibility to lead. And beca use here, as in so many areas, we find that American commitment is indispensable to effective international action.

And make no mistake

– other countries see what we are doing and are taking note. As I travel the world and meet with my counterparts, the pa lpable engagement of President Obama and his team has put us in a stronger, more credible position than ever before.”

The EPA s enior agency officials met with a number of labor union representatives about reducing carbon pollution using CAA section 111(d ). Those unions included: the United Mine Workers of America; the Sheet Metal, Air, Rail and Transportation Union (SMART); the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers (IBB); United Association of Jour neymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada; the International Brotherhood of Electrical Workers (IBEW): and the Utility Workers Union of America. In addition, agency leaders met189 with the Presidents of s everal unions and the President of the American Federation of Labor

Congress of Industrial Organizations (AFL

- CI O) at the AFL

- CIO headquarters.

The following are summaries of the specific public comments under this comment:

Commenter s stated that the Clea n Power Plan should contain provisions to avoid industrial GHG leakage with other countries since there is "an absolute direct relationship between U.S. energy costs and manufacturing employment, and the manufacturing trade deficit."

Comment 9 : State ener gy mix changes.

Response 9 : The EPA has determined that a state interim and final CO 2 emission goals for affected EGUs in a state may be adjusted to address inventory changes within a state’s fleet of affected EGUs. If these changes occur before a state su bmits its initial or final plan, the state should indicate in its submittal the circumstance that necessitates the goal adjustment and the revised interim or final CO 2 emission goal. If the circumstances occur after a state has an approved plan, a state must submit a modification to its approved plan. The plan revision submittal must indicate the circumstance that necessitates the goal adjustment, the revised interim an d/or final CO 2 emission goal, and the adjustments to the enforceable measures in the plan. See section VII of the final rule preamble of the CPP for details.

The following are summaries of the specific public comments under this comment:

Commenter s stated that "EPA's long

- term emissions targets do not seem well

- equipped to deal with changes to the current energy mix in each state." Commenters asked implementation questions about whether EPA would recalculate emissions targets and states would submit new SI Ps if the energy mix in a state changed. Commenters 2asked the following questions,"1. EPA's long

- term emissions targets do not seem well

- equipped to deal with changes to the current energy mix in each state. a. What happens if nuclear facilities are retir ed at a rate that exceeds the "at risk" capacity that EPA uses to establish the state's emission rate target? b. What happens if an existing coal or NGCC facility is modified or reconstructed? c. What happens if a fossil fuel

fired facility is retired? d. What happens if EPA's Accounting Framework changes the status of biomass energy that is currently counted as "zero

- emission" renewable energy? Will the Framework be binding on the States? Interested parties are not able to fully comment on the 111(d) propo sal without reviewing the Framework. 2. Does EPA need to recalculate the emissions target if these types of changes occur? Do States need to submit new implementation plans? Could individual facilities be subject to changing emissions reduction obligations based on the actions of unrelated facilities?"

Comment 10 : Comment regarding addressing all greenhouse gases and total lifecycle emissions.

Response 10 : The EPA has determined that measures that reduce CO 2 emissions outside the electric power sector may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate

- based or mass

- based approach, because all190 of the emission reduction measures included in the EPA’s determination of the BSER reduce CO 2 emissions from affected EGUs.

The EPA’s analysis found that the net upstream methane emissions from natural gas systems and coal mines and CO 2 emissions from flaring of methane will likely decrease under the Clean Power Plan. Furthermore, the changes in upstream methane emissions are small relative to the changes in direct emissions from power plants. The technical details supporting this analys is can be found in the Regulatory Impact Analysis (RIA) of this final rule

. The following are summaries of the specific public comments under this comment:

Commenter s stated that the rule should address all greenhouse gases and total lifecycle emissions, a nd added that "for gas

- fired power plants, this includes methane leakage during production, processing, and transmission, emissions from flaring at gas wells, and energy consumed in the production and transport of liquefied natural gas ("LNG")."

Commenters urged EPA to consider whether the carbon rules are aggressive enough to offset increases in natural gas usage and methane burning over the next ten plus years.

Comment 11 : Comment regarding combined annual performance goal for a utility company.

Response 11 : The EPA agrees, the final CPP provides many flexibili ti es to comply wi t h the final emission guidelines

. The EPA in the final rule is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the emission guide lines. This includes having combined annual performance goals or state

- wide goals for all affected EGUS that are equal to the EPA’s final emission guidelines. For example, states can enter into Multi

- state plans, multi

- state coordination while retaining th eir individual state goals and emission budget trading
programs. Rate based programs can use or purchase ERCs generated from eligible resources (e.g., demand side energy efficiency and renewable energy)

. The following are summaries of the specific public comments under this comment:
Commenters stated the way the rule is proposed the states must ensure that every affected entity has a permanent emission standard and believe that this limits flexibility in achieving CO 2 reductions. Commenters proposed that a utility company should be able to have a combined annual performance goal for its affected EGUs.

Comment 1 2 : Comment regarding Wood Mackenzie analysis.
Response 1 2 : This comment is unclear. Coal is still being mined profitably in the IPM runs. The coal o utlook used in IPM is regularly updated; information from Wood MacKenzie is only one component of that analysis and updating

. The following are summaries of the specific public comments under this comment:191 Commenters stated that the Wood Mackenzie analysis is wrong because it assumes "that there are abundant US coal deposits that can still be mined profitably." Furthermore, commenters said that the U.S. needs to repower since the U.S. doesn't have much "economically recoverable coal" left.

Comment 1 3 : Comment regarding compliance approach during interim period.
Response 1 3 : For each state, the EPA has finalized that projections must demonstrate the state plan will meet the interim goal for the interim period of 2022

- 2029 and a final goal by 2030. For
t he interim period, the EPA has also finalized three interim step goals: interim step 1 goal for 2022

- 2024, interim step 2 goal for 2025

- 2027 and interim step 3 goal for 2028

- 2029. States are free to establish different interim step goals than those the EPA has specified in this final rule. If states choose to determine their own interim step goals, the state must demonstrate that it will still meet the interim goal for 2022

- 2029 finalized in this final rule and the plan submittal must include in its support ing documentation a description of the analytic process, tools, methods, and assumptions used to make this demonstration.

The EPA recognizes the importance of ensuring that, during the 8

- year interim period (2022

- 2029) for the interim performance rates or interim state goal, a state is making steady progress toward achieving the required level of emission performance. For both emission standards plans and state measures plans, the final rule requires periodic checks on overall emission performance leading t o corrective measures or implementation of the backstop, if necessary, as des cribed in section VIII.F.3 of the final preamble of the CPP . States must demonstrate that the interim steps were achieved at the end of the first two interim step periods. In 2032 and every 2 years thereafter, states must demonstrate that affected EGUs achieved the final performance rates or state goal on average during each 2

- year reporting period (i.e., 2030

- 31, 2032

- 33, 2034

- 2035 etc.). The multi

- year performance periods for mea suring actual plan performance against the performance rates or state goals allow states some flexibility that accounts for seasonal operation of affected EGUs, and inclusion of RE and demand

- side EE efforts.

EPA is also allowing flexibility in rate based state plans to help meet each interium period. As discussed in section VIII.C.2.a of the final rule preamble of the CPP, a MWh of generation or savings that occurs in 2022 or a subsequent year may be carried forward (or “banked”) and applied in a future ye ar. For example, a MWh of RE generation that occurs in 2022 may be applied to adjust a CO 2 emission rate in 2023 or future years, without limitation. These MWh may be banked from the interim to final periods.

The final CPP allows broad flexibility in how to comply with the emission standards or state goals in the final guidelines. Sources have the ability to purchase ERCs as a way to adjust the CO 2 emissions rate and massed based states can join emission budget trading program or coordinate through multi

- s tate plans. Even if the projected energy savings doesn’t happen exactly as expected these additional flexibilities will allow states and sources the latitude to still meet their future goals.

The following are summaries of the specific public comments under this comm ent:192 Commenters noted that the preamble indicates that states must demonstrate compliance over a 10

- year average period for the interim goal (2020

- 2029), and then starting in 2030, states are required to meet the final goal based on a 3

- year rolling average period. Commenters noted that these flexible compliance periods allow the state to determine the transition rate necessary to meet the interim and final goals. However, commenters noted that the proposal also requires states to project emi ssion performance for each year from 2020

- 2029 in their plans, which could preclude a state from offering this transition flexibility to affected sources.

Commenters noted the proposed section 60.5740 [79 FR 34952]:

(a)(3)(iii) For the interim plan perfor mance period you must identify the emission performance levels anticipated under the plan during each year 2020 through 2029.

Commenters stated that one potential would be to determine a conservative amount of emissions comprising the difference between: 1 ) the amount of emissions allowed over 10 years if the state were to transition directly to the final goal in 2020, and 2) the amount of emissions that would occur over 10 years if the state used the interim goal from 2020

- 2029. Commenters noted that
state s could award affected EGUs emission allowances equivalent to this difference in 2020 and allow them to be used at any time over the 10

- year interim period. Commenters stated that this would help to ease the transition to existing unit CO 2 requirements whi le ensuring the interim goal is achieved. Commenters stated if a state elected to go with such an approach, it would be difficult to project how quickly the state's adjusted rate would begin to fall. Because the interim goal is based on the average emissio n rate over a 10 year period, commenters suggested that the EPA allow states the option of projecting the average emission performance level for the cumulative portion of interim period that has passed in each respective year. Commenters provided a table ( Table 2) showing how a state's plan could project emission performance for every individual year in the interim performance period, and alternatively project emission performance for each year. Commenters stated that this approach would offer transition fl exibility to the affected EGUs, while enabling a state to project worst

- case scenarios that will still meet its interim goal over the 10

- year period.193 5.9 TREATMENT OF EXI STING STATE REGULATI ONS AND PROGRAMS

This section addresses crediting existing state regulations and programs toward compliance with the CPP. The majority of the comments in this section deal with the date from which existing programs were undertaken may be credited. Other comments discuss banking credits for future

use , what type o f programs should be credited, and suggestions for how to credit emissions reductions. Responses to the comment topics are discussed below, along with summaries of the specific public comments.

Comment 1: Comments stating that the EPA allow states to t ak e credit for existing state
programs
Response 1: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period . The EPA recognizes the validity and impor tance of these perspectives, and as a result

, the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE

. First, states adopting rate

- based plans may award ERCs to qualified pr oviders that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of earl y actions, see section VIII.K of the preamble to the final rule.

Second, the EPA has developed t he Clean Energy Incentive Program

, an optional program designed to reward investment in certain RE and demand

- side EE proj e cts that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2 of the final rule preamble ), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The EPA has clarified which actions count and when such actions count generally in section VIII. K .1. and more specifically in section VIII. K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for int eractions between ERCs and RECs , are addressed in section VIII.K.2

.
The following are summaries of the specific public comments under this comment:194 Many commenters thought EPA should provide credit for states that ma ke GHG emissions reductions prior to 2020. These commenters contended that EPA should allow states to bank emiss ion reductions that result from state requirements, measures and programs instituted before 2020 and use them for compliance after 2020. Commenters suggested that if a state or entity can show verifiably that it has reduced its emissions via so me measure, it should receive credit under the building block computation of the state ’ s emission reduction goal. Several commenters supported limited banking of credits.

Commenters recommended the guidelines allow states to earn credit for CO 2 emission reductions achieved through existing GHG cap

- and

- trade program s and RPS s after the start of the program in 2020. Commenters supported EPA allowing states to develop their section 111(d) plans based on various programs and strategies for reducing CO 2 and other greenh ouse gas emissions from the electric power sector.

Commenters stated that EPA should provide states full credit for early actions to protect citizen s ’ energy needs and reduce carbon emissions, while other c ommenters recommended the EPA provide states with “ the flexibility to maximize credit for early actions .” Commenters suggested EPA consider how to “ better reflect the progress that states have made in achieving emission reductions. ” Commenters recommended the EPA expand the scope of the existing programs provisions of its Proposed Guidelines to give the broadest favorable treatme nt possible to EE actions taken to reduce CO 2 emissions

, regardless of whether those actions were taken prior to the proposal of the Proposed Guidelines.

Several commenters provi ded examples of early reduction activities they believe should be credited.

Commenter s noted measures that utilities in the state of Minnesota have already under taken (e.g., CHP and district heating/cooling) that have proven to be cost

- effective emission reduction measures, and demonstrate the state is keeping pace with the overall emission reduction targets being proposed. Therefore, c ommenters stated, the EPA should accept these early actions and ongoing measures for improvements as satisfying the CPP re quirements for Minnesota. Commenter s from Arkansas stated that the EPA should give credit for use of existing clean renewable resources, noting SWPA Hydro specifically. Commenter s noted several existing and soon to be on

- line run

- of

- the

- river hydropower pr ojects (approximately 300 MW capacity) that were developed with recognition of the contribution that they could make to the City of Cleveland's carbon

- free energy portfolio and, as such, they should not be denied credit under any state plans simply because they are pre

- existing projects. Commenter s encouraged EPA to design its regulations to maximize energy efficiency to allow emissions already reduced to count for compliance (citing recent RGGI comments).

Commenters noted that the effective date for EE MW h to be counted for compliance with the CPP should be the date the CPP is finalized, assuming EPA's objective for including EE in the CPP rule is to ensure that states and utilities aggressively promote EE and reduce CO 2 emissions by reducing the demand fo r electricity. Commenters stated that the EPA has touted the flexibility of the CPP many times. Commenters stated that it is difficult to see why EE achieved before the rule is final should not be captured for compliance with the rule. Commenters stated th at the EPA's position on EE should be that earlier is better. Commenters stated that the CPP should not195 impose perverse incentives that would delay the implementation of EE programs so that they may be counted for compliance. Commenters noted that states a nd utilities will pursue EE more aggressively and more quickly if such actions result in credit towards compliance. Commenters stated that EPA should accept and give a facility credit for the EE savings it is currently achieving or will achieve in the near future.

Commenter s stated that one year after the 2012 baseline year, they achieved 614 GWh of savings through energy efficiency programs, and had a company

- owned and contracted portfolio that generated 2,158 GWh of renewable energy. Commenters argued th at these savings from existing programs will continue every year until the interim compliance period begins and should be bankable for use during the interim compliance period.

Commenter s urged EPA to allow credit for existing RE projects, and noted that M aine ha d developed significant amount of RE in the form of wind power before EPA proposed the rule. Commenters stated that Maine has geographical limitations to how much additional wind power or other RE that can be developed in the state. Commenters noted that the timing of these projects coming on

- line does not negate the effectiveness of these units in reducing carbon emissions.

Commenter s stated that Pennsylvania has implemented the Act 129 program

, under which electric distribution companies (EDCs) reg ulated by the Pennsylvania Public Utility Commission (PUC) must achieve specific emissions reductions targets. Commenter s asserted that reductions made under this program should be eligible for credit, but are concerned that structural aspects of the progr am could prevent appropriate credit being taken. Commenter s stated Pennsylvania’s Act 129 targets have been set in three

- year phases with the specific targets based on a cost effectiveness evaluation by an independent evaluator. Commenter s stated the PUC is currently developing targets for Phase III of the program and is concerned the duration of Phase III may not overlap with the compliance period. Commenter s stated that while PUC has the statutory authority to establish longer phases that align the phase with the compliance period, that could result in the loss of any advantage from improved cost

- effectiveness over the term. Commenter s asked that the EPA further analyze the structure of existing state programs and determine the best way to harmonize state and federal requirements.

Commenter s agreed that the EPA should allow states and utilities to count the energy savings from energy efficiency measures installed starting in 2020, even if they result from efficiency policies that were adopted and took eff ect prior to 2020, as long as these activities are incremental and are an element of the state's 111d compliance plan.

Commenters stated that there has been significant confusion regarding which existing renewable energy measures can be counted towards co mpliance and when credit will be given. C ommenters requested EPA to clarify which actions count and when such actions count.

Commenters interpreted the rule as only permitting states to count emission reductions beginning in 2020 from programs/measures th at were implemented on or after June 18, 2014. Commenters also requested clarification regarding the treatment of natural gas combined cycle plants built between 2013 and 2019.196 C ommenters supported EPA's proposal allowing state solar measures which exist a fter the date of proposal can be used to drive emissions reductions during the compliance period. C ommenters also interpreted the proposal to allow existing renewable energy measures and actions to count if implemented prior to June 18, 2014 because buildi ng block 3 was factored into determination of the state goals

. C ommenters concluded that MWh from renewable energy capacity installed pursuant to an existing measure or program any time prior to 2020 can be counted towards compliance during the compliance period if the existing measure is included in a SIP.

Comment 2: Comments suggesting that the EPA would be penalizing states for taking early action if they do not allow credit for early reductions
Response 2: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of these perspectives, and as a result, the final rule contains two provisions that enable stat es to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- b ased context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- si de EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early act ion ERCs (as defined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters contended that by not allowing states to take credit for reductions made prior to 2020, the EPA is penalizing States who were early adopters of programs and other
measures to reduce GHG emissions. For example, c ommenters noted several energy efficiency and renewable energy actions (including solar and geothermal energy projects) undertaken by the town of Wyandotte, MI between 2009 to 2012. Commenters requested clarifications in the final rule that ensure reduction activities such as the ongoing coal plant retirements happening under the Clean Air Clean Jobs Act that the rule cites are unequivocally recognized toward compliance with the rule.

C ommenters argued that forward lookin g states should get credit for their leadership.197 Commenters argued the proposal punishes forward thinking states because they are not allowed to repeal/discontinue programs/rules that reduce CO 2 until 111d plans are approved. Commenters noted that states would have to go forward with these programs while getting no credit.

Commenters contended that because states and utilities that have undertaken RE and EE programs are potentially forced to spend more than other entities, it is appropriate for EPA to desi gnate some mechanism to provide credit for early action in establishing state emission reduction goals. Commenters stated that their states early action justifies EPA revising its Clean Power Plan targets so consumers are not punished for forward

- looking p olicy. Commenters suggested that EPA can eliminate these penalties by either utilizing an earlier baseline period, or by giving states credit for early actions to reduce GHG emissions when they demonstrate compliance with their interim and final goals.

Com menter s noted that New Jersey has been directly implementing EE and RE programs since 2003 under the banner of NJCEP. Commenters noted that the average EE and RE program expenditures averaged $142 million over the last 13 years, and that the cost is increa sing annually. Commenters added that the RPS compliance cost from 2004 through 2014 adds another $1.157 billion to the cost of clean energy in New Jersey, with the bulk of this cost being in the solar REC (SREC) program, which funds solar RE projects. Comm enters noted that currently, solar makes up 2% of the electricity used in New Jersey, and through the recently enacted solar RPS, that value will increase to 4% by 2026. Commenters concluded that the proposed rule fails to properly recognize the importance of emissions reductions from existing state RE and EE programs. Commenters believed that, by embedding the existing renewable generation and energy efficiency in the goal setting calculation, EPA has created an inequity between states that have invested i n renewables and energy efficiency and those that have not.

Comment 3: Comments suggesting that states should be given credit for emissions reductions from existing programs beginning on the date the existing program was implemented
Response 3: T he final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances fr om their interim targets or generate early action ERCs (as defined in section VIII.K.2 of the final rule preamble ), and allocate to eligible projects allowances or ERCs equivalent to each MWh198 generated or avoided. For more details on this program, see sect ion VIII.B.2 of the preamble to the final rule.

EPA also notes that demand

- side EE is no longer part of the calculation of the emission performance standards that are applied to affected sources, but demand

- side EE is still eligible for ERC issuance. Ther efore no level of demand

- side EE is assumed in the CO 2 emission performance rates, and affected sources can still use ERCs that originate from eligible demand

side EE, including from eligible early action, for compliance with their assigned emission standa rds. States adopting rate

- based plans can also award ERCs for generation in 2022 and subsequent years from incremental nuclear and hydropower capacity installed from 2013 onward. Finally, the EPA appreciates the importance of early actions by states and ut ilities to reduce fossil electricity use and CO2 emissions at affected sources. EPA’s approach to determining the CO2 emission performance rates and state goals that are achievable considering cost is a forward

- looking approach that starts from the state o f the electricity system in 2012.

The following are summaries of the specific public comments under this comment:

Commenters noted that the EPA's " best practices for energy efficiency " are partially based on the energy efficiency targets and savings demo nstrated by Arizona, but noted that EPA did not give Arizona credit for its work as an early adopter of these measures. Commenters believe d states such as Arizona should be able to count some portion of verified savings/production since inception of their standards.

Commenters stated that permanent hardware replacement programs should be given credit for savings realized during the period of performance regardless of when they were installed.

Commenters supported allowing existing state programs and measures to be included in state plans regardless of implementation date. Commenters stated that any HRI that a facility has implemented, regard less of when, that was assumed in the S&L study used to develop Building Block 1, should be included as reductions meeting the plan requirements. Commenters contended that EPA must allow states to demonstrate compliance with all zero

- emitting generation, i ncluding nuclear and hydroelectric power generation, in operation during the period of the state plan, regardless of when the zero

- emitting generation was placed in service.

Commenter s suggested that the rule should provide incentives for at least 70% exis ting and under

- construction nuclear genera tion, and recognize these as compliance strategies for reaching state goals. The commenter s also suggested to give credit to early action and investment in low to no carbon sources.

Comment 4: Comments suggesting that s tates should be able to take credit for early reduction emissions in order for them to recapture some of their early investment costs and cushion the
cost s of implementing the CPP

Response 4: The EPA agrees that early action should be recognized, and had provided a way that some early reductions can be counted toward meeting the requirements of the rule . In order199 to provide an incentive for early investments to proceed as planned, the EPA is establishing the Clean Energy Incentive Program (CEIP) descr ibed in section VIII.B.2. State participation in this program is optional. If a state chooses to participate in the CEIP, it may award early action ERCs and allowances to certain RE and demand

- side EE projects that achieve MWh of generation (for RE) or end use savings (for EE) in 2020 and 2021, prior to the start of the interim compliance period.

Early investments will also lower costs of compliance for the reductions that they will provide during the performance period 2022 and going forward. They will re duce emissions at affected EGUs and in a rate

- based context ERCs based upon the MWhs they produce 2022 onward can be used to adjust affected source emission rates.

The following are summaries of the specific public comments under this comment:

Commenters e xpressed concern that for utilities to be able to perform under a cap

- and

- trade system within their state or states perform under a regional cap

- and

- trade system, they should be able to take credit for the early efforts they have already made, giving them the opportunity to recapture some the early investment costs.

Commenters noted that early reduction credits would reduce the incremental costs of reductions achieved in the future by securing investment and infrastructure from implementation now.

Commenter s provided an analysis of the savings that would be made if states were allowed to take credit for early actions.

Commenter s stated that allowing states to use renew able energy megawatts that displace fossil megawatts between 2012 and 2020 toward complianc e would cushion the harsh effects of the early onset of emission reduction requirements in Oklahoma. Commenters further believed that this would reward environmental stewardship and create an economic and compliance incentive for companies to bring renewab le resources online as quickly as possible.

Commenter s urged EPA to reduce the significant economic burden of the CPP by providing credit to stat es that have already reduced their CO 2 emissions due to market

- driven forces such as increased natural gas use, the retirement of older coal plants, and/or the construction of new nuclear generati on.

Comment 5: Comments suggesting that the EPA give states credit for emission reductions made

a fter 2012
Response 5: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of these perspectives, and as a result, the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.200 First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. ERCs issued in 2022 or a subsequent year may be carried forward and used for demonstrating compli ance in a future year. For example, an ERC issued for a MWh of RE generation that occurs in 2022 may be applied to adjust a CO 2 emission rate in 2023 or future years without limitation. ERCs may be banked from the interim plan performance period to the fin al plan performance period. See section VIII.K.2.e. of the preamble to the proposed rule for more details on ERC banking.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following a re summaries of the specific public comments under this comment:

Several commenters contended that EPA should allow credit for emission reduction measures taken after 2012. Commenters thought that because EPA used total 2012 CO 2 emission levels as the base line for setting the state goals, it is reasonable to count CO 2 emission reductions resulting from all actions taken after 2012 when assessing CO 2 reductions achieved.

Commenters noted that the approach of banking is not foreign to states, as many states already permit the carryover of renewable energy produced in one year to satisfy RPS requirements in a subsequent year, as well as banking progra ms that EPA has created in the past, noting the NOx SIP Call specifically. Commenter s noted these early actions could include increasing or extending the RPS, reducing the RGGI cap, financial incentives for solar and other distributed technologies, or new investments in energy efficiency. Commenters suggested that EPA could signal to states that it will approve pla ns that include banking provisions by describing in detail the type and quantity of banking acceptable to EPA

.
Commenters noted that allowing credit banking would allow a state to begin demonstrating emission performance earlier and develop a more gradual emission reduction trajectory.

Commenter s suggested that EPA develop mechanisms for the follow ing actions taken after 2012 to be credited to the interim compliance period: New renewable energy production, energy efficiency program savings, heat rate (eff iciency) improvements on affected so urces, retirements of coal

- fired plants, pumped storage facilities and nuclear plant uprates.

Commenters requested EPA provide credit for pre

- 2014 energy efficiency programs toward the 2030 targets. Commenters added that efficiency programs put in place prior to June 2014 should not be treated differently than those adopted after June 2014.201 Commenters recommended that measures installed prior to the proposal date and savings achieved prior to the performance period (2014

- 2020) should be credited.

Commenters contended that a January 1, 2013 start date is consistent with how most existing efficiency programs are measured and verified, i.e., on a calendar year basis. Commenters stated that it would overly complicated to have two separate measurements of EE activities

- one starting in January 2013 for existing state purposes and one starting in June 2014 for EE accounting in a state plan.

Commenters recommended extending the interim period to be 15 years, beginning in 2015 and extending through 2030. Commenters added that if could not be applied to all states, the recommendations should be provided as an option for early adopters. Commenters concluded that there was no reason to treat actions conducted before 2020 differently t han similar actions taken during the 2020

- 2030 time period.

Commenters stated that if states generate more renewable energy and achieve energy savings above 1.5 percent in 2012

- 2020 EPA should allow states to bank this generation to avoid noncompliance in future years. Commenters added that these banked credits could be necessary to prepare for unknown future circumstances, such as extreme weather, as well as compliance beyond the 2030 date of the final goal. Commenters provided an example with regards to t heir nuclear units. Commenters stated that three Minnesota nuclear units with licenses are scheduled to expire in 2030, 2033, and 2034 (Monticello Unit 1, Prairie Island Unit 1, and Prairie Island Unit 2, respectively). Commenters stated that the impending expiration of these nuclear licenses raises reliability and compliance issues that could be mitigated if early action earns compliance credits that may be used after 2030.

Commenters supported the ability to bank RECs without expiration. Commenters also r equested EPA to clarify that RECs generated beginning January 1, 2013 and not yet sold may be banked and utilized for compliance beginning in 2020.

Commenters added that verifiable energy efficiency savings that exceed a state's 2012 baseline energy effici ency savings or EPA's 2017

- 2019 building block #4 energy efficiency percentages should be eligible to be banked and used for compliance with EPA's interim target.

Several commenters contended that emission reduction measures prior to 2012 should be allowe d. Commenters specified dates for which credits for early emission reductions should begin. For example, commenter s supported crediting actions since 2008 through the beginning of the compliance period. C ommenters supported crediting actions since 2001. Co mmenters supported states being able to credit actions back to 2004. Commenters supported states being able to credit actions back to 2000. C ommenters suggested a date of 2005 as the cut

- off date for states to take credit for early emissions reductions

. Commenters noted that 2005 was the initial year of the Presidents Climate Action Plan. Commenters added that a date of 2005 provides a defensible period that goes back far enough to capture most, if not all, RE, EE, and CO 2 emission reduction measures that should be credited. C ommenter s added that using 2005 as the start is also justified because measures may have been taken pursuant to the Energy Policy Act of 2005, which contained several renewable energy goals, such as carbon capture, subsidies for wind and other renewable energy producers. Commenters also recommended that if the starting point is202 changed to 2005, EPA should not increase any state specific CO 2 targets as result of this change because it would eliminat e the benefits of taking early actions and penalize states that have done

so.

Commenters contended that EPA should give credit to action taken at the state level by at least 2011.

Comment 6 : Comments suggesting that the EPA should give states credit for all emissions reductions made between t he date of the CPP proposal and 2020

Response 6 : The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of these perspectives, and as a result, the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. ERCs issued in 2022 or a subsequent year may be carried forward and used for demonstrating compli ance in a future year. For example, an ERC issued for a MWh of RE generation that occurs in 2022 may be applied to adjust a CO 2 emission rate in 2023 or future years without limitation. ERCs may be banked from the interim plan performance period to the fin al plan performance period. See section VIII.K of the preamble to the proposed rule for more details on ERC banking.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and deman d

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs, and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The EPA also notes that plant retirements that occur after 2012 will reduce total emissions from affected EGUs, and will reduce both total emissions from affected EGUs in a state and lower the emission rate of affected EGUs in a state , assuming that generation will increase at lower

emitting affected EGUs an d possibly at new sources.

The following are summaries of the specific public comments under this comment:

Several commenters suggested that EPA recognize carbon reduction measures that take place between proposal of the Clean Power Plan (June 18, 2014) an d 2020. Commenters argued that to

a llow states to use energy efficiency and renewable energy actions achieved from the date of the203 proposal until 2020 to comply with the interim goals, would appropriately benefit states that have already begun reducing the carbon intensity of the power sector and are well

- positioned to continue doing so.

Commenters supported allowing incremental emission reductions resulting from existing and new state requirements, programs, and measurements instituted after June 18, 2014 and prior to 2020 to be credited toward compliance with both the interim and final state emissi on targets.

Commenters added that early action credits should be provided for emission reductions resulting from the implementation of EE, RE, or any other action or measure that is undertaken post 2014 interim period and prior to the start of the program because such actions will reduce emissions, would incentivize states to reduce emissions earlier, and would allow states to gradually implement RE, EE, and other emission reduction strategies which will allow for better planning and adjusting to changes i n dispatch and consumption.

Commenters suggested that EPA allow states to bank emission reduction credits for new actions stemming from programs included in the state compliance plan and achieved between 2014 and 2019. Commenters agreed that the earliest r ecognized date should coincide with the date of the proposed rule (June 18, 2014), while other commenter s suggested January 2014 as the earliest recognized date.

Commenters supported allowing all cumulative energy efficiency savings realized as of the date of proposal be credited to meeting the interim and final goals.

Commenters supported crediting actions made after the rule is final but before 2020.

Commenters supported crediting actions before the CPP was proposed.

Commenters recommended that EPA provide states with the flexibility to take credit for actions taken after the NOPR was issued and before 2020, and count the credit toward achievement of the states compliance obligation. Commenters added that this would ensure states have an incentive to reduce GHG prior to 2020 and would also prevent a dip in market activity in the renewable energy sector. Commenters recommended that EPA allow states that have achieved significant avoided emissions during 2014 to 2019 due to existing EE programs, receive credit under both a rate

- based and mass

- based for their achievements.

Commenter s suggested that EPA should allow credit for new carbon reduction actions, including increasing existing policies, adopting new policies and deploying new facilities, taken after that date and before the plan performance period (2020) to count toward achievement of the state's carbon emission targets. Commenter s suggested that measures such as new legislation, new regulations, executive orders, or municipal government or public utility commission approvals of integrated resource plan (IRP) elements undertaken between 2014 and 2020 would be eligible for early action credit. Commenter s further supported the proposed distinction for existing renewable energy req uirements to ensure that all existing renewable projects can generate electricity that can be used for compliance when the program starts in 2020.204 Comment 7 : Comments stating that the EPA should allow states to take credit for past energy efficiency achie vements published in the EIA

- 861

Response 7 : The EPA disagrees with the commenter that all past EE achievements in the EIA

861 should be credited

. EPA’s approach to determining the CO2 emission performance rates and state goals that are achievable consider ing cost is a forward

- looking approach that starts from the state of the electricity system in 2012. Some of those achievements after 2012 can be recognized to the extent they are still lowering emission in 2022 going forward , and to the extent their imp acts can be recognized under the Clean Energy Incentive Program . The EPA recognizes the validity and importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generat ion and demand

- side EE. For more details on these programs, see section VIII.B and VIII.K of the preamble to the final rule.
The following are summaries of the specific public comments under this comment:

Commenters contended that EPA should recognize results of past EE achievements as published in EIA

- 861.

Comment 8 : Comments suggesting that EPA should give states credit for all emissions reductions made between the date the state plan is approved and 2020

Response 8 : The final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projec ts from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward.

Second, the EPA has developed the Clean Energy Incentive Program, an optional progra m designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2 of the final rule preamble ), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this prog ram, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public c omments under this comment:

Commenters suggested that EPA should allow states to achieve compliance with interim goals beginning when the stat e's compliance plan is approved by EPA. Commenters stated that in205 addition to benefitting early

- acting states, these approaches would eliminate the proposal's incentive to delay investments in renewable energy and energy efficiency until 2020.

Commenters stated that EPA should allow new renewable energy and energy efficiency actions taken after filing a state plan to be counted toward interim target compliance in 2020. Commenters added that credit should not be contingent on some future state plan.

Commenters supported counting energy savings measures beginning in 2017 from policies and programs included in state plans, whether the policies and programs began prior to 2017 or after 2017. Commenters explained that counting energy savings from measures installed starting in 2017 towards each state's emissions rate goals is consistent with the Building Block 4 calculation used in establishing the emissions rate goals. Commenters added that counting measures would start after publication of the final rule , when EM&V requirements are defined and state plans are prepared at least on a preliminary basis. Commenters stated that eligible measures should be those that are adopted as part of policies or programs included in state plans. Commenters stated that by starting the counting of measures in 2017, states and utilities will have an incentive to ramp up energy efficiency policies and programs in the 2017

- 2019 time period, not just starting in 2020. Commenters added that States and utilities have already plann ed energy efficiency programs for 2015 and 2016 as a result of other state policies or goals and it is highly unlikely that these programs will be eliminated or cut back if the Clean Power Plan does not allow counting efficiency measures installed prior to 2017. Commenters concluded that if measures from eligible state and utility policies and programs are tracked and counted starting in 2017, energy savings credit from these measures should begin in 2020 as the EPA has proposed. Commenters stated that most efficiency measures installed during 2017

- 19 are long

- lived and will provide substantial energy savings in 2020 and thereafter, and thus will contribute energy savings credits during the compliance period (e.g., if a measure with a 12 year lifetime is ins talled through a utility program in 2018, the utility would be able to count the savings over 10 of the 12 years for purposes of Clean Power Plan compliance). Commenters also stated that States and utilities that want to realize substantial energy savings starting in 2020 will need to begin programs prior to 2020 given the time required to ramp up to high levels of program participation and energy savings. Commenters added that starting energy savings credits sooner than 2020 would have the undesirable effe ct of reducing the overall CO 2 emissions reductions achieved by the Clean Power Plan, unless the CO 2 emissions rate reduction targets are strengthened; i.e., the emissions rate targets are lowered.

Commenter s believed that states that already implemented v ery aggressive RE and EE programs may have difficulties meeting interim goals even with credit for early actions under either crediting approach. Commenters stated that the first approach proposed by EPA would give credit for emissions reductions occurring during the plan period (2020

- 2029) " as a result of actions taken after a specified date " but before the plan June 18, 2014. Commenters w ere concerned that EE savings for actions implemented after the June 2014 could be counted in the cumulative savings fo r 2020 and later, but those occurring before 2020 would not count towards compliance with interim goals. Even if June 2014 is selected for the start date of emissions savings actions, c ommenters stated that Arizona will have an inconsistency between their interim and final goals. Regarding the second approach, where credit is given for emission reductions occurring before 2020, commenter s stated that this alternative is too amorphous for them to assess its potential impact on compliance with the interim goa l with any degree of precision.206 Commenters noted that Arizona utilities were subject to and in compliance with ambitions RE and EE programs before EPA proposed the CPP, so therefore it is unlikely that Arizona could adopt new programs and achieve significa nt reductions under the new programs prior to 2020.

Commenter s suggested the action start date be either after a final state plan is submitted to EPA, or after a specified date such as January 1, 2017. Commenter s recommended allowing banking for early acti ons taken between the 2012 baseli ne period and 2020 to alleviate the emission reduction pressure of the interim compliance period. Commenter s suggested allowing credit for actions taken back to 2013, immediately following the baseline year. Commenter s requested that demand

- side or other carbon savings beginning in 2011 (the mid

- point of 2010

- 2012) be credited under the CPP.

Several commenters supported allowing existing solar measures to receive credit for a limited time prior to the 2020 compliance pe riod. Commenters explained that states should be allowed to bank MWh generated from the date their SIP is submitted, and that those credits be eligible for compliance purposes for 36 months from the date of the start of the compliance period. Commenters ad ded that limited banking after SIP approval ensures that only measures included in approved SIPs are used for compliance and incentivizes states to submit SIPs for approval in a timely manner. Commenters stated that limiting banking to 2

- 3 years is aligned with best practices of most RPSs and regional markets which allow banking for 2

- 3 years without significantly reducing overall state goals.

Commenters suggested that EPA consider allowing states to demonstrate compliance in 2017, so states can take credit for efficiency savings in the years 2017

- 2019. Commenters added that energy savings in 2014 and 2015 are already occurring and activities for 2016 are already underway based on current standards and various state and utility programs.

Comment 9 : Comments suggesting that states may delay or suspend their own emission reduction programs if EPA does not allow credit for existing GHG emission reduction programs
Response 9 : The EPA appreciates the commenters’ concerns, but do not believe states will de lay or suspend their emission reduction programs , particularly to the extent these programs meet multiple goals and priorities of states, such as increasing the affordability of electricity and reductions in other air pollutants

. Still, t he EPA recognizes the validity and importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE. For more details on these programs, see section VIII.B and V III.K of the preamble to the final rule.
The following are summaries of the specific public comments under this comment:

Several commenters stated that failure to obtain credit for early actions would create an incentive for states to delay or suspend emi ssion reduction measures so they will count for the compliance plan.207 Commenters w ere concerned that if EPA does not provide credit for early action then any new state legislation or regulation to address CO 2 emissions would be negatively impacted. Comment ers believed that “failure to provide adequate recognition for these actions will upset those expectations and will undoubtedly discourage future forward looking actions from being taken as a result.” Commenters stated that in states where existing energy efficiency programs are set to expire ahead of the compliance pe riod, decision makers may seek to postpone actions to renew these programs to ensure any resulting emission reductions are captured for the purpose of compliance with the state performance sta ndard. Commenters added that emissions av oided in 2015 are at least as valuable as those made in 2020 and added that allowing banking of credit would remove the incentive for delaying efficiency programs.

Commenters stated that counting emission reductions from 2020 through 2029 to meet the final targets work against the goal for reducing carbon intensity as it is less likely that reduction measures will be made prior to that time.

Commenters contended that EPA should not develop a system that discourag es early reductions, no matter how few they may be, and EPA must consider the timing of states needing to adopt programs and bring them online in order to start realizing reductions in 2020.

Commenters stated that EPA's proposed approach of not allowing state plans to take into account emissions reductions generated prior to 2020 discourages state and utility initiation of new policies and programs, as well as property owners and utilities from i nstalling new projects,that are required beyond existing policy. Commenters continued that these entities have a perverse incentive to delay projects until the compliance period begins, which in turn threatens to reduce the overall environmental effectiveness of the rule. C ommenter s stated this disincentive is particula rly pronounced for energy efficiency measures, which may have a limited credit life. Commenters further noted that they have long supported recognition and encouragement of early emissions reductions.

Commenter s noted that the state of Michigan will meet its renewable portfolio standard and energy efficiency mandates by the end of 2015 and is considering new energy legislation for programs beyond 2015. Commenters stated t he structure of the proposed 111(d) rule cr eates perverse incentives to delay implementation of new or existing RE or EE programs until 2017 or later since no credit under the EPA Building Block method would be given for reductions achieved from existing renewable and energy efficiency programs.

C omment 1 0 : Comments supporting allowing electric power suppliers that over

- comply in any given year to bank the resulting RECs for compliance in subsequent years or be allowed to transfer the credit to other affected electric power generators for their co mpliance use under the
program.
Response 1 0 : In the final emission guidelines, states may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects pr ovide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission208 standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be i nherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on the treatment of early actions, see section VIII.K of the preamble to the final rule.

The following ar e summaries of the specific public comments under this comme nt:

Commenters supported allowing electric power suppliers that over

- comply in any given year to bank the resulting RECs for compliance in subsequent years. Commenters stated that this would allow power suppliers to vary their compliance activities to achieve the least

- cost method of compliance.

Commenters contended that EPA should allow bankable credits for retired power plants that meet compliance obligations under section 111(d) program or be allowed to transfer the credit to other affected electric power generators for their compliance use under the program. Commenters contended that credit should be provided for all fossil

- fuel power plants that shutdown on or after June 18, 2014.

Comment 1 1 : Comments suggesting that all carbon reductions under ex isting state programs should be counted toward compliance
Response 1 1 : The final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may a ward ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these p rovisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward.

Second, the EPA h as developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy dem and during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2 of the final rule preamble ), and allocate to eligible projects allowances or ERCs equival ent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters supported any type of carbon reductions under state programs be counted toward compliance. Commenters contended that it was essential that early action crediting be uniformly available irrespective of the ty pe or types of measures for which a state may seek credit. Commenters added th at in particular, emission reduction measures based on utilization of natural209 gas must be eligible for any early action crediting on equal terms with other potential emission reduction measures. Commenters stated that dictating how early emission reduction s must be achieved would unnecessarily limit the incentive to take advantage of those measures that may carry the greatest immediate benefits. Commenters concluded that excluding certain types of early action measures would create arbitrary disparities on the basis of what sorts of early action are feasible or most prudent in each state, rendering the proposed emission targets more difficult or costly to achieve in some states than others. Commenters encouraged EPA to allow compliance strategies to expand b eyond the utility sector where appropriate if they can be properly evaluated and credi ted, such as vehicle electrification.

Comment 1 2 : Comments regarding the approach to crediting emission reductions for states with existing programs
Response 1 2 : In order to ensure consistency with the calculation of CO 2 performance rates and
state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a gene ral accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

- emitting resource. Quantified and verified MWh impacts in 2022 going forward from qualifying zero

- emitting and low

- emitting resources implemented after 2012 may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory.

Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

based CO 2 goals in the final emission guidelines, the MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulti ng in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as th rough the subtraction of emissions from the numerator, such as those estimated by applying an emissions factor to the MWhs, would double
count CO 2 emissions impacts across the grid and is, therefore, not permitted under the general accounting approach.

Th ese requirements align eligibility with certain factors and assumptions used in establishing the BSER, and by extension, application of the BSER to the performance levels established for affected EGUs in the guidelines. The strategies suggested by commente rs are generally incompatible with these accounting requirements. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE , see section VIII.K of the final rule preamble to the CPP

. The rule describes the provisions related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in s ection VIII. K of the final rule preamble

.
The fo llowing are summaries of the specific public commen ts under this comment:210 Commenters stated that utilities with an emission rate program should be allowed to earn credit in the form of MWh of increased generation over the baseline from non

- emitting resources and MWh savings from energy efficiency programs. Commenters stated that the resulting MWh would be available to be added to the denominator in calculating a state's emission rate during one or more compliance periods.

Commenters suggested that credit could be provided by subtracting MWh from the denominator of the state rate calculation or total mass reduction requirement incrementally starting in 2017 and depreciated at a rate of 10 percent over the following 10 years. Commenters provided an example of a state that has entities that have verifiably reduced CO 2 emissions relative to business as usual by 10 MWh via a solar power system and energy efficiency measures since 2005. Commenters suggested that the state should be allowed t o calculate these measures into its state goals by adding the 10 MWh to its goal/target denominator starting in 2017 and decreasing that 10 MWh amount by 10 percent each year.

Comment 1 3 : Comments suggesting that the EPA may unintentionally exclude some state
programs
Response 1 3 : The EPA appreciates the commenters’ concerns. The EPA recognizes the validity and importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zero

- emittin g generation and demand

- side EE. For more details on these programs, see section VIII.B and VIII.K of the preamble to the final rule.

Consistent with other types of RE, new hydroelectric power generating capacity installed after 2012 is eligible for use i n adjusting a CO 2 emission rate. Relicensed facilities are considered existing capacity and, therefore, are not eligible for use in adjusting a CO 2 emission rate, unless there is a capacity uprate as part of the relicensed permit. In such a case, only the incremental capacity is eligible for use in adjusting a CO 2 emis sio n rate. See section VIII.K of the preamble to the final rule for more information.

With respect to nuclear generation, the EPA has finalized that generation from new nuclear units and capac ity uprates at existing nuclear units will be eligible for use in adjusting a CO 2 emission rate, just like new and uprated capacity RE. However, consistent with the reasons discussed in the preamble for not including the preservation of existing nuclear ca pacity in the BSER

– namely, that such preservation does not actually reduce existing levels of CO 2 emissions from affected EGUs

– preserving generation from existing nuclear capacity is not eligible for use in adjusting a CO 2 emission rate. See section VI II.K of the preamble to the final rule for more information.

The following are summaries of the specific public comments under this comment:

Commenters expressed concern that EPA may be unintentionally excluding some programs, requirements or measures that should not be excluded. Commenters stated that the definition of existing should be relative to 2020 but not necessarily relative to today. Commenters stated that EPA should clarify that it does not intend to exclude programs, requirements, or measures that do not exist today. Commenters added that it should be clear that just like for hydropower, any211 RE source in existence before 2020 would be considere d eligible for inclusion in the plan regardless of when it became "on the books", was established, or was anticipated. Commenters added that EPA acknowledges, with the exception of hydropower, the RE levels represent total RE, rather than incremental amoun ts above a baseline, so the RE generation can be supplied by any RE capacity regardless of its date of installation. Commenters assume d this to mean that provided Ohio EPA reaches its interim goal of 6% of total generation from RE and a final goal of 11%, whether that RE was in existence prior to 2020, 2017 or even 2012, its generation can apply to the goal, including hydropower that was not even included in the goal setting, and requests EPA to clarify this requirement. Commenters added that EPA should cla rify that existing nuclear beyond the 6% of at

- risk generation should also be able to be applied as an existing measure. Commenters stated that because EPA is proposing states can take credit for "any additional new nuclear generating units or uprating of existing nuclear units, relative to a baseline of capacity. Commenters stated EPA must allow states to take credit for preserving greater than 6% of these zero

- emitting sources.

Comment 1 4 : Comments regarding e xisting mass

- based emission budget programs

R esponse 1 4 : The mass

- based plan approaches in the final rule provide pathways that can accommodate existing mass

- based emission budget programs such as RGGI and California's carbon reductio n program.
First, the final rule provides a pathway for a m ass

- based emission standard plan with a market

based emission budget trading program to meet the mass

- based state goal for affected existing EGUs . Within this pathway, there is an option for a state to adopt an emission budget program that includes sources beyond the existing EGUs that are regulated under CAA section 111(d), as long as it assures that the affected existing sources meet their mass

- based state goals. Further, the EPA has calculated emission budgets for states that include the state’s mass

- bas ed goal along with a new source complement that can cover projected emissions from new sources. If the state adopts an emission budget under state law as that is equal to or more stringent than EPA’s calculated budget, this could be part of a presumptively approvable state plan in which the state could meet its obligation by showing its affected existing EGUs and new sources have met the total emission budget specified in the state plan.

If these emission standard plan approaches do not fit the structure of the existing state program that includes a mass

- based emission budget, the state can adopt a state measures plan, in which the state can use a variety of measure to assure that they meet their mass

- based state goal.

The plan approaches are discussed in se ction VIII.C of the final rule preamble of the CPP and additional considerations and requirements for mass

- based state plans are provided in section VIII.J of the final rule preamble

. The following are summaries of the specific public comments under this c omment:

Commenters requested EPA clarify the applicability of existing cap

- and

- trade programs, like California's or RGGIs, to EPAs Clean Power Plan. Commenters requested EPA consider and avoid the implementation of regulations that may penalize or otherwis e unduly harm participants212 of existing carbon programs that have acquired emission rights either through allowances or offsets. Commenters added that California's carbon reduction program incorporates a multi

sector cap

- and

- trade approach to reduce carbon emissions. Commenters requested EPA clarify whether the emissions targets, as laid out under the California program which incorporate reductions from other sectors in addition to electric generation, will be sufficient to qualify as reductions under the EP As goals for the state, or alternatively provide some guidance on the conversion of a mass based target to the rate based targets under EPAs proposal including more specific guidance as to how a multi

- sector accounting, such as in the case of California, c ould be bifurcated to show compliance under EPAs electricity sector proposal. Commenters supported using existing cap

- and

- trade programs under RGGI and California AB32 programs to be part of state plans and define an emission reduction trajectory for affec ted existing EGU's in tho se states. C ommenter s contended that EPA must ensure that compliance with the federal program complements compliance efforts now required for California State program, and that entities participating in state programs that meet federal requi rements should be able to comply with federal programs with minimal additional procedural hurdles, focusing energy on emissions reductions rather than process.

Commenters stated that a major component of California's carbon reductio n program is the acceptability of California Carbon Offsets (CCO). Commenters stated that under California's current program, an offset is a credit that represents a reduction or removal of greenhouse gases by an activity that can be measured, quantified, and verifi ed. Commenters stated that individual offset projects can be implemented to generate offset credits, which can then be sold and used by a covered entity as a compliance instrument in the Cap

- and

- Trade Regulation to satisfy up to 8% of its compliance obliga tion. Commenters stated that CCOs must be greenhouse gas reductions or removals that are real, additional, quantifiable, verifiable, permanent and enforceable and must go through a stringent set of standards. Commenters stated that each offset credit is eq ual to one MT CO 2 e. Commenters requested EPA clarify the applicability or acceptability of CCOs for compliance under the EPAs proposed rule. Commenters requested an official statement from the EPA as to whether carbon emissions offsets included in Californi a, RGGI or any other state programs will be eligible as a mechanism of compliance under the proposed EPA rule. Commenters also requested EPA to explain what standards will be required for an offset program, submitted as part of a state’s SIP, to be an elig ible method of compliance under the proposed EPA rule. Commenters cont ended that EPA should be clear that states (including California) that operate or may choose to operate an allowance system that extends beyond covered EGUs may still use that system as part of th eir compliance plans, provided that they can demonstrate that the system, operating in tandem with any other relevant state programs, will assure that the federal targets are met. Commenters stated that section 111 (d) sector

- specific compliance ought not to disrupt the functioning of more complete economy

- wide carbon control systems, provided those systems also demonstrate that section 111 (d) targets for the covered sector will be satisfied as part of their operations. Commenters expressed conce rn that uncritically adding federally enforceable obligations for covered entities, and requiring U.S. EPA review for all program amendments, would have significant implications for California's Section 111 (d) compliance strategy and its Cap

- and

- Trade Pro gram. Commenters stated that these implications include potentially limiting ARB's ability to efficiently amend the underlying regulations without potentially lengthy U.S. EPA approval processes and extending Clean Air Act citizen suit and permitting chall enges for program participants. Commenters believed that ARB's Cap

- and

- Trade Program can play an integral role in our compliance strategy, and may be213 the nucleus that furthers a market

- based emissions trading program in the West within the context of the p roposed rule . However, c ommenters contended that not every aspect of their Cap

and

- Trade Program need be federally enforceable in order to show compliance with the targets proposed in the rule. Commenters suggested that EPA have a federally enforceable req uirement that covered EGUs participate in the California market program would ensure Section 111(d) compliance. Commenters requested EPA confirm that such an approach, with sufficient analytical support, would be acceptable.

Comment 1 5 : Comments suggesting that the EPA should not exclude existing non

- renewable
state energy programs
Response 1 5 : The EPA appreciates the commenters’ concerns. The EPA recognizes the validity and importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE. For more details on these programs, see section VIII.B and VIII.K of the preamble to the final rule.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of t hese provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. This applie s to RE, demand

- side EE, incremental nuclear capacity, and any other measure eligible under the requirement specified in section VIII.K of the preamble.

The EPA notes that changes to affected EGUs since 2012 that have reduced their emission will be helping to reduce the affected EGU’s emissions be lower than they would have otherwise been.

The following are summaries of the specific public comments u nder this comment:

Commenters disagreed with excluding other non

- renewable energy State programs that are
equ ally capable of reducing CO 2 emissions from the electricity sector. Commenters contended that EPA relied on EERS in the same manner as existing RPS when calculating State specific goals, and it was arbitrary and capricious to fail to give them the same status it has proposed for existing RPS programs. Commenters added that there was no reason to limit the applicability of existing State programs to those EPA relied in setting the State emission reduction targets. Commenters contended that EPA cannot rely on existing state programs and measures to bolster the assertion that the propos ed goals are achievable, but deny states the right to use the reductions that are achieved by these measures to demonstrate compliance. Commenters added that EPA should make clear that the " existing measures " limitation in the proposal, if applicable
to an y measure in a state's compliance plan, is not applicable to actions that reduce affected unit emission before 2020, including unit closures, HRI projects, and changes in dispatch between existing coal

- based units and natural

- gas based units. Commenters ag reed that existing measures should be allowed to count during the compliance period, and can help states meet interim214 compliance goals set forth in the original proposal. However, c ommenters stated that during the comment period there has been significant confusion regarding exactly which existing renewable energy measures can be counted towards compliance and when credit will be given, and this confusion is already threatening potential emission reductions by slowing project development because states and EGUs are uncertain which actions will count towards compliance, and when these actions can count. Commenters requested that in the final rule the EPA more clearly state which actions can count towards compliance and when such actions count.

Comment 1 6 : C omments that the EPA should work with s tates to develop compliance pathways, equivalency determinations, and consistent evaluation and quantification methods for existing programs
Response 1 6 : Throughout the comment period prior to this final rule, the sta tes had several opportunities to provide EPA with their feedback on the rule, include through an extended comment period and many meetings with one or multiple states, as are reflected in records in the docket. In the development of the final emission guid elines’ state plan approaches, EM&V requirements and accounting approaches, the EPA has considered the needs of states and sought to ensure that existing programs were recognized and had a role in state plans. We will continue to work with states throughou t the development, submittal and approval of state plans.
The following are summaries of the s pecific public comments under this comment:

Commenters suggested that EPA collaborate with states to develop compliance pathways and model rules for existing programs. As part of this recommendation, c ommenters suggested that EPA develop a procedure for allowing states to demonstrate equivalency with the emis sion guidelines that ensures reductions are achieved using consistent evaluation and quantification methods.

Comment 1 7 : Comments suggesting that r enewable energy programs should count toward compliance even when not part of an existing state requirement, program or measure.
Response 1 7 : As part of the changes from proposal and final, generation from renewable energy capacity no longer needs to be specifically associated with an existing state requirement, program or measure under the rate

- based emission standard plan approach. States implementing
a rate

- based emission standard plan can recognize and issue ERCs for any generation that meets eligibility requirements that is located in any rate

- based state. These states can even recognize RE located in a mass

- based state if it meets certain conditions (see the geographic eligibility discussion in section VIII.K and the interstate effects discussion in section VIII.L). If renewable energy is to be recognized under a rate

- based state measures plan appr oach, it must be associated with a specified measures and t he plan has to show t hat the specified measures will achieve the goal. Additional complementary measures not specified in the plan can be implemented that will reduce EGU CO2 emission and help the state achieve the mass CO2 goal, these need not be specified in the plan.215 The following are summaries of the specific public comments under this comment:

Commenters contended that EPA must not make the eligibility for existing renewable energy
programs cou nt toward compliance contingent on whether they are an existing "state requirement, program, or measure". Commenters contended that EPA has failed to account for the significant investments in renewable energy made by electric generating companies through their rate payers. Commenters believe d that EPA’s failure to recognize these efforts affirmatively discourages company

- driven environmental programs.

Comment 18 : Comments suggesting that the EPA allow new state programs to count toward compliance not just state programs that were in effect when guidelines were proposed

Response 18 : The EPA confirms that measure implemented after the date of proposal can contribute to meeting requirements under this final rule. S tates adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provis ions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward.

The following are summ aries of the specific public comments under this comment:

Commenters recommended the EPA affirm that states can include in compliance plans emission reductions that occur during the compliance period without reference to whether these reductions were achie ved by measures " on the books " at the time the guidelines were proposed.

Comment 19 : Comments recommending that the EPA allow states with existing EE and RE
programs be allowed to determine the method used to quantify emission reductions from these
progra ms
Response 19 : The EPA is providing states with flexibility regarding how they meet EM&V requirements. The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE are specifically addressed in section VIII.K.3. This section of EPA’s final emission guide lines require that all EE providers demonstrate that they will quantify and verify MWh savings using best

- practice EM&V approaches. One way to make this demonstration is to use the presumptively approvable EM&V approaches specified in the proposed Model Ru le in section IV.D.8. States may also submit other means of meeting the EM&V requirements so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as stringent as the presumptiv ely approvable approach.216 The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA allow those states with existing efficiency and renewable energy programs to continue to determine the methods used to measure, evaluate, and quantify current and future kilowatt

- hours of energy savings and renewable energy production. Commenters expressed concern that if EPA indicates that it will define or specify energy efficiency savings or renewable energy generation differently from the state's current approach, it could require changes to their programs, which could cause the act ivity to be stalled resulting in no carbon reductions due to uncertainty. Commenters concluded that if national approaches or standards are developed, states should be able to opt into such standards to the extent they are preferable, mature, and have been vetted. Commenters stated that measures to force uniformity by EPA may be counter

- productive for states (such as Hawaii) that have unique constraints, requirements, or climates.

Comment 2 0 : Comments suggesting that the EPA should compare state early emis sion reduction programs to the emissions standards for new natural gas plants or state’s interim emission rate if that is lower

. Response 2 0 : The EPA appreciates the commenters’ suggestion. Due to the importance of early action, the EPA is recognizing elig ible early actions in the same way as it is recognizing actions implemented during the performance period, with a zero MWh ERC for each MWh of zero

emitting generation and demand

- side EE the early action produces in 2022 forward. Additionally, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. For more details on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters suggested that EPA may wish to consider comparing early action in states employing rate or mass based programs against the emissions standard for new natural gas plants under section 111(b), or the states GHG emissions rate for the interim control period, whichever is lower. Commenters also suggested crediting states adopting mass

- based programs based on how much they reduce emissions below their approved cap for the interim compliance period in conjunction with or in place of the first approach.

Comment 2 1 : Comments requesting clarific ation on how existing state demand

- side EE programs will be treated under the CPP
Response 2 1 : The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period , i ncluding demand

- side EE . The EPA recognizes the validity and importance of these perspectives, and as a217 result, the final rule contains two provisions that enable states to incentivize early investments in

zero

- emitting generation and demand

- side EE.

Firs t, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects , including demand

- side EE, from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subse quent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2), and allocate to eli gible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenter s stated it is unclear how EPA will treat existing demand

- side efficiency programs that yield efficiency improvements during the compliance window.

Commenter s stated that some state renewable power standards award utilities credits for energy eff iciency kWh in excess of the allowable energy efficiency and noted that utilities are allowed to use the credits in a future year to meet requirements. Commenters asked if EPA addressed this type of system in the rule.

Comment 2 2 : Comments proposing strat egy for encouraging states to take early action

Response 2 2 : The EPA acknowledges the comment, but is not creating a disincentive for states to delay action. The EPA recognizes the validity and importance of established programs, and the final rule contain s two provisions that enable states to incentivize early investments in zero

emitting generation and demand

- side EE. For more details on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the final rule.
The following are summaries of the specific public comments under this comment:

Commenter s thought that rather than allowing credits for early action, the EPA should encourage states to begin implementing emission reduction programs by including measures that create a disincentive for s tates to delay action. To accomplish this, c ommenters recommended an increased ramp

- up rate assignment to states that had not met or exceeded the average U.S. total incremental or cumulative savings rates by year

- end 2012. For these states, c ommenters supp orted a targeted 0.38 percent rate of improvement in incremental annual savings per year, as opposed to the 0.2 percent rate proposed by EPA. Commenter s noted that, in a mass

- based218 approach, a set

- aside for energy efficiency could be used where the set

- aside is larger in the first year(s) to accommodate several years of early crediting.

Comment 2 3 : Comments suggesting that c redit given for existing state programs must not reduce effectiveness of CPP
Response 2 3 : The EPA received many comments sugges ting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of these perspectives, and as a result, the final rule contains two provisions that en able states to incentivize early investments in zero

- emitting generation and demand

- side EE. Both of these strategies maintain the effectiveness of the program while recognizing early action.

First, states may award ERCs to qualified providers that impleme nt any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of early actions, see secti on VIII.K of the preamble to the final rule.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date o f this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following are summaries o f the specific public comments under this comment:

Several commenters ( were concerned that credit for early actions should not impact the effectiveness of the CPP. Commenter s urg ed EPA to ensure that any credit given for early actions does not “ erode the environmental integrity of the Clean Power Plan by c rediting

" business

- as

- usual " actions .” Commenters recommended EPA strengthen the emission targets if early action credits are allowed. Commenters believed that the years between 2012 and 2020 present a challenge for compliance crediting, since providing credit for emission reductions during this time encourages earlier actions by moving emission reductions earlier in time. However, c ommenters w ere concerned " business

- as

- usual " emission reductions that occur during this time would have happened regardless of the Clean Power Plan.

Commenters encouraged EPA to balance credit for early action and credit or incentives to act between 2015 and 2020 with t he overall stringency of the Clean Power Plan. Commenters cautioned that if too much credit is provided for actions before 2020, the Clean Power Plan will result in too few activities to reduce carbon pollution after 2020. Commenters did not support
recogn ition of additional early action without an increase in stringency. Commenters added that2 19 stringency could be increased without recognizing additional early action. Commenters added that if stringency is significantly increased, they supported finding ways to recognize additional early action and provide incentives to act between 2015 and 2020. Commenters supported providing credit for early action, but contended that credit for prior actions shou ld be left to the states to settle, but requested that any cr edit given for actions prior to 2012 do not result in an emission limit less stringent than what EPA requires.

Commenters believed states should not receive extra credit for energy savings occurring prior to 2020 or from measures installed prior to 2020 be cause this would weaken the standards and result in lower emission reductions during the 2020

- 2030 time period. Commenters added that they would support EPA allowing for some emi ssions reduction credits for new or incremental actions that occur in the 2017

- 2019 time period after a state's carbon emission reduction plan is approved (e.g., for the expansion of energy effici ency programs in the 2017

- 19 period and the incremental energy savings for those years, relative to energy savings levels occurring in say the 2014

- 16 period). Commenter s also recommended emission reductions below the state goal level could be banked for use in the first compliance period.

Commenters urged that if early action credit is provided in the final rule EPA must ensure that such c rediting does not erode the environmental integrity of the Clean Power Plan by crediting business

- as

- usual actions. Commenters added that crediting for early action should take place in the context of strengthened state targets that better reflect the full potential for emission reductions under the best system of emission reduction, as discussed above with respect to each of the building blocks and the formula change. Commenters recommended that EPA credit such actions in a manner that does not over

- reward such actions and undermine the benefits of the Clean Power Plan.

Commenters stated that any adjustments to credit early actions should not increase the actual national carbon dioxide intensity of power generation in the later years of the period covered b y the rule, beginning in 2025. Commenters recommended that any adjustments to credits for early action be tailored to the cumulative carbon dioxide emissions from 2016 through 2024 are no larger than would have been allowed absent the consideration of cred it for early action. Commenters added that in order to provide maximum flexibility to states while meeting this objective, the enforceable standard for the period prior to 20125 should be formulated as a limit for each state on the average carbon dioxide e missions intensity during the entire period from 2016 through 2024, leaving it to the state implementation plans to determine each stats specific glide path.

Commenters contended that unlimited banking or extended banking of emission reductions beyond a 3 year timeframe should not be permitted for states because it damages the ability of the Clean Power Plan to lock

- in long

- term emissions reductions and systematic long

- term change by allowing states to increase actual emissions in compliance years. Commente rs added that unlimited banking would let states accumulate credits before the first compliance period resulting in states lagging behind on actually cutting carbon emissions. Commenters added that the emission reduction targets would be weakened and the t argets would no longer accurately reflect BSER.220 Commenters recommended allowing banking of avoided generation from energy efficiency that could be used during the present year or future years to comply with the rule but Commenters urged EPA to develop limits on the type of EE measures that are given credit, the life of the measure, and the vintage of the credit to ensure only real savings are credited.

Commenter s noted that allowing states to take credit for early action programs that would occur
anyway would impact the overall emission reductions achieved by the Clean Power Plan. Commenters noted that giving compliance credit to actions taken between 2012

- 2020, which would have happened regardless of the Clean Power Plan creates a bank of compliance

cre dits that will be used by that state during the compliance period in the place of other, beyond business

‐ as
‐ usual emission reducing actions. C omment ers stated that the overall emission reductions achieved by the Clean Power Plan will be reduced the same am ount as the credit. Commenters also stated that there are several highly compelling reasons to begin taking action now, including reductions in co

- pollutants and job creation resulting from energy efficiency and clean energy investments. Commenters argued that States and companies can take advantage of the 5 years between the finalization of the standards and the beginning of the compliance period to gradually build out renewable generation and build up energy efficiency programs so that these resources are ready to deliver carbon reductions. If EPA does decide to provide early action credit, c ommenters urged the Agency to ensure that such crediting does not provide credit for business

‐ as
‐ usual actions. If crediting of early actions is allowed, c ommenters re commended the state goals should be strengthened in anticipation of that credit.

Comment 2 4 : Comments suggesting that c redit for early actions should be limited to private sector investments outside of state EE programs

Response 2 4 : The EPA disagrees that credit for early actions should be limited to private sector investments outside of state EE programs , states are recognized in this final rule for their early actions to implement energy efficiency, as is supported by a significant number of comments

. The EPA recognizes the validity and importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE. For more details on these programs, see s ection VIII.B.2 and VIII.K.2.e of the preamble to the final rule.
The following are summaries of the specific p ublic comments under this comment:

C ommenter s suggested that any credits for early energy efficiency investments should limited to private secto r investments outside of state energy efficiency resource standards and that comply with approved MRV methodologies.

Comment 2 5 : Comments suggesting that the EPA give states credit for early actions that reduce emissions below their state targets
Response 2 5 : The EPA appreciates the commenters’ suggestion. Due to the importance of early action, the EPA is recognizing eligible early actions in the same way as it is recognizing actions221 implemented during the performance period, with a zero MWh ERC for each MWh of zero

emitting generation and demand

- side EE the early action produces in 2022 forward. Additionally, the EPA has developed the Clean Energy Incentive Program, an optional progra m designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. For more details on these programs, see s ection VIII.B.2 and VIII.K.2.e of the preamble to the final rule.

The following are summaries of the specific public comments under this comment :

Commenter s stated that early action in addressing pollution is something that should be recognized and support ed, and that they have long supported recognition of early action in context of the Clean Power Plan. However, c ommenters stated that there are complex questions to resolve on how to properly accomplish this recognition. Commenters stated that the propose d framework does not provide for assessment of past emission reduction performance, and that states and companies that have already transitioned to lower carbon and energy efficiency are closer to full deployment of BSER than others. Therefore, c ommenter s suggested that EPA should also consider clarifying that states that go beyond their targets would receive credit for those actions under future updates of the carbon pollution standards for power plants.

Commenters added that credits for renewable genera tion and energy efficiency programs that exceed w hat is required to meet a states goal during a compliance period should be allowed to be banked for use in a subsequent compliance period.

Comment 2 6 : Comments suggesting that e arly actions should be credit ed above 100 percent

Response 2 6 : The EPA disagrees that early actions should be credited above 100 percent. Due to the importance of early action, the EPA is recognizing eligible early actions in the same way as it is recognizing actions implemented during the performance period, with a zero MWh ERC for each MWh of zero

- emitting generation and demand

- side EE the early action produces in 2022 forward. Additionally, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. For more details on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the final rule.
The following are summaries of the specific public comments under this comment:

Commenter s suggested the value of early energy efficiency investments be credited at a rate above 100 percent due to the higher value of near

- term CO 2 reductions. Commenters noted than the Synthesis Report of the Fifth Assessment Repor t, the Intergovernmental Panel on Climate Change (IPCC) noted that: "Inertia in the economic and climate systems and the possibility of irreversible impacts from climate change increase the benefits of near

- term mitigation efforts (high confidence). Delays in additional mitigation or constraints on technological options limit the mitigation options and increase the long

- term mitigation costs as well as other risks that222 would be incurred in the medium to long term to hold climate change impacts at a given le vel." (http://www.ipcc.ch/pdf/assessment

- report/ar5/syr/SYR_AR5_LONGERREPORT.pdf (p.87)). Commenters believe d that by giving a higher credit to early actions, the EPA will encourage states to accomplish their CO 2

- reduction goals even faster while simultane ously discouraging utilities from putting existing and planned energy efficiency policies and programs on hold.

Comment 2 7 : Comments suggesting alternatives credit banking for states that take early action
Response 2 7 : The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of these perspectives, and as a result, the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of early actions, see section VIII.K of the preamble to the final rule.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy de mand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2 of the final rule preamble ), and allocate to eligible projects allowances or ERCs equiva lent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenter s noted their preference for credit b anking approach, but sug gested some alternative approaches EPA could use, including starting the compliance period for states in 2017 or 2018, while maintaining the business

- as usual emission rate for states until 2020. Commenters stated that this approach would allow states to recognize actions implemented before 2020, but would not penalize states that do not have opportunities for such pre

- 2020 abatement. Commenters further suggested that this approach could be applied to all states, or offered on an "op t

- in" basis.

Comment 28 : Comments suggesting early action credits cannot completely ease concerns over NGCC ramp rate , and the EPA should either phase in or eliminate interim goals.223 Response 28 : The EPA respectfully disagrees. We are providing states with substantial flexibility as to how they structure those plans to achieve the 111(d) requirements. The flexibility includes, for example, the choice of approaches, trading, time to develop plans, additional time before the start of the interim performance period (postponed from 2020 until 2022), and the ability to shift emission rate achievement between performance periods. In response to additional analysis and many comments, we have modified the proposal and RIA

– the establishm ent of CO 2 emission reduction standards is regionally based. The Building Blocks are not prescriptive, and states may consider local circumstances as they develop their plans, including system reliability, the need for ancillary services other regulatory r equirements and infrastructure. See sections V.A, V.D, VIII.A, VIII.C and VIII.G of the final rule preamble of the CPP and Chapter 3 of the GHG Mitigation Measures TSD for the CPP Final Rule supporting the final CPP.
Additionally, the EPA recognizes the v alidity and importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zero

emitting generation and demand

- side EE. For more details on these programs, see section VIII.B.2 and VIII .K.2.e of the preamble to the final rule.
The following are summaries of the specific public comments under this comment:

Commenter s noted that while crediting ear ly action could provide some relief to the concerns they expressed about the ramp rate of NG CC, they did not see early action and changes to Building Block 2 as necessarily interchangeable. Commenter s suggested that crediting early actions is only a partial solution to easing the effect of the "emissions cliff" for late

- acting states, and suggest ed that EPA, either eliminate interim goals, or at a minimum, phase in both building blocks 1 and 2 when calculating goals for the inter im period. Commenters stated that EPA should not be concerned that using both approaches will make early acting states' interim goals too lax, because all states will still be required to meet the same final goals and will thus have to install emission reduction measures durin g the interim period.

Comment 29 : Comments stating that allowing credit for early reductions would incentivize states and utilities to accelerate implementation of RE and EE programs
Response 29 : The EPA recognizes the validity and importance of early red uctions, and as a result, the final rule contains two provisions that enable states to incentivize early investments in

zero

- emitting generation and demand

- side EE.

First, states may award ERCs to qualified providers that implement any eligible projects f rom 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of early actions, see section VIII.K of the preamble to the final rule.224 Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that gener ate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2), and allocate to eligible projects allowances or ERC s equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following are summa ries of the specific public comments under this comment:

Commenters stated that providing credi t for early reductions will incentivize states, utilities and generators to accelerate the timetable for developing renewable resources, le ading to even more climate change benefits before the interim requirements take effect and would provide a tangible

r eward to industry leaders who have promoted the use of renewable energy, while maintaining the stringency of the final requirements.

Commenters stated that providing a few years of credit would incentivize additional new RE deployment that might otherwise not get built or built as quickly.

Commenters contended that EPA should provide limited ban king for carbon reduction actions taken after January 1, 2017, and before the plan performance period begins. Commenters stated that this would help ensure that stat es have an incentive to engage in carbon reduction measures prior to that period and get a jump on being better positioned to achieve their final compliance goals.

Commenters stated that allowing pre

- 2020 reductions would incentivize utilities and states to reduce their emissions earlier resulting in earlier benefits to the environment. Commenters added that in the case of mass

- based programs, states should also be able to quan tify easily the tonnage reductions achieved by qualifying early actions undertaken prior to the start of the program in 2020.

Comment 30 : Comments suggesting that r egulators can use the experience gained from existing state GHG emission reduction programs to develop and implement their state plans

Response 30 : The EPA agrees with the commenters. When developing the framework for state plans, the EPA took into account the programs that states have already implemented that reduce GHG emissions, and the EPA h as provided specifics regarding how many existing state programs can fit under state plan requirements. For more information on state plans, see sec. VIII of the preamble.

The following are summaries of the specific public comments under this comment:

Commenters stated that regulators would gain valuable insight and experience on how to run GHG emission reduction programs as well as evaluate, monitor, and verify resulting reductions.225 Commenters concluded that with this experience, programs can be modifi ed and made more effective during the actual compliance period.

Comment 3 1 : Comments suggesting that the EPA should allow limited banking of credits for early actions for a period of 36 months

Response 3 1 : The EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use e nergy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh ge nerated or avoided. This program allows for a limited number of ERCs or allowances to be awarded for early action with unlimited banking, while maintaining stringency and ensuring early development of RE and demand

- side EE. For more details on this program , see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenter s suggested allowing for limited banking, recommended that states should be allo wed to bank MWh generated fr om the date their SIP is submitted, and that those credits be eligible for compliance purposes for 36 months from the date of the start of the compliance period. Commenters further stated that limiting banking to 3 years is aligned with best practices of m ost RPSs and regional markets which allow banking for 3 years without significantly reducing overall state goals. While commenter s supported limited banking, they believed that unlimited banking or extended banking of emission reductions beyond a 3 year ti meframe should not be permitted for states, as extended or unlimited banking would undermine the effectiveness of the CPP. Additionally, c ommenters noted, extended or unlimited banking creates distortions in the market by allowing states and EGUs to choose not to create new renewables until late in the compliance period or only create new renewables early on.

Comment 3 2 : Comments suggesting that the EPA should work with NACAA and states to develop a system of crediting early actions taken by states to reduce GHG emissions

Response 3 2 : The EPA recognizes the validity and importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zero

emitting generation and demand

- side EE. For mor e details on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the final rule. The EPA also notes that comments from NACAA and the states informed the development of this final rule.
The following are summaries of the specific public c omments under this comment:226 Commenters suggested EPA work with NACAA and the individual states to address the issue of crediting early actions

.

Comment 33: Comments suggesting the EPA should allow RGGI to keep its current 3

- year block compliance period.

R esponse 33 : The state plan approaches offered in this final rule offer sufficient flexibility that
to accommodate specific program elements of RGGI. While the interim and final plan performance periods do not align with RGGI’s current three

- year control pe riods, if the RGGI participating states choose, they could include the RGGI program as a state measure under a state measures plan type. This plan type would not require alignment of RGGI control periods with the interim and final plan performance periods under the emission guidelines. The state plan types are discussed in section VIII.C. of the preamble to the final rule. Mass

- based state plan approaches using emission budget trading programs are discussed in section VIII.J.2 of the preamble to the final r ule.

The following are summaries of the specific public comments under this comment:

Commenters stated EPA should permit RGGI to keep its current 3

- year block compliance period rather than a 3

- year rolling compliance period, as long as the RGGI states can demonstrate that the program will achieve the required levels of stringency on the ti meframe required in the final emission guideline.

Comment 34: Comments suggesting that EPA should work with states to approve inclusion of a CCR.

Res ponse 34 : The state plan approaches offered in this final rule offer sufficient flexibility that they can accommodate the specific program components included in RGGI , such as a cost

containment reserve (CCR)

. If the RGGI participating states choose to retain elements that could functionally expand the CO 2 emission budget of the program, such as a CCR or use of GHG offsets, the RGGI program could be submitted as a state measure under a state measures plan type. The state plan types are discussed in section VIII.C. of the preamble to the final rule. Mass

based state plan approaches using emission budget trading programs are discussed in section VIII.J.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated RGGI uses a cost

- containment reserve to mitigate increases in allowance prices . Commenters said if the states choose to include a Cost Containment Reserve (CCR) going forward in their 111(d) plans, EPA should work with states to approve inclusion of a CCR so long as the plans meet the required stringency levels in the final 111(d) g uideline irrespective of the deployment of the CCR.227 Comment 35: Comments suggesting that the EPA should allow RGGI states to address the issue of banked allowances.

Response 3 5 : The final emission guidelines provide for the banking of CO 2 allowances, bot h within the interim and final plan performance periods, and from the interim plan performance period to the final plan performance period. The state plan types are discussed in section VIII.C. of the preamble to the final rule. Mass

- based state plan appro aches using emission budget trading programs are discussed in section VIII.J.2 of the preamble to the final rule. Section VIII.J.2 discusses the treatment of banking of allowances under the emission guidelines.

The following are summaries of the specific public comments under this comment:

Commenters stated EPA should allow the RGGI states to address the issue of banked allowances as they prepare for compliance with the Clean Power Plan. Commenters said during the 2012 RGGI program review process, the RGGI states devised a system of interim allowance adjustments 3 that deals with the private bank of allowances in such a way that it preserves the environmental integrity of the RGGI cap while ensuring that the value of privately held allowances is not diminis hed. Commenters said they recommend that EPA allow the RGGI states to replicate this approach in order to account for the private bank of allowances that exists as the region begins compliance with the Clean Power Plan in 2020. Commenters said in order to ensure that privately held allowances from years prior to 2020 do not inflate the RGGI cap, the RGGI "base budget" for years 2020

- 2029 will require a reduction equivalent to the private bank of allowances. Commenters said if, for example, the private bank consists of 50 million allowances at the end of 2019, each year's base budget during the ten year period from 2020

- 2029 would be reduced by five million tons. Commenters said following the 2020

- 2029 interim compliance period, the RGGI states should be allo wed to reassess the private bank of allowances and adjust the RGGI base budget accordingly for years 2030

- 2034 in order to preserve the value of privately held allowances.228 5.10 TREATMENT OF NEW FOSSIL FUEL

- FIRED EGUS

This section addresses comments on the Treatment of New Fossil Fuel

- fired EGUs that are not affe cted units under section 111(d); in particular, comments on whether and under what circumstances emissions from new units are factored into compliance determinations and emission projections for mass

- based and rate

- based plans.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments suggesting s tates that employ the rate

- based plan should be allowed to include megawatts from n ew NGCC capacity in calculating compliance

. Response 1 : New NGCC units are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans under a rate

- based emission standard appr oach. Permitting new NGCC generation to qualify for ERCs would provide an incentive to shift generation from affected to non

- affected sources (i.e., leakage). See s ection VII.C and VIII.K of the final rule
pre amble

. The following are summaries of the speci fic public comments under this comment:

Commenter s stated that states should be free to include any measures they deem appropriate, consistent with the CAA, as part of their section 111(d) plan, and should be given wide latitude to decide how to address new NGCC capacity for purposes of calculating compliance under 111(d) plans. Commenters noted that states that employ the rate

- based approach should be

a llowed to include megawatts generated from newly constructed units in the denominator for the state's rate. Commenters also noted that states that employ the mass

- based approach should not include emissions from newly constructed units in the program at al l.

Commenter s stated that states should be allowed the option of including new natural gas power plants as part of meeting rate

- based requirements

.
Commenter s agreed with EPA that, under a mass

- based plan, emissions from new NGCC would not and should not b e accounted for when demonstrating compliance and that new NGCC units would not be affected units under Section 111(d). Commenters argued that under a rate

- based plan, any emission rate reductions at affected EGUs, resulting from substitution of new NGCC
g eneration for higher

- emitting generation by existing EGUs, would also automatically be reflected in emission rate changes from affected EGUs and a state would not need to include enforceable provisions for new NGCC in its plan. Therefore emissions and gene ration from new NGCC capacity, co mmenters noted would not need to be accounted for when demonstrating compliance. Commenters argued that states should however have the discretion to allow an entity that must demonstrate compliance to include the emissions and generation from any new NGCC capacity in its demonstration without subjecting the new NGCC capacity to any Section 111(d) requirements. Commenters suggested t he accounting would be done by adding the emissions from any new NGCC capacity to the emission s of the affected units for which a229 compliance demonstration is being made or by adding the MWh generated by any new NGCC capacity to the denominator of the equation that accounts for all other generation (or avoided generation) being used to calculate the entity's emission rate.

Comment 2: Comments suggesting s tates should be allowed to use beyond

- compliance emission reductions from new units

. Response 2: New NGCC units are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans under a rate

- based emission standard approach. Permitting new NGCC generation to qualify for ERCs would provide an incentive to shift generation from affected to non

- affected sources (i.e., leakage). See s ection VII.C and VIII.K. of the fina l rule preamble of the CPP.

In mass

- based states, there is a requirement for state plans to demonstrate how the state is going to address concerns regarding potential increased emissions from new NGCC units as a result of shifting generation from affected to non

- affected sources (i.e., Leakage). The EPA is giving

mass

- based states several pathways to address new sources and potential leakage. See s ection VII.C and VIII. J of the final rule preamble of the CPP

. New NGCC units are not covered by section 111(d) requirements.

The following are summaries of the specific public comments under this comment:

Commenter s suggested that EPA provide credit for any amount that a new EGU exceeds the performance levels established through CAA section 111(b), regardless of w hether CCS is involved or what type of unit is involved. Commenters noted that, under a rate based limit, the credit would be obtained by including the new EGU as an affected EGU in the compliance calculation. Commenters stated that under a mass based limi t, the new EGU would not be included as an affected EGU in the compliance calculation. However, c ommenters added, the tons emitted by affected EGUs would be reduced by an amount equal to the product of the amount the new EGU emission rate fell below its se ction 111(b) based performance standard and the generation of the new EGU during the compliance period.

Several commenters recommended the EPA allow states to use emission reductions achieved by new units under section 111(b) towards compliance with the section 111(d). Commenter s noted that EPA should make clear that states are free to find and use other similar incremental emission reductions, in addition to the example provided by EPA regarding the installation of CCS on page 34,924 of the propos al

.
Com menter s stated that they agree with the proposed compliance measure of using NGCC generators to comply with existing source standards.

Commenter s stated that GHG reductions from new plants covered under 111(b) that are reduced below emissions limits would be creditable towards reductions required for 111(d) plants.230 Comment 3 : Comments suggesting l ack of coordinated implementation on whether to include new generating units could distort electricity markets

. Response 3: In mass

- based states, there is a requirement for state plans to demonstrate how the state is going to address concerns regarding potential increased emissions from new NGCC units as a result of shifting generation from affected to non

- affected sources (i.e., Leakage). States with mass

- based emission standards have several options or pathways to address new sources and the potential for emission leakage. See s ection VII.C and VIII. J of the final rule preamble of the CPP . However, n ew NGCC units are not covered by section 111(d) requirements.

New NGCC units are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans under a rate

- based emission standard app roach. Permitting new NGCC generation to qualify for ERCs would provide an incentive to shift generation from affected to non

- affected sources (i.e., leakage). See s ection VII.C and VIII.K of the final rule preamble of the CPP

.

Bec a use the EPA is taking st eps to address the potential for leakage in mass

- and rate

- based states, we do not believe new generating capa city will result in a distortion of the markets.

The following is a summary of this specific public comment:

Commenter s said that the states' disc retion as to whether to include new generating units in their implementation plans could exacerbate market distortions, including between new and existing natural gas combined cycle (NGCC) units. Commenters indicated that states will have an incentive to e ither include or exclude new sources in their target depending on their rate goal relative to EPA's GHG standard for new generating units.

Comment 4 : Comments suggesting s tates should count only net emission reductions from new
sources to wards 111(d) comp liance.
Response 4: New NGCC units are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans under a rate

- based emission standard approach. Permitting new NGCC generation to qualify for ERCs would provide an incentive to shift generation from affected to non

- affected sources (i.e., leakage). See s ection VII.C and VIII.K of the final rule preamble of the CPP

.

In mass

- based states, there is a re quirement for state plans to demonstrate how the state is going to address concerns regarding potential increased emissions from new NGCC units as a result of shifting generation from affected to non

- affected sources (i.e., Leakage). The EPA is giving

mass

- based states several pathways to address new sources and potential leakage. See s ection VII.C and VIII. J of the final rule preamble

. The following is a summary of this specific public comment:

Commenter s stated EPA should only permit states to count net c arbon emission reductions from new carbon

- emitting generation toward Section 111(d) compliance in order to prevent over

counting of emission reductions. Commenters indicated that states may choose to build new231 natural gas plants, convert existing coal plan ts to natural gas facilities, or increase the capacity utilization of existing natural gas facilities to comply with state targets, and that while this new generation may displace power from higher carbon

- intensive sources, new carbon emissions will also b e created. Commenters indicated that emissions from new sources must be factored in, otherwise net emission reductions may not be accurate. Commenters also said failing to account for emissions from new sources could create a perverse incentive to replace existing generation with equally carbon

- intensive new generation, resulting in significant costs, but no actual reduction in carbon emissions, and potentially causing an increa se in net emissions over time.

Comment 5 : Comments suggesting that the EPA should credit total emission reductions not incremental reductions from new low

- or zero

- carbon sources

. Response 5: Only measures installed after 2012 are eligible emission reduction measures in rate

based emission standard state plans. See sections V.A. and V.E. on the BSER and Building Block 3, and section VIII. K of the final rule preamble of the CPP on g eneral eligibility requirements for resources used to adjust a CO 2 emission rate

.

New fossil fuel

- fired units (i.e., NGCC and IGCC with CCS) are not all owed to be used to adjust CO 2 emission rates at affected EGUs in state plans under a rate

- based emission standard approach. Permitting new fossil generation to qualify for ERCs would provide an incentive to shift generation from affected to non

- affected so urces (i.e., leakage). See s ection VII.C and VIII.K of the final rule preamble of the CPP

. Existing EGUs that retrofit CCS capacity are allowable measures, assuming they do not become modified or reconstructed units under section 111(b). See s ection VIII.I of the final rule preamble of the CPP

. The following is a summary of this specific public comment:

Commenter s supporte d being able to use new generation sources as a compliance option, however c ommenters w ere concerned that the treatment of CCS as a compl iance option is treated less favorably than other types of new generation. Commenters said that it appears that new renewable energy generators would be allowed to fully count their emission reductions towards compliance with the existing source rule, but that not all other new zero

- or low

- emitting generation technologies are granted similar treatment. Commenters indicated that allowing only the incremental emission reductions that are below the new source limits from new fossil fuel

fired generating units that incorporate CCS to count towards compliance is confusing and could discount the substantial emissions reductions that CCS project could deliver relative to uncontrolled coal or gas

- fired EGUs. Commenters stated that reductions in CO 2 should be treate d equivalently across all compliance options and that EPA should promote all forms of new, clean generation.

Comment 6 : Comments requesting clarification regarding if mass from new units is added to the

mass

- limit232 Response 6: In mass

- based states, there is a requirement for state plans to demonstrate how the state is going to address concerns regarding potential increased emissions from new fossil fuel

fired units as a result of shifting generation from affected to non

- affected sources (i.e., l eakage). The EPA is giving mass

- based states several pathways to address new sources and potential leakage , one of which is to take an adjusted emission performance standard that takes emissions from new units into account

. See s ection VII .C and VIII. J of the final rule preamble of the CPP

. The following is a summary of this specific public comment:

Commenter s asked if in the event that EPA chooses to include new units in the section 111(d)
program whether the mass the state is all owed to e mit will be increased by the amount the new unit would be allowed to emit under the NSPS

.

Comment 7 : Comments requesting clarification on h ow new units built after the effective date

are treated for compliance purposes

Response 7 : It depends on the type of state plan approach. New NGCC units are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans under a rate

- based emission standard approach. Permitting new NGCC generation to qualify for ERCs would pr ovide an incentive to shift generation from affected to non

- affected sources (i.e., leakage). See s ection VII.C and VIII.K of the final rule preamble of the CPP

.

In mass

- based states, there is a requirement for state plans to demonstrate how the state is g oing to address concerns regarding potential increased emissions from new NGCC units as a result of shifting generation from affected to non

- affected sources (i.e., Leakage). The EPA is giving

mass

- based states several pathways to address new sources and p otential leakage. See s ection VII.C and VIII. J of the final rule preamble of the CPP

. The following is a summary of this specific public comment:

Commenter s asked for clarification on when, if ever, NGCC units built after the effective date of the 111(d) r ule would be subject to 111(d) instead of 111(b), and how emissions from those unit s would be treated for compliance purposes.

Comment 8 : Comments requesting clarification on how new fossil

- fuel plants, new NGCC plants and nuclear generation are factored into compliance

Response 8 : New NGCC units are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans under a rate

- based emission standard approach. Permitting new NGCC generation to qualify for ERCs would provide an incentive to shift generation from affected to non

- affected sources (i.e., leakage). See s ection VII.C and VIII.K of the final rule preamble of the CPP

.233 In mass

- based states, there is a requirement for state plans to demonstrate how the state is going
to address concerns regarding potential increased emissions from new NGCC units as a result of shifting generation from affected to non

- affected sources (i.e., Leakage). The EPA is giving

mass

- based states several pathways to address new sources and potentia l leakage. See s ection VII.C and VIII. J of the final rule preamble of the CPP

. Nuclear capacity installed after 2012 (i.e., new, uprated, and under construction capacity) is considered an eligible measure. See section VIII. K of the final rule preamble of the CPP for how incremental generation from new and uprated nuclear power is addressed in relation to other sources and as approvable measure to include in rate

- based state plans.

The following is a summary of this specific public comment:

Commenter s asked if actions at new fossil

- fuel plants could be credited towards compliance. Commenters asked specifically if new NGCC or nuclear generation could be a dded to average down the emission from coal

- fired plants.

Comment 9 : Com ments requesting clarification on if new EGU generation is included in 2030 generation estimates

. Response 9 : The modeling of 2030 electricity generation does include new EGUs needed to meet increasing demand. Generation and CO 2 emissions from new EGUs that are not covered under CAA section 111(d) are not included in the state goal calculations. For more details on state goal calculations see section VI and VII of the final rule preamble of the CPP

. The following is a summary of this specific public comment:

Commenter s asked if in estimating the 2030 generation whether states may subtract generation from new fossil fuel EGUs that are planned to go on

- line after 2020.

Comment 10 : Comments requesting clarification on h ow to set the mass goal if new sources are included in compliance plans

. Response 10 : In mass

- based states, there is a requirement for state plans to demonstrate how the state is going to address concerns regarding potential increased emissions from new NGCC units

as a result of shifting generation from affected to non

- affected sources (i.e., Leakage). The EPA is giving mass

- based states several pathways to address new sources and potential leakage, one of which is to take an adjusted emission performance standard that takes emissions from new units into account. See s ection VII.C and VIII.J of the final rule preamble of the CPP

. The following is a summary of this specific public comment:234 Commenter s stat ed that if EPA allows new generators to be included in compliance plans, EPA would add projected generation from those sources into generation from affected EGUs, which is multiplied by the rate goal to get the mass goal

. Commenters indicated that total emissions and cost consequences of including new generators are not known ex

- ante, since they depend upon whether states adopt rate or mass goals. Commenters also indicated that new natural gas combined

- cycle and nuclear genera tors are particularly important.

Comment 11 : Comments suggesting that new units subject to 111(d) that outperform NSPS targets should be allowed to use the margin over compliance to satisfy emission rate targets.

Response 11 : The EPA disagrees with the commenter that emission reductions from n ew (or modified or reconstructed) EGUs may be used as measures under the emission guidelines. New units are covered under the CAA section 111(b) final Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units rule, which we are finalizing concurrently with this rulemaking. A key concern under the final emission guidelines for existing sources is leakage to new units that are not covered by the emission guidelines. Emissions leakage, or increased CO 2 emissions due to increased utilization of unaffected sources, is contradictory to objectives of this rule and should, therefore, be minimized. Allowing affected EGUs to adjust their emission rates as a result of lower

- emitting new NGCC units not covered u nder this section 111(d) rule would not mitigate leakage concerns, and could even exacerbate the situation. Consequently, new EGUs covered under the CAA section 111(b) rule are not allowable measures in state plans because the EPA believes it would result in increased emission leakage. See Section VIII.K.1.b of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this c omment:

Commenters argued that new units subject to 111(d) that outperform NSPS targets sho uld be allowed to use the margin over compliance to satisfy existing unit emission rate compliance targets.

Comment 12 : The commenters stated that EPA needs to provide a clear timeline for when new gas plants will become part of the existing fleet for pur poses of 111(d) compliance.
The following are summaries of the specific public comments under this comment:
The commenters stated that providing a clear timeline for when new gas plants will become part of the existing fleet for purposes of 111(d) complia nce (assuming not accounted for in the target and compliance initially) is critical to utility resource decisions in the near term. The commenters stated that utilities and stakeholders need to have as much clarity as possible about the potential carbon re gulatory implications of adding new gas generation. The commenters noted that certainty that new gas will become subject to carbon constraints in the future will help utilities235 and stakeholders work together to use diverse supply and demand

-- side resources to produce a clean and reliable electric system.
Response 12 : New fossil fuel

- fired units are covered under the CAA section 111(b) final Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units r ule, which we are finalizing co ncurrently with this rulemaking . New NGCC units are not affected EGUs under this CAA section 111(d) final rule. For the EPA's response to this comment see section V.A and V.D of the final rule preamble of the CPP. For

more on standards for new fossil fuel

- fired EGUs see the final section 111(b) rule for New Sources.236 5.11 CONSIDERATION O F A FACILITY'S " REMAINING USEFUL LIF E

" IN APPLYING STANDARDS O F PERFORMANCE

This section discusses comments on the way in which the emission guidelines address the CAA section 111(d)(1) provision to consider a facility's Remaining Useful Life and " other factors " in promulgating section 111(d) regulations.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments requesting that states be required to analyze the remaining useful life of

e ach existing source , and that the EPA consider recent pollution investments in analyzing remaining useful life

.
Response 1: The EPA has structured the guidelines to enable states to consider remaining useful life and other factors in designing their state plans and EGU emission standards.

Regarding the suggestion that the EPA require the state to demonstrate that it has analyzed the remaining useful life of each EGU, the EPA does not believe that section 111(d) authorizes EPA to issue such a mandate. The statute merely requires EPA’s guidelines to allow for state consideration of remaining useful life in regulating under section 111(d) In this respect, compare the language of 111(d)(1) (“ permit the State” to consider remaining useful life) with 111(d)(2) (“Administrator shall ” consider remaining useful life). In addition, section 116 of the Act allows states to impose more stringent requirements on affected EGUs than the minimum requirements of these guidelines, even after considering remaining useful life

. However, the EPA anticipates that sources and states will discuss such issues in the context of plan development.

See section VIII.G .1 of the final rule preamble of the CPP for additional EPA response to this
comment.
In regard to comments that the EPA i tself should factor into the remaining useful life analysis recent investments in pollution controls that EGUs have made to comply with EPA rules , the EPA observes that section 111(d) calls for the EPA’s guidelines to permit states to consider remaining us eful life. The law would require the EPA to consider remaining useful life of sources in promulgating a federal plan to achieve the required emission reductions in the event that a state failed to submit an approvable plan; however, a federal plan is not p art of this regulatory action

. The following are summaries of the specific public comments under t his comment:

Commenter s indicated that recent regulations with near

- time deadlines, such as the Regional Haze and MATS Rules, have spurred electricity genera tors to make difficult decisions on whether to install controls or retire units, and that EPA should respect those decisions and factor the underlying agreements and significant expenditures triggered by other regulations into the237 remaining useful life ana lysis. Several commenters suggested that the following regulatory language be added as a fifth provision to 40 CFR section 60.5740(11), " supporting material " to include " materials demonstrating the state's analysis of the remaining useful life of the existing source to which such standard applies." Commenter s indicated that this language would address situations where affected EGUs have made recent emission control retrofits or have significant remaining book life to minimize costs to customers while c ontinuing to structure plans that meet EPA's 2030 emission targets.

Comment 2: Comments suggesting the EPA must uphold the authority and flexibility to consider remaining useful life, and the p roposal does not properly provide for consideration of remaining useful life.

Response 2 : The EPA agrees that the law requires the EPA’s guidelines to permit state in applying a standard of performance to any particular source under a section 111(d) plan to take into consideration, among other factors, the re maining useful life of the source to which the standard applies. The final guidelines meet this requirement as expl ained in preamble section VIII.G .1. and the legal memorandum

The following are summaries of the specific public comments under this comment:

Commenters i ndicated that EPA must uphold the authority and flexibility of CAA section 111(d) that allows state plans to consider the remaining useful life of the existing source, that the proposal did not do so, and/or that the rule is structured in a way that prevents consideration of remaining useful life.

Comment 3 : Comments suggesting that the p roposal does not allow states to adjust performance standards to account for source

- specific circumstances consistent with section 111(d).

Response 3 : The EPA disagrees with the thrust of this comment, which was to argue that the statute does not permit the EPA to require states to achieve the goals. In fact, the statute merely says that EPA’s regulations shall permit states to take into consideration, a mong other factors, remaining useful life when applying standards of performance to any particular existing source. These emission guidelines satisfy that requirement, as detailed in the final rule preamble section VIII.G.1.

The following are summaries of the specific public comments under this comment:

Commenters noted that the inherent flexibility in section 111(d) allows states to evaluate the viability of control technologies on a case

- b y

- case basis and consider other factors such that states could stri ke an appropriate balance between emission reductions and the economic interests of regulated facilities, their investors, and their customers by adjusting the generall y applicable standards of performance to account for source

- specific circumstances.238 Com ment 4 : Comments suggesting that s tates should be allowed to consider remaining useful life in setting performance standards and provide relief for EGUs from the state goals.

Response 4 : These comments are addressed in final rule preamble section VIII.G.1 and the legal memorandum

.
The EPA adds that, contrary to commenters ’ assertion s , the EPA did not propose to bar states from considering remaining useful life on grounds that BSER already allows for its consideration. The EPA has revised the goals since pr oposal and believes that they are achievable.

The following are summaries of the specific public comments under this comment:

Commenters said that a meaningful consideration of remaining useful life requires that EPA provid e relief for EGUs from the state performance goals

, that states are authorized by the CAA to make these types of decisions, and that EPA is ignoring the requirement that states be allowed to consider remaining useful life. Commenter s said that th e approach of imposing very strict state g oals negates meaningful consideration of remaining useful life. Commenter s said the approach of not allowing states to consider remaining useful life in setting standards of performance, because the BSER a lready allows for consideration of remaining useful life

, contradicts the plain language of the CAA and is unsupportable both on a legal and policy basis.

Comment 5 : Comments suggesting that s tate authority to evaluate remaining useful life allows deviation from the emission guidelines.
Response 5 : The EP A understands that the law requires the EPA’s guidelines to permit a state, in applying a standard of performance to any particular source under a section 111(d) plan, to take into consideration, among other factors, the remaining useful life of the source to which the standard applies. The final guidelines meet this requirement as explained in final rule preamble section VIII.G.1. Subsection (d) of that preamble section explains why remaining useful life and other facility

- specific factors do not warrant a djustments in the guidelines’ performance rates and state goals. Commenters misstate the language and structure of section 111(d)(1) and the Act. First, section 111(d)(1) (unlike section 111(d)(2)) does not state that remaining useful life must be taken in to account. Second, section 111(d)(1) does not provide direct authority to states to taken into consideration remaining useful life in any way that states wish. Third, EPA is not usurping state authority; instead EPA is promulgating emission guidelines und er which states submit state plans, and these guidelines permit states to take into consideration remaining useful life. Finally, the notion that EPA cannot disapprove a state plan that fails to meet the requirements of these guidelines because of some sup posed reservation of state authority is inconsistent with the structure of the Act and (for example) recent case law regarding EPA action on regional haze SIPs, as detailed in the legal memorandum.

The following are summaries of the specific public commen ts under this comment:239 Commenters stated that th e law is clear that the remaining useful life of EGUs must be taken into account. Commenters indicated that state authority to evaluate the remaining useful life cannot be usurped

. Commenter s stated that EPA cannot mandat e that it will reject a state plan that deviates from the emission guidelines when it exercises its statutory authority to account for remaining useful life

Comment 6 : Comments suggesting that s tates may set a less stringent standard thro ugh consideration of remaining useful life

- proposal is inconsistent with the statute.

Response 6 : The EPA understands that the law requires the EPA’s guidelines to permit a state, in applying a standard of performance to any particular source under a section 111(d) plan, to take into consideration, among other factors, the remaining useful life of the source to which the standard applies. The final guidelines meet this requirement as explained in final rule preamble section VIII.G.1. and the Legal Memo randum. The EPA agrees that a state may choose to provide a less stringent emission standard, otherwise modify, or postpone emissions standards for an individual facility so long as the state’s plan meets the requirements of this guideline. EPA’s guideline does not dictate that a state require any particular plant to reduce operations.

The following are summaries of the specific public comments under this comment:
Commenters argued that the CAA gives states specific authority to take into account the remain ing useful life of existing units, and quoted the following sentence from the CAA: "when applying a standard of performance to any particular source under a plan submitted... to take into consideration, among other factors, the remaining useful life of the existing source to which such standard applies." Commenters argued that the CAA does not limit states to providing less stringent standards to plants that only have a few years left to operate but also allows states to modify or postpone regulation of CO 2 for plants that have long operating lives remaining or where applying the standards would result in an expensive, unwarranted plant closure that could compromise electric reliability and result in far higher consumer costs. Commenters stated that forcing plants with useful remaining operating lives to reduce operations, even to the point of becoming uneconomical or closing, is completely contrary to the statutory requirement that directs the EPA to take into account "the remaining useful lives of the sourc es in the category of sources to which such standard applies." Commenters stated that section 111(d)(2) also directs that the EPA procedural regulations "shall permit the state" to take "other factors" into account in addition to remaining useful life. Com menters stated that the EPA has inappropriately eliminated the statutory authority allowing states to take important factors into account concerning specific plant conditions in developing the state plan.

Comment 7 : Comments suggesting that states could consider "remaining useful life" consistent with the statute if allowed to establish their own emission standards.240 Response 7 : The guidelines provide states the flexibility to establish their own emissions standards for EGUs and to alter the requirements a nd timing among different EGUs.

The following is a summary of this specific public comment:
Commenters indicated that states could exercise their statutory obligation to consider " remaining useful life " if they are allowed to establish their own performanc e standards and compliance schedules.

Comment 8 : Comments suggesting that the EPA does not have the statutory authority to deem the consideration of remaining useful life unnecessary.

Response 8 : Commenters misconstrued the intended meaning of the statem ent in the proposal preamble. Section VIII.G.1 of the final rule preamble, especially subsection (c), explains how the guidelines permit states to consider remaining useful life and other factors in applying standards of performance to individual facilitie s in their state plans.

The following is a summary of this specific public comment:
With regard to the preamble language at 79 FR 34,925 that indicates that "the flexibility provided in the state plan development process adequately allows for consideratio n of the remaining useful life. . . and, therefore. . .separate application of the . . . provision by states in the course of developing and implementing their CAA section 111(d) plans is unnecessary" commenters stated that EPA does not have the statutory authority to deem this consideration

" unnecessary ."

Comment 9 : Comments suggesting t he different approach of these guidelines does not allow the EPA to alter state authority to account for remaining useful life.
Response 9 : The EPA believes that these c ommenters ’ statements do not accurately reflect the final guideline. The final guideline permits states to consider remaining useful life in applying emissions standards to individual EGUs as they design their state plans, as explained in final rule preamb le section VIII.G.1. The EPA believes that the flexible approach taken in this guideline enables states to consider remaining useful life in ways that are not available when the EPA guideline establishes presumptive emissions standards for individual sourc es, and that therefore the EPA is finalizing its proposal that the provisions in 60.24(f) should not apply to the class of facilities covered by these guidelines, as explained in final rule preamble section VIII.G.1 and the legal memorandum

. The following are summaries of the specific public comments under this comment:

Commenters disagreed with EPA that the different nature of these emission guid elines from the usual presumptive standards allows EPA to alter state authority to account for remaining useful241 life

. Commenters stated that the CAA provides EPA with no discretion to limit or prohibit states from taking remaining useful life and other factors into account in applying a standard of performance to individual sources.

Comment 10 : Comments suggesting s ource

- specific remaining useful life determinations from governing boards should be considered.

Response 10 : NO RESPONSE HAS BEEN DEVELOPED AT THIS TIME These comments are addressed in final rule preamble section VIII.G.1 and the legal memorandum.
The EPA adds that, contrary to commenters’ assertions, the EPA did not propose to bar states from considering remaining useful life on grounds that BSER already allows for its consideration. The EPA has revised the goals since proposal and believes that th ey are achievable.
The following are summaries of the specific public comments under this comment:

Several commenters indicated that state and board utility regulatory commission determinations on remaining useful life should be discussed in the regulatory text and included as supporting information in the final rule. Commenters indicated that while the 1975 rule language could apply to older units, the remaining useful life of the newer units (such as those that incorporated BACT) should be analyzed indivi dually by state plans. Commenters indicated that without recognition and discussion of unit

- specific analysis in the EPA rule, prior determinations of remaining useful life and prior economic decision on electricity rates could be ignored, which could lead to unintended consequences, including stranded assets. Commenters said that state utility regulatory commission or FERC hearings on stranded assets may result.

Comment 11 : Comments suggesting the p roposal satisfies the remaining useful life provision.

Response 11 : We agree with the commenter. Please see final rule preamble section VIII.G.1 for a detailed discussion of how the flexibilities in this rule permit states to take into consideration remaining useful life without relaxing state emission goals.
The following are summaries of the specific public comments under this comment:
Commenters indicated that the proposal satisfies the " remaining useful life " provision, and that it is appropriate for the " remaining useful life " to be considered as states de sign their plans and their demonstration of performance standard achievability. Commenters stated that the statute does not require that states have discretion to relax state emission goals. Commenters explained that the average state emission targets and flexible compliance options enable states to adjust for

source

- specific circumstances and fulfill the " remaining useful life " provision in a manner consistent with their " best system of emission reduction " analysis.242 Comment 12 : Examples of regulatory opti ons to address remaining useful life, including market

- based systems and averaging programs.

Response 12 : The EPA agrees that averaging and trading programs, and legally enforceable retirement dates at the end of a plant’s useful life, are examples of regulatory mechanisms that can help avoid unreasonable costs for EGUs with a limited remaining useful life.

T he following are summaries of the specific public comments under this comment:

Several regulatory options that address " remaining useful life " were suggested by commenters. Commenters stated that market

- based or averaging programs were recommended since th ese programs allow older, inefficient facilities to choose to operate for several years and comply through the purchase of allowances or through averaging with more efficient facilities. Commenters stated that a declining system

- wide cap on emissions to th e level of a new plant was suggested for states that use a system

- wide mass

- based approach, whereby market signals would determine whether aging systems actually retire or whether the required emission reductions are achieved from other plants that reduce their generation.

The use of legally enforceable retirement dates that precede the end of the compliance period was suggested by several commenters. Commenters provided examples of coal plant retirement commitments in Regional Haze plans for Washington, Oregon, and Wyoming. Commenters indicated that these types of commitments should be allowed to achieve section 111(d) 2030 goals. Commenters also noted that EPA has allowed regulated units to use retirement as a compliance tool in NPDES.

Comment 13 : Comm ents suggesting that requiring compensating emission reductions is improper.

Response 13: The EPA disagrees with commenters’ characterization of the guidelines. These comments are addressed by section VIII.G.1 of the final rule preamble, particularly subs ection (e) titled “ Response to key comments on remaining useful life .”

The following are summaries of the specific public comments under this comment:

Commenters indicated that extracting further emissio n reductions from other sources to make up for the le ss stringent standards applied as a result of " remaining useful life " considerations is inconsistent with section 111(d). Commenter s indicated that transferring a facility's emission reduction bur den to another facility or requiring the reductions through external measures is impermissible. Commenter s indicated that EPA has no authority to hold other sources to a standard that is " better than BSER " because of EPA's interpretation of how to a ccount for remaining useful life.

Several commenters indicated tha t addressing any adjustments to a particular facility's requirements with "compensating emission reductions" is unprecedented, an improper restraint under s ection 111(d), and commenters said that EPA cited no legal authority to allow for this243 deviation fro m its established framework. Commenters stated that Congress intended the consideration of remaining useful lif e to be undertaken with respect to the specific circumstances of individual sources, not a balancing exercise relating to the overall emissions reductions from a source category. Commenters noted that EPA allows states to utilize variances for individual sources, but not to "compensate" for such adjustments through tighter restrictions on other sources. Both commenters quoted language that focuses on individual units from 60.24(f) and preamble language in support of the ir position.

Commenters indicated that requiring a state to identify and impose additional obligations on another source beyond those required by the best system of emission reductio n is unlawful. C ommenter s indicated that the consideration of remaining useful life and other relevant factors is

a one

- way ratchet that provides relief to sources that cannot achieve BSER, and that EPA turns that approach on its head by prohibiting a stat e from providing such relief to a specific facility unless it can identify another facility to "punish" by requiring additional emission reductions to offset that relief.

Comment 14: Comments express ed c oncerns that proposed state goals did not provide st ates with sufficient flexibility to allow for compensating emission reductions.
Response 14: In response to public comments, the EPA revised its approach to BSER and goal

setting in the final rule, as explained in final rule preamble sections V through VII

. These changes will ensure that EGU performance rates and state goals are achievable considering cost. A more detailed response to concern s that states would not have adequate flexibility in practice to consider remaining useful life, and stranded assets

, is included in final rule preamble section VIII.G.1 , the legal memorandum, and the July 2015 docket memo titled “ Stranded assets analysis .”
The following are summaries of the specific public comments under this comment:
Commenters indicated that extracting emission reductions from or over

- controlling other EGUs or other entities assumes there is enough room within each state's goal to make such accommodations. Commenters provided more specific examples:

• Commenters state d that the emission rates for Virginia are set so low that compliance options are extremely limited, and that Virginia is unable to take advantage of the 10

- year averaging flexibility for the Interim Mandatory Goal.

• Commenters stated that even if all the building blocks were successfully implemented to the fullest extent in the commenter's service territory, the commenter's CO 2 emission rate could not meet the proposed limit. Commenters indicated the entire state of Florida could not meet the limit utilizi ng the currently existing affected sources.

• Commenters said that because the state of Arizona must re

- dispatch all of its coal

fired generation under building block 2 to comply with the state's interim goal, the state actually has no flexibility to consid er the remaining useful lives of Arizona's244 coal

- fired fleet. Commenters stated that EPA's application of its building blocks and BSER to Arizona leaves insufficient room for the state to make any accommodations to consider the remaining useful life factor.

• Commenters said that as a consequence of EPA's flawed assumption that all emission reductions from Building Blocks 1 and 2 could be achieved at the start of the 10

- year interim compliance period, almost all of the emission reductions that the rule ultimat ely requires must be achieved in the first year, which leaves Pennsylvania with little or no flexibility other than to rely on coal unit closures.

• Commenters said that the severity and early onset of emission reductions leave Oklahoma with no flexibility f or implementing a portfolio of compliance options, and that Oklahoma will be forced to prematurely close coal

- fired generating
assets.
Commenters stated that even if the emission reduction targets in individual building blocks can be achieved in the abstra ct, there is no guarantee that they can be met in the aggregate, particularly with any significant margin for error.

Several commenters stated that the flexibility EPA grants the states to take into remaining useful life is illusory. Commenters noted that only a small fraction of the reductions presume that coal units continue to operate at present levels through their useful lives, and that the reductions from Building Blocks 2

- 4 come from substituting gas, renewable energy, nuclear energy, and energy effi ciency for the output from the shutdown coal EGUs. Commenters stated that in practice, any meaningful consideration of remaining useful life would cause a state to miss its EPA

- mandated emission reduction target. Commenters stated that the four building bl ocks are so stringent that they leave states with very little leeway to depart from the basic design set out be EPA.

Commenters also indicated that the flexibility EPA claims to give the states is nonexistent, and
commenters noted that as a result, EPA's p osition that states need not deviate from the standards based on remaining useful life is unfounded. Commenters stated that the proposal does not provide states with a "range of options," that there is no flexibility in EPA's BSER, that there are no other options, and that each building block is so strict and burdensome that it does not provide states the ability to trade between requirements. Commenters stated that by using the building block system the CPP has restricted the flexibility of the states to a ddress remaining useful life.

Commenters stated that some states will not be able to cut enough emissions to reach EPA's mandates, and that they should be allowed to maximize existing resources without fear of stranding any investments.

Comment 15 : Commen ts stating the proposal was u nclear how remaining useful life was taken into account in setting emission rates.

Response 15 : The EPA’s definition of BSER and method for establishing EGU performance rates and state goals are described in preamble sections V through VII

. T he EPA structured the245 guidelines to enable states , in designing their state plans, to consider remaining useful life of individual units in applying standards of performance to individual EGUs , as explained in final rule preamble section VII I.G .1. and the legal memorandum. The EPA affirms states’ ability to include non

- BSER measures in final rule preamble section s V.A.1 and V.A.6 , as well as in the preamble discussion of remaining useful life in section VIII.G.1

.
Commenters recommended that i n establishing measures that will result in the closure or displacement of existing coal

- fired EGUs, EPA must consider the remaining useful lives of those sources in compliance with section 111(d).

The following are summaries of the specific public comment s under this comment:

Commenter s indicated that the proposed rule did not provide adequate detail on how state emission rates were set taking into account the remaining useful life of a generating unit , and requested that the final rule include a clear opt ion for states to take the remaining useful life of a unit into consideration when establis hing state plans . Commenter s requested that EPA affirm states' ability to include non

- BSER measures in compliance plans

.

Comment 16 : Comments suggesting c oal plant retirements will force rate payers to pay for the remaining life of a retiring plant and a replacement plant.

Response 16 : In response to public comments, the EPA revised its approach to BSER and goal

setting in the final rule, as explained in pr eamble sections V through VII. These changes will ensure that the EGU performance rates and state goals are achievable considering cost . See also final rule preamble section VIII.G.1 and the legal memorandum, which reference a July 2015 docket memo titled “Stranded assets analysis.” The analysis shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of capital

- intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state with sufficient flexibility to address stranded asset concerns.

The following are summaries of th e specific public comments under this comment:

Commenters estimated that at least 90% of their States coal

- based electric generating capacity will retire and rate payers will be forced to pay for the life that was remaining and for the replacement plant.

Comment 17 : Comments suggesting s tates may establish a standard that is different than BSER based on remaining useful life

- proposal inconsistent with statute.

Response 17 : The EPA disagrees with the commenter

. As explained in section VIII.G.1 of the fin al rule preamble, these guidelines differ from previous ones that set individual source246 emission limits and allowed those limits to be relaxed on a case

- by

- case basis. However, the statute does not

— contrary to commenter’s suggestion

— explicitly require that states be permitted to relax limits as the means for taking into account remaining useful life. Instead, it says that the guidelines must permit states, in applying standards of performance, to take into consideration remaining useful life. We note that, even under the uniform rates, the possibility of trading does give relief to sources based on their remaining useful life. For additional detail, see final rule preamble section VIII.G.1 and the legal memorandum.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA has failed to consider the CAA requirement that states are charged with developing a standard of performance, taking into account remaining useful life, for their individual units based on EPA's BSER determina tion. Commenters stated that when establishing a technology requirement through BSER, EPA must assure it is technically and economically achievable, and in turn states are afforded the ability to consider factors associated with remaini ng useful life, and when necessary establish a standard of performance that is achievable but different than the BSER. Several commenters indicated that states should be allowed to adjust the standard for an individual unit, rather than an ave rage across a ll units , to account for remaining useful life.

Commenter s said that EPA's proposed approach in addressing remaining useful life clearly violates the statute and indicated that EPA has overstepped its authority under section 111(d) sin ce building blocks 2

- 4 do not constitute a system of emission reduction that can be applied to, implemented at, or undertaken by EGUs . Commenters said that the CAA explicitly requires a different kind of flexibility for remaining useful life that the proposed rule does not i ncorporated. Commenters said that the problem with EPA's proposed rule is that section 111(d) requires states to apply standards of performance for affected sources to affected sources on a source

- by

- source basis, with the possibility of relief based on so urce

- specific factors.

Comment 18 : Comments suggesting the EPA's reasoning that states can rely on the proposed rules' general flexibility is flawed and results in stranded investments.

Response 18 : The EPA is not relying on the inherent flexibility of th e guidelines as a substitute for the requirement that states fully consider remaining useful life; the EPA is stating that the flexibility of the guidelines enables states to consider remaining useful life in designing their plans

. Section VIII.G.1 of the final rule preamble of the CPP and the legal memorandum explain how the guidelines permit states to consider remaining useful life

. These documents also demonstrate that the CO 2 performance rates and state goals in the final emission guidelines leave
state s the flexibility in practice to consider remaining useful life , as well as the potential for stranded assets . See EPA’s July 15 memorandum titled “ Stranded Assets Analysis ,” which shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of capital

- intensive po llution control retrofits247 installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state with sufficient flexibility to address stranded asset concerns.

The following are summaries of the specific public comments under this co mment:
Several commenters stated that EPA cannot rely on the " inherent flexibility " in the proposal as a substitute for the requirement that states fully consider remaining useful life.

Commenters stated that EPA's assertion that failure of the rule to dev elop a remaining useful life provision can be addressed by states through the proposed rule's general flexibility is flawed because it does not allow any variation of performance standards when a state's emission standards would force the retirement of a r esource 10 or 20 years before the end of its remaining useful life, thus stranding huge investments.

Comment 19: General comments regarding forced retirements and lost investments that would result, and inconsistency with the 20 year cost effectiveness ti meframe used in other CAA
programs.

Response 19: In response to public comments, the EPA significantly revised its approach to BSER and goal

- setting in the final rule, as explained in preamble sections V through VII. These changes will ensure that EGU perf ormance rates and state goals are achievable considering cost. A more detailed response to the concern that states would not have adequate flexibility in practice to consider remaining useful life , or stranded assets, is included in final rule preamble

sec tion VIII.G.1 and the legal memorandum

. See also the July 2015 docket memorandum titled “Stranded assets analysis.” The analysis shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of capital

intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state with suff icient flexibility to address stranded asset concerns.

The following are summaries of the specific public comments under this comment:
Commenters expressed concern that recent investments in control equipment for CAA requirements will not be recovered befo re the units are shut down. Commenters indicated that EPA did not address the "remaining useful life" associated with early retirements of coal resources that will result from interim goals, and stated that interim goals need to allow a state to ensure the useful life of those investments. Commenters stated that in order to meet building block 2 emission reductions, numerous coal

- fired EGUs will have to be retired at a high cost and before the completion of their remaining useful life.

Commenters stated tha t stranded assets or stranded investments are precisely the types of factors that Congress expected states to be able to consider in determining what standard of performance to apply to each specific facility, but that the proposed rule deprives states of that ability.248 Commenters stated that the inability to adjust performance standards to account for remaining useful life will impose hardships and result in premature closures of coal

- fired EGUs. Commenters indicated that for facilities that would otherwis e retire during the interim compliance period or shortly after the final standards of performance take effect, it may not be economical to impose significant heat rate improvements.
Commenters noted their investment of approximately $3.5 billion to upgrad e existing units and stated that EPA did not account for the loss of these assets nor their potential impact on customer rates. Commenters stated that EPA must address these costs and allow states the latitude to design programs that do not result in the c onfiscation of assets or prematurely force retirements. Commenters said that EPA did not explain how it can override the discretion Congress vested in the states to avoid such adverse economic impacts. Commenters also stated that EPA has not discretion to deviate from the clear statutory terms.

Commenters noted that cost effectiveness of controls in EPA programs such as MATS and best available retrofit technology (BART) are based on operation of emission units at a high capacity factor over twenty

- year, or longer, useful life estimates, yet in many instances compliance with the proposed emission guidelines will require shutdown of coal

- fired units in much shorter timeframes.

Several commenters stated that EPA has failed to adequately consider the impacts of forced closures well before the end of their remaining useful life, and the associated impacts on consumers, and the economy of stranded asset costs and electric reliability issues. Commenters stated that EPA's presumption that the issue of remaining usef ul life will arise infrequently is inaccurate primarily because EPA focuses on capital investments late in the useful life and fails to consider stranded assets. Commenters indicated that most coal

- fired retirements will need to take place at the beginning of 2020 and will have more than 10 years of useful life remaining. Commenters stated that stranded costs from early retirement must be included as costs of control that states can consider, and that limiting the states in this manner is arbitrary and capr icious.

Commenters stated that EPA's discussion of remaining useful life is limited to upgrades associated with Block 1 compliance. Commenters stated that the issue is much broader than that, and that the CPP will require premature retirement of coal

- fired generation regardless of whether a company plans to make upgrades to improve heat rates. Commenters indicated that they had spent significant sums to comply with regional haze and MATS rules in reliance on the ability to recover costs, and that the CPP ma y result in stranded capital investments.

Commenters stated that the forced closures and drastic curtailment of operation is in direct contravention of Congress' intent in drafting Section 111(d). Commenters indicated that the costs that would have been r ecorded during the EGU's run life must still be absorbed by the utility's customers. Commenters stated that without revision, the proposed rule will result in stranded costs of approximately $3.8 billion (2020 dollars). Commenters asked that EPA consider t he diminished capital value for merchant generators who have acquired coal

- fired EGUs they lack the right to a constitutionally adequate rate of return.249 Comment 20 : Comments providing specific examples of sources where stranded assets are of

concern.

Resp onse 20 : In response to public comments, the EPA significantly revised its approach to BSER and goal

- setting in the final rule, as explained in final rule preamble sections V through VII. These changes will ensure that EGU performance rates and state goals are achievable considering cost. A more detailed response to the concern that states would not have adequate flexibility to consider remaining useful life, in practice, is included in final rule preamble section VIII.G.1. and the legal memorandum See also EPA’s Stranded Assets Analysis Memorandum that shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before t he end of the book life of capital

- intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state with sufficient flexibility to address stranded asset concerns.

The following are summarie s of the specific public comments under this comment:

Commenters provided an example of the Coronado Generating Station in Arizona whose selective catalytic reduction (SCR) emission controls required by BART would operate only about two years before the 20 20 shutdown of all coal

- fired generation in Arizona. Commenters provided further details on the Coronado Generating Station and stated that the recently completed (between 2009 and 2014) air pollution control equipment upgrades on Units 1 and 2 cost approx imately $470 million, and that the bond financings for this project were approximately 30 years with final bond maturity occurring in 2041. Commenters stated that the net book value, as of October 31, 2014 for Coronado Generating Station Units 1 and 2 is $ 630 million. Commenters indicated that the performance standards described in the proposed rule will likely require Coronado to cease operations in 2020.

Commenters also expressed concern about Arizona, and stated that EPA's IPM outputs demonstrate that th e integrated operation of the four building blocks would result in retirement of many additional sources, none of which have reached the end of their remaining useful life. Commenters stated that they own one of the four currently operating units at the Sp ringerville Generating Station in Arizona, and that net book value, as of October 31, 2014 for the unit is $900 million. Commenters stated that the bond financing for construction of Springerville Unit 4, which came on line only five years ago in December 2009 at a cost of $1 billion, was approximately 30 years with final bond maturity occurring in 2038. Commenters stated that EPA acknowledges that the useful life of a coal

- fired unit operating to meet base load demand is 40 years, and accordingly, EPA shou ld expect that Springerville Unit 4 would remain operating as a baseload facility until at least 2049. Commenters also indicated that Springerville Unit 3 came on line in 2006 at a cost of $939 million, and that commenters have a 30

- year power purchase agreement to purchase power from Unit 3 with anticipation that this unit would have a useful life of 40 years. Commenters cited Markal Scenario Analyse s of Technology Options for the Electric Sector: The Impact on Air Quality , U.S. EPA, EPA/600/R

- 06/114 (Sept. 2006) and Documentation for EPA Base Case v.5.13 Using the Integrated Planning Model , U.S. EPA, # 450R13002 (Nov. 2013) in support. Commenters sta ted that this is a significant and unreasonable burden for them.250 Commenters said that Arizona has the sixth youngest coal fleet in the U.S., including two units at the Springerville Generating Station that are less than ten years old. Commenters stated that Arizona's energy infrastructure was developed around base

- load coal plants in the northeastern portion of the state and neighboring states, which took decades to develop and will take a similar amount of time to change.

Commenters n oted that after shutdown of load

- following units in West Virginia in 2013 and 2015, the remaining base

- load EGUs in West Virginia will have considerable remaining useful life.

Commenters said that South Dakota has only one affected EGU as of January 8, 20 14, and that North Dakota and Wyoming, where BART was required, cannot make reasonable adjustments under the proposal. Commenters noted that the Big Stone EGU in South Dakota is installing a $400 million scrubber (for the Regional Haze Program) and is the only coal

- based EGU in the state, so there are no alternative ways to make the reductions required under the proposed rule, forcing a shutdown of the source and resulting in a stranded asset. Commenters said that Big Stone is expected to operate for at lea st another 30 years, and cited South Dakota's Regional Haze SIP (August 18, 2011). Commenters also noted that their ownership share of Big Stone is nearly 28% of its capacity resources, and that the majority of their customers are in North Dakota and rely on Big Stone.

Commenters identified the Laramie River Station with three EGUs in Wyoming with FIP requirements that would require a total investment of $750 million, or $250 million per unit. Commenters stated that the carbon dioxide reductions for Wyoming may require steep reductions in production that would make the units uneconomical to run. Commenters noted that the cost

effectives calculations for all these controls were based on at least 20 years of operation.

Commenters noted that the state of Kansas has spent over three billion dollars on environmental compliance projects for their coal

- fired generators, and the reduction or elimination of their use will result in significant stranded costs to Kansas ratepayers. Commenters stated the EPA should exclu de all of the Kansas coal

- fired generation resources that have undergone environmental retrofits from the CPP to recognize the remaining useful life and eliminate stranded costs. Commenters indicated that utilities in Kansas and Missouri have recently made significant investments in control equipment that could result in stranded cost for customers. Commenters also indicated that additions of transmission assets in Kansas and Missouri to relieve congestion would be similarly impacted by reduced or eliminate d generation.

Commenters indicated that billions of dollars of useful plant life in Virginia and West Virginia are likely to be stranded at a cost to residents and business that is not accounted for by the proposed regu lation. The following coal

- fired powe r plants were identified as being at risk for stranded assets:

• Virginia City Hybrid Energy Center (" VCHEC "), placed in

- service in 2012 at an initial capital cost of $1.8 billion;

• Chesterfield Power Station, scrubbers placed in

- service in 2011 and 2008 at an initial capital cost of $275 million;251 • Clover Power Station, constructed and placed in

- service in 1995 and 1996 at an initial capital cost of $1.2 billion, and with a planned service life of over 50 years;

• Appalachian Power Company's Amos and Mountaine er Power Stations with more than $2 billion in environmental controls from a 2007 Consent Decree including FGD systems for all four units, placed into service between 2007 and 2011;

• Dominion's Mount Storm generating facility with scrubbers and FGD systems.

Commenters noted the premature retirement of two facilities in Nevada would be required: the 522 MW coal

- fired North Valmy Generating Station with units not scheduled for retirement until 2031 and 2025; and the 242 MW pulverized coal

- fired TS Power Plant (TSPP) which is not scheduled for retirement until 2025. Commenters stated that TSPP commenced operations in 2008 and as such is efficient and well controlled.

Commenters stated that retirin g Tampa Electric Company's coal units would result i n substantial stranded assets and costs to customers, that TEC has already achieved substantial CO 2 reductions in a consent agreement with EPA under the NSR enforcement program, and that EPA's proposed rule does not account for this bold and early action. Commenters ind icated that the projects are part of the billion dollar reduction recently completed and depreciated over the remaining useful life of the coal plant (beyond 2030) to minimize the impact to customers' bills. Commenters stated the proposal, if finalized in its current form, would require acceleration of the cost recovery and significant additional expense.

Commenters stated that life appraisal reports for th e Seminole Generating Station units 1 and 2 in Florida indicated that the units had a remaining useful life of 40 years, through 2045. Commenters indicated that this date corresponds to the end of the Seminole's wholesale power contracts with its members, and also covers the last loan related to emission control equipment at the station which matures in 20 42. Commenters indicated that the stranded asset resulting from retirement of the units before the end of their useful life would cause the electric cooperative system's members to have to pay for both the stranded asset and the replacement capacity at the same time.

Commenters indicated that Colorado's Regional Haze State Implementation Plan, approved in 2012, requires capital investments that for Colorado Springs Utilities increase the book value of the four affected units by hundreds of millions of dolla rs.

Commenters stated that EPA has ignored the problem that every aging plant eventually reaches the point at which costly environmental compliance upgrades or equipment investments cannot be recovered during the remaining useful life of the plant. Comment ers stated that not every plant is ready for immediate retirement, although EPA notes that, of its study population of 884 plants, TSD, p. 2

- 16, 233 EGUs " have announced they will retire before 2016 ." TSD, p. 2

- 35. Commenters previously advised EPA that pr emature closures would have significant financial consequences for Wyoming ratepayers. (Letter to Janet McCabe, December 16, 2013, posted at psc.state.wy.us, under " Hot Topics "). Commenters stated that EPA has also recognized the problem of remaining usefu l life in the regional haze context. Commenters stated that in a final determination dated January 10, 2014, EPA provided the option of either closing Dave Johnston252 Unit 3 in 2027, when scheduled to be fully depreciated, or installing SCRs within five year s. Commenters provided a list of the Wyoming plants subject to Section 111(d), with their December 2013 full depreciation dates and their operators, and also included a table that presents the retirement date and operator for 10 coal plants.

Comment 2 1 : Comments regarding the s ufficiency of the " toolbox of emission reduction methods " in the context of remaining useful life.
Response 21: In response to the comment that the toolbox is not “ flexible enough ,” the EPA observes that the " toolbox " of emission re duction methods goes beyond those included in BSER and beyond the list mentioned above by commenter. The EPA believes that section 111(d) does not allow for compliance through offsetting emissions reductions from sources in source categories other than the EGU category.

The EPA shares the goal of minimizing stranded assets. Although nothing in section 111(d) explicitly bars a guideline that results in some facilities becoming uneconomic before the end of their useful lives, the EPA nonetheless has striven t o design the guidelines so as to give states flexibility to develop plans that allow power companies to recover their investments in generation units

. In response to public comments, the EPA significantly revised its approach to BSER and goal

setting in t he final rule, as explained in preamble sections V through VII. These changes, including moving the start date of the program from 2020 to 2022 and other important changes

, ensure that CO 2 performance rates and state goals in the final guidelines are achie vable considering cost , and leave room for states to consider remaining useful life and stranded assets

. A more detailed response to the concern that states would not have adequate flexibility to consider remaining useful life, in practice, is included in preamble section VIII.G.1. and the legal memorandum. See also the July 2015 docket memo titled “ Stranded assets analysis ,” which shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of capital

- intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state with suff icient flexibility to address stranded asset concerns.

The following are summaries of the specific public comments under this comment:

Commenters stated that the " toolbox " of emission reduction methods (gas, nuclear, renewable energy, and energy efficiency) is not flexible enough to prevent stranded investments, and indicated that it results in CO 2 emissions reductions by displacing generation from EGUs with remaining usef ul lives. Commenters noted that true offsets should have a place in the states' toolboxes, and that EPA should allow states to consider sources' remaining useful lives and other factors via a more relaxed standard or a longer compliance period.

Commenters stated they were troubled by EPA's nebulous reference to a " toolbox of emission reduction methods " because it brushes off empirical real

- world cost concerns253 about stranded assets, and disregards the relevance of state emission performance goals to the

rema ining useful life of affected EGUs.

Several commenters said that the emission reduction methods referred to by EPA are not sufficiently available to states impacted by accelerated coal

- fired unit closures on a timeline that would allow for them to compens ate for closures by 2020. Commenters said that the problem is exacerbated by utilities having assets in multiple states that cannot be applied across state lines to achieve the reductions needed to meet individual state goals. Commenters stated that the ne ed for compensating emission reductions will effectively eliminate many states' ability to consider remaining useful life for individual coal

- fired EGUS, the outcome of which is arbitrary and capricious.

Comment 22 : Comments suggesting h eat rate targets s hould be recalculated to reflect remaining useful life.

Response 22 : The EPA disagrees that the remaining useful life of particular facilities should be reflected in the CO 2 emission rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines permit the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facility

specific remaining useful life considerations to be taken in to account in determining the levels of emission performance that reflect the BSER.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA must explain how the fixed heat rate target values are designed to reflect remaining useful life, instead of only stating how the concept of a heat rate target accommodates compliance for units of various ages. Commenters stated that a source

- specific formula that considers the potential for actual, sustainable, and co st

- effective heat rate improvement over the remaining useful life of each affected EGU should be developed to recalculate the heat rate targets, and that ultimately, heat rate improvements must be determined on a unit

- specific basis.

Comment 23 : Comments suggesting that r emaining useful life needs to be taken into account in setting interim goals and in Building Block 2.

Response 23 : The EPA disagrees that the remaining useful life of particular facilities should be reflected in the CO 2 emission rates an d state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines permit the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facilit y

specific remaining useful life considerations to be taken into account in determining the levels of emission performance that reflect the BSER.254 Regarding achi e vabil i ty of interim goals, the EPA disagrees with this comment. See final rule preamble section V. Regarding the BB2 comments, the EPA disagrees. See final rule preamble section V and the GHG Mitigation Measures TSD.

The following are summaries of the specific public comments under this comment:

Commenters indicated that the interim goals are largely unachievable for many jurisdictions and that the remaining useful life of affected EGUs must be taken into account in making improvements to Building Block 2.

Commenters also stated that if interim g oals are adopted they should take into account the remaining useful life of existing facilities, recent environmental retrofits, and established early retirement dates, and that EPA should allow states to tailor their interim goals for their unique circums tances, or, at a minimum allow the phase

- in of compliance tools over the entire compliance period.

Commenters requested that EPA allow states to specifically account for the remaining useful life of the original generatio n asset as well as any major upgrad es in BB2.

Commenters stated that EPA must defer to state authority to determine the feasibility and timing of redispatch and integration of new generation considering the remaining useful life of existing EGUs.

Commenters stated that the emission reductio ns from BB2 are premised on the outright shut down or drastic reduction of production from coal

- based plants, and that the possibility that there may be an unidentified strategy that could be used in lieu of coal plant retirements or reductions is not an a dequate substitute for the statutory mandate that states be allowed to consider remaining useful life.

Commenters stated that because EPA assumes that all emission reductions associated with Blocks 1 and 2 can be implemented by 2020, states may need to id entify other emission reductions that will ultimately prove unnecessary to achieve the final emission reduction targets, and that this approach strips the states of their right to account for the remaining useful life of existing sources.

Comment 24 : C omm ents regarding c onsiderations for units at the far end or beginning of their remaining useful lives.

Response 24 : The EPA disagrees that the remaining useful life of particular facilities should be reflected in the CO 2 emission rates and state goals establ ished in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines permit the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facility

specific remaining useful life considerations to be taken into account in determining the levels of emission performance that reflect the BSER.255 The EPA shares the goal of minimizing stranded assets. Although nothing in section 111(d) explicitly bars a guideline that results in some facilities becoming uneconomic before the end of their useful lives, the EPA nonetheless has striven to design the guidelines so as to give states flexibility to develop plans that allow power companies to recover their investments in generation u nits.

In response to public comments, the EPA significantly revised its approach to BSER and goal

setting in the final rule, as explained in final rule preamble sections V through VII. These changes, including moving the start date of the program from 2020 to 2022 and other important changes , ensure that CO 2 performance rates and state goals in the final guidelines are achievable considering cost , and leave room for states to consider remaining useful life and stranded assets

. A more detailed response to the concern that states would not have adequate flexibility to consider remaining useful life, in practice, is included in final rule preamble section VIII.G.1 and the legal memorandum. See also the July 2015 docket memo title d “ Stranded assets analysis ,” which shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of th e book life of capital

- intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state with sufficient flexibility to address stranded asset concerns.

The following are summaries of the spe cific public comments under this comment:

Commenters noted that EPA should allow coal units with long, undepreciated remaining useful lives to be exempt from interim emission performance requirement, and relax the 2030 requirement if the units are in compl iance with the state implementation plan at the end of their useful lives.

Commenters suggested that EPA should include a process for considering waivers of environmental upgrade requirements on plants late in their useful life to avoid significant short

term costs on customers. Commenters referred to a situation at the Presque Isle Power Plant in Marquette Michigan.

Comment 25 : Comments regarding delaying the effective date of emission requirements to mitigate impacts on coal EGUs.

Response 25 : Under Se ction 111(d), standards of performance are to reflect the level of reductions achievable considering certain specified factors including cost. The EPA has determined that CO 2 reductions from the EGU source category are achievable well before 2030, so starting the program as late as 2030 would not be justified. Also, the EPA disagrees that the remaining useful life of particular facilities should be reflected in the CO 2 emissio n rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines permit the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call f or facility

- specific remaining useful256 life considerations to be taken into account in determining the levels of emission performance that reflect the BSER

. The following are summaries of the specific public comments under this comment:

Commenters indicated that delaying the effective date of the emission rate requirements until 2030, while not eliminating the inequities, would mitigate some of the most serious impacts on coal

- based power plants.

Comment 26 : Comments suggesting that e conomic useful life co uld be extended.

Response 26 : The EPA appreciates receiving this comment. The EPA is not making a regulatory determination of the length of the useful life of an EGU in this rulemaking . T he emission guidelines permit states to consider remaining useful li fe in applying a standard of performance to an individual affected EGU. The EPA will consider the reasonableness of the way in which a state considers remaining useful life and other factors in applying a standard of performance to a particular EGU in the context of evaluating state plans to determine whethe r they are satisfactory, i.e., whether they meet the requirements of the guidelines.
The following are summaries of the specific public comments under this comment:

Commenters stated, according to a recent Southwest Power Pool market study, the national average retirement age of c oal

- fired generation is 48 years. Commenters stated that in the Regional Greenhouse Gas Initiative (RGGI) region, almost 40 percent of the affected EGU coal fleet has been in

- service for between 41 and 50 years; and an additional 36 percent of the RGGI region's affected coal summer capacity is already operating well in excess of the national average retirement age. Commenters stated that by the beginning of the 2020 compliance timeframe, an even greater percentage of the RGGI region's coal fleet will be approaching the natural end of its industry

- recognized useful life. Commenters indicated that these coal generation units could be retrofitted with emission controls, including efficiency investments that could significantly extend the economic useful life of the plants well beyond the normal retirement point.

Comment 27 : Comments requesting the EPA to c onsider state legal restrictions on financial commitments for power plants t hat extend their operating life.

Response 27 : We disagree with the comment to the extent that it argues that the specific state laws below require the EPA to make changes to these emission guidelines. While the EPA has attempted to accommodate existing st ate law, the EPA is not required to.
The emission guidelines do not require a particular affected EGU to make heat rate improvements. Affected EGUs can comply through ERCs or allowances, and in addition to the building blocks (of which heat rate improveme nt is just one) there are other measures states can take (such as energy efficiency) aside from the building blocks to reduce CO 2 emissions from257 affected EGUs. If a state determines that its preferred approach to implementing the emission guidelines is to not take advantage of reductions from heat rate improvements, that is the state’s prerogative, so long as the measures the state does choose to implement satisfactorily meet the requirements of these guidelines.
In determining BSER, feasibility is not ass essed based on existing state law. To think otherwise is to misunderstand the basic cooperative federalism structure of section 111(d). To take an extreme example, consider a hypothetical state law that prohibits the state from submitting and EGUs from complying with an emission guideline. Under the commenters’ theory, EPA could not determine BSER to require any emission reductions whatsoever. For details of EPA’s authority to determine BSER, please see section V of the preamble and the Leg al Memorandum.
The following are summaries of the specific public comments under this comment:

Commenters stated state law may affect compliance with CPP. Commenters stated that under California's Emission Performance Standard law (SB 1368), utilities are prohibited fro m making financial commitments that extend the useful operating life of power plants with an emission intensity of 1,100 lbs. CO 2

- eq/MWh or More and SB 1368 applies to investments anywhere in the country

- not just in California. Commenters stated that even if additional equipment upgrades were available at power plants in which commenters or its members have an ownership interest, they would likely be prohibited from investing in those upgrades under California law; as a result, an additional 6 percent heat rate improvement at our coal

- fired facilities in the western U.S. is not feasible. Commenters stated that EPA should include an analysis of the impacts of these regulations and adjust the interim and final emissions goals for states accordingly.

Comment 28 : Comments suggesting t he CAA and its legislative history do not imply that emission reductions not achieved through consideration of remaining useful life must be made up by other sources.
Response 28 : Final rule p reamble section VIII.G .1 is relevant to this comment , discussing the statutory framework and how the final emission guidelines permit states to consider remaining useful life

. With respect to the second point, it is also nowhere implied in the Act that states are granted absolute discretion t o take into consideration remaining useful life in any way the states see fit. The focus in the remaining useful life provision of section 111(d)(1) is on EPA’s regulations, which must permit states to take into consideration remaining useful life, as this guideline does. For a discussion of the legislative history and other relevant legal points , please see the legal memorandum.
The following are summaries of the spe cific public comments under this comment:

Commenters quoted the 1977 House Committee Repor t's clarification of section 111(d): " The Administrator would establish guidelines as to what the best system for each such category of existing sources is. However, the State would be responsible for determining the applicability of such guidelines to any particular source or sources" and stated that nowhere in the CAA or its legislative history is it implied that if a state were to exercise such case

- by

- case flexibility when258 implementing section 111(d) Emission Guidelines, it must make up the shortfall in emission reductions from other sources.

Comment 29 : Comments suggesting l egislative history shows intent that states be allowed to consider remaining useful life in setting individual performance standards.
Response 29 : The EPA disagrees with these comments. While section 111(d)(1) is clear that the EPA’s guidelines must permit states to take into consideration remaining useful life, it is silent on how the guidelines can do so. Section 111(d)(1) does not say that states must be given plenary authori ty to decide how to consider remaining useful life, nor does it say that the EPA cannot set reasonable boundaries for consideration of remaining useful life. There is therefore a gap in the statute that the EPA can r easonably fill. Please see the Legal M emorandum for details of the EPA’s analysis of this provision and the legislative history.
The following are summaries of the specific public comments under this comment:
Several commenters examined the 1977 amendments to CAA sections 111(a) and (d), and
q uoted from the House Report of the Legislative History to the 1977 amendments and/or the House Conference Report on the 1977 amendments. Commenters noted that both sections 111(a)(1) and 111(d)(1) were incorporated into the CAA in the 1977 amendments, and that Congress clarified through the definition of "standard of performance" that states must establish those standards for individual existing sources, and in section 111(d)(1) made clear its intent that states be allowed to consider remaining useful life in setting individual performance standards. Commenters referenced language in the 1977 House and House Conference Reports noting that the intent was for section 111(d) existing source standards to be based on the best available means of emission control ( not necessarily technological) and must, unless the state decides to be more stringent, take into account the remaining useful life of the existing sources. (H.R. Rep. No. 95

- 294, at 11, 187, 195 (1977); House Conf. Rep. 95

- 294, 1977 WL 16035 at 129.)

Com menters concluded that the authority of the state to consider " remaining useful life " was considered to be an essential power that states were to have in determining standards of performance for existing sources. Commenter s note d that this concept was simi larly embedded in the PSD and regional haze programs at the same time. Commenter s also concluded that EPA has no statutory authority to prohibit states, directly or indirectly, from regulating existing sources with due regard to their remaining useful life , their individual role in meeting local energy demands, and their importance in their communities. Commenters stated that section 111(d) does not provide EPA with independent authority to restrict states' ability to incorporate remaining useful life and o ther factors into performance standards.

Commenters indicated that EPA has no discretion to deviate from the clear statutory terms and cited Chevron in support (when Congress "has directly spoken to the precise question at issue," the court interprets and applies the statute without deferring to an agency interpretation.) Chevron, USA, Inc. v. Natural Res. Def. Council, Inc , 467 U.S. 837, 842 (1984). Commenters also referenced Medtronic, Inc. v. Lohr , 518 U.S. 470, 512 (1996) ("[W]here the language of the statute is clear, resort to the agency's interpretation is improper."), and Train v. NRDC , 421 U.S. 60, 79 (1975) (EPA has "no authority to question the wisdom of a state's choice of emission259 limitations" when regulating existing sources). Commenters said EPA does not, as it claims, have the "discretion to alter the extent to which states may authorize relaxations to standards of performance that would otherwise apply." (79 Fed. Reg. at 34925.)

Commenters has claimed that EPA's justification for the techno logy forcing concepts in section 111(d) BSER are found only in the new source arena. Commenters cited the District of Columbia Circuit decision Sierra Club v. Costle ; arguing that it was only right that the costs of applying best practicable control techno logy be considered by the owner of a large new source of pollution.

Commenters noted that section 111(d) contains specific language requi ring the Administrator and states to analyze the remaining useful life of each existing source.

Comment 30 : Comments suggesting that the EPA's rationale for implementation of the emissions guidelines is faulty

-- sections 111(d) and 111(b) analysis is in error.

Response 30 : The EPA disagrees with this comment, which does not address the general approach taken in this rulemaking. First, we note that the performance rates do provide a 111(b)

- like standard of performance that is based on EPA’s determination of BSER. Furthermore, as explained in final rule preamble section VIII.G .1, states can take into consideration remaining useful life through trading, even if states adopt the performance rates as the standards of performance. We have provided additional flexibilities for states to consider remaining useful life through the other plan types. EPA is not bound to pro vide the same options for consideration of remaining useful life as are provided under the 1975 implementing regulations, as we are by rulemaking 40 CFR 60.24(f) inapplicable.
The following are summaries of the specific public comments under this comment :

Commenter s commented on the discussion in section VIII.F.9.b of the final rule preamble of the CPP that stated that " remaining useful life and other facility

- specific factors are [only] relevant for emission guidelines in which the EPA specifies a presum ptive standard of performance that must be fully and directly implemented by each individual existing source within a specified source category ," (the preamble goes on to indicate that such guidelines are more like 111(b) in their form). Commenters said th at EPA's attempt to contrast section 111(b) standards of performance for new sources with section 111(d) standards of performance for existing sources fails because both provisions are based on the same definition of " standard of performance " at CAA Sectio n 111(a)(1). Commenters compared section 111(b) (EPA shall establish "Federal standards of performance for new sources within [a] category ") with section 111(d) (states shall submit plans establishing " standards of performance for any existing source ... t o which a standard of performance under [section 111 (b)] would apply if such existing source were a new source").260 Comment 31 : Comments suggesting s ection 111(h) demonstrates Congressional intent not to close existing units.

Response 31 : We disagree. Section 111(h) nowhere indicates that it is intended to address remaining useful life or is a means to avoid shuttering existing facilities. In fact, 111(h) is applicable to NSPS promulgated under 111(b), which undercuts the commenter’s theory, and 111(h) does not mention remaining useful life as a consideration to be taken into account in promulgating a design, equipment, work practice, or operational standard. To the contrary, the limited scope of the phrase “ not feasible to prescribe or enforce a standar d of performance ” shows it is inapplicable here. The phrase only applies to two situations: 1) a pollutant or pollutants cannot be emitted through a conveyance designed and constructed to emit or capture such pollutant; or 2) the application of measurement methodology to a particular class of sources is not practicable due to technological or economic limitations. Neither of those situations is present here.
The following are summaries of the specific public comments under this comment:

Several commenters i ndicated that section 111(h) in combination with the remaining useful life provision in section 111(d) demonstrates that the Clean Air Act did not intend to shutter existing facilities with remaining useful lives. Commenter s stated that the Act anticipates that where improvements can be made to reduce emissions from a specific facility, such improvements shall be made; but where improvements are infeasible, relaxation of the standard is appropriate. Commenter s said that to demand otherwise impermissibly tre ats existing sources like new sources, violating congressional intent to create two distinct classes of units, with a separate, more lenient standard governing existing sources.

Commenters stated that EPA's alternative interpretation is fundamentally incon sistent with the main purposes of the CAA and section 111. Commenters said the objective of the CAA was not to shut down or reduce utilization of existing power plants. Commenters said that it was to ensure that industry could continue to expand and provid e economic value as it gradually reduced the amount of pollution per unit of economic output. Commenters said that this purpose can be seen in section 111's mandate that EPA consider costs and energy requirements in prescribing standards of performance. Co mmenters said that it is also evident in section 111(d)'s requirement that EPA permit states to take into consideration the " remaining useful life " of existing sources. Commenters said that if Congress had intended that EPA could simply order polluting sou rces to shut down or reduce production levels in order to reduce emissions, it would have had no need to require EPA to consider costs, energy, and the remaining useful life of sources in the regulation of those sources. Commenters said that the existence of these requirements is a clear indication that Congress intended that section 111 would not be used to require facilities to shut down or reduce production levels in order to achieve specific levels of air pollution.

Commenters stated that traditional " s ystems of emission reduction " at an affected source include complementary equipment modifications, operational changes, and add

- on control technology. Commenters said that crucially, Section 111(d) makes clear that in determining BSER, one size does not fi t all. Commenters said Section 111(d) specifically mandates that EPA " shall permit "261 states to consider source

- specific factors such as "the remaining useful life of the existing

source " " in applying a standard of performance to any particular source ." Comm enters said that EPA's emission guidelines and determination as to what constitutes the BSER must be consistent with this statutory framework.

Comment 32 : Comments suggesting Part 60 Subpart B Regulations do not allow the EPA to set
state

- specific standards of performance :
Response 32 : We disagree with these comments. First, we are not relying on the 1975 implementing regulations as authority for our position on remaining useful life. In fact, as explained in final rule pr eamble section VIII.G .1, we are making 60.24(f) inapplicable to this guideline. As a result, the provisions in 60.24(f) a re irrelevant to the issue raised by these commenters: whether this guideline permits states to consider remaining useful life.

We agre e that the statute says “ shall.” However, commenters are mistaken in claiming that the language after “shall” is unambiguous. In fact, it is silent as to how states should be permitted to take into consideration remaining useful life. Please see the discus sion in preamble section VIII.G.1 and the legal memorandum.

Commenters misunderstand the nature of the implementing regulations. The preamble to those 1975 regulations explained that we chose the term “ emission guidelines ” to emphasize that the guidelines are not directly enforceable against designated facilities. 40 FR 53340, 53341. Instead, the emission guidelines are binding on states that develop and submit plans under section 111(d)(1).

We disagree with some commenters. The regulations explicitly provide for EPA to make 60.24(f) inapplicable to particular emission guidelines. The statute is silent as to whether states must be given unfettered discretion to vary from the emission guideline s, but the language structure of the Act suggests that states are not. Please see the L egal M emorandum for additional discussion.

The following are summaries of the specific public comments under this comment:

Several commenters stated that the source of s tate authority to consider remaining useful life is the CAA, not EPA Part 60, Subpart B regulations.

Commenters indicated that EPA improperly relies on 40 CFR sections 60.24(f) and 60.24 (c) as providing the " default structure " for implementing the remain ing useful life provision of the CAA. Commenters said that EPA is twisting the words of these implementing regulations to override the plain words of the CAA, and is conflating the statutory requirement that it allow state consideration of remaining useful life with the regulations' allowance that states may apply less stringent emission standards provided the three conditions in the regulations are demonstrated.

Commenters said that consistent with Step 1 in Chevron USA Inc. v. Natural Resources Defense C ouncil , 467 U.S. at 842

- 843, the Agency's interpretation should not be given deference since262 Congress has clearly spoken. Commenters stated that section 111(d), unlike other sections of the CAA, provides virtually no specific guidance to EPA except that it " shall permit the State in applying a standard of performance to any particular source to take into consideration, among other factors, the remaining useful life of the existing source " (CAA section 111(d)(1)). Several
commenters indicated that Congress' intent is made even more evident by the use of the term

" shall " in section 111(d)(1). Commenters further stated that the term "shall" does not create any room for agency discretion, and cited two cases in support of the obligation created by the use of the term " shall ."

Commenters stated EPA cannot finalize the Proposed Rule because it arrogates to the Agency a function of setting state

- specific standards of performance, that the statute and existing regulations make the exclusive province of the States. Commenters listed the contents of section 60.22(b) paragraphs one through six as demonstrating the purely informational purpose and nonbinding nature of these guidance documents. Commenters stated that EPA's conspicuous use of the words " guidance " and " inf ormation " throughout the regulation demonstrates that

" information " is all that EPA is authorized to provide the states. Commenters stated that the regulation does not authorize EPA to issue " guidelines " that contain binding state

- wide emission reduction g oals and that are thus " guidelines " in name only. Commenters indicated that EPA must revise the underlying rules through proper notice

- and

- comment rulemaking if EPA wishes to depart from its past rules and regulations by finalizing a rule that contains bin ding statewide emission reduction targets.

Commenters listed provisions within section 60.24(f) and indicated that the regulations (and statute) are clear that states must be provided flexibility to establish deviations from proposed emission guidelines, n ot within proposed emission guidelines.

Comment 33 : Comments suggesting s ection 60.24(f) preceded CAA provision on remaining useful life and cannot authorize the EPA's position on remaining useful life.

Response 33 : We agree that 40 CFR 60.24(f) was originally promulgated in 1975, before the 1977 Amendments added the remaining useful life provision. However, we disagree with the remainder of the comments. First, we are not relying on the 1975 implementing regulations as authority for our position on r emaining useful life. In fact, we are making 60.24(f) inapplicable to this guideline. Regardless of whether 60.24(f) (which we referred to but are not relying on as a

“ default structure ”) adequately permits states to consider remaining useful life under ot her guidelines, what matters for this rulemaking is whether this guideline meets the statutory requirement, which it does for the reasons stated in preamble section VIII.G.1 and the legal memorandum. Thus, the argument that somehow EPA is relying on the 19 75 implementing regulations to sidestep the statutory requirement is simply mistaken, and arguments about the appropriateness of 60.24(f) as a means of implementing the remaining useful life provision are
moot.
The following are summaries of the specific public comments under this comment:263 Commenters stated that there are several flaws in the claim that the section 60.24(f) regulatory provision governs states' consideration of " remaining useful life " in establishing standards for existing sources. Several commenters noted that section 60.25(f) was established in 1975, before the 1977 CAA Amendments added the "remaining useful life" language. Commenter s said that EPA's assertion that the regulation specifically addresses a later added requirement is nonsensi cal. Commenter s stated that the 1975 regulations do not discuss consideration of remaining useful life other than a discussion of " economic hardship " and how " States will be free to vary from the levels of control represented by emission guidelines " (40 FR 53343). Commenters concluded that section 60.24(f) was promulgated as a means of allowing state s to establish case

- by

- case less stringent emissions standards or longer compliance schedules, and was not and has never been a means for states to consider "re maining useful life" as set forth in section 111(d) and its legislative his tory.

Several commenters indicated that the 1975 regulations cannot be read to authorize EPA's position with respect to remaining useful life, and quoted from the preamble to the 1 975 regulations in support of their position. Commenters stated that section 60.24(f) which EPA relied on as the "default structure" for implementing remaining useful life requirements does not even contain the phrase "remaining useful life," and that EPA did not revise its re gulations after the 1977 amendments to incorporate language that specifically implemented the remaining useful life requirement. Commenters said that EPA cannot rely today on its prior failure to enact required regulations as grounds t o const rain the protections granted to states under the 1977 amendments.

Comment 34 : Comments suggesting the EPA's reading of section 60.24(f) ignores state primacy.
Response 34 : The EPA disagrees with the commenters that the EPA's reading of section 60.24(f) ignores Congress' commitment to state primacy in the regulation of existing sources. First, the notion that states have plenary authority over the substance of state plans has been rejected repeatedly in the SIP context, as detailed in the legal m emorandum. There is no basis in the structure or language of section 111(d)(1) to indicate that Congress expected anything other than the usual cooperative federalism scheme of the Act, and certainly Congress did not abrogate the EPA’s authority to supervi se state plans. The reference to “ primary responsibility ” is simply a statement of how cooperative federalism works

– states have the initial responsibility to develop and submit state plans, and the EPA will only step in if such plans are unsatisfactory o r states fail to implement them. With respect to the language about variances, we are not making the provisions in 60.24(f) applicable to this guideline.

The following are summaries of the specific public comments under this comment:

Commenters stated tha t EPA's reading of section 60.24(f) ignores Congress' commitment to state primacy in the regulation of existing sources. Commenters stated that EPA recognized state primacy in the initial promulgation of the 40 C.F.R. 60 Subpart B regulations which stated,

" States will have primary responsibility for developing and enforcing control plans under section264 111(d)" and that " States will also have authority to grant variances in case of economic hardship. " 40 Fed. Reg. at 53343.

Comment 35 : Comments suggesting r evisions to section 60.24(f) post 1990 CAA Amendments are misinterpreted by the EPA and inappropriately relied upon.

Response 35 : We disagree. We are not basing our action on or claiming authority to address remaining useful life through the prefatory la nguage “unless otherwise specified in the applicable subpart.” We are basing our action on the statute. As explained in final rule preamble section VIII.G.1, this guideline permits states to consider remaining useful life in numerous ways. The only import of the prefatory language is that it makes it unnecessary in this action to promulgate language in 60.24(f) making clear that those provisions are inapplicable to this guideline. This is already provided for in 60.24(f)

– we are not reinterpreting those pr ovisions and we are not reopening them for comment and judicial review.

Thus, commenters’ reference to the reasons the EPA originally added the language is beside the point. We are making the provisions in 60.24(f) inapplicable not because of anything in s ection 129, but because this guideline already permits states to consider remaining useful life.

We have not construed the statute in such a way as to nullify the remaining useful life provision. That is an exaggeration. That this guideline does not permit states to take into account remaining useful life in the particular way that the commenters would prefer does not mean that the guideline does not permit it at all.

The following are summaries of the specific public comments under this comment:

Several co mmenters noted that in the development of limitations for solid waste incineration units, EPA revised the 1975 section 60.24 regulations to allow for an exception to states' ability to consider remaining useful life. Comme nters indicated that the regulatio n was amended because the MACT process as required by section 129 does not reserve a right for states to consider remaining useful life or other factors. Commenters noted that in 1995, EPA added the

w ords " Unless otherwise specified in the applicable subpa rt " to section 60.24(f). Commenters indicated that EPA bases its legal argument in the CPP proposal for restricting states' consideration of remaining useful life on those seven words. Commenters stated that the narrow history of that clause does not now g ive EPA discretion to ignore that section 111(d) requirement that EPA's regulations " shall " permit the state to consider remaining useful life. Commenter s said since the proposed rule now at issue does not involve municipal waste combustors, the operative flexibility granted states to consider remaining useful life and "other factors" for existing sources is not limited as in CAA Section 1 29(b)(1), EPA's effort to impose limitations arising from that statute on guidelines for EGUs is erroneous.

Commenters quoted a 2008 DC Circuit court case ( American Trucking Association ) in support of its position that EPA may not construe a statute in a way that completely nullifies provisions meant to limit its discretion.265 Commenters said that if section 60.24(f) were i nterpreted to provide the level of discretion EPA proposes, then EPA's implementing regulations from 1975 and 1995 should be considered re

ope ned and subject to judicial review. Commenter s said, given the history and limited application of the revisions to section 60.24(f), EPA's drastic expansion of its purported discretion to deny States consideration of remaining useful life constitute s a new interpretation that could not have been anticipated when the language was originally promulgated in 1996.

Commen t 36 : Comments suggesting court decision in support of the EPA approach on remaining useful life.

Response 36 : We agree that the EPA’s interpretation of the “remaining useful life” provision in the visibility program, both in the BART guidelines and in the SO 2 backstop trading program, lend support to our position that this guideline appropriately permits states to take into consideration remaining useful life. For a brief comparison of the visibility provisions with section 111(d)(1), please see section VI II.G.1 of the final rule preamble of the CPP , and for a deta iled discussion please see the L egal M emorandum.
The following are summaries of the specific public comments under this comment:

Commenters agreed that the state plan development process adequate ly allows for consideration of the remaining useful life and provided an example of how the proposed rule provides that flexibility. Commenters also discussed how a 2005 D.C. Circuit Court decision in the Center for Energy and Econ. Dev. v. EPA case suppor ts EPA's position that providing states with the flexibility to consider " remaining useful life " for specific sources by participating in emissions trading or other ways of shifting emissions reduction obligation is permissible under the statute and is a r easonable interpretation. Commenters explained that the court rejected petitioners' argument that EPA lacked authority to permit states to comply with reasonable progress and BART through a regional emissions trading program. Commenters noted that CAA sect ion 169A(g)(1) directs EPA to consider the " remaining useful life " of affected source in determining reasonable progress and in applying BART, and that when EPA issued its Regional Haze Rule it included an emissions trading program or alternative measure o ption for states provided that such alternative would achieve better results than source

- specific application of BART. Further details and references for the court decision were provided in the comment.

Commenters did not agree with statements provided by ot her commenters that the North Valmy coal plant in Nevada must continue to operate until at least 2025

, and stated that there is no compelling economic or reliability reason for the plant to continue polluting beyond 2025, and that nearby geothermal or s olar resources could help provide the necessary voltage.

Comment 37 : Comments stating that the EPA cannot reject state plans that deviate from the emission guidelines as the result of accounting for achievability and remaining useful life.266 Response 37 : The EPA disagrees with this comment, which misunderstands the structure of section 111(d)(1) and the Act generally

. The remaining useful life provision is not a direct grant of authority to a state to consider remaining useful life in any way the state see s fit. It is instead a requirement that EPA’s regulations must meet, as these emission guidelines do for the reasons explained in final rule preamble section VIII.G .1 and the L egal M emorandum

.
The following are summaries of the specific public comments u nder this comment:

Commenter s stated that EPA cannot declare ex ante that it will reje ct as unsatisfactory the plan of any state that seeks to exercise its statutory authority to account for remaining useful life and other factors that may require a deviation from EPA's emissions guidelines

. Commenters also stated that EPA effectively forecloses any possibility of altering a state's proposed emission reduction target to account for remaining useful life or any other relevant factors, even if a State

c an establish that EPA erred in its assessment of the states' ability to achi eve one or more of the Building Blocks

.

Comment 38 : Comments suggesting t he CAA gives states flexibility to address remaining useful life and EPA is violating states' statutory ri ght.
Response 38 : The EPA disagrees with comments that section 111(d)(1) is a grant of authority to states or creates a “state right” to consider remaining useful life in any way a state deems appropriate. Instead, the remaining useful life provision in 11 1(d)(1) is a requirement that the EPA’s guidelines must meet. Please see the legal memorandum for a detailed analysis of the requirement.

We disagree that this guideline violates basic principles of cooperative federalism. The gu id e line provides states wi th flexibility to meet the guideline requirements in any number of ways. That the guideline does not permit states to take into consideration remaining useful life in any way a state wants does not violate cooperative federalism. The EPA has the authority to set basic requirements for consideration of remaining useful life in this guideline. To hold otherwise would violate basic principles of cooperative federalism by eviscerating the EPA’s role in the 111(d) program.

With respect to the comment about 111(d )(2) requiring the EPA to take into consideration remaining useful life when promulgating a federal plan, we discuss that issue in our proposed federal plan rulemaking. This guideline permits states to take into consideration remaining useful life and ther efore the EPA will be able to, in promulgating a federal plan, take into account remaining useful life as required under 111(d)(2).

With respect to the comment about the “broken window fallacy,” the comment is purely rhetorical and contains no substantive issue. The EPA’s intent is to implement the CAA, not to require replacement of existing goods.

The following are summaries of the specific public comments under this comment:267 Several Commenters (also emphasized that CAA section 111(d)(1) grants states th e authority, in applying a standard to particular sources, to take into account the source's remaining useful life or other factors. Commenters stated that the fl exibility to consider remaining useful life was unequivocally reserved to the states by Congre ss when it enacted Section 111(d), and this flexibility is reinforced by EPA's own implementing regulations. Commenter s said that by setting overly stringe nt mandatory targets and no reasonable alternatives to comply with those targets, EPA has violated th e states' statutory right to consider these factors in the design of the rule and deviate from the BSER requirements and resulting emi ssions limits.

Several commenters said Congress intended section 111(d) to be a state

- driven process, rather than be the s ubject of federal command

- and

- control dictate, and that the proposal is unlawful because it abrogates states' right under Section 111(d) to state

- driven emission standards. Commenters cited section 111(d)(1)(A) in support, and said that it grants states th e prerogative of " submit[ting] to the Administrator a plan which ... establishes standards of performance for

... existing source[s] .... " and that in so doing, Congress unquestionably intended for states to be the regulators exercising discretion in establishing emission standards, specifically authorizing states to consider such factors as the remaining useful life of a given source in t he standard

setting process. Commenters stated that in contrast, Congress limited EPA's role to a subsidiary procedural role prescribing regulations which shall establish a procedure for plan submission and determining whether a state's submitted plan is s atisfactory, and cited section 111(d)(2).

Commenters said, s ection 111(d) explicitly grants states the authority to act independently of EPA in developing their compliance plans. Commenters said that first, section 111(d) gives states, not EPA, the first opportunity to develop implementation and enforcement plans that are projected to achieve EPA's national emissions guideline, and that EPA can only reject state plans if it finds them unsatisfactory (i.e., the plans fail to satisfy section 111(d) requireme nts or section 111(d) regulations). Commenters said that second, section 111(d) gives states the opportunity to address local conditions, including economic factors like the remaining useful life of regulated sources, and that this sensitivity to local con ditions is central to regulating existing sources under section 111(d). Commenters said even if EPA finds a state plan unsatisfactory and acts to implement federal standards of performance in lieu of the state plan, EPA must still consider local state cond itions (Commenters cited the section 111(d)(2) provision that requires EPA to consider the remaining useful life of regulated sources, in support of this statement.)

Several commenters indicated that EPA did not and cannot identify any statutory provision ( other commenters said, any canon of statutory construction) that authorizes it to displace states' legal authority and would a llow it to eliminate the statutory flexibility that Congress intended for the States to exercise. Commenter s said that rewriting section 111(d) in such a fashion is flatly inconsistent with the principles of cooperative federalism on which the CAA i s based. Commenters also stated that in dismissing its requirement to allow states to consider remaining useful life under the CAA, EPA is violating basic principles of cooperative federalism, and impinging on the states' rights to craft t heir own plans.

Commenters noted that the CAA requires that EPA take remaining useful life (and other factors) into consideration in promulgating a stan dard of performance under a section 111(d) plan, and stated that accordingly, EPA does not have the legal authority to ignore the remaining useful268 lives of affected sources when setting a state's goals or to replace consideration of this factor with a conc ept the Agency might prefer.

Commenters argued that CAA includes fa cility

- preserving concepts intended to prevent EPA from falling prey to the broken window fallacy widely recognized in economics: the fallacy that destroying existing wealth somehow creates a positive gain through the mere replacement of existing goods.

C omment 39 : Comments suggesting t he federalism bar prohibits the EPA from using the SIP to force states to adopt specific control measures.
Response 39 : The EPA disagrees with this comment. We have not dismissed the requirement that this guideline permit s tates to take into consideration remaining useful life, as explained in section VIII.G .1 of the final rule preamble of the CPP

. This guideline does not require any specific control measures and gives states vast flexibility in meeting its requirements; please see the legal memorandum for a discussion of state flexibility. Thus, the cases cited by the
commenters are inapposite. Comm enters also do not point to any particular reason that states are effectively required to adopt specific control measures, nor do c ommenters identify any such

measures. The following are summaries of the spe cific public comments under this comment:

Commen ter s noted that section 111(d)(1) directs EPA to prescribe regulations which shall establish a procedure similar to that provided by section 110, and that cases interpreting section 110 emphasize a " federalism bar ," which " prohibits EPA from using the SIP process to force states to adopt specific control measures ." EME Homer City Generation, L.P. v. EPA , 696 F.3d at 29 (D.C. Circuit 2000). Commenters stated that under section 110, states must have " real choice with regard to the control measure options avai lable to them " to meet their SIP requirements" ( Michigan v. EPA , 213 F.3d at 687 (D.C. Circuit 2001)) and that these cases underscore the primacy of state discretion under the CAA to tailor an SIP to the state's particular circumstances. Commenters indicat ed that EPA's dismissal of the statutory requirement to allow states to consider remaining useful life because states can e mploy building blocks 2, 3 and 4 rather than building block 1, is a decision that effectively forces states to adopt specific control measures in violation of the " federalism bar."

Comment 40 : Comments regarding t he effect of not allowing states to account for the remaining useful life of affected EGUs on source owners is a takings under the Fifth Amendment.

Response 40 : We explain our interpretation of remaining useful life in section VIII of the Preamble and Section IX of the Legal Memo. We explain there that the guidelines do permit states to consider remaining useful life and other facility specific factors. The guidel ines are designed to permit trading and the creation of interstate emission markets. We view the remaining useful life consideration as primarily regarding a concern for facilities with relatively269 short remaining useful lives and the potential that they ma y be required to install prohibitively costly pollution control devices (these guidelines to not impose such a requirement). Nonetheless, the agency also conducted a “stranded assets” analysis to determine if commenters’ concerns were correct that the rule would force widespread retirements of units with relatively long book lives. As explained in Section VIII.B.1 of the Preamble, we found that this need not be the case. This of course may depend on how states choose to design their state plans, but it

cann ot be said that this rule requires the result. Insofar as this comment asserts that this rule will necessarily effectuate a regulatory taking, see the discussion of the Just Compensation Clause in the Legal Memorandum accompanying the final rule.

The follo wing are summaries of the specific public comments under this comment:

Commenter s raised an issue un der the Takings Clause of the Fifth Amendment associated with issuing regulations that would necessitate the closure of coal

- fired EGUs and produce signific ant stranded assets. Commenters stated that under the Penn Central test, a court evaluates a regulatory takings claim by considering the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investment

- backed expectations, and the character of the government action. Commenters cited Palazzolo v. Rhode Island , 533 U.S. 606, 617 (2001) (citing Penn Central Transp. Co. v. New York City , 438 U.S. 104, 124 (1978)). Commenters stated the economic effect on the owner would be substantial: the owner would likely be deprived of all economic benefits if it were forced to shut down a coal

- fired EGU prematurely, and, such a premature retirement would interfere with the reasonable inv estment

backed expectations of the facility owner. Commenters stated that when a coal

- fired EGU is approved for construction, the owner has a reasonable investment

- backed expectation that it can operate the facility for its entire useful life to recoup the substantial costs of construction, and that leaving an owner with stranded assets it cannot recover would interfere with those expectations. Commenters further stated that expenditures necessary to comply with federal environmental regulations such as MAT S create further investment

- backed expectations. Commenters said that while EPA may be able to point to environmental benefits associated with prematurely shutting down coal

- fired EGUs, it is doubtful that such benefits could offset the other factors in th e Penn Central test. Commenters concluded that at a minimum, Section 111(d) must be read to authorize States to adjust their emission reduction targets to take into account the remaining useful life of affected EGUs. C ommenter s stated that without relief f or their remaining useful life, many older EGUs will be forced to significantly reduce operations or retire and by forcing significant reductions in operation and retirements, the CPP is a regulatory taking of these units requiring government compensation.

Comment 41 : Comments on October 30, 2014 Notice of Data Availability (NODA) in disagreement with u se of b ook l ife to d etermine r emaining u seful l ife

. Response 41 : Contrary to statements of some commenters, t he October 30 Notice of Data Availability did not discuss remaining useful life. Rather, the notice discussed stranded asset concerns and requested comments on book life in the context of seeking comments on the BSER determination.270 The emission guidelines permit states to consider remaining useful lif e of individual affected EGUs in designing their plans. In response to commenter concerns about the book life metric, the agency observes that t he guidelines do not dictate that states use a particular definition of

“ remaining useful life

. ” The EPA interpr et s the provision as primarily concerned with facilities that have short remaining useful lives, and with retrofit costs

. States also are free to consider stranded asset s concerns in designing their plans. The EPA will consider the reasonableness of the wa y in which a state considers remaining useful life and other factors in applying a standard of performance to a particular EGU in the context of evaluating state plans to determine whether they are satisfactory , i.e., whether they meet the requirements of the guidelines

. For purposes of the EPA’s stranded assets analysis, described in a July 2015 memorandum to the docket, t he agency used book life as an estimate of the time period in which coal

- fired generation units are fully depreciated. Book life is the period over which long

- lived assets are depreciated for financial reporting purposes. The agency estimated typical book life by researching financial statements of utility and merchant generation companies in filings to the Securities and Exchange Commissi on. The agency estimated the book life of coal

- fired EGUs to be 40 years, and assumed a 20

- year book life for pollution control retrofits. The book life of coal

- fired EGUs (coal steam and IGCC) is twice as long as the debt life and the depreciation schedul e used for federal tax purposes. Although the book life for environmental retrofits is often 15 years, the agency conservatively assumed 20 years in this analysis. While the analysis’ estimate of book life may not correlate with actual depreciation periods of every individual coal

- fired EGU, it does reflect the expected depreciation periods for those facilities as a class, and thus the agency believes it is a highly reasonable means of assessing the degree of likelihood of “stranded assets” across the whole sector.
The analysis shows that the emission performance levels in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of ca pital

- intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and equivalent state goals provide state with sufficient flexibility to address stranded asset concerns. For additional detail, see the July 15 docket memo titled “ Stranded assets analysis .”

The following are summaries of the specific public comments under this comment:
Several commenters stated that book life is not an appropriate means of considering the

" remaining useful life." Commenters indi cated that it would be inappropriate for EPA to adopt a uniform (e.g., 40

- year) remaining useful life for all existing coal

- fired EGUs given the diversity among the sources. Commenter s also said it would be inappropriate for EPA to adopt a uniform (e.g., 2 0

- year) remaining useful life for major pollution control retrofit projects. Multiple
commenters stated that each existing coal

- fired EGU must be evaluated on a case

- by

- case basis to determine its remaining useful life.

Commenters indicated that book life is an accounting concept that does not measure the remaining useful life of an EGU. Commenters also stated that book life is a ratemaking concept that concerns asset depreciation and does not describe the useful life of an asset. Commenter s stated that th e useful life of an EGU asset extends well beyond the asset's book life.271 Commenter s stated that adjustments in compliance may be necessary to account for the remaining u seful life of coal

- fired EGUs, and that the NODA does not sufficiently address this iss ue. Commenters stated that the brief comment period EPA has allocated for the NODA prevents c ommenters from providing any substantive comments on how remaining useful life could be incorporated into a final Section 111(d) rule.

Commenter s stated that gener ating units subject to prudent ongoing maintenance and investment can achieve several decades of useful and economical service beyond an accounting book life.

Commenter s said in reference to the 40

- year book life referred to in footnote 6 of the NODA, that a 40

- year remaining useful life directly conflicts with the commenter's state regulatory determines, which are referenced and outlined in the comment letter. Commenters presented that the remaining useful life numbers for their BACT controlled and new gen eration fleet range from 32 to 50 years.

Comment 42 : Comments on October 30, 2014 NODA providing suggestions on how to use or revise book life.
Response 42 : The EPA disagrees that the remaining useful life of particular facilities should be reflected in the CO 2 emission rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines permit the states to cons ider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facility

specific remaining useful life considerations to be taken into account in determining the levels of emission performance that reflec t the BSER.

The response to comments on why remaining useful life is not a basis for adjusting state goals is earlier in this section (5.11) of the RTC document.

Regarding the suggestion that states adjust goals based on stranded assets considerations, the EPA disagrees. The EPA has determined that the CO 2 performance levels and state goals are achievable considering cost. The basis for that conclusion is provided in chapters VI and VII of the final CPP preamble. Section VIII.G.1 of the final rule preamble of the CPP explains that the emission guidelines provide states with flexibility to consider facility

- specific factors, and the July 15 memo to the docket titled “ Stranded assets analysis ,” also summarized in the preamble, shows that states have sufficient flexibility to address stranded asset concerns .

Regarding, the comment on a potential error in book life used for modeling , EPA disagrees. The book life is one of many financial assumptions included in the model for new investments, and is one of many variables impacting the model projections.

The fo llowing are summaries of the specific public comments under this comment:

Commenter s noted th at it appears that EPA considered the remaining book life of certain coal

based units when calculating the available re

- dispatch potential for a state. Commenters indicated EPA should recognize remaining unit and pollution control book life when setting st ate272 goals. Commenters also stated that it may be more appropriate to consider the depreciation schedule and capital improvements than book life alone.

Commenter s suggested two approaches:

• States could adjust goals to consider remaining useful life of the pollution control investment. For example, Regional Haze controls could be accounted for with a twenty year life at a baseline capacity factor.

• States could adjust goals to avoid stranded investment. States could evaluate investments in pollution control c onsidering baseline capacity factors, the capital cost and the cost advantage of fuels.

Commenter s said that they identified a potential error in the book life used for modeling a new coal

- fired unit. Commenters stated that the data in EPA's integrated pla nning model for Texas has the Sandy Creek coal plant at only a 38% capacity factor in 2025 despite being about 13 years into its useful life. Commenters indicated that in contrast EPA stated that a 40 year book life was used for modeling a new coal

- fired u nit.

Comment 43 : Comments in support of October 30, 2014 NODA.

Response 43 : Thank you for your comments. As described in section s V

- VII of the preamble

, there are significant changes since proposal in the way that the agency is determining the BSER and calculating emission performance requirements to ensure that the final CO 2 emission rates and equivalent state goals are achievable considering cost

. The final rates and goals leave flexibility in practice for states to consider remaining useful life and other facility

- specific considerations. The agency concluded that it was not appropriate or necessary to adopt approaches that involve considering remainin g useful life or other facility

- specific considerations in the approach for calculating CO 2 emission performance rates. Facility

- specific factors can be considered in the state plan design process. Additionally, see the July 2015 docket memo titled

“ Stran ded assets analysis ” for a discussion of EPA’s analysis of the final rule, which finds that the final performance rates represent a level of generation and emissions across each interconnection that is consistent with the ability to operate affected EGUs t hrough the end of their book life, considering both the age of each facility and recently installed capital

- intensive pollution control retrofits.

The following are summaries of the specific public comments under this comment:

Several commenters stated th at they are encouraged by EPA's acknowledgment in the NODA of utility concerns that the Propose d Rule fails to give owners the opportunity to fully take advantage of the remaining asset value of existing coal

- fired generation.

Commenter s said that EPA is on the correct path in the NODA of incorporating the remaining useful life of affected u nits into the re

- dispatch assessment. Commenters said this will greatly273 reduce electric system reliability concerns, and allow for more logical transition to lowering the carbon intensity from existing EGUs.

Commenter s said that EPA co rrectly acknowledged in its NODA that adjustments in compliance may be necessary to account for the remaining useful life of coal

- fired EGUs.

Commenter s stated that the proposal to use boo k life in the NODA to allow states to adjust the interim goal has merit, provided that major pollution control investments are included in this flexibility.274 5.12 DESIGN, EQUIPME NT, WORK PRACTICE, O R OPERATIONAL STANDA RDS

This se ction addresses comm ents on whether state plans may contain d esign, equipment, work practice, or operational standards , and if t hose types of standards must be limited to the circumstances described in section 111(h) (i.e., when it is ‘‘not feasible’’ to prescribe or enforce a standard of performance. )

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments suggesting that e missions should be limited under s ection 111(h) , and the EPA should re q uire oper a tions and maintenance practices to minimize heat rate variability.

Response 1: We disagree both that limiting emissions under section 111(h) is the better application of the CAA and the most defensible mechanism for regulation of carbon emissions under section 111 and that such standards may be promulgated only under section 111(h). CAA section 111(h) concerns the relatively rare situation in which an emissions standard, which entails a numerical limit on emissions, is not appropriate because emissions cannot be measured, due either to the nature of the pollutant or the nature of the source category. CAA section 111(h) provides that a design standard is appropriate under those circumstances, but only under those circumstances. In the context of the CPP, an emissions standard is appropri ate, as described in detail in s ection III.B of t he final rule preamble, and therefore CAA section 111(h) does not apply. Additionally, CAA section 111(h) applies only to standards promulgated by the Administrator, and therefore appears by its terms to be limited to CAA section 111(b) rulemakings for new , modified, or reconstructed sources, not CAA section 111(d) rulemak ings for existing sources. See s ection s V.B

. and VIII.D of the final rule preamble of the CPP.

We also disagree that a work practice or operational standard can be promulgated as a standa rd of performance for existing EGUs. See Section VIII.D of the final rule preamble of the CPP. However, we are finalizing that a state may elect to use emission standards for affected EGUs that result in a reduced CO 2 lb/MWh emission rate for affected EGUs because of operational or other standards. The state would include in its state plan an emission standard that is the rate standard that results from the applicable oper ational or other standard. See s ection V III.C of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenter s stated that a work practice or operational standard can be pr omulgated for existing EGUs using the authority in CAA section 111(h) when there is no demonstrated cont rol technology for a particular pollutant. Commenters stated that because there is no adequately demonstrated control technology for reducing carbon dioxide from existing coal

- fired EGUs, EPA should require the best technological system of continuous emiss ion reduction, which in this case would be operation and maintenance practices that minimize heat rate variability and periodic review of available equipment upgrades to determine whether such upgrades would cost effectively improve heat rate and boiler ef ficiency. Commenters indicated that limiting emissions275 under section 111(h) is the better application of the Act and the most defensible mechanism for regulation of carbon emissions under section 111.

Commenter s stated that EPA may not promulgate operatio nal or work practice standards under section 111(d) because such standards may be promulg ated only under section 111(h).

Comment 2: Comments supporting work practice

- type standards in face of technical uncertainties in monitoring and emission projections.
Response 2: We disagree that a work practice or operational standard can be promulgated as a standard of perf ormance for existing EGUs. See s ection VIII.D of the final rule preamble of the CPP. However, we are finalizing that a state may elect to use emis sion standards for affected EGUs that result in a reduced CO 2 lb/MWh emission rate for affected EGUs because of operational or other standards. The state would include in its state plan an emission standard that is the rate standard that results from the a pplicable operational or other standard. See Section VIII.C of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenter s supported the development of a work practice standard because of a lack of readily quantifiable reductions that can demonstrate achievement with a rate

- based goal or emission cap,

an d lack of real

- time heat rate measurement technology to assess improvements associated with particular operating practices or equipment upg rades

. Commenters stated that improvements in building block 1 cannot be reliably projected or enforced, and that EPA must acknowledge these uncertainties and revise its criteria to accommodate a reasonable work practice standard.

Commenter s also not ed that a work practice standard could be used by states to evaluate future outage work and assure efficiency of existing fleets276 5.13 EMISSIONS AVERA GING AND TRADING

This section addresses comments on emissions averaging and trading , including comments on
cap

- and

- trade programs

. These c omments cover such topics as the potential advantages and issues related to emissions trading programs , interstate trading of emission allowances, emission averaging. Also included are commenters ’ recommendations regarding the design and implementation of these programs and suggestions regarding areas where EPA can provide guidance and support to states considering incorporating a trading program into their state plan.

Commenters have raised a num ber of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Numerous commenters supported emissions trading p rogram s and noted that this approach has been demonstrated by th e Regional Greenhouse Gas Initiative (RGGI) and California’s cap

- and

- trade program.

Response 1: Commenters note many benefits of emission trad ing programs. The EPA has implemented several of these programs and agrees with commenters’ statements.

The follow ing are summaries of the specific public comments under this comment:

Many commenters supported emissions trading programs. Commenters supported emissions trading programs because they believe these approaches provide greater flexibility for achieving
sta te CO 2 goals, are the most cost effective way to reduce emissions, and would be beneficial to
power consumers. C ommenter s argued this degree of flexibility is needed because many EGUs will not be able to make even the required heat rate improvements, while the other building blocks are by definition beyond the control of individual electric generating units (EGUs).

• RGGI WORKS: Commenters noted that existing market

- based emission trading programs, such as RGGI and the California program, have successfu lly demonstrated that trading programs are an efficient, cost

- effective method achieving emission reductions. Commenters noted that the nine states participating in the Regional Greenhouse Gas Initiative have together reduced carbon pollution in the region by over 40 percent from 2005 to 2012. Commenters noted that the new RGGI cap of approximately 78 million tons in 2020 is more than 50 percent below 2005 levels and the net benefits of RGGI were approximately $1.6 billion in the first compliance period. Co mmenters observed that the true cost of RGGI has never been revealed. Studies have failed to capture the costs of transmission upgrades or reliability must run orders. Commenters asserted RGGI might be the least bad means of attaining compliance with the C lean Power Plan.

• CALIFORNIA'S PROGRAM WORKS: Commenter s also mentioned California's
economy

- wide greenhouse gas (GHG) emissions cap. Commenters noted that277 California has already held four successful allowance auctions and the cap and trade program is proje cted to reduce emissions by 25 percent from 2006 to 2020. Commenters claimed that California's utility sector greenhouse gas emissions have declined with emissions from in

- state and imported power falling by 16 million metric tons, or 16 percent, from 2005 to the 2010

- 12 averaging period (from 108 million metric tons CO 2 e to 91 million tons CO 2 e). By 2025, California expects to cut utility sector emissions to below 80 million metric tons CO 2 e, a roughly 25 percent reduction from 2005 levels in that sector, with already low emissions compared to other states.

Commenters stated they support market solutions as the best and most efficient means to drive emission reductions at the lowest cost to the economy, and they agree with and support maintaining the Agency 's interpretation that

"the definition of 'standard of performance' is broad enough to allow states to implement the proposed EPA guidelines by incorporating emissions averaging and trading provisions, including both emission rate programs, in which sources may average or trade those rates, and mass emission limit programs, in which sources may buy and sell mass emission allowances (and, under certain circumstances, offsets)."

Commenters supported allowing multi

- year averaging to demonstrate compliance and cited RGGI as having a 3

- year compliance period. However, the commenter s stated there are several effective steps the Agency could take to improve states' ability to design plans that can fully utilize this valuable tool:

• Provide presumptive mass based standards for each state;

• Provide central, harmonizing standards and compliance infrastructure for states to voluntarily utilize;

• Enable " out of sector " greenhouse gas emission reductions to be used to demonstrate compliance with a State's compliance goal; and

• Ensure adequ ate time is available for market design and formation.

Commenters supported allowing states to join regional trading initiatives as an additional tool by which to implement the carbon dioxide reductions required to meet their goals.

Commenters stated, to a ddress greenhouse gas emissions from existing power plants, the States support EPA's proposal to allow states to utilize trading programs. Commenters said, cap

- and

trade programs are well suited to reducing greenhouse gas emissions because such programs

en sure compliance with emission limitations and such emissions do not pose the type of "hot spot" concerns that toxic pollutants such as mercury do . The commenters also discussed the success of RGGI

.
Commenters also stated EPA may consider scenarios in which emissions reductions attributable to renewables generation and increased end

- use energy efficiency would be credited on the basis278 of CO 2 emissions avoided, with such credits to be used by covered facilities to achieve compliance with the emission guidelin es. [ See, e.g., Natural Res. Def. Council, Closing the Power Plant Carbon Pollution Loophole: Smart Ways the Clean Air Act Can Clean Up America's Biggest Climate Polluters (Mar. 2013). ] Commenters said, i n considering these scenarios, EPA should evaluate a nd articulate any methodology to be used to determine credit eligibility

.

Comment 2: Many commenters noted that c ap

- and

- trade programs are efficient, s imple to i mplement , and easy to enforce.

Response 2: The EPA has implemented several cap and trade progr ams in the final rule, and agrees with commenters’ opinions. Most covered sources under the Clean Power Plan final rule have had experience with trading and monitoring and reporting since 1995 with the Title IV Acid Rain Program, a national program to reduce sulfur dioxide emissions from power plants. Commenters ar e correct to point out the success of such programs in achieving emission reductions in a cost

- effective manner and that the equipment and protocols to comply are readily available and in most cases, already in place. The simple and straightforward manner of accounting for compliance has also been a benefit. Aside from the benefits to public health and welfare, resource savings for both sources and government have also been demonstrated. Section s V and VIII of the CPP final rule preamble addres s emission tr ading at length

, specifically in section VIII, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for
rate

- based approaches. Note also that concurrent with this final rule, the EPA is proposing a Federal Plan with model rules that states may con sider in developing their plans

. The following are summaries of the specific public comments under this comment:

Commenters stated that trading systems are an efficient and easy way to ensure compliance. Commenter s believe that an emissions cap is a good a pproach for monitoring and verifying compliance. For states that rely on a suite of policies to reduce emissions, commenter s stated that an emissions cap is a simple but rigorous method of ensuring and verifying that the policies achieve the emission reduc tions.

• Commenter s noted that even though the required emission reductions are achieved on a regional basis, the point of compliance is with the source bec ause sources cannot emit more than the number of allowances they hold.

• Commenter s noted that the mea surement of CO 2 emissions at sources covered by the cap can be accomplished using existing emissions monitoring equipment and protocols already in p lace at these sources. Commenters noted that covered sources report CO 2 emissions in accordance with 40 CFR Part 75.

• If a source does not have adequate allowances to cover its emissions, c ommenters stated that enforcement can be taken directly against that source. Because of the simple and straightforward nature of determining whether the cap is met,279 Commenters believed budget trading programs obviate the need for EPA or states to conduct a complex analysis to determine whether a state meets its compliance requirements.

Commenters stated that California's Global Warming Solutions Act (GWSA) allows an

e conomy

- wide cap

- and

- trade program across sectors to achieve carbon reductions. Commenters said the GWSA recognizes that f or some energy

- intensive industrial sources, stringent requirements in California, either through inclusion in a cap

- and

- trade program or through

source

- specific regulation, have the potential to create a disadvantage for California facilities relative to out

- of

- state competitors unless those locations have similar requirements. If production shifts outside of California, emissions could rem ain unchanged or even increase. Commenters said maintaining sector

- specific requirements will help safeguard against such complications.

Comment 3: Commenters believed that m arket

- b ased p rograms provide greater electricity

r eliability than other approa ches.

Response 3: The EPA encourages states to work closely with RPOs in developing state plans that implement the emission standards . Section VIII .G.2 of the CPP final rule preamble discusses reliability. See also the TSD on resource adequacy and reliability in the docket to the CPP final rule.
The following are summaries of the specific public comments under this comment:

Commenters believed Regional Transmission Organizations (RTOs) should dispatch electric generating units (EGUs) according to complex mathematical models with the goal of minimizing costs and emissions (or water use or some other resource constraint). Pricing carbon m ay be a more viable solution to meeting carbon emissions standards than environmental dispatch, but absent Congressional action the legal authority for RTOs or groups of states to act in a way that is envisioned by the CPP is uncertain. Commenters state d t hat market

- based emissions credit trading programs are the most efficient pathway to ensuring compliance costs are appropriately tied to economic dispatch priorities. "Baking" compliance costs of various generators into their market bids allows both econom ic and environmental attributes to be accounted for in a single merit

- order dispatch schedule and greatly simplifies electricity market rules and operations.

Commenters believed that a market based trading program would help mitigate any localized system r eliability concerns, since power plants in areas with high electricity demand would be able to purchase allowances from facilities in states with better access to natural gas redispatch.

Comment 4: Commenters preferred m arket

- b ased p rograms that are base d on mass

- based limits because they believed they would be easier to implement and states and utilities are familiar with other mass

- based programs, such as the Acid Rain and CAIR trading programs

.280 Response 4: In the CPP final rule preamble, the EPA finalized both mass

- based limits and rate

based performance standards. Section VIII describes state plan approaches including rate

- and

mass

- based approaches with which states can elect to comply. Section VIII also addresses mass

based emission standards w ith a market

- based emission budget trading program. Specifically, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for rate

- based approaches. Section V addresses the legal justification of including emissions trading within the best system of emission reduction (BSER). Note also that concurrent with this final rule, the EPA is proposing a Federal Plan with model rules that states may consider in developing their plans

. The following are summaries of the specific public comments under this comme nt:

Commenters believed that a mass

- based allowance system has advantages over a rate

- based system.

• A mass

- based allowance system automatically accounts for: 1) improved efficiency at the plant level, 2) reduced demand resulting from demand

- side energy ef ficiency improvements, 3) load shifting to lower CO 2 emitting generation, and 4) and the deployment of renewable (zero

- emitting) energy

sources.

• A mass

- based allowance system parallel EPA's Acid Rain and CAIR trading programs; states have no experience wi th rate

- based trading systems. The federal agency could establish state CO 2 budgets, based on application of site

- specific BSER. States could then allocate their budgets to their facilities using whatever methodology they choose (e.g. auction or historical activity). States would then have the option of allowing their sources to participate in an intrastate or interstate trading program.

Comment 5: Commenters supported trading programs because they believed they would provide an incentive for states to pre serve their existing nuclear power plants.

Response 5: The EPA is not finalizing increased generation from new nuclear capacity as a component of the BSER in building block 3 in the CPP final rule preamble. The EPA is also not finalizing the proposal to include a component representing preserved existing nuclear generation in the BSER. See section V of the CPP final rule preamble for a discussion of nuclear generation and the final building block 3

. G eneration f rom new nuclear units and capacity uprates a t existing nuclear units would still be able to help sources meet emission rate

- based standards of performance through the creation of credits, as discussed in section V.A of the final rule preamble , and would help sources meet mass

- based standards of perf ormance through reduced utilization of fossil generating capacity leading to reduced CO 2 emissions at affected EGUs. See section V of the CPP final r ule preamble for a discussion on the legal justification of including emissions trading within the best sys tem of emission reduction (BSER).281 The following are summaries of the specific public comments under this comment:

Commenter s stated that this approach provides states with a strong incentive to preserve th e existing nuclear fleet because the premature reti rement of a nuclear plant and its replacement by natural gas

- fired facilities would result in substantially increased carbon emissions, higher allowance prices, and higher electricity prices.

Comment 6 : Commenters asserted that a rate

- based trading program would be too complex and that a mixture of rate

- based and mass

- based trading programs around the country would be difficult to affectively administer, arguing that it would be difficult to link rate

- based trading programs with mass

- based trading pr ograms.
Response 6: In order to provide states with the greatest number of options and flexibility in meeting the performance rates, the emission guidelines finalize both mass

- and rate

- based approaches, which each could be implemented through trading prog rams. Section V addresses the legal justification of including emissions trading within the best system of emission reduction (BSER) and section VIII of the CPP final rule preamble discuss es emission trading approaches

. In the final rule preamble, the EPA provides approaches in the emission guidelines for how a
rate

- based trading program and a mass

- based trading program would be implemented but does not project linking rate and mass trading states

. States have options and flexibility to choose to implement mass

- based goals or rate

- based goals or performance rates under the CPP final rule. Specifically in section VIII, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for
rate

- based approaches. Note also that concurrent with this final rule, EPA i s proposing a Federal Plan with model rules that states may consider in developing their plans

. The following are summaries of the specific public comments under this comment:

Commenters asserted that rate

- based trading systems are more complex and that a patch

- work of

mass

- based and rate

- based systems around the country would prove extremely difficult to administer effectively. Commenter s caution ed that research suggests enabling linkage between a state with a rate

- based program and a state with a mass

- based program will increase emissions relative to a scenario without linkage. Commenters stated t he rate

- based systems increases trade, depresses pri ces, and increases production; interstate linkage compounds changes. Commenters stated t he research includes a discussion of available measures for ensuring that overall emissions do not increase due to linkage including, requiring states with rate

- based p rograms to convert to mass

- based standards prior to trading.

Comment 7 : Commenters asserted that ma rket b ased p rograms a re g ood f or

c onsumers, e mployment, and the e nvironment and noted that these advantages of a market

- based program had already been demon strated by Regional Greenhouse Gas Initiative (RGGI) had demonstrated

.282 Response 7: The EPA agrees with commenters. As discussed in sections V and VIII of the CPP final rule preamble, the EPA concurs with commenters that emission trading lowers overall costs, adds flexibility, and makes it easier for sources to address pollution control objectives. Congress and the EPA have selected emission trading approaches when addressing national and regional pollution from the utility power sector contributing to p roblems such as acid precipitation and interstate transport of ozone and particulate matter. State s will have every opportunity to design their section 111d plans to allow the affected EGUs in their respective jurisdictions to employ emissions trading appr oaches to achieve the standard of performance established in those plans.
The following are summaries of the specific public comments under this c omment:

Commenters suggested that revenues from cap and trade programs can be used to fund renewable energy and energy efficiency programs. Commenters noted that states participating RGGI are inves ting revenue from allowance auctions in energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct bill assistance programs. Commenters stated t hese investments in energy efficiency have helped six of the nine RGGI states rank in the top ten most energy efficient states, according to the American Council for an Energy Efficient Economy. Commenters also noted that Massachusetts invests approximat ely 90 percent of its RGGI proceeds in energy efficiency and as a result has been ranked the number one energy

- efficient state for the last three years. Commenters stated a n independent study by The Analysis Group found that RGGI states have realized a $1. 6 billion net benefit from the first three years of the program due in large part to the energy efficiency investments that have reduced consumer electricity spending and increased economic activity (see http://www.analysisgroup.com/uploadedFiles/Publishing/Articles/Economic_Impact_RGGI_Rep ort.pdf ). Commenters stated t he same study also found that the region would see a net increase of 16,000 jobs due to these energy efficiency investments and other auction revenue spending. Commenters said p articipating states have found that RGGI captures the benefits of complementary state policies and has resulted in significant changes across the electricity sy stem to reduce emissions. Commenters also said t hese include investments by power companies to make existing units more efficient, shifts across the electricity system to greater use of cleaner fossil

- fuel generation sources, reduction of electricity load growth through demand

- side energy efficiency strategies, and replacement of fossil

- fuel generation with increased renewable energy.

Commenter s compared the RGGI

- driven CO 2 emission reductions to the emission reductions that would result from the Existing Source Performance Standard and stated that calculations showed that the RGGI reductions are the greater of the two, underlining the contention that RGGI can be an adequate compliance mechanism.

Commenters noted that in 2012 RGGI states invested 73 percent of auction revenue in energy efficiency progra ms that are expected to save $1.8 billion on electricity bills over the lifetimes of the measures. Commenters also stated that between 2009

- 2012 RGGI auctions generated $912 million or $33 per capita spread th roughout the region, which was allocated as follows: 65 percent to energy efficiency, 17 percent to direct bill assistance, 6 percent to clean and renewable energy, and 6 percent to GHG abatement. Commenters suggested that Coal

- heavy states that join283 regional programs could decide to direct auction revenue to worker retraining and economic diversification, and should be encouraged to do so.

Commenters argued that participation in RGGI should fully satisfy EPA's current proposal, but acknowledged addit ional technical support materials will need to be provided to demonstrate equivalency. However, c ommenters took issue with the post

- 2030 reductions and contend ed that RGGI targets, which caps emissions then requires a 2.5 percent per year reduction from 20 15 to 2020, is more reasonable.

Comment 8 : Commenters noted that t rading p rograms could accelerate emission reductions.

Response 8: The EPA agrees with the commenters. Historically, evidence exists that trading
programs provide cost

- effective opportunitie s to make reductions early and sooner than might otherwise have happened. For instance, the Title IV Acid Rain program, established by the CAAA of 1990, had a national goal of 10 million tons of SO2 by the year 2010. Title IV was implemented by a mass

- base d cap and trade program which achieved the 10 million ton cap by 2007. See sections V and VIII of the CPP final rule preamble for a discussion of emission trading.
The following are summaries of the specific public comments under this comment:

Commenters believed a trading program would allow EPA to accelerate the reduction of greenhouse gas emissions. Commenter s suggested a 30% reduction in five to seven years and a 50% or greater reduction by 2030 may be possible if a trading program is adopted.

Commen t 9 : Commenters expressed concern that that cap

- and

- trade programs may undermine economic planning due to price volatility of carbon allowances.

Response 9: Emission trad ing programs are discussed in section V and throughout section VIII of the CPP final rule preamble. Specifically in section VIII, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for rate

- based approaches. Economic impacts of the final rule are addressed in section XI of the CPP final rule preamble. Markets are inherently vola tile but experience in the US with over 20 years of cap and trade programs and regional CO 2 programs in the Northeast and California does not reflect the problems in the EU that the commenter s raise.
The following are summaries of the specific public comments under this comment:

Commenters were concerned cap and trade programs may undermine economic planning due to volatility in the price of carbon allowances. C ommenters specifically noted the volatility in the allowance prices in the European Union's Emission Trading System (ETS). Commenters noted that the price reached 47 Euros in 2008 and dropped to below 10 Euros in 2013. Despite intervention of the ETS, prices continued to fall and in March 2014 prices fell to 3.71 Euros, triggering stop

- loss shutd owns. Commenters note d that the ETS has allowed some companies to284 reap windfalls due to the over allocation of allowances. Commenters also noted that the ETS has experienced problems with fraud. Commenters noted the spot marked had to be shutdown in 2011 a fter a group of Eastern European hackers infiltrated the system, which cost European governments 5 billion Euros.

Comment 10 : Commenters recommended the EPA evaluate allowance prices under the RGGI to determine impact on fuel diversity and determine wheth er third

- party market participation is appropriate.
Response 10: EPA has not made an analysis of RGGI allowance prices and fuel diversity. In the US cap and trade markets, including the Acid Rain program, regional NOx and ozone programs, and RGGI and Calif ornia GHG programs, anyone can purchase allowances and participate in the markets.
The following are summaries of the specific public comments under this comment:

Commenters observed that allowances purchased by RGGI

- EGUs in 2013 and through June of 2014 has declined. Commenters ask ed EPA to evaluate: 1) how the trend is impacting fuel diversity and 2) if third party (i.e., investors) market participation is appropriate.

C omment 1 1 : Several commenters thought oversight of emissions trading was important; some recommended the EPA facilitate interstate trading by providing assistance with allowance tracking, measurement and verification, etc.

Response 11: The EPA is committe d to working with states to provide support for tracking of allowances or credits to help implement multi

- state trading or other multi

- unit compliance approaches. See section VIII .K.3 of the CPP final rule preamble for discussions on allowance tracking and evaluation, measurement and verification.
The following are summaries of the specific public comments under this comment:

Several commenters were concerned that a cap and trade programs must include sufficient monitoring, verification, and enforcement con trols to ensure compliance. Commenters believe EPA should facilitate interstate trading and ensure that other interested states are able to realize these types of benefits by providing assistance with tasks such as allowance tracking and auction administra tion. Commenter s recommended the EPA develop a credit tracking system for states that wish to enter into trading programs that exchange emission reduction credits as valid compliance instruments and assist states with evaluation, measurement and verificati on (EM&V) for trading credits for energy efficiency programs.

Commenters believe d that if states have a good track record of administering trade programs, for example the RGGI states, then it may be appropriate for the EPA to delegate its authority285 provi ded the EPA includes robust requirements for monitoring, verifying and enforcing trading
programs.

Commenter s encouraged the EPA to provide the infrastructure for CO 2 and MWh tracking and trading systems that states can choose to use (on an "opt

- in" basis) for compliance with this rule. Commenters stated that such infrastructure could be similar to the system that Clean Air Markets Division (CAMD) provides now for tracking allowances under the acid rain, N Ox SIP call and CAIR/CSAPR programs. Commenters noted that this system is already used to track CO 2 emissions from power plants, and states could choose to structure programs to allow trading that utilizes this infrastructure.

Comment 1 2 : Commenters recom mended the EPA provide additional guidance to states wishing to implement a market

- based trading program.

Response 12: See section VIII of the CPP final rule preamble under state plan approaches. The emission standards state plan approach covers both a rat e

- based approach and a mass

- based emission standard with a market

- based emission budget trading program. The state measures state plan type also addresses emission trading programs. Multi

- state plans including multi

- state coordination on rate

- based emissio n trading programs and mass

- based emission trading programs are further covered in section VIII of the CPP final rule preamble. Specifically in section VIII, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for rate

- based approaches. Note also that concurrent with this final rule, the EPA is proposing a Federal Plan with model rules that states may consider in developing their plans

. The following are summaries of the specific public comments under this comment:

Commenters ask ed that EPA give states additional guidance on how to implement a flexible market mechanism. Carbon fees and allowance trading both are statutorily authorized implementation tools. Commenters believed that this guidance would reduce states' uncertainty and e ncourage the adoption of efficient approaches.

Comment 1 3 : Several commenters recommended the EPA provide a model rule for an interstate emissions trading program that could be adopted by states.

Response 13: The EPA is proposing a federal plan concurrent ly with this CPP final rule which states could use as a model rule. Both rate

- based and mass

- based trading are addressed in the proposed federal plan.
The following are summaries of the specific public comments under this comment:

Commenters recommended t he EPA provide a model rule for an interstate emissions credit

trading program that could be easily adopted by states. Commenter s believed a model rule would help states establish appropriate trading and ceiling policies that complies with the section 111( d) guidelines.286 Commenter s noted that a similar approach was taken by the Agency for the NOx SIP Call and that states that included the model rule in their SIPs enjoyed a streamlined SIP approval process, while sources involved in the program "reaped subst antial cost savings and increased compliance flexibility." Commenters also described the basic elements of the NOx SIP Call, which are equally appropriate for the CPP, and recommended that the EPA include an allowance "set

aside" for new fossil EGUs in any model CO 2 budget

- trading program in an amount necessary to account for projected growth through 2030.

• Commenters stated that states participating in the model program would be required to include emissions from new fossil

- fired generation under the cap, and allowances to such units would be allocated only from the new

- source set

- aside so that state budget cap would not be increased.

• Commenters noted that states could decide how to allocate the set

- aside allowances (e.g., auctioned to new units, allocated based on a new source emission standard established under section 111(b), or some other method) and that unused al lowances in the set

- aside could be returned each year to the state's general allowance pool for existing units or retired.

• Commenters recommended the EPA provide states with incentives to adopt mass

based allowance trading systems with an emissions cap. Co mmenters believe d the EPA could structure voluntary incentives for emission allowance trading in a number of ways, including: (a) creating a complete mass

- based trading system for voluntary adoption by states, similar to that employed in the NOx SIP Call; or (b) providing detailed guidance to states wishing to (1) create new regional mass

based allowance trading systems, or (2) join existing systems such as RGGI or the California Global Warming Solutions Act Program, or (3) trade allowances with other state s that have non

- identical (but mass

- based) implementation plans.

• Commenters recommended the CO 2 budget

- trading program should also address unit retirements. A reasonable approach would allow states, participating in the allowance trading program, to permit units that retire (or announce retirement) following the submission date for the state's 111(d) plan to retire before 2030 to retain their allowances until 2030, and those that retire during or after 2030 would not retain any allowances post

- retirement. T his would provide units with an incentive to retire prior to 2030, but would take full environmental advantage of those retirements starting in 2030.

Comment 1 4 : Commenters recommended the EPA provide guidance for multi

- state plans.
Response 14: See sect ion VIII .C.5, VIII. J.3, and VIII. K. 4 of the CPP final rule preamble on state plan approaches , multi

- state coordination of mass

- based emission trading programs, and multi

- state coordination of rate

- based trading programs, respectively. The se subsection s discuss multi

- state plans that addresses multi

- state coordination through joint emission goals; multi

- state coordination among states retaining individual state goals; multi

- state coordination on rate

- based287 emission trading programs; multi

- state coordinati on on mass

- based emission trading programs; multi

- state plans that address a subset of EGUs in a state; and legal issues regarding multi

- state plans.
The following are summaries of the specific public comments under this comment:

Several commenters recomme nded the EPA provide guidance to states wishing to implement

mass

- based allowance trading programs, including providing assistance to states wishing to develop multi

- state trading programs. Commenters stated that the EPA could allow states to build on exis ting mass

- based allowance programs, such as R GGI and the California Global Warming Solutions Act program.

Commenters noted, however, that these existing programs would have to be adapted for the section 111(d) guideline by removing the offsets in the RGGI program and limiting the sources who could trade allowances in the California program.

Commenter s stated that several states could establish a trading system without adopting identical trading plan provisions. Commenter s believe d that such as approach cou ld appeal to states that want to take advantage of a mass

- based allowance trading but do not agree on all aspects of a single trading program. Commenters noted, however, that the EPA would need to ensure that the trading program provisions of each state we re compatible, capable of practical implementation, did not compromise the integrity of the section 111(d) requirements, and would meet the CPP state targets in the aggregate for all of the participating states.

For such cases, c ommenters recommended EPA' s guidance specify the minimum criteria for the program, including rules for banking, borrowing, and a comparable price cap. C ommenters stated that the trading programs must include a cap on total emissions, that "self

- correcting" provisions be structured around a single interim compliance period, and allow for banking within this period in accordance with the program's allowance allocation processes.

Commenter s believe d a model CO 2 budget

- trading program should also address unit retirements. Commenters not ed that retirement of existing high

- emitting units can be a substantial source of overall system emission reductions, but that benefit can be compromised if retiring units are permitted to retain their original allowance allocation indefinitely. C ommente rs stated that requiring allowances to be immediately retired upon unit retirement could provide a disincentive for those units to retire in a timely fashion. Commenters believe d that a balanced approach would allow states participating in the allowance trad ing program to permit units that retire (or announce retirement) following the submission date for the state's 111(d) plan and retire before 2030 to retain their allowances until 2030, and those that retire during or after 2030 would not retain any allowan ces post

- retirement. Commenters stated u sing this approach provides units with an incentive to retire prior to 2030, but would take full environmental advantage of those retirements starting in 2030.

Commenter s argued the EPA's proposed multi

- state trading program is unnecessarily complex and stated that trading programs should not require states to complete a complicated interstate compact or memoranda of understanding. Commenters stated i f a state has an approved section 111(d) plan, then that state shoul d be able to trade credits (i.e., emissions or energy) with any288 other state that also has an approved plan without having to create any additional agreement. Absent this simplified approach, c ommenters believed states with less stringent emission reduction goals may be unlikely to pool their requirements with states subject to more stringent goals.

Comment 1 5 : Commenters recommended carbon sequestration by agriculture be incorporated into cap

- and

- trade programs.
Response 15: Measures that reduce CO 2 emissions outside the electric power sector may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate

- based or mass

- based approach, because all of the emission reduction measures included in the EPA’s determination of BSER reduce CO 2 emissions from affected EGUs. See section VIII .K.1 of the CPP final rule preamble. Examples of measure s that may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal include GHG offset projects representing emission reductions that occur in the forestry and agriculture sectors, direct air capture, and crediting of CO 2 emission reductions that occur in the transportation sector as a result of vehicle electrificatio n. We note, however, that the final emission guidelines allow state measures like emission budget trading programs to include out

of

- sector GHG offsets. For example, both the California and RGGI programs allow for the use of allowances awarded to GHG offse t projects to be used to meet a specified portion of an affected emission source’s compliance obligation.
The following are summaries of the specific public comments under this comment:

Commenters believe d carbon sequestration through agriculture should be incorporated into cap and trade programs by adding "Agricultural Carbon Credits" to the Cap and Trade program. Commenters believe d the soil is the world's second largest and the most accessible carbon sin k for carbon sequestration. Commenters noted that recent research suggests that a two percent increase in world soil organic matter could sequester all of the excess carbon dioxide in the atmosphere within ten years. Commenters stated p roven agricultural t echniques for increasing the percent organic matter of soil, include intensive rotational grazing of grassland, along with cover crops and minimum tillage for arable lands. Commenters argued that these farming techniques are readily available from any Coun ty Extension Office, as well as numerous sources online. Commenters believe that Agricultural Carbon Credits would provide the incentive needed to encourage ranchers and farmers to adopt these practices. Commenters stated t he carbon content of soils can be determined from common soil test results. By adding Agricultural Carbon Credits to the Cap and Trade program, c ommenters believed the EPA would promote a cost effective method of moving carbon from the atmosphere back to the soil where it is needed to fee d the people.

Comment 16 : Commenters recommended carbon sequestration by forests be allowed in state plans to encourage investment in forests by states and utilities.
Response 16: Measures that reduce CO 2 emissions outside the electric power sector may not be289 counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate

- based or mass

- based approach, because all of the emission reduction measures included in the EPA’s determination of BSER reduce CO 2 e missions from affected EGUs. See section VIII .K of the CPP final rule preamble. Examples of measure that may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal include GHG offset projects representing emission reductions that occur in the forestry and agriculture sectors, direct air capture, and crediting of CO 2 emission reductions that occur in the transportation sector as a result of vehicle electrificati on. We note, however, that the final emission guidelines allow state measures like emission budget trading programs to include out

of

- sector GHG offsets. For example, both the California and RGGI programs allow for the use of allowances awarded to GHG offs et projects to be used to meet a specified portion of an affected emission source’s compliance obligation.
The following are summaries of the specific public comments under this comment:

Commenter s maintain ed the final rule should include forest offsets. C ommenters stated f orests can sequester carbon dioxide back into soil, produce biomass and durable products. Commenters stated t hese benefits can be achieved through a system of direct investment by States and/or EGUs at costs in the range of $10

- 20/ton whi ch is lower than projected costs of emissions reductions within EPA's four building blocks. Commenters said s tate compliance mechanisms within a SIP could generate revenue to partially or entirely fund forests , and that a lternatively, states can provide me chanisms to work with landowners or developers.

Comment 1 7 : Commenters recommended the EPA establish set

- asides for Tribes for interstate emissions credit trading programs.
Response 17 : For areas of Indian country with affected EGUs where a tribe has not applied for TAS and submitted any needed plan, if the EPA determines that a CAA section 111(d) plan is necessary or appropriate, the EPA would have the responsibility to establish the plans. Tribes are not required to implement section 111(d) plans and no tribe has yet sought TAS eligibility for this purpose . See section XII.F of the CPP final rule preamble for a summary of description of the implications of the rule for t ribes , as well as the consultation and coordination process the EPA has engaged in wit h Tribal governments. The agency is proposing to find that it is necessary or appropriate to implement a section 111(d) federal plan for the affected EGUs located in Indian country. CO 2 emission performance rates for these facilities were finalized in the emission guidelines in the CPP final rule. See section VII. Tribes generally may seek “treatment as a state” (TAS) and submit a tribal plan to implement CAA programs, including programs under section 111(d), and this proposed finding does not preclude trib es from doing that. However, tribes are not subject to the deadlines applicable to state action under the emission guidelines and in the absence of a federal plan, CO 2 emissions from these EGUs could go unregulated. EPA did not propose tribal set

- asides as part of the final rule but tribes will have the opportunity to comment on the federal plan proposal that is concurrent with this final rule. The following are summaries of the specific public comments under this comment:290 Commenter s recommended the EPA est ablish a Tribal set

- aside as part of an interstate emissions credit trading program. Commenters noted that a similar approach was taken by the Western Regional Air Partnership (WRAP), where an annual SO2 tribal set

- aside of 20,000 tons was made available t o Indian Tribes within the nine

- state region. Commenters asserted that a set

aside would help to ensure equitable treatment for tribal economies and prevent barriers to future economic development.

Commenters stated the integrated nature of the electricit y grid, in which these jurisdictions do participate means that actions taken there do enable reduced utilization of designated facilities elsewhere on the grid. The question that remains is how CO 2 emissions avoided through low

- or

zero

- carbon energy generation and energy efficiency measures in these jurisdictions could be used to adjust or credit CO 2 emission rates in states covered by the CPP. [SNPRM, 79 Fed. Reg. at 65,496.] Commenters' explained that states, and tribal or territorial areas without designated facilities must make a submittal to certify that there are no designated facilities within the pertinent areas, and where relevant, must make clear the intention with respect to the future of any already retired designated facilities. To the extent that EPA finalizes a regional approach to BSER based on the potential for building block 3 and 4 resources in these jurisdictions to reduce CO 2 emissions from designated facilities, the jurisdiction s must submit plans or statements certifying or confirming the resources available or projected to reduce utilization of designated facilities in other states. And, Commenters expressed that, should a state, tribe, or territorial area seek allowances under any mass

- based allowance trading compliance system, there must be some basis for tracking the renewable or their low

- or zero

- carbon resources within their boundaries, which can be provided by such plan or certification.

Comment 1 8 : Several commenters as ked for clarification on whether emission offsets could be used in a cap

- and

- trade program and whether entities other than utility boilers could particulate in such programs.
Response 18: See section VIII of the CPP final rule preamble. Measures that redu ce CO 2 emissions outside the electric power sector may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate

- based or mass

- based approach, because all of the emission reduction measures in cluded in the EPA’s determination of BSER reduce CO 2 emissions from affected EGUs. Examples of measure that may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal include GHG offset projects representing emission reductions that occur in the forestry and agriculture sectors, direct air capture, and crediting of CO 2 emission reductions that occur in the transportation sector as a result of vehicle electrificati on. We note, however, that the final emission guidelines allow state measures like emission budget trading programs to include out

of

- sector GHG offsets. For example, both the California and RGGI programs allow for the use of allowances awarded to GHG offs et projects to be used to meet a specified portion of an affected emission source’s compliance obligation.

The following are summaries of the specific public comments under this comment:291 Commenters request ed clarification on whether emission "offsets " ge nerated by energy efficiency improvements and power generated by renewable energy (i.e., building blocks 3 and 4) would be eligible to participate in a cap and trade market. Commenters also asked whether an affected EGU can use an offset to demonstrat e com pliance with emission performance or the offset can only be use d in complying with emission limits

. Commenters argue d that any offsets would enable those facilities to continue emitting and would increase emissions of co

- pollutants without a corresponding decrease in emissions from other facilities covered by the program. Commenters noted that environmental justice communities could be impacted by increases in co

- pollutant reductions if offsets are allowed. Commenter s also noted that certain offsets, such as those resulting from biological carbon sequestration, would complicate emissions monitoring, as these projects are difficult to verify.

Commenters stated that distributing the legal obligation to hold allowances among entities other than power plants on ly complicates the administration and enforcement of a trading program. Commenters argue d that these out

- of

- sector offsets have been demonstrated. Commenters stated The California Global Warming Solutions Act of 2006 ensures the reliability of out

- of

- secto r offsets is through the concept of " additionality ." Commenters stated CARB's program has withstood challenge on the grounds that the additionality standard was insufficient (see San Francisco Sup. Ct. filing Mar. 27, 2012).

Commenter s recommended the EPA accommodate a diversity of trading program designs, including economy

- wide trading programs; specifically "umbrella" policies that include emission reductions from complementary programs, such as renewable portfolio standards, emission reduction programs directed at other pollutants, as well as fuel switching and power plant energy efficiency.

Comment 1 9 : Commenters recommended emission allowances for trading programs be auctioned rather than allocated by the state to avoid windfall pr ofits for utilities and to raise revenue for addressing environmental justice concerns.

Response 19: See section VIII of the CPP final rule preamble for a discussion on emission trading programs. An emission budget trading program establishes a combined e mission standard for a group of emission sources in the form of an emission budget. Emission allowances are issued in an amount up to the established emission budget. Allowances may be distributed to affected emission sources through a number of different methods, including direct allocation to affected sources or auction. States are able to establish auctions for distribution of allowances, as is done in the RGGI and California GHG programs.
The following are summaries of the specific public comments under this comment:

Commenter s recommended states auction allowances for cap and trade programs because they believe that requiring sources to pay for the right to pollute forces them to internalize these costs, reduces the potential for windfall profits, and t he revenues can be used to address environmental justice concerns.292 Comment 20 : Commenters expressed concern that power plants will “buy their way out of compliance” if allowed to use trading programs.
Response 20: The CPP final rule is a national program that has established source category

specific CO 2 emission performance rates for electric steam generating units and combustion turbines

. The EPA has translated these performance rates into equivalent state

- level rate

- based and mass

- based CO 2 goals in order to maximize the range of choices that states will have in developing their plans. The EPA has also finalized three interim performance periods, each with its own milestone, as well as an interim goal (wherein the state must demonstrate it h as met its interim goal on average over the eight years of the period) , and a final goal. States must demonstrate starting in 2025 that reductions are occurring as reflected in the state’s 111d plan. EGUs must also achieve the final CO 2 performance rates o r equivalent statewide goal by 2030 and maintain that level subsequently. Trading programs are an app roach to compliance that afford cost

- effectiveness and flexibility but also achieve needed reductions. See section s VIII .J and K of the CPP final rule prea mble for a discussion of mass

- based and rate

- based trading, respectively

. The following are summaries of th e specific public comments under this comment:

Commenters were concerned that some companies " will buy their way out of compliance " if states are all owed to use market

- based trading programs.

Comment 2 1 : Commenters were concerned emissions trading programs would increase the costs of energy production.
Response 21: This has not been the EPA’s experience. The now historic Title IV Acid Rain Program, which Congress authorized in the 1990 CAAA, was the most successful, cost

- effective national emission reduction program promulgated to date . It reduced sulfur dioxide from power plants across the country under a cap and trade program that allowed sources to adjust operations, install pollution control equipment, switch fuels to meet requirements, and other flexibilities which kept the electric system stable and reliable and was cost effective. Most important, it achieved huge reductions earlier and faster than anticipated , delivering health benefits to the public and improved air quality . Ultimately, the 2010 cap of 10 million tons of SO2 nationwide was met in 2007. B y putting a cost on pollution, trading programs encourage the
most cost

- effective and efficient units to operate. Regarding brokers and middle men, EPA does not regulate such markets. Regarding transaction costs, the EPA addressed perceptions about transaction costs in a previous proposal (that uses a cap and trade program) to which we refer the
comment er : see 75 FR 45316, August 2, 2010. This section of the Transport Rule (CSAPR) preamble describes a literature search on transaction costs that the EPA performed. We found no indication that transaction costs have been a problem. The EPA further determined that there is enough competition among the dozen or so brokerage houses that any attempt at charging fees in excess of market standards will be bid down through competition. See section XI of the CPP fi nal rule preamble for a discussion of the impacts of the final rule, such as energy impacts,293 compliance costs, and economic and employment impacts. Also see the RIA in the docket for the CPP final rule for a discussion of costs and benefits of the final CP P rule

. For discussions on trading in the CPP final rule, see sections V and VIII of the CPP final rule preamble. Specifically in section VIII, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for rate

- based approaches. Note also that concurrent with this final rule, EPA is proposing a Federal Plan with model rules that states may consider in developing their plans

. The following are summaries of the specific public comments under this comment:

Commenter s opposed emissions trading becau se they believe it does not reduce emissions and increases the costs of energy production and energy use by creating additional brokers and middle men in the price setting transaction process.

Comment 2 2 : Several commenters were concerned that emissions t rading programs would i ncrease pollution in economically disadvantaged communities , including Tribal areas.

Response 22: The EPA disagrees with these comments and has worked hard throughout the proposal and final rule promulgation process with stakeholders , tribes, and vulnerable communities to address issues of concern including environmental justice. See section IX of the CPP final rule preamble on community considerations as well as section s XII.F and J. For 20 years EPA has implemented emission trading programs addressing criteria pollutants, starting in 1995 with the Congressionally

- mandated Title IV Acid Rain program. Throughout these years, we have addressed issues of concern regarding tr ading. We have found no evidence that trading causes increases in emissions, localized impacts, or other disproportionate impacts on vulnerable communities. Historically we have seen the greatest reductions under our cap and trade programs in the states wi th the highest emissions. Independent analyses by organizations such as the Envi r onmental Law Institute, Resources for the Future, and Environmental De fense Fund, as well as Massachu setts Institute of Technology, have found that trading has not created “ho t spots”. Additionally, the Clean Air Act provides “backstops” for federal regulations in that states and localities have the authority under Title 1 to address persistent air quality problems. States and localities may impose stricter limits on sources to address specific local air quality concerns. These limits must be met regardless of a source’s accumulated allowances or credits. States and sources across the nation are familiar with the EPA’s cap and trade programs and under the CPP can build on these programs. However CO 2 is different from the criteria pollutants such as NOx and SO2 that we regulate. CO 2 is a global pollutant in that the location of its emission does not affect the location of the environmental harm it causes

. See the proposed rule and section II of the CPP final rule preamble for more information on the characteristics of CO 2 pollution.
The following are summaries of the specific public comments under this comment:

Commenters expressed concern that cap and trade approach would potent ially increase emissions of other pollutants (e.g., SO2, NOx, VOC, air toxics) in some areas. C ommenters were particularly concerned that a cap and trade program would create "hot spots" of air toxic emissions in economically disadvantaged areas, areas wit h high minority populations, and areas294 with low income communities. C ommenters stated that the proposed rule currently contains no systems to ensure that greenhouse gas reductions occur in communities that would benefit the most from co

- pollutant reduction s. C ommenters recommend provisions be included in the final rule to mitigate the disparate impacts of a cap and trade program. Commenters suggested the EPA identify high priority pollution zones where polluters would pay a higher price for their greenhouse gas emissions or impose other provisions that would provide a strong incentive for industries to reduce emissions in disadvantaged areas impacted by a cap and trade program. Commenters argue d that any flexible approaches will not apply, and are not transferrable to, emissions of hotspot pollutants from power plants. Commenter s recommend ed that once a cap

and

- trade program is in place, state regulators should monitor facilities located in or surrounding these communities to ensure compliance with their obligations under the program and communities should be encouraged to report any actions by facilities that they believe are in violation of t hese requirements.

Commenters were concerned about impacts on tribal areas and recommended the EPA require the following provisions in approvable state implementation plans:

• restrictions on allowance allocations and offsets for individual EGUs that have t he worst health impacts on nearby communities due to their high

- levels of co

- pollutants; and

• include controls to ensure reductions in co

- pollutants near Tribal lands.

Comment 2 3 : Commenters recommended cap

- and

- trade programs include stringent requirements regarding allocation of allowances to ensure states do not over

- allocate allowances

. Response 2 3 : See section VIII of the CPP final rule preamble for multiple discussions on trading programs under the different state plan approaches. Section V .A also discusses the role of emission trading. Specifically in section VIII, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for rate

- based approaches. Note that in the course of the 8 year interim compliance period, the CPP final rule requi res states to report to the EPA 3 times, starting in 2025, to demonstrate compliance with the stated goals in their approved state plan. In developing state plans, states that decide to implement emission trading programs , for instance on a mass basis

, would have a mass

- based goal or budget of allowable emissions during the compliance periods. States would not be able to allocate allowances greater than the budget. For state plans to be approvable by the EPA, states have to demonstrate that they will at tain the performance rates or

mass

- based or rate

- based equivalent state goals. The EPA can enforce against violating EGUs if actual CO 2 emission performance exceeds a state plan’s specified level for an interim period step or final plan reporting period by 10% or more. The RECLAIM program differs from the regional and national trading programs the EPA has developed and implemented. The RECLAIM trading program was established to addres s local air pollution problems; it does not permit banking to deal with sh ort term price volatility that results from endogenous or exogenous factors; it over

allocated allowances in the early years allowing for an increase in emissions over historical levels for many sources; it has a very substantial administrative review proc ess of reviewing all transactions that impacts confidence in the markets and transparency; it did not incentivize295 technological innovation; and has a limited/small number of participants due to its local nature. EPA does not find the RECLAIM program analog ous to the national program set forth in this final rule.
The following are summaries of the specific public comments under this comment:

Commenter s recommended the cap adopted by states implementing cap and trade programs should be stringent enough to ens ure the state goal is met and should not over

- allocate allowances. Commenters supported the approach taken by California's AB32 program, where the cap in 2013 was set at 2 percent below the emissions level forecast for 2012, was decreased by 2 percent in 2 014, and will be reduced by 3 percent annually from 2015 to 2020. As an example of the problems that may occur if states over

- allocate allowances, commenter s noted that the RECLAIM trading program for criteria pollutants in which large utilities opted to p urchase allowances instead of adopting control technology and the program consequently failed to produce expected emissions reductions.

Comment 2 4 : Commenters expressed concern that trading programs would p romote b usiness as

u sual and c ould p rovide " w indfall " profits f or s ome companies.
Response 24: We do not anticipate the same issues, including “ windfall profits ,” that commenters are concerned about which have occurred in the past in other countries, such as the EU ETS, but which have been subsequen tly resolved. Section VIII .C of the CPP final rule preamble describes state plan approaches and addresses emission budget trading programs under the state measures plan type as well as rate

- based emission trading programs. State s may choose to adopt source category

- specific CO 2 emission performance rates in lieu of other approaches. However, the EPA believes that the requirements for state reports on the state plan program ’ s performance, implementation milestones, and status updates during the interim compliance period and at the final goal and beyond, should ensure the reductions the rule requires. For instance, there are 3 interim reporting periods, starting in 2025. The f inal goal is in 2030. The EPA can enforce against any EGUs that are violating by 10% or more a state plan’s specified level for an interim period step or final plan reporting period.
The following are summaries of the specific public comments under this c omment:

Commenter s argued carbon trading programs tend to reward the heaviest polluters with

" windfall profits " when they are granted enough carbon credits to match historic production. Commenters further believe d that carbon trading encourages business

- a s

- usual, tends to discourage less expensive long

- term structural changes, and encourages use of cheap "offset" carbon credits from less developed countries where they may be generated by local polluters at the expense of local communities. Commenters state d t he same argument, they believe, can be made against emission averaging.

Commenter s agreed that emissions averaging and trading are allowable under section 111(d) but stated that an averaging and trading programs do not justify a more stringent BSER det ermination by the EPA.296 Commenter s questioned whether new source categories could be added to an EGU cap and trade
program. Commenters believe d that states would have to set up separate cap and trade programs for different categories because allowances fo r one source category would not be fully fungible with allowances from other source categories.

Commenter s maintained a cap

- and

- trade system will impose an unnecessarily large burden on consumers and it will substantially impair the competitiveness of any jurisdiction that adopts it. Commenters stated r evenue generated from a cap

- and

- trade auction would not benefit consumers because industry would lobby for a set

- aside of free allowances allocated by a political or administrative process. Commenters describ ed one emission trading system that minimizes the cost increase to consumers; emissions trading combined with an intensity constraint. Commenters said States require all sources to comply with the same carbon intensity constraint

, and t here is no fixed poo l of allowances to be allocated, and no central authority need collect any tax or pay any subsidy. Commenters stated that d etermining the targets for the states may require national coordination and safety valve mechanism to prevent price spikes. Commenter s stated EPA used this approach to control lead in gasoline in 1982.

Comment 2 5 : Commenters supported r estrictions being placed on a reas w here a l l owances c an be t raded to avoid emissions increases in areas with disadvantaged communities.

Response 25: The EPA disagrees that allowance trading causes increased emissions in areas with vulnerable communities

. In the CPP final rule, states are required to demonstrate interaction with vulnerable communities in the development of their state plans prior to submitt ing those to the EPA for approval. Additionally, section VIII.E discusses the consequences if actual emission performance does not meet the CO 2 emission performance rates or state CO 2 emission goal

– in

essence, in some cases the EPA can enforce against an EGU that exceeds a state plan’s specified level by more than 10% in an interim period step reporting period or final plan reporting period. The EPA has established three interim reporting periods starting in 2025 and the final go al reporting period in 2030 and subsequently thereafter which should enable the agency and the public to know if there are areas where reductions are not being achieved. For 20 years the EPA has implemented emission trading programs addressing criteria pol lutants, starting in 1995 with the Congressionally

- mandated Title IV Acid Rain program. Throughout these years, we have addressed issues of concern regarding trading. We have found no evidence that trading causes increases in emissions, localized impacts, or other disproportionate impacts on vulnerable communities. Historically we have seen the greatest reductions under our cap and trade programs in the states with the highest emissions. Independent analyses by organizations such as the Environmental Law In stitute, Resources for the Future, and Environmental Defense Fund, as well as Massachusetts Institute of Technology, have found that trading has not created “hot spots”. States and sources across the nation are familiar with EPA’s cap and trade programs an d under the CPP can build on these programs. However CO 2 is different from the criteria pollutants such as NOx and SO2 that we regulate. CO 2 is a global pollutant in that the location of its emission does not affect the location of the environmental harm i t causes. See the proposed rule297 and section II of the CPP final rule preamble for more information on the characteristics of CO 2 pollution. The RECLAIM program differs from the regional and national trading programs EPA has developed and implemented. The R ECLAIM trading program was established to address local air pollution problems; it does not permit banking to deal with short term price volatility that results from endogenous or exogenous factors; it over

- allocated allowances in the early years allowing for an increase in emissions over historical levels for many sources; it has a very substantial administrative review process of reviewing all transactions that impacts confidence in the markets and transparency; it did not incentivize technological innova tion; and has a limited/small number of participants due to its local nature. The Clean Air Act provides

“ backstops ” for federal regulations in that states and localities have the authority under Title 1 to address persistent air quality problems. States a nd localities may impose stricter limits on sources to address specific local air quality concerns. These limits must be met regardless of a source’s accumulated allowances or credits.
The following are summaries of the specific public comments under this comment:

Commenter s supported spatial restrictions on trading of allowances to prevent unacceptable pollutant concentrations in certain areas. Commenters stated that this approach would avoid

" emission hot spots ," particularly in areas with disadvantaged c ommunities. Commenters noted that this approach is used in the Los Angeles Regional Clean Air Incentives Market ("RECLAIM") program, which prohibits sources in the downwind zone from trading allowances with zones in the upwind zone. Commenters also suggest ed states should not prohibit trading but instead should discourage trading between sources outside the zone and those inside the zone. Commenters noted t his can be accomplished by requiring a greater number of allowances per ton of emissions or charging h igher allowance prices for sources located within these zones.

Comment 26 : Commenters disagreed with those who suggested emissions trading programs would result in emission h ot spots because the environmental impacts of increased CO 2 emissions are global.

Response 2 6 : The EPA agrees with commenters that CO 2 is a global pollutant in that the location of its emission does not affect the location of the environmental harm it causes. For 20
years the EPA has implemented emission trading programs addressing criteria pollutants, starting in 1995 with the Congressionally

- mandated Title IV Acid Rain program. Throughout these years, we have addressed issues of concern regarding trading. We have found no evidence that trading causes localized i mpacts. Historically, we have seen the greatest reductions under our cap and trade programs in the states with the highest emissions. Independent analyses by organizations such as the Environmental Law Institute, Resources for the Future, and Environmental Defense Fund, as well as Massachusetts Institute of Technology, have found that trading has not created “hot spots”. States and sources across the nation are familiar with EPA’s cap and trade programs and under the CPP can build on these programs

.
The following are summaries of the specific public comments under this comment:298 Commenters noted that one potential drawback of allowance trading systems over broad geographic regions is that they do not ensure similar emission reductions throughout the affect ed region because some sources may choose to use allowances to emit above the required emission level, while other sources emit below the level. Commenter s noted that this creates the potential for certain areas to experience decreases in emissions, while other areas experience increases in emissions. However, c ommenters believed this would not be a problem in the context of the CPP, because CO 2 impacts are not localized.

Comment 2 7 : Commenters recommended the EPA e ncourage r egional ca p

- and

- tr ade programs to link with other programs, as has already occurred with the California and Quebec trading
programs.
Response 27: The CPP final rule establishes several approaches, options, and flexibility fo r states in developing state plans to implement their standar ds. See sections V and VIII for discussions on trading. Section VIII.J addresses considerations for mass

- based emission trading approaches while section VIII.K addresses considerations for rate

- based approaches. Section VIII also covers multi

- state coordin ation and multi

- state plans. The EPA encourages state partnerships and coordination in achieving the goals in the emission guidelines.
The following are summaries of the specific public comments under this comment:

Commenter s recommended the EPA encourage states and regional programs to links their cap and trade programs. Commenter s noted that the California program has already been linked with the Quebec program and that studies of how to link the California program with RGGI have also been undertaken by " Resources for the Future."

Comment 28 : Some commenter s recommended states adopting cap

- and

- trade programs should include provisions to protect minority and low income communities.

Response 28: The EPA has been engaged vuln erable communities throughout the entire CPP development, proposal, and final promulgation process. We have conducted trainings and webinars for communities and also have participated in a number of in person meetings and conference calls for communities a nd stakeholders representing communities . Community concerns are addressed in section IX of the CPP final rule preambl e and in section XII.J . In the CPP final rule, states are required to demonstrate interaction with communities in the development of their state plans prior to submitting those to the EPA for approval. Furthermore, the agency provides recommendations on how states can engage me aningfully with communities in sections VIID

- E and IX.B. Additionally, section VIII.E discusses the consequences if actual emission performance does not meet the CO 2 emission performance rates or state CO 2 emission goal

– in essence, the EPA can enforce ag ainst an EGU that exceeds a state plan’s specified level by more than 10% in an interim period step reporting period or final plan reporting period. The EPA has established three interim reporting periods starting in 2025 and the final goal reporting299 perio d in 2030 and subsequently thereafter which should enable the agency and the public to know if there are areas where reductions are not being achieved. The EPA also discusses community concerns in , among other areas, section I under outreach and resources for stakeholders; section II under stakeholder o utreach and consultations; section IX on community considerations; section XI on impacts of the final rule; and sections XII.F and J. Recognizing that low

- income communities are often under

- represented in RE and EE investment, EPA is providing additional incentives to encourage such investments that benefit low

- income communities. EPA is providing a Clean Energy Incentive Program to reward early investments in certain renewable energy (RE) and demand

- side ener gy efficiency (EE) projects that generate carbon

- free MWh or reduce end

- use energy demand during 2020 and 2021. State participation in the program is optional.
The following are summaries of the specific public comments under this comment:

Commenter s reco mmended the EPA require states adopting cap and trade programs to include provisions that will ensure protection of minority and low income communities. Commenters noted that California's AB32 rule included provisions that required the California Air Resou rces Board (CARB) to: (1) consider the potential impacts on disadvantaged communities during the development of the program; and (2) establish an environmental justice advisory committee comprised of representatives from communities that have significant e xposure to air pollution. Commenters believed the EPA should incorporate similar steps into the final rule. Commenter s also suggested the EPA consider undertaking a targeted outreach program for these communities and provide financial resources so that the se communities can participate in the development of
cap

- and

- trade programs.

Commenter s suggested the EPA require states adopting a cap

- and

- trade program complete an environmental impact review as part of their program. This environmental impact review,

c ommenters stated, should include a cumulative impact assessment that follows existing methodologies and EPA guidelines. Commenter s believe d this analysis will help design the trading program in a manner that avoids the creation of emission hotspots and that distributes the benefits from trading to these communities.

Commenter s stated that a portion of the revenues from allowance auctions sho uld be used to address the reduction of co

- pollutants in environmental justice communities, such as targeted investments in demand

- side energy efficiency, renewable energy, and in projects to revitalize environmental justice communities. Commenters noted t hat in California SB 535 and AB1532 mandates the California Department of Finance to allocate 25 percent of AB32 auction revenues to projects that provide benefits to vulnerable communities, with at least 10 percent to be spent directly in communities iden tified as disadvantaged based on geographic, socioeconomic, public health, and environmental pollution. Commenters stated that the bill includes a requirement to develop a three year investment plan with public participation in the program ensured by the

r equirements to hold two public workshops and one public hearing. Commenters further noted that where investment programs are adopted, the EPA should require the state to submit detailed information that shows that the earmarked funds are being used in proj ects that benefit environmental justice communities.300 Commenter s acknowledged that increases in emissions in areas near environmental justice communities would occur as the result of a cap and trade program, but recommended state regulators monitor facil ities located in or near these communities for co

- pollutant emissions and required reporting of any increases in co

- pollutant emissions that result from the cap and trade program. Commenter s also stated that environmental justice communities should be enco uraged to report any actions by facilities that they believe are in violation and should have access to the facility's trading transactions and emission levels.

Commenter s supported a cap and trade program because they believe it will also benefit public health through reducing emissions of co

- pollutants.

Comment 2 9 : Commenters recommended the EPA allow averaging across power plants owned by the same company.

Response 29: The EPA does include averaging in the CPP final rule. See section VIII of the CPP f inal rule preamble and also the Rate

- based Program Accounting TSD in the docket for the CPP final rule. The use of averaging or aggregation approaches would have to be authorized in the 111(d) state plans covering all the participating affected sources and would have to meet conditions set out for such approaches in section VIII. Specifically, see sections VIII.C and K.
The following are summaries of the specific public comments under this comment:

Commenters ask ed whether it is permissible for subsidiaries owned b y the same parent
company to demonstrate compliance by averaging emissions across power plants owned by the same parent company. Commenters stated t hese companies gave the example of Berkshire Hathaway Ene rgy Company, which owns several entities in Illinois, including MidAmerican Energy Company (which is a joint owner of the Quad Cities Nuclear Power Station), MidAmerican Wind (owner of the Bishop Hill II wind facility), and MidAmerican Renewables with its subsidiary Cordova Energy Company (which owns the Cordova Energy Center). C ommenters believed the Berkshire Hathaway Energy

- owned encompasses the flexibility intended by EPA, it should be able to comply by aggregating the Cordova Energy Center emissions, t he renewable generation from Bishop Hill II wind farm, the applicable generation from the parent company's share of Quad Cities Nuclear Power Station, and the energy efficiency savings achieved by MidAmerican Energy Company for Illinois customers. Commente rs requested the EPA the final rule allow such averaging is an acceptable practice between affiliates to demonstrate compliance with their obligations under Section 111(d).

Comment 30 : Commenters s upport ed emissions t rading b etween Tribes and States

.
Re sponse 30: EPA agrees with commenters. The EPA encourages p artnerships and coordination between tribes and states.
The following are summaries of the specific public comments under this co mment:301 Commenter s suggested creating a Trading Partnership with the Navajo Nation under federal rule and laws by which tribes may be treated in the same manner as states for purposes of the 40 CFR sections 49.1

- 49.11. Commenters believe d support for such a partnership exis ts among non

- tribal stakeholders and noted that EPA's proposed rule allows tribes to be designated as a state for the purposes of a multi

- state trading. Commenters attached a map of a multi

- state carbon trading platform involving the Navajo Nation and note d that non

- tribal and tribal stakeholders have already formed a working group to develop a state

- tribal trading relationship.

Comment 3 1 : Commenters recommended the EPA allow states adopting trading programs to award allowances for emission reductions mad e prior to 2020.

Response 31: Many commenters supported providing incentives for states to deploy CO 2

- reducing investments, such as RE and demand

- side EE measures, as early as possible. The EPA recognizes the value of such early actions, and in this final rule is providing states with discretion to credit reductions from the activities, implemented from 2013 onward, in the context of both

mass

- based and rate

- based plans. See section VIII.C and VIII.J and K in the CPP final rule preamble for details.

The following are summaries of the specific public comments under this comment:

Commenter s recommended the EPA allow states to award allowances for early emission reductions of at least 20 percent below baseline that were accomplished between the submission date for the state's section 111(d) plan and 2020, for use in meeting the interim goals until 2030. Commenters stated that the allowances could be retired by 2030 and would be limited in amount to 5% of a state's total allocation.

Comment 3 2 : Commenters noted the potential advantages of a regional cap

- and

- trade program for the upper Midwest states, indicating that such a program could significantly reduce emissions while also generating revenue that could be used by states to invest in EE, RE, and other
programs.
Response 32: The EPA finds the analysis that commenters submitted to be in line with our expectations of how states can take the initiative and develop their own approaches to meeting the goals of the final rule within the options and flexibilities provided. The EPA has provided in the final rule source category

- specific CO 2 emission performance rates and equivalent statewide CO 2 emissions performance goals that are mass

- based or rate

- based in order to provide flexibility and options for states in developing plans to meet the rule’s goals. A program such as that outlined by commenters appears to be within the emission guidelines established by the EPA in the CPP final rule.
The following are summaries of the specific public comments under this comment:302 Commenter s supported regional trading programs and submitted a paper describing an in itial analysis they had completed of a hypothetical cap

- and

- trade program for the seven states in the Upper Midwest (Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin). C ommenter s stated the hypothetical program would be similar to the RGGI program and would set binding caps beginning in 2020 based on each state's CO 2 /MWh goal. For Wisconsin,

c ommenters stated the cap would be 35 million tons calculated by assuming statewide electricity demand grows at 0.25% from now until 2020 and multiplyin g 1,376 lb/MWh target by approximately 50 million MWh generated by power plants covered by EPA's Clean Power Plan. For all seven states, c ommenters calculated a regional cap all seven of 440 million tons in 2020, which would then decline to 343 million ton s in 2030 (an annual decline of 2.7% for each state). In their analysis, c ommenters assumed that each state would set an allowance price floor of $10/ton that escalates at 2% annually. Using these data, c ommenters estimated $7 billion would be raised throu gh the sale of allowances between 2020

- 2030, and CO 2 emissions would decrease from an estimated 41.4 million tons in 2012 to 27.4 million tons in 2030. Commenters stated that Wisconsin's cumulative CO 2 emissions from 2015

- 2030 under the BAU scenario are es timated at just over 468.1 million tons, compared to 342.3 million tons estimated under the cap

- and

- trade compliance scenario, a 26% reduction. Commenters also noted that the revenue could be used to fund renewable energy projects, clean transportation ini tiatives, demand side efficiency programs, and rebate programs for low

- income households.

Comment 3 3 : Commenters recommended states be allowed to implement trading programs that cover both new and existing EGUs

. Response 33: See section VIII of the CPP final rule preamble. State plans may include emission budget trading programs that include affected EGUs as well as other non

- affected emission sources. Under a program that applies to affected EGUs and other emission sources, compliance by affected EGUs w ith the emission standard

– a requirement to surrender emission allowances equal to reported emissions

– will not assure that a state’s CO 2 mass goal is achieved. As a result, a further demonstration is required in the plan that compliance by affected EGUs with the program will result in CO 2 emissions from affected EGUs that are at or below a state’s CO 2 mass goal.
The following are summaries of the specific public comments under this comment:

Commenter s recommended the EPA allow states that choose to imple ment a regional cap

- and

trade program to include both existing and new EGUs.

Comment 34: Comments requesting that the EPA should clarify that one or more RGGI states can exceed their specific emissions targets as long as the RGGI states as a whole reduce their emissions below required levels.

Response 34 : Section VIII.D.2 of the final rule preamble discusses design elements of emission budget trading programs with broader scope and additional compliance flexibility programs,303 such as RGGI, and Section VIII.J.2 of the final rule preamble discusses the use of emission budget trading programs

The following are summaries of the specific public comments under this comment:

Commenters stated, RGGI permits emissions allowances to be traded between participatin g states. Commenters said, EPA should clarify that one or more RGGI states can exceed their specific emissions targets as long as the RGGI states as a whole reduce their emissions below required levels.

Commenters stated that it is critically important fo r the smooth functioning of the RGGI program in the future that EPA not promulgate any restriction on the fungibility of RGGI allowances among states even if it means that the sum of allowances held by affected units within one or more states within the RG GI program might exceed that states' budget. Commenters stated that EPA must acknowledge that the RGGI cap applies to the region as a whole and not to any one state within the region. Commenters added that within that framework, EPA should retain the autho rity to find a state out of compliance should the generators within that state fail to procure the required number of allowances to cover their emissions. Commenters stated that EPA is correct in assigning states no obligation of enforcement over other sta tes.

Comment 35: Comments related to the loss of local co

- benefits related to multi

- state trading
programs.
Response 35: Section VIII.D.2 of the final rule preamble discusses design elements of emission budget trading programs with broader scope and addit ional compliance flexibility programs, such as RGGI, and Section VIII.J.2 of the final rule preamble discusses the use of emission budget trading programs

The following are summaries of the specific public comments under this comment:

Commenters stated, wh ile multi

- state trading programs have worked well in other states to reduce carbon emissions cost effectively (for example, EPA cites the "RGGI" program operated by the Northeast states), commenters had concerns about the loss of local co

- benefits associat ed with such programs. Commenters said, Indiana has a number of aging coal

- fired units that could continue operation if sources can purchase carbon credits from another state. Commenters said, one solution would be to require a minimum standard of performa nce for all EGUs prior to allowing credits from out

- of

- state.

Comment 36: Comments expressing opposition to BSER based on emission trading.

Response 36: We disagree with the commenters. The EPA has implemented several cap and trade programs in the final rule. Most covered sources under the Clean Power Plan final rule have had experience with trading and monitoring and reporting since 1995 with the Title IV Acid30 4 Rain Program, a national program to reduce sulfur dioxide emissions from power plants. These
pr ograms have been successful in achieving emission reductions in a cost

- effective manner and that the equipment and protocols to comply are readily available and in most cases, already in place. The simple and straightforward manner of accounting for compli ance has also been a benefit. Aside from the benefits to public health and welfare, resource savings for both sources and government have also been demonstrated. Sections V and VIII of the CPP final rule preamble address emission trading at length , specifi cally in section VIII, see VIII.J.3 for mass

based trading approaches and VIII.K.2

- 4 for rate

- based approaches.

The following are summaries of the specific public comments under this comment:

Commenters expressed strong concern that the draft 111(d) stan dard incentivizes development and continuation of carbon trading systems rather than meaningful investments in efficiency and renewable energy sources. Commenters said, all such existing trading systems fail to achieve their stated goals due to poor constr uction and gaping loopholes and disproportionately target communities impacted by extraction and environmental justice concerns. Commenters said, this sort of business

- friendly approach buttresses the false narrative that given proper incentives the existi ng energy system will change its ways and reduce emissions drastically. Commenters said, history and common sense show this to be a farcical ideal. Commenters said, only by implementing systemic change and building a new energy sector will the world succee d in meeting continued development goals while adequately mitigating and adapting to the ravages of climate disruption.

Commenters stated that the rule should not allow States to use cap

- and

- trade programs to meet the emissions targets. Commenters said, ca p

- and

- trade is designed to benefit big corporate polluters who can decide for themselves how to limit their emissions based on profit motive. Commenters said, this makes it cheaper for the dirtiest power plants to simply pay for permits instead of cleaning up pollution.

Commenters stated, EPA has considered cap

- and

- trade type regulations before under 111(d), notably the now

- vacated Clean Air Mercury Rule (CAMR). Commenters said, furthermore, a Part 60 regulation that is not unit

- specific, can result in the undesirable inconsistency of emissions increases at an emissions unit. Commenters said, environmental petitioners argued heavily against this application of the Clean Air Act in CAMR, and it would apply here too. Commenters said, in this case, however, EPA not only would allow emissions increases at an individual unit as long as a state goal was met, but actually require increases at the unit level due to a potential misunderstanding or inappropriate application of re

- dispatching.

Commenters stated, trading and/or emissions averaging approaches should not be considered as the BSER. Commenters said, the BSER on which a Section 111(d) standard of performance is based can only derive from reductions that are attainable "inside the fence" at the affected

source. Commenters said, once the performance standard is set, the affected utility may, with state approval, exercise flexible options to satisfy its obligations to reduce CO 2 emissions. Commenters said, this could include emissions averaging or offsetting among affected EGUs or with other generation sources, as well as other actions. Commenters said, in no case should a State be required to achieve emission reductions that exceed those required by aggregating305 individual EGU obligations within the State; nor shou ld an EGU be obligated to achieve reductions that exceed its individual obligations.

Comment 37 : Comments suggesting the e missions cap should not increase with new RE/EE Projects

Response 37 : Sections V and VIII of the CPP final rule preamble address emission trading at length, specifically in section VIII, see VIII.J.3 for mass

- based trading approaches and VIII.K.2

- 4 for rate

- based approaches.

The following are summaries of the specific public comments under this comment:

Commenters stated that states should not increase their cap each time new generation comes online or new efficiency projects are deployed, regardless of how rate based standards are converted to mass

- based standards. Commenters suggested that states that have adopted mass

based standards could incentivize RE or EE projects with free allowance allocations or auction revenue without modifying the state cap. Commenters believed that this approach would preserve environmental integrity while promoting projects that contribute to emi ssion reductions from existing power plants306 5.14 STATE

- SPECIFIC IMPLEMENTAT ION CONSIDERATIONS

This section addresses comments that discuss State

- specific Implementation Considerations

. Comments in this section address a variety of topics on state and regio n

- specific issues that affect ability to comply including: concerns with inability to import power from other regions; geographic and administrative barriers to developing gas transmission infrastructure; complications with using energy efficiency for comp liance due to the nature of the local utility structure; concerns about receiving credit for EE measures already in place; compliance options where there are limited existing coal

- fired units; requests for compliance extensions; and requests for technical assistance.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments stating that Alaska does not have a statewide electric transmissi on system, and does not have the transmission infrastructure in place to dispatch natural gas generation to replace its coal generating capacity.
Response 1: The EPA has determined that Alaska will not be subject to the final CPP’s BSER

. B ecause the EPA does not possess all of the information and analytical tools needed to quantify the BSER for the two non

- contiguous states with otherwise affected EGUs (Alaska and Hawaii) these emission guidelines do not apply to those areas, and those areas will not be r equired to submit state plans on the schedul e required by this final action. T herefore

, the EPA does not need to address the specific concerns of the commenters.

The following are summaries of the specific public comments under this comment:

Commenter s st ated that Alaska does not have a statewide electric transmission system to facilitate the use of Building Blocks 2, 3, and 4. Commenters advocated that Alaska should be exempt from the rule due the high cost of compliance. Commenter s (State Legislature) st ated that if Alaska is not exempted, then they need 5 more years to comply in order to achieve the reductions needed on coal

- fired plants. Commenter s explained in detail why Alaska does not have the transmission infrastructure in place to dispatch natural gas generation to replace its coal generating capacity. Commenters also pointed out that replacing coal

- fired capacity would conflict with the spirit of a consent decree with EPA regarding Healy Unit #2 and would strand investments to upgrade the unit usin g a USDA loan. Commenter s also stated that the isolated nature of Alaska's utility sector means that EPA's rationale for BSER does not apply to Alaska, because the state would not have the degree of compliance flexibility that other states would have, and EPA has not provided a rationale for including the state in the rule given the unique characteristics of the utility industry in the state. Commenter s also expressed that state resources would be better served by investing in more basic infrastructure such as drinking and wastewater systems in remote villages.

Commenters stated that their utilities have actively educated their customers about measures to reduce energy consumption

. A t some point, c ommenters contend ed the reasonable cost options307 for reducing energy consumption will be exhausted and therefore EPA's assumption that declining trends will be maintained at the same pace indefinitely is irrational. Commenter s stated that Alaska has implemented EE programs within the state which have resulted in upgr ades to over 37 ,000 residencies with an annual savings of the equivalent of 932 GWh of electricity. Commenter s noted that most of these residences are not interconnected with their EGUs and what is being saved is fuel oil or firewood consumed in relatively inefficient residential units. Commenter s determined that the emphasis of demand side energy programs needs to be placed on the space heating needs of their residents since space heating is a health and safety concern tha t simply has to have priority over other potential demand side energy efforts. Commenter s stated that their efforts have probably resulted in, and will continue to result in, a greater reduction in total carbon dioxide emissions than the goal established by the EPA for Alaska under the bui lding block 4 . Commenter s requested that EPA exempt Alaska from building block 4 rather than try to force the state to divert limited resources into efforts that are unlikely to be as effective at reducing carbon dioxide emissions.

Comment 2: Comments suggesting m unicipal and cooperative units that are part of TVA cannot import power from other regions

. Response 2: Even if EE/RE resources cannot be implemented in the state itself, the EPA is providing states with maximum flexibility to achieve their emi ssion standards or CO 2 state goals in the final emission guidelines. For example, sta tes can enter into m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Rate

- based programs can u se or purchase ERCs generated from eligible resources (e.g., demand side energy efficiency and renewabl e energy) and do not need to implement these resources within their state , under ceratin state plan types

. These flexibility provide enough latitude for all states to comply with this rule. See s ection VIII.C of the preamble final rule for details on different state plan approaches.

While the EPA is not requiring states to join and/or form regional market

- based programs, we note that such programs can be h elpful for many reasons, including features that support reliability. Market

- based programs allow greater flexibility for affected EGUs both in the short

term and long

- term. Under a market

- based program, affected EGUs have the ability to obtain sufficient allowances or credits to cover their emissions in order to comply with their emission limits.

The following is a summary of the specific public comment :

Commenter s stated that the rule is not feasible for TVA because of t he unique structure of the TVA power system. Commenters claimed that the municipal and cooperative utilities do not have access to transmission services from any source other than TVA and therefore cannot import power from other regions.308 Comment 3: Comments suggesting the complexities of the western grid structure, including the large amount of federal and tribal land with governing authorities that need to be involved in decision making, create significant barriers to implementing the CPP.
Response 3: The Western st a t es have a good tra ck record working together for regional compliance, for example, the regional haze program and Grand C anyon visibility transport commission. The Wester n Electric Coordinating Council coordinates reliability throughout the region

. The EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into

m ulti

- state plans, multi

- state coordination while retaining their individual st ate goals and emission budget trading programs. Certain r ate

- based state plan s can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. This flexibility provide s enough latitude for all states to c omply with this rule. See section VIII. C of the preamble of the final rule for details on the different state plan approaches.

In addition

, if states have approporate justification, such as; a state’s required schedule for legislative approval and administrative rulemaking, the need for multi

- state coordination in the development of an individual state plan, or the process and coordination ne cessary to develop a multi

- state plan they can seek extension beyond 2016. See section VIII.E of the preamble of th e final rule for details on state plan submittal and timing.

The following are summaries of the specific public comments under this comment:

Commenters assert the western grid structure is complex and creates significant barriers to developing, approving, and implementing regional compliance approaches

. Commenter s explained that outside of California and the Dakotas, there is no Regional Tran smission Organization (RTO) or Independent System Operator (ISO), but rather 38 electricity

- balancing areas that are responsible for managing the western grid. Commenters stated that m oreover, western states have a vast amount of both tribal and federally managed public lands overlaying state boundaries; and these tribal governing authorities and Federal Land Managers (FLMs) must either direct, or be engaged in, the public processes needed to obtain approvals for new renewable and natural gas generation res ources, new or expanded transmission lines, and new or expanded natural gas infrastructure. Commenter s observed that federal agencies have a poor track record of timely permitting and delays could impact a state's ability to comply with its plan. Commenter s stated that Idaho will have problems meeting the emission limits because federally managed lands cover more than 63% of the state. C ommenter s said that EPA calculated RE potential without considering the various restrictions on federal land. Commenters s tated that a s a result, they will have problems in obtaining the necessary permits for renewable energy projects and for transmission lines to move electricity from low carbon sources. Commenters gave a current example of a transmission line that is taking 14 years to construct due to delays by the Bureau of Land Management.

Comment 4: Comments requesting clarification regarding compliance options for utilities that

ow n only a single coal

- fired EGU.309 Response 4: See section V.A of the final rule preamble of the CPP for EPA’s response to the comment associated with compliance options for owners of a single coal

- fired EGU. Also s ee final rule preamble section VIII.G for information on geographic eli gibility for RE and EE measures, and section VIII.C of the fin al rule preamble of the CPP on multi

- state coordination for EPA’s response to this comment.

In the CPP final guidelines for state plans to limit CO2 from affected EGUs, however, the agency does not specify presumptive performance rates that each individual EGU is to achieve in the absence of trading. Instead, these guidelines provide collective performance rates for two classes of affected EGUs (steam generating units and stationary combustion turbines), and give states the alternative of developing plans t o achieve a state emission goal for the collective group of all affected EGUs in a state. These flexibilities will accommodate the concerns regarding individual units.
The following are summaries of the specific public comments under this comment:

Commenters stated that the rule provides unique compliance problems for utilities like Missouri River Energy Services and Texas Municipal Power Agency who own only a single coal fired power plant. C ommenter s requested clarification on compliance options: 1) Does the utility receive credit for actions taken by its member cities regarding renewable energy and demand side energy efficiency; 2) Does the utility receive credit for a c oal

- to

- gas switch if a member city installs a gas unit; and 3) What if the pow er plant is located in one state and serves customers in another?

Commenters stated s ome states have a heavy reliance on coal. Commenters investigated compliance scenarios to quantify the impact of coal fired power plant retirements , and stated that

c losin g one unit at the Utah's largest coal fired power plant would reduce the compliance gap to 341 and if both units were closed the gap would shrink to 256 lbs/MWH.

Comment 5: Comments stating that Rhode Island has no coal generation, so they will likely

com ply through a regional mass

- based plan and enhance RE and EE and continue participating in RGGI.

Response 5: States are not required to implement the building blocks set in the EPA’s BSER determination. The EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into

m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Cert ain rat e

- based state plan s can use or purchase ERCs generated from eligible resources (e.g., EE/RE). This flexibility provide s enough latitude for all states to comply with this rule. See s ection VIII.C of the preamble of the final rule for details on the different state plan approaches states can use to comply with the final emission guidelines.
The following is a summary of the specific public comment:310 Commenter s stated that the State of Rhode Island cannot utilize building blocks 1 and 2 because the state has no coal generation. Commenters stated t he state anticipates that they will comply through a regional, mass

- based compliance plan and rely on enhancing their current energy efficien cy and renewable programs and continuing to participate in RGGI

.

Comment 6: Comments stating that Guam requests technical support from the EPA to develop the SIP and in coordinating CPP goals with other environmental regulations, and requests an extension t o the plan submittal deadline.
Response 6: Many commenters have asked the EPA to extend the time for final state plan submittals. We are revising the requirements in the proposal as follows. The EPA is requiring an initial plan by September 6, 2016 and is providing until September 2018 for state to submit a final plan if an extension until that date is justified. This should give states ample time to develop final plans, including resolving any related legal issues regarding the inclusion of ne w NGCC in state plans. See section VIII.E of the final rule preamble for the EPA’s response regarding plan submittal deadlines.

The EPA regions will continue to be the entry point for territories to ask technical and policy questions. We intend to continu e to work a ctively with states and tribes to provide information and technical support that will be helpful to them in developing and implementing their plans

. See section I.A.4 of the final rule preamble of the CPP for EPA’s response to this comment
regar ding technical support.

Because the EPA does not possess all of the information and analytical tools needed to quantify the BSER for the two non

- contiguous states with otherwise affected EGUs (Alaska and Hawaii) and the two U.S. territories with otherwise affected EGUs (Guam and Puerto Rico), these emission guidelines do not apply to those areas, and those areas will not be required to submit state plans on the schedule required by this final action.

The following is a summar y of th is specific public comment:

Commenter s stated that the goals are achievable if they get technical support from EPA Region 9, but because of inexperience with preparing SIPs, requested an extension to the 1

- year deadline for SIP submittal ( Commenters is Guam Power Authority). Commenters requested help in coordinating the CPP goals and timetable with other environmental regulations. Commenters asked for more time in the compliance schedule so that legal issues such as "including new NGCC units as part of BSER f or existing units" can be resolved and state resources will not be wasted.

Comment 7: Comments suggesting the EPA has vastly underestimated the regulatory and electrical system changes needed in Texas to implement the 111(d) guideline and the time needed to make the changes.311 Response 7: States are not required to implement the building blocks set in the EPA’s BSER determination.

The EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emissio n guidelines. For example, states can enter into m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Certain rate

- based state plan s can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. Th is flexibility provide s enough latitude for all states to comply with this rule. See section VIII.C of the preamble to the final rule for details on the different state plan approaches states can use to comply with the emission guidelines.

If states have appropr i ate justification, such as; a state’s required schedule for legislative approval and administrative rulemaking, the need for multi

- state coordination in the development of an ind ividual state plan, or the process and coordination necessary to develop a multi

- state plan they can seek extension beyond 2016 . See section VIII.E of the final rule preamble for the EPA’s response to the comment about deadlines for submission of the state plan.

The following are summaries of the specific public comments under this comment:

Commenters stated that the EPA has vastly underestimated the regulatory and electrical system changes needed to implement the 111(d) guideline and the time needed to mak e the changes. Commenters said Texas could not submit a state plan before 2017 at the earliest. Commenters stated that it would be especially difficult for Texas to comply in the proposed timeframe because of the unique nature of their electricity markets

. Commenters pointed out that a large portion of the state operates in a competitive wholesale and retail electric market (ERCOT) contained within the state, while other portions of the state operate within 3 distinct competitive wholesale markets overseen by the Federal Energy Regulatory Commission (FERC) and traditional cost

- of

- service regulated retail markets (SPP, MISO, and WECC) that are regulated by the PUC. C omment ers provided detailed information about the Texas' unique and complex electricity marke t," which is designed to provide competitive electricity markets.

Commenter s stated that Texas law, the PUC rules, and the ERCOT market protocols do not provide the authority to require heat rate improvements or the re

- dispatch of natural gas plants requir ed by the 111(d) guideline. Accordingly, c ommenters stated that to implement the 111(d) rule, substantial revisions would have to be made to Texas law, PUC rules, and the ERCOT market rules; and these changes could not be made by June 2016. Commenters stated that the ability to obtain a one

- year extension is not feasible for Texas because the TCEQ could not prepare the initial plan stipulated in the proposed rule

, because TCEQ cannot bind a future Texas Legislature to pass the laws necessary to impleme nt the 111(d) plan. Commenters also pointed out that the Texas Legislature meets only every other year, and the 2015 session will be finished before the section 111(d) guidelines are published. Commenters added that e ven after the Legislature amends Texas law, commenter s listed 25 state regulations that would have to be revised. Afterward, Commenters stated that amendments would need to be made to the market rules for ERCOT, SPP, and MISO; and then IT systems would need to be redesigned. Commenters stated that making all the necessary changes likely would require several years.312 Comment 8: Comments suggesting p hase

- in periods for NGCC re

- dispatch under Building Block 2 are necessary for Texas.
Response 8: The EPA has made changes to the BB2 assumption in th e final rule. See sections V.A.3 and V.D of the final rule preamble of the CPP for EPA’s response to this comment.
We carefully reviewed information submitted to us regarding the feasible timing of various measures and identifying concerns that the requi red CO2 emission reductions could not be achieved as early as 2020 without compromising electric system reliability, imposing unnecessary costs on ratepayers, and requiring investments in more carbon

- intensive generation, while diverting investment in clea ner technologies. The record is compelling. To respond to these concerns and to reflect the period of time required for state plan development and submittal by states, review and approval by the EPA, and implementation of approved plans by states and affec ted EGUs, the EPA is determining in this final rule that affected EGUs will be required to begin to make reductions by 2022, instead of 2020, as proposed, and meet the final CO2 emission performance rates or equivalent statewide goals by no later than 2030 . The EPA is establishing an eight

- year interim period that begins in 2022 and goes through 2029, and which is separated into three steps, 2022

- 2024, 2025

- 2027, and 2028

- 2029, each associated with its own interim goal. Affected EGUs must meet each of the i nterim period step 1, 2, and 3 CO2 emission performance rates, or, following the emissions reduction trajectory designed by the state itself, must meet the equivalent statewide interim period goals, on average, that a state may establish over the 8

- year pe riod from 2022

- 2029. These additional flexibilities give states more time to comply with the emission guidelines of this final rule and address the natural gas pipeline and reliability concerns raised by the commenters.
The following is a summary of the specific public comment:

Commenter s supported increased dispatch of NGCC units but stated that the 70% re

- dispatch of all NGCC generation in Texas by 2020 is too high and too fast to be successfully implemented in the ERCOT market, because this lev el could require significant investments in additional electric transmission and natural gas pipelines to alleviate potential reliability concerns. To address this problem, c ommenters recommended phase

- in periods for the implementation of the NGCC re

dispa tch called for under Building Block 2, which would not require Texas to achieve the full implementation of Building Block 2 until 2029.

Comment 9: Comments suggesting t he structure of the utility industry in Texas complicates compliance, and Texas does n ot have the natural gas infrastructure to deliver sufficient quantities of natural gas.
Response 9: The CPP final guidelines include three approaches that states may adopt for purposes of implementing the BSER, any one of which a state may use in its plan. These are: 1) establishing standards of performance that apply the subcategory specific CO2 emission313 performance rates to their affected EGUs, 2) adopting a combination of standards and/or other measures that achieve state

- specific rate

- based goals that r epresent the weighted aggregate of the CO2 emission performance rates applied to the affected EGUs in each state, and 3) adopting a program to meet mass

- based CO2 emission goals that represent the equivalent of the rate

- based goal for each state.

States d o not need to implement the same BSER methodology as the EPA used to set the emission guidelines in the final rule. The EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines

. For example, states can enter into m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Certain rate

- based state plan s can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. This flexibility provide s enough latitude for all states to comply with this rule. See

s ection VIII. C of the preamble of the final rule for details on different state plan approaches states can use to comply with the emission guidelines.
The following are summaries of the specific public comments under this comment:

Commenters stated that due to the unique structure of the electric utility i ndustry in Texas, the rule as proposed is not feasible in Texas. Commenters stated that Texas electricity generating companies are not vertically integrated utilities, and thus the EPA's assumption that building blocks 2, 3, and 4 may be undertaken by the affected EGUs themselves is not valid for Texas. Commenters added t he Texas market is restructured into generation and distribution utilities that are regulated separately. Commenters added, f or example, generation utilities cannot exert control over trans mission infrastructure or demand

- side energy efficiency programs. Commenters also stated s ome energy efficiency activities in Texas are subject to PUC regulatory oversight whereas other energy efficiency measures are subject to the authority of the Texas L egislature.

Commenter s also stated that most of Texas is served by ERCOT, which is a closed intrastate grid. Therefore, commenters stated utilities in the ERCOT regions cannot participate in interstate strategies because most Texas utilities cannot reduce coal generation by importing power from low carbon sources in other states and cannot participate in interstate trading. Commenters stated that compliance in Texas would result in significant stranded assets and reduced fuel diversity.

Commenter s stated that building block #2 is not feasible in Texas because Texas does not have the natural gas infrastructure to deliver sufficient quantities of natural gas.
Commenters explained the size of the Texas utility market and its unique competitive design

.

Comment 10: Idaho requested more time to meet the RE standard given time delays associated with installing transmission lines across federal lands , and requested EPA assistance in working with federal land managers

.314 Response 10: See section VII I .E of the preamble to the final rule for details on plan submittal and timing. The EPA will work with states and stakeholders and other federal agencies as appropriate.
The following is a summary of the specific public comment:

Commenter s stated that the EPA must adjust the timeline for implementation of its RE requirements to allow for necessary transmission and for RE projects to be permitted and built. C ommenter s requested EPA assistance in working with federal land management agencies.

Comment 1 1 : Request for meeting with the EPA to address questions and concerns.

Response 1 1 : To provide interested stakeholders with a better understanding about the rule requirements

, the EPA will continue to work with states, tribes, territories, and stakeholders to provide information and address questions about the final rule. The agency will host (or partner with appropriate groups to co

- host) a number of webinars about various components of the final rule; these webinars are planned for the first two months after the final rule is issued. See section s I.A.4 and XII.E of the final rule preamble for details regarding stakeholder outreach

. The following is a summary of the specific public comment:

Commenter s (trade group for New York State energy service providers) request ed a follow

- up meeting to clear up remaining questions and concerns given the complexity of the rule and the unique features of the New York electric system.

Comment 12 : Comments stating th at r enewable resources that do not use synchronous machines coupled with long distances of power transmission create technical challenges in West Texas.
Response 1 2 : C ommenter s ha ve provided a few different mitigation measures that could mitigate potential reliability issues and states there is enough time to implement these mitigation
measures at a reasonable cost. See section VIII.G .2 of the final rule preamble for details on how the EPA is handling reliability issues.
The following are summaries of the specific public comments under this comment:

Commenter s stated that there are technical challenges with integrating a large amount of renewable resources in West Texas, primarily due to two factors: 1) renewable resources in West Texas are located far from load centers requiring their power be transmitted over long distances; and 2) most renewable resources use power electronic based devices and not synchronous machines. Together, these factors induce power system challenges not previously observed on a lar ge scale.

As an example, c ommenters stated that the combination of long transmission lines and a lack of synchronous generation machines by wind turbines can lead to high/low voltage collapse, and315 system instability. Commenters stated t he solutions to thes e challenges include the installation of synchronous generation, synchronous condensers, and new transmission lines.

Commenters stated a nother challenge of transferring power over long distances is handling the reactive losses in long transmission lines. C ommenters stated that o ften these reactive losses become more limiting than the inherent thermal capability of a transmission conductor for long transmission lines. Commenters stated the solutions to this challenge include installing dynamic reactive compe nsation devices, building transmission lines at higher voltages (i.e. 500 kV or 765 kV), constructing more transmission lines, or installing series compensation on transmission lines; and each of these solutions has drawbacks. Commenters stated that: (1) d ynamic reactive devices are expensive and provide only limited benefit for long transmission lines, and (2) construction of higher voltage transmission lines is often opposed by the public because of right

of

- way issues and the aesthetic impact.

Commenters stated that ERCOT chose to handle this challenge primarily by installing series compensation devices. Commenters stated that, in 2009, a wind generation resource in Texas experienced sub

- synchronous oscillations of its control system with a series compens ation device , and that t his event caused significant damage to both the wind generation resource and the series compensation device. Commenters stated that mitigation measures must be put in place to prevent this from happening.

Comment 1 3 : Comments stati ng Texas has made greater reductions than California in carbon dioxide emissions but is being asked to make disproportionate changes in carbon dioxide generation and in its renewable portfolio without credible explanation by the EPA.
Response 1 3 : See s ection V.E. of the preamble to the final rule and the EPA’s CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for details on the EPA’s rationale for renewable energy BSER determination and how the EPA has changed the renewable enery assumptions under BSE R in the final rule.
The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of the se perspectives, and as a result, the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their a ssigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of early actions, s ee section VIII.K of the preamble to the final rule.316 Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce e nd

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2 of the final rule preamble), and allocate to eligible projects allowance s or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenter s charged that the 11 1(d) rule has a disproportionate and unfair impact on Texas. Commenters stated that EIA and U.S. Census data show that, from 2000 to 2010, Texas, the second most populous state in the United States, has reduced its carbon dioxide emissions by 8.05%, while over the same time period, California, the most populous state, has red uced its carbon dioxide emissions by only 4.36%. Commenters stated that, on a per

- capita basis, California reduced its carbon dioxide emissions by 15.49% over the same time period while Texas has reduced its carbon dioxide emissions by nearly 24% on a per

- capita basis, while transitioning to competitive (and very successful) wholesale and retail markets. Commenters stated that Texas's heavy investment and remarkable transformation is penalized by a final target of 791 lbs. of CO 2 /MWh, which could not even b e met by a state

- of

- the

- art combined cycle power plant with existing technology. Commenters stated that Texas produces 11% of the electricity in the United States, but its proportion of total carbon dioxide reduction required by the 111(d) by 2030 is 17.87 %; and EPA offers no reasonable explanation for the disparate, seemingly punitive, treatment of Texas under the proposed rule.

As another example of unfair treatment, c ommenters stated that Texas's renewable energy mandate under 111(d) far exceeds the req uirement for any other state. Commenters said that the rule would require Texas to add 52 million MWh of renewable energy by 2030 and that this renewable energy mandate far exceeds the renewable energy requirement for any other state. Commenters said that Texas, already the nation's largest renewable energy producer, would be required to increase its renewable portfolio by 153% over the next 8

- 14 years, while the next largest renewable energy producer, California, would only be required to increase its rene wable energy portfolio by 37%. Commenters said that the required increase in Texas's renewable energy fleet required under the rule would be greater than the increases of 29 states combined and would be larger than the present day wind and solar fleets of every country in the world, except for the U.S. Commenters believe d that EPA has offered no credible or reasonable explanation for this disparate treatment of Texas.

Comment 1 4 : Comments stating the EPA must consider state

- specific variations and capabi lities in establishing guidelines.
Response 1 4 : See section V.A. of the final rule preamble regarding changes in the interim deadlines for the EPA’s response to the comment regarding states’ ability to meeting interim deadlines. See section I.A.4 of the final rule preamble for the EPA’s response to the comment317 regarding considering state variations in developing the CPP. See sections I.A.3, V.A, and VII.A and of the final rule preamble for the EPA’s response to the comment regardi ng providing states flexibility.

See the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for the EPA’s response to the comments about baselines.

In addition, the EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into

m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Rate

- based programs ca n use or purchase ERCs generated from eligible resources. Th is flexibility provide s enough latitude for all states to comply with this rule. See section VIII.C of the preamble to the final rule for the various state plan approaches states can adopt to comp ly with the final rule.

The following are summaries of the specific public comments under this comment:

Commenter s stated that some of their member states are very concerned about their ability to meet the proposed (especially interim) targets, grid reliability, and the cost of the rule due to
state

- specific regional, geographic, economic, and power generation and regulation diffe rences and due to the wide range of options proposed by the EPA. Cost, timing, and energy generation impacts will likely differ from state to state depending on legislative and administrative factors and differences in each state's energy portfolio and con nections, or lack thereof, to the larger grid. Commenters stated that the EPA must:

• consider variations in states' ability to implement the various proposed options;

• account for variations in state implementation costs; and

• structure final guidelines to "p rovide the maximum fle xibility possible that is still consistent with underlying statutory objectives".

Regarding baselines for setting state goals and determining compliance, c ommenters stated that baselines must be representative of actual performance r elated to the goals of the rule and must not, for example, work against states or entities that took early action contributing to the goal. Commenters stated that the EPA also must consider significant year

- to

- year variations that have occurred, and will c ontinue to occur, e.g., anomalies in hydropower generation and plant outages have had an undue influence on the baseline in some states; and the EPA should work with those specific states to make needed adjustments in the final rule.

Comment 15 : Comments stating that Kentucky is concerned that neighboring states will raise electricity prices on Kentucky ratepayers.
Response 1 5 : The EPA disagrees with Kentucky’s assessment because it is difficult to assess the impacts of the rule until it is known how Kentucky and states within the same grid region will comply with the final CPP. It’s important for the EPA to point out that if Kentucky doesn’t put a318 CO 2 price on electricity generation and other states do in their region, then Kentucky would be able to p rovide more generation to other states at a lower cost. The impacts to rate payers will depend upon the choice Kentucky makes relative to their neighbors, Kentucky ’s rate payers could benefit from the rule, depending on the choices made within and out side of K entucky

. The EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Rate

- based programs can use or purchase ERCs generated from eligible

resources. Th is flexibility provide s enough latitude for all states to comply with this rule. See section VIII.C of the pream ble to the final rule for the various state plan approaches states can adopt to comply with the fina l rule.

The following are summaries of the specific public comments under this comment:

Commenters were concerned that their rate payers will be subject to higher electricity prices because of actions that neighboring states take to comply with the rule. Commenters pointed out that Kentucky has some electric utilities that are operate a part of two different regional interconnections and two large utilities that are not part of a multi

- state construct. Commenters pointed out that whether or not Kentucky chooses to be a part of a multi

- state collaborative for rule compliance, other states might place a price of carbon into their dispatch system, and as a

resu lt Kentucky ratepayers will be subject to market forces that will result in higher prices because of the actions in other states.

Comment 1 6 : Comments stating Florida’s limited import capacity, unique geography and electricity needs, and the low percentag e of households with natural gas service foreclose many of the proposed regional options.
Response 1 6 : T he EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into

m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Rate

- based programs can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. Th is flexibility provide s enough latitude for all states to comply with this rule. See section VIII.C of the preamble to the final rule for the various state plan approaches states can adopt to comply with the final ru le.

Also, s ee Section VIII.G .2 on details regarding the EPA handles re l i a bility issues.

The following are summaries of the specific public comments under this comment:

Commenters noted that Florida has unique characteristics of weather, geography, customer base, and high reliance on electricity for cooling and heating that must be carefully considered to

ensure Florida's electricity supply is cost

- effective and reliable. Commenters noted that they have the highest number of cooling degree days of an y state, a large population of senior citizens with about 89% of Florida's electricity customers are on fixed incomes, and only about 7% of319 households have natural gas service. As a peninsular state, c ommenters noted limit Florida's interconnections and tr ansmission capabilities for importing electricity and natural gas. Commenter s stated that the transmission capability for import energy to Florida is limited to 3,800 megawatts, which is just 6.6% of Florida's summer capacity. This limited import capacity,

c ommenters believe forecloses many of the proposed regional options included in the proposal.

Commenter s pointed out also that their coal generating capacity assets are located in northern Florida and gas assets are in south Florida; so EPA has not considered the effect of massive load shifting on intrastate reliability and system control areas.

Commenter s stated that Florida has limited ability to import high

- voltage electric transmission from nearby states given its peninsular geography. Commenters stated that they currently import only 8 percent of their power from other states. Given this difficulty, c om menters believed that importing electricity would do little to help Florida achieve the proposed goal.

Comment 1 7 : Comments stating that Michigan, Montana, Texas and West Virginia submitted reports on the feasibility and cost of reducing carbon emissions in their states and asked for the EPA to consider the findings.
Response 1 7 : The EPA provides a response regarding the MISO report and reliability issues in Section VIII.G.2 of the preamble of the final rule.

If states have approporate justification, suc h as; a state’s required schedule for legislative approval and administrative rulemaking, the need for multi

- state coordination in the development of an individual state plan, or the process and coordination necessary to develop a multi

- state plan they can seek extension beyond 2016. See section VIII.E of the final rule preamble for the EPA’s response to the comment about deadlines for submission of the state plan.

The following are summaries of the specific public comments under this comment:

Commenters submitted reports about the feasibility and cost of reducing carbon emissions in their states and asked EPA to consider the findings in preparing the final rule. Commenters stated
t he report attached by Michigan is a MISO report on the proposed rule

. Comme nters considered the collective impact of six environmental regulations (i.e., MATS, CSAPR, Regional Haze, Cooling Water Intake Structures, Coal Ash Regulations, Clean Power Plan) and concluded that the impact would be retirement of up to 8,700 MW of coal

- fired capacity; and stated modeling assumptions were based on a survey. Commenters stated t hese closures would strain ERCOT's ability to integrate new intermittent renewable generation resources leading to a delay in achieving compliance with the proposed Clean Power Plan limits.

Commenters discussed preliminary modeling results which suggested that if all non

- retired coal plants are dispatched with the same capacity factor, the 2030 rate limit would not be met; however, the limit would be met if the clean est plants were dispatched first. Commenters stated d ispatch decisions are complicated, trigger grid reliability considerations, require coordination among parties both within and outside of the state to plan and execute, and have important320 impacts to rate payers and utilities. Commenters also stated t he dispatch scenarios highlight the importance of interstate coordination in the state planning process.

Comment 1 8 : Comments requesting a longer period for compliance for Texas.
Response 1 8 : If states have a ppropr i ate justification, such as; a state’s required schedule for legislative approval and administrative rulemaking, the need for multi

- state coordination in the development of an individual state plan, or the process and coordination necessary to develo p a multi

- state plan they can seek extension beyond 2016. See section VIII.E of the final rule preamble for the EPA’s response to the comment about deadlines for submission of the state plan.

The following are summaries of the specific public comments unde r this comment:

Commenters requested a longer period for compliance for Texas, such that their coal fleet can have a reasonable transition time until disputed natural gas fired plant permits can be issued and new wind projects can go operational.

Comment 1 9 : Comments stating that Virginia ranks low in EE and RE initiatives and has significant opportunity for improvement.

Response 1 9 : The EPA agrees there is significant opportunity for states like Virginia. Many affected EGUs are already planning on deployi ng significant amounts of RE according to their integrated resource plans (IRPs). A recent study of IRPs, included in the docket for this rulemaking, shows this trend. For instance, Dominion plans for over 800 megawatts of wind and solar in their 2015 to 2 029 planning period. Duke Energy Carolinas’ IRP has no plans for new coal, but describes plans for roughly 1,250 megawatts of additional RE by 2021, and approximately 2,150 megawatts by 2029. A significant portion (1,670 megawatts) of the planned RE is sol ar. We appreciate the commenter’s information and data. See section V .E. of the preamble to the final rule where the EPA addre s ses the feasibility of renewable e ner gy deployment under EPA’s determination for BSER.
The following are summaries of the specif ic public comments under this comment:

Commenters claimed that Virginia's State Corporation Commission exaggerated the potential cost of the proposed rule and it should be acknowledged that Virginia has significant opportunities for compliance. Commenters stated i n a recent independent survey of the 32 largest investor

- owned utility holding companies, Dominion Resources (Virginia's largest utility) ranked at the bottom for energy efficiency gains and American Electric Power (the parent of Appalachian Power Company, Virginia's second investor

- owned utility) ranking 23rd.

Furthermore, commenters stated Virginia is near the bottom and had enormous potential for solar and wind. Commenters stated Dominion Resources ranks 30 out of 32 for renewable energy321 sales, a nd American Electric Power ranks 24 out of 32. Commenters contend ed PJM said that it can handle 30% solar and wind without reliability concerns.

Comment 20 : This comment addresses a number of issues specific to Tennessee: Tennessee does not have a single entity or traditional PUC responsible for overseeing all utility EE and valuing or crediting demand

- side EE ; TVA’s EE measures cannot be readily attributed to and credited to individual states ; d emand

- side EE costs in proposal do not consider how utility E E programs are funded in Tennessee. A general concern is also expressed about forcing EE into CAA environmental regulations.
Response 20 : The EPA recognizes that one of the major approaches available for achieving CO 2 emission reductions from the electric power sector is demand

- side EE . The EPA continues to believe that significant emission reductions can be achieved by affected EGUs by the use of such measures cost effectively and that such measures are likely to represent an important component of state p lans.

The EPA has decided not to include demand

- side EE (building block four) in the BSER of this final rule and

, therefore

, do es not need to address the comments related to setting EE targets in BSER. This determination is discussed in section V.A.3.d of the final rule preamble.

Even though demand

- side EE is not being included in the BSER in this final rule and, thus, not included in the determination of emission performance rates, the final rule provides states the flexibility to use demand

- side EE me asures in their state plans for compliance to meet the emission guide lines set forth in the final emission guidelines , provided they meet the applicable requirements established in section VIII.K of the preamble to the final rule

. The final rule provides maximum flexibility to comply with the EPA’ s emission guidelines. For example, states can enter into m ulti

- state plans, multi

- state coordination while retaining their individual state goals and emission budget trading programs. Rate

- based programs can use or purchase ERCs generated from eligible EE/RE and other resources for compliance

. Th is flexibility provide s enough latitude for all states to comply with this rule. See se ction VIII.C. of the preamble to the final rule for the various state plan approach es states can adopt to comply with the final rule

. The following are summaries of the specific public comments under this comment:

Commenter s stated a number of different EE measures have been or are currently available in Tennessee and are offered by utilities (TVA and its local power companies), the public sector, private organizations, and businesses to public, commercial, industrial, and re sidential end

- use customers. While the diversity of programs and opportunities within Tennessee is encouraging,
commenter s stated the current decentralized nature of EE efforts throughout the state and the absence of a traditional state PUC role in the con text of the majority of electricity production in Tennessee, results in no single or readily

- identifiable entity taking full responsibility for overseeing all utility EE efforts. Commenter s stated additionally, Tennessee does not have an EE322 resource standa rd or other EE policy mechanism that may provide centralized, consistent efforts to value and credit EE programs both inside and outside the utility context.

Commenter s agreed EE is a cost effective way to reduce demand and a means to reduce carbon emissio ns. However, commenter s were concerned the EPA is requiring states to act in a role that is unprecedented. Specifically, c ommenter s were concerned the proposed guidelines will force EE programs to be incorporated into traditional environmental regulation u nder the CAA and require them to deliver emissions reductions in a way they have not historically been required to do. Commenter s stated that this approach will impact the perception of EE, its relative cost, and usefulness. Given the unique nature of EE, c ommenter s argued the EPA's approach to crediting EE programs within state compliance plans poses considerable challenges and provided the following examples for Tennessee:

• Tennessee has not yet developed a mature, comprehensive EE program structure nor do es it have a PUC specifically charged with managing EE program performance within the utility sector. Commenters believed the proposed guidelines inappropriately assume states already have a structure for valuing and crediting demand

- side EE programs and n oted that because Tennessee does not already have such a structure the work that must be done to establish the ability to value and credit these programs for the purposes of a state compliance plan is significant.

• EPA establishes EE targets on a state

- by

- s tate basis but electricity and EE are not bound by state borders

- particularly in Tennessee. Commenters explain ed that TVA, the primary electricity provider within Tennessee, plans, generates, and distributes electricity throughout a multi

- state system, r ather than on a state

- by

state basis. Commenters believed that it will be a cumbersome and complex to dissect TVA's EE programs so that they can be treated and credited on a state

- by

state basis.

• Commenters assert ed that demand

- side EE program costs as use d in the proposed guidelines do not adequately take into consideration how the majority of current utility EE programs are funded within Tennessee. Commenters stated that the TVA Act requires TVA to charge power prices necessary to pay for the electricity system's operations, maintenance, and administration, provided that power is sold at rates as low as are feasible and therefore, TVA does not have an EE rate recovery mechanism like many other utilities.

Commenter s recommended the EPA consider these challe nges in finalizing the guidelines and develop guidance and support materials to address some of these concerns as they relate to EE. Commenter s stated that failure to take these issues into account would not only discredit EE measures as a low

- cost and env ironmentally

- friendly means of compliance in meeting state emissions targets, but also result in reduced flexibility for states.323 Comment 21 : Comments stating that Arizona's limited gas supply is an obstacle to replacing coal

- fired power plants and makes t he electricity grid more susceptible to natural gas pipeline service interruptions.

Response 21 : The EPA does not prescribe how a state must meet the emission guidelines, but if a state chooses to take the path of meeting a state goal, these final guidelines identify the methods that a state can or, in some cases, must, use to demonstrate that the com bination of measures and standards that the state adopts meets its state

- level CO2 goals. While the EPA accomplishes the phase

- in of the interim goal by way of annual emission performance rates, states and EGUs may meet their respective emission reduction obligations “on average” over that period following whatever emission reduction trajectory they determine to pursue over that period.
The combination of multiple ownership and types of operational control adds to the complexity of electricity dispatch, bu t all affected EGUs, regardless of ownership and type of control, can

use Building Block 2 to comply with the final rule. The principal difference among the differing entities lies in the types of methods that are available for the affected EGU owner to br ing about the shift in generation that will make use of this building block for compliance. There are several alternatives to accomplish this result: the owner of the higher

- emitting affected EGU may also own, or have affiliates that own, lower emitting ge neration and thus reduce its own generation and use its control over these other EGUs to increase their generation; an EGU may be able to reduce its generation and buy replacement power from the market that is lower emitting; or the EGU may be able to redu ce its generation and procure generation from a separately

- owned lower

- emitting EGU. These alternatives will be available in states with either rate or mass

- based state plans without any change in their general form

For further response to this comment see Section V.D of the final rule preamble of the CPP where EPA describes the rationale for Generation shifts among affected EGUs and the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for fu r ther details

on the final methodology fo r building block 2 and how the EPA changed assumptions for Arizona.
The following are summaries of the specific public comments under this comment:

Commenter s were concerned that Arizona's limited gas supply is an obstacle to replacing coal

fired power pl ants and makes the electricity grid more susceptible to natural gas pipeline service interruptions.

Some commenters were concerned that the EPA's assumptions regarding Arizona's power generating capacity are based on annual power consumption rather than peak demand, which fails to account for the times during the year that the system operates at full capacity to supply electricity during hot summer months. While it appears there is unused available natural ga s capacity in the system already, commenters said that the reality is that Arizona experiences extreme heat in the summer months, and all available capacity is necessary to meet the spikes in demand that occur during that time. Although the capacity is not used year round, commenters said that it is an essential element of the overall power system in Arizona. Commenters said that324 the power supply capacity assumptions for Arizona must take into consideration the unique climate and resulting demands on the sy stem.

Comment 2 2 : Comments from Wyoming requesting clarification regarding demand

- side EE and RE and how retir e ments are factored into generation calculations.

Response 2 2 : The baseline inventory the EPA uses relies on historical data and does not incorp orate anticipated future retirements. The EPA and most commenters supported this treatment as they viewed those scheduled retirements (and corresponding emission reductions) as an alternative compliance flexibility based on already scheduled reductions. If t he state is implementing a rate

- based plan than it c ould use eligible RE and demand

- side EE to adjust the emission rates for compliance. This adjustment would only be applied to the affected units that are still in operation and it apply to the current e mission rate of the affected units . For details on the specific calculations for adjusting the emissions rate see Section VIII.K. 2 of the preamble to the final rule.
The following are summaries of the specific publ ic comments under this comment:

Commenters also asked if, by 2020, Wyoming has been obliged to prematurely retire a large portion of its coal fired EGUs, how would the Block 3 and 4 savings anticipated between 2020 and 2029 either apply to the retired generation, or apply to the remaining generati on. Commenters explained that some Wyoming wind generation is not associated with either Wyoming EGU operators or local distribution in Wyoming and asks should those Block 3 hours apply to Wyoming Block 1 generation, and if so, on a proportionate basis. Fu rther, should those Block 3 hours apply to Block 1 generation in another state and should they simply be ignored.

Comment 2 3 : Comments suggesting requiring Nebraska and Kentucky to meet emission goals will impose significant challenges and the states may not be able to meet the goals in the expected timeframe.

Response 2 3 : States are not required to implement the building blocks set in the EPA’s BSER determination. The EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into

m ulti

- state plans, multi

- state coordination while retaining their individual state goals, and emission budget trading programs. Certain rate

- based state plans can use or purchase ERCs generated from eligible resources (e.g., EE/RE). This fle xibility provides enough latitude for all states to comply with this rule. See s ection VIII.C of the preamble to the final rule for details on the different state plan approaches states can use to comply with the final emission guidelines. See section VII. E of the preamble to the final rule for details on plan submittal and timing. The EPA will work with states and stakeholders and other federal agencies as appropriate.
The following are summaries of the specific publ ic comments under this comment:325 Commente rs stated that requiring Nebraska and Kentucky to meet emission goals will pose significant challenges and these states may not be able to meet the goals in the expected timeframe. Flexibility to use all the building blocks in a compliance plan may be limi ted, making it difficult to achieve the results the EPA is anticipating with this proposal.

Comment 2 4 : Comments suggesting that Idaho not be subject to a performance goal.

Response 2 4 : See s ection V.E. of the preamble to the final rule and the EPA’s CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for details on the EPA’s rationale for renewable energy BSER determination and how the EPA has changed the renewable ener g y assumptions under BSER in the final rule.
The following are summaries of the specific publ ic comments under this comment:

Commenters stated Idaho should not be subject to a CO 2 emission performance goal because Idaho's generation mix reflects BSER and its carbon profile is already very low, citing that Idaho's 2012 CO 2 emission level was next to the lowest emission level in the country, second only to the emission level of Vermont, the one s tate that the EPA does not require to meet a goal. Idaho's carbon profile is low because Idaho has no in

- state coal generation and that Idaho's two NGCC plants (including one that just started operating in mid

- 2012) already comply with the NSPS that the EPA has proposed under CAA Section 111 (b). Commenters stated that these sources thus already employ BSER under Section 111(d).

Comment 2 5 : Comments responding to the four major questions in “ Considerations in the Design of a Program to Reduce Carbon Pollution from Existing Power Plants.”

Response 2 5 : We appreciate this information. No response to this comment is necessary.

The following are summaries of the specific publ ic comments under this comment:

Commenters offered the following responses to the four major questions in EPA's

" Considerations in the Design of a Program to Reduce Carbon Pollution from Existing Power Plan ts ": 1. What is state and stakeholder experience with programs that reduce CO 2 emissions in the electric power sector? Kansas has no specific regulatory requirements for sources to report CO 2 emissions or CO 2 emissions reduction for inventory or control p urposes. Kansas relies on EPA's greenhouse gas reporting program as a source for CO 2 emissions data.326 5.15 OTHER

This section contains comments regarding the state plan that do not fit the topic area of other sections in chapter 5. The comments in this sec tion generally include comments requesting certain issues be covered in the state plans, such as regional electricity markets, development of transmissi on and energy infrastructure, least

- cost dispatch, consumer protections, and environmental and climate j ustice considerations. Commenters asked for guidance on incorporating certain considerations into a state plan, requested that local governments be involved in designing and implementing the state plan, and requested that EPA not make the eligibility of re ductions contingent on state requirements.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1 : C omments recommending c ollaboration with local governments in developing and implementing state plans.

Response 1 : The EPA agrees with c ommenters that consultation and coordination with local governments and cities will be an important component in the development and implementation of many state plans. In the final emission guidelines’ state plan development process, there are various opportunities for input from local governments prior to initial plan submittal, prior to complete plan submittal, and when the EPA proposes to act on a state plan a nd publishes a notice in the Federal Register. This includes a requirement that states provide an opportunity for public engagement on their state plans. See s ection VIII.D.2 of the final rule preamble of the CPP. Additionally, one of the justifications fo r seeking an extension for plan submittal is for states who wish to actively engage with communities, including low income communities and communities of color, throughout the state plan development process beyond the public participation requirements of 4 0 CFR 60.27. See s ection VIII.E.2 of the final rule preamble of the CPP.

The final emission guidelines provide flexibility for states to pursue policies to reduce carbon pollution that:

• continue to rely on a diverse set of energy resources;

• ensure electr ic system reliability;

• provide affordable electricity;

• recognize investments that states and power companies are already making; and

• tailor plans to meet their respective energy, environmental and economic needs and goals, and those of their local communities.327 The final emission guidelines also allow states to build on their existing progress, and the progress of cities and towns, in a ddressing GHGs, and minimizes additional requirements for existing programs where possible. We therefore disagree with c ommenters that the EPA should include a mechanism to “reward” states based on the quality of partnerships with local governments and program implementers. To ensure the coherence of state plan requirements and to maximize the flexibility for states in developing the ir state plans, the EPA will approve state plans that meet the requirements and include the components listed in the final guidelines and are not including a mechanism to reward states for anything additional.

We acknowledge the EPA’s limited outreach spe cifically to cities and local governments during the proposal phase. Because states are the EPA’s co

- regulators, the EPA has primarily focused outreach efforts on states. We intend to engage with local governments on strategies and to support states in wor king with and considering local governments during their plan development and implementation. To provide local governments, communities ( including low income communities and communities of color) , and other stakeholders with an understanding of the rule

re quirements, and to provide efficiencies where possible and reduce the cost and administrative burden, the EPA will continue outreach throughout the plan development and submittal process.

The following are summaries of the specific public comments under th is comment:

Commenters recommended that Federal agency and s tate CPP initiatives should be supported through local government implemented and managed programs. Commenters point ed out that coordination and support with local government is key for implementi ng all aspects of CPP BSER, but especially for energy efficiency programs and for incorporating greater use of power from renewable energy sources. Commenters believe d that the a gency should and can more effectively partner itself with local governments to achieve CPP goals. Commenters stated that extensive planning is required of states, and it makes sense for states and local governments to comprehensively address local circumstances that could compromise the electric system and reliability. Commenters po inted to environmental factors such as heat and drought and severe weather events that could impact utilities that would need to be addressed on a local level.

Commenters believe d that s tate plans should incorporate collaboration with local government. Co mmenters suggest ed that the agency should use a mechanism in reviewing s tate plan adequacy which rewards consistent behavior on a continuous improvement basis, and that a similar mechanism can reward the quality of partnerships with local governments and p rogram implementers. Commenters refer red to hundreds of initiatives implemented in cities and regions that were developed with support of the Administration's Partnership for Sustainable Communities program, and this program was presented as an example of a mechanism that might be developed and used in reviewing state plans and to encourage actions that could be counted toward emission reduction goals.

Commenters note d that outreach in support of the rule shows only one specific effort aimed at cities and local governments out of hundreds listed, and are suggesting that this is not enough.

Commenters note d that these ideas are consistent with recommendations included in The White House State, Local and Tribal Leaders Task Force on Climate Preparedness (WHTF) and EPA's statements contained in the F ederal Register announcement of the CPP. Precedent for328 implementation of CPP initiatives at the local level is supported by the following examples given by the commenters:

• stipulation in the CAA (1990) that control of criteria pollutants is implemented at the metropolitan level;

• the U

. S

. EPA launched Green Infrastructure Collaborative among government agencies, NGOs, and other private sector entities to advance green stormwater infrastructure; and

• National law that allows for the allocation of disaster resp onse funding targeted to counties and principle cities.

Further, c ommenters believe d that electrical demand reduction will come from larger numbers of smaller sources (e.g., buildings, mobile sources and improvements induced in both these sectors by better land use) in local place

- based settings; rates and energy efficiency programs for 20 percent of the population is controlled by publicly

- owned and rural electric utilities; and it was noted that cities and communities are independently adopting climate pr otection goals. Commenters provided examples of successful carbon reduction programs implemented at the local level including:

• The Chicago energy efficiency program that led to significant State level GHG reductions through the closing of 3 coal powered pl ants, and

• Locally implemented energy efficiency initiatives through Federally supported local programs such as the Better Buildings Neighborhood Initiative;

• Property Assessed Clean Energy (PACE) programs, an innovation founded by MIP member the City of Ber keley CA and proliferated nationally in hundreds of communities with the support of enabling legislation in over 20 States since.

• Local governments that have already adopted climate protection goals: Arlington, Chicago, Dubque, El Paso, Portland and Multno mah Counties, and San Antonio.

Commenters strongly recommend that the rule provide a platform for this kind of collaboration, and include these ideas into State plans, to help implement the Clean Power strategy. Commenter s suggested that operationally, the rule should reward s tates and utilities that ensure effective implementation at the local level through partnerships, and that co

- leverage actions intended to reduce emissions, increase climate resilience and that do so cost

- effectively with the maximum p otential local value creation and value capture to ensure growing public support.

Comment 2 : Comment s on including interests of regional markets and development of transmission and energy infrastructure in development of state plan.

Response 2 : We agree w ith commenter s that the interest of regional markets should be considered in developing state plans. S tates share grid regions, impacts from plan329 implementation will be regional in nature and multiple analyses indicate that regional approaches could achiev e state goals at lesser cost than individual state plan approaches. The EPA is not requiring states to develop transmission and energy infrastructure, but note that to the extent that meeting final rule requirements results in upgrades in transmission efficiency and infrastructure, the outcome could be that the system is more robust and faces fewer risks to electric reliability. See Section VIII.C.5 of the final rule preamble of the CPP.

We agree with commenter s that we should consider the interaction of other regulations and agencies with the CPP, particularly FERC. See Sections I.A.2 and II.C.3 of the final rule preamble of the CPP. See Section VIII.G.2 of the final rule preamble of the CPP for a discussion of the final guidelines’ protection of reliability. For a discussion of resources available to states in designing state plans, see section VIII.H.

The following are summaries of the specific public comments under this comment:

Commenters recommended that the EPA ensure that the interest of regional markets and the development of transmission and energy infrastructure should be represented in the development of state compliance plans. Commenters noted that the EPA must consider whether the complicated applications of MATS, the CPP, and FERC would impact the planning and development of transmission and energy infrastructure, and should coordinate with FERC for consideration of whether changes to market rules would be needed to support reliable implementation of the state plans. Commenters noted that the EPA could leverage existing planning resources and studies that consider electric reliability as well as emissions reductions, such as the Eastern Interconnection Plan ning Collaborative, as support for states to consider in the development of CPP compliance plans.

Comment 3 : Comments on including considerations of the electricity markets and least

- cost dispatch in state plans.

Response 3 : We agree with the commenters that states should be allowed to develop state plans that mesh with the operation of existing electricity markets. We encourage states to cooperate regionally, as regional cooperation in planning and reliability assessments is an important tool to meeting system needs in the most cost

- effective, efficient, and reliable way. See Section VIII.C.5 of the final rule preamble of the CPP.

We also note that the final guidelines support emissions t rading, which provides a way for states to set standards of performa nce that realize the required emissions reduction without requiring any form of “environmental dispatch” because, as many existing trading programs have shown, monetization of the environmental constraint is consistent with a least

- cost dispatch system. Se e Section V.A.2.f of the final rule preamble of the CPP. For discussion of the EPA’s consideration of “economic dispatch,” see Section V.D.1 of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comme nt:

Commenters requested that EPA allow for State Implementation Plans that mesh with the operation of competitive wholesale electricity markets, considering parts of the country that have330 had electricity industry restructuring and those that have not. Com menters stated that the rule must recognize the importance of centralized least

- cost dispatch, and allow for direct monetization of emission reductions and compliance costs as inputs to these competitive markets.

Comment 4 : Comment requesting guidance to consider conditional exemptions, subcategorization, and alternative compliance mechanisms

. Response 4 : In response to comments that the EPA must establish the Best System of Emission Reductions (BSER) specifically for affected sources, rather than by means of merely setting
state

- specific goals, the final guidelines express the BSER by establishing performance

- based CO 2 emission rates that are uniform across each of two source categories (fossil fuel

- fired electric steam generating units and stationary comb ustion turbines) for the affected EGUs covered by the guidelines. We cannot emphasize enough that, while the final guidelines now take

a source

- specific approach in setting CO 2 emission performance rates, this does not change the fact that each state’s goa l is tailored to its particular sources, and it in no way alters or curtails the flexibility inherent in the proposal’s state

- specific goals approach, which the final guidelines retain. Thus, to maintain the proposal’s flexibility for states, the guideline s continue to define state planning and implementation obligations through state

- level goals, which we have calculated by translating the source category

- specific CO 2 emission performance rates into equivalent statewide rate

- based and mass

- based CO 2 goals.

Given this, we agree with c ommenters that state plans may exempt a utility or unit from contributing to the reductions needed to meet the state goal, subcategorize by utility type within a state plan, and establish more than one compliance option within a state. See Section VIII of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters requested that EPA provide guidance for states to consider conditional exemptions, subcategorization of utilities, and alternative compliance mechanisms in state plans. Commenters stated that their utility's carbon intensity equation already meets or exceeds what is expected of a utility or unit to achieve as a result of the proposed rule. For these reas ons, c ommenters stated that a state plan should be authorized to conditionally exempt a utility or unit based on specific findings at the state level that the integration of the utility or the unit would cause disproportionate financial hardship while not substantively aiding the state in meeting the goals of the CPP. Commenters also requested that the EPA should expressly clarify the ability of a state to subcategorize by utility type within a state plan, in order to better reflect the obligations that wil l accrue to each utility based on the assets it owns, its ownership structure, the authority of the state EPA to require actions, and how it engages in electric markets. Commenters also requested that EPA clarify that states may establish more than one com pliance option within a state such that utilities with different ownership structures, assets and obligations may choose to aid the state in meeting its obligations to comply with the CPP in the most efficient manner possible.331 Comment 5 : Comment stating t hat environmental and climate justice should be considered in state plans.

Response 5 : In the state plan development process for the final guidelines, there are various opportunities for public input prior to initial plan submittal, prior to complete plan submittal, and when the EPA proposes to act on a state plan and publishes a notice in the Federal Register. Additionally, one of the justifications for seeking an extension for plan submittal is for states who wish to actively engage with communities, inc ludi ng overburdened communities

, throughout the state plan development process beyond the public participation requirements of 40 CFR 60.27. See Section s VIII. D

- E and IX.B of the final rule preamble of the CPP.
The following are summaries of the specific public comments under this comment:

Commenters stated that environmental and climate justice issues must be a part of the state implementation planning process. Commenters urged that environmental leaders be involved in the process. Commenters requested th at affected communities be engaged throughout the
process. Commenters urged that public resources must be made available to communities as they transition to cleaner forms of energy.

Comment 6 : Comment s recommending ways to ensure that state plans includ e consumer protections.

Response 6 : We disagree with the commenters that the final guidelines should require state plans to include a mechanism to protect consumers by constraining residential rates. ( We also disagree with the commenters’ characterization of the requirement that determination of BSER include consideration of non

- air quality health and environmental impacts . See Section V.A.1.c of the final rule preamble of the CPP.) Instead, the final guidelines provide states with flexibility to design plans that reduce costs to consumers, minimize stranded assets, and spur private investments in renewable energy and energy efficiency technologies and businesses.
Regarding the commenters’ specific recommendations, the final guidelines provide ample latitude for states and utilities to rely on demand

- side EE in meeting emission reduction requirement s. W e are providing resources to assist states in developing their plans ; see Section VI II.H of the final rule preamble . T he final guidelines include requirements for state and EGU reporting and verification; see Section s VIII. D.2 and VIII.F of the final rule preamble of the CPP . The EPA will publicly disclose state plans and progress by proposing and taking final action on eac h state plan submittal in the Federal Register and provide an opportunity for notice and comment. When a state plan submittal is approved by the EPA, the EPA will codify the approved 111(d) state plan in 40 CFR part 62. See Section VIII.D.3 of the final ru le preamble of the CPP . The final guidelines require public participation and certification of a hearing on each state plan , including encouraging states to particularly focus on low

- income and other vulnerable communities ; see Section VIII.D.2.a.6 of the final rule preamble of the CPP . We are also offering an additional incentive to remove current barriers to implementing RE and demand

- side332 EE programs in low

- income communities through a Clean Energy Incentive Program; see Section VIII.A.2 of the final rul e preamble of the CPP

. We disagree with the commenters that energy efficiency measures should be required for a state plan to be approved. See Section V.A.3.d of the final rule preamble of the CPP for a discussion of why we are not finalizing the proposed Building Block 4, demand

- side energy efficiency measures, as part of BSER.

The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA require that each state plan include a mechanism to protect consumers by constraining residential rates. Commenters argued that while a state could conceivably force onto residential consumers any increased costs from reducing emission s, these actions would not meet the definitional requirement that BSER include non

- air quality health and environmental impacts. Commenters recommended three ways in which EPA could ensure that state plans include consumer protections:

• by emphasizing cost

- effective energy efficiency, and helping states share information to implement successful programs that save energy and money;

• mandating transparency and data collection as part of each implementation plan, and publicly disclosing stat es plans and progress in a manner that is accessible to the average consumer; and

• requiring consumer participation and oversight to ensure fairness for consumers.

First, Commenters asserted that EPA should not approve a state plan as meeting the BSER if robust energy efficiency measures are not included

. ; Commenters also noted that for state plans where customer participation is required, such programs should include a strategy for achieving high participation rates, especially among low

- income ratepayers

. C ommenters stated that EPA must hold states accountable by requiring transparency, analysis, and data to compare how states are serving consumers through the state plans; specifically, c ommenters recommended that EPA require states to report on utility b ill impacts, include impacts for low

- income ratepayers and strategies to mitigate them. Commenters also stated that customer participation in the development of state plans would hold states, utility boards, and utilities accountable for cost

effective inv estments and programs that reduce emissions while maintaining affordability. Commenters also requested that EPA require as part of BSER that consumer interests be considered in addressing variables that can raise residential rates, such as increased infras tructure costs, low participation rates in EE programs, higher rates of return for utility shareholders, or higher fixed charges or surcharges on bills. Commenters noted that EPA could require public notice and comment, economic analysis from a consumer st andpoint, or a requirement that each state plan includes actions that ensure that efficiency programs and any changes to rate design will help lower bills for residential ratepayers and low

- income residents.