# UNITED STATES ENVIRONMENTAL PROTECTION A GEN CY 

# WASHINGTON , D.C . 20460 O F FICE O F 

# A IR AND R ADIAT I ON 

# MEMORANDUM Subject: From: To: Summary of Stakeholder Meetings Carissa Cyran Dockets EPA-HQ-OAR-2013-0602, EPA-HQ-OAR-2013-0603, and EPA-HQOAR-2013-0495 This memorandum summarizes meetings with stakeholders during the week of March 9 , 2015. On March 9, Associate Assistant Administrator for Climate and Senior Counsel for Air and Radiation Joseph Goffman met with representatives from the Clean Air Task Force. Sign-in sheet and presentation are attached. On March 9, Acting Assistant Administrator for Air and Radiation Janet McCabe and Associate Assistant Administrator for Climate and Senior Counsel for Air and Radiation Joseph GotTman participated in a Clean Power Plan Compliance Workshop with state officials , organized by 

# the Georgetown Climate Center. On March 1 0, Associate Assistant Administrato r for Climate and Senior Counsel for Air and Radiation Joseph Goffman met with representatives from the World Coal Association . Sign-in sheet and handout are attached. On March 10, Acting Assistant Administrator for Air and Radiation Janet McCabe and Associate Assistant Administrator for Climate and Senior Counsel for Air and Radiation Joseph Goffman participated in a dialogue with states, power companies and non-govemmental organizations on Clean Power Plan Implementation , organized by the Georgetown Climate Center. On March 12, Acting Assistant Administrator for Air and Radiation Janet McCabe met with representatives from the American Chemistry Council. S ign-in sheet attached. On March 12, Associate Assistant Administrator for Climate and Senior Counsel for Air and Radiation Joseph Goffman met with Tim Profeta, of the Nicholas Institute for Env ironmental Policy Solutions at Duke Un iversity . On March 13, Acting Assistant Administrator for Air and Radiation Janet McCabe and Associate Assistant Administrator for Climate and Senior Counsel for Air and Radiation Joseph Goffman met with representatives from Edison Electric Institute. S ign-in sheet attached. Internet Address ( URL ) • http 1/ www epa gov Recyc l ed / Recyclab l e • Prm t ed w o th Vegetable O o l Based I n k s on 100% Postco n sume r. Process Chlo n ne Free Recyc l ed Pa p er

# On March 13 , Acting Ass ist ant Adm ini strato r for Air and Radiation Janet McCabe a nd Assoc iat e Assistant Admi ni stra tor for Cl im ate and Senior Counsel for Ai r and Radiati on Jo sep h Goffman met w ith r epresentatives fro m Adirondack Council. Sign-in sheet attached.

# Date: March 9 , 2015 Meeting: C lea n Power Plan Rule(s) Discus s ed:



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# 0 LLTOPICS • Form of emission goal :
- Mass goals should be required or at least strongly facilitated

- Mass goals should cover both e x isting and new sources

- The method for translating rate to mass goals should be prescribed

- Load growth true-up for mass goals

• Inter-state trading of emission credits

- Benefits of broad national trading : enhanced reliability and lower cost

- Need for clarifying guidance to facilitate trading between sources in non contiguous states • CATF ' s goals for the final rule
• CATF ' s outreach 1

# FORM OF GOAL Mass Goals should be Preferred to Rate Goals There are many reasons to prefer mass goals over (b lended) rate goals. Problems with Rate Goals Advantages of Mass Goals

• 

## No limit on emissions

, which rebound after 2030 • 

## Facilitates EE and RE investment.

• 

## Lower wholesale prices may • 

## Allowance allocation permits rate

**~** 

## Increase the cost of state policy supports for mitigation and / or other application for auction revenues

RE and EE programs 

## • Avoids the emission and market

**~**



## Push some nuclear units into premature

problems associated with rate goals

retirement

, raising emissions 

## • Familiar to stakeholders



## •

Requires EE EMV showing to demonstrate credit. Risks " phantom " reductions if EE EMV accounting

• 

## Simplicity faci l itates interstate and reporting issues not effectively resolved compliance and credit trading



## • Requires special interstate trading rules for RECs

• 

## Consistent with likely long term carbon Complicated for states to engage in interstate policies



## • trading . 

## • May raise production costs due to seams conflicts across neighboring states --------- - ------------···-·- ----- -------- - - - 

# Consequently , mass goals should be required or at least strongly facilitated . 2FORM OF GOAL Total Electric Sector Emissions 3500 . 00 1 3000 . 00 2500 . 00 -1-- -- ------ - O N 2 000 . 00 I ............... **~** -

**-- ~**  --- ·-

0

1-

:E

:E

150 0 . 00 - 1000 . 00 +--------------------------- 500 . 00 +-- --- - --------------- -- -- - -

**oo ~** 

2016 2018 2020 2025 ' 2030 20 4 0 2050 - E lectric Sector BAU
- E lectric Sector EPA Regs

- E xisti n g So u rces EPA R eg s Source : EPA Clean P ower P l an draft R I A IP M Run s 3

## FORM OF GOAL Facilitate Mass Goals Mass goals should be facilitated :
• Appropriately structuring the implementation milestones and corrective action requirements for rate-based and mass-based programs
**~** 

### Well designed mass programs should be self-correcting , avoid stringent milestone and corrective action requirements, allow for extensive borrowing and therefore offer greater compliance flexibility

.
**~** 

### In contrast

, rate-based programs

, due in part to the need for relatively complex compliance procedures

, may require more stringent oversight.



### • Consider a load growth true-up mechanism for mass goal programs such as that outlined later in these materials.

• Retain requirement that rate-based states " blend " their rates in order to trade with each other . 4FORM OF GOAL Goals Should Cover Existing & New Sources

A mass goal covering only existing sources is problematic from several perspectives :

• Electric Markets - Inefficient Operations Bifurcating emission sources would result in a price on emissions from existing sour ces but
no price on emissions from new sources

- This would allow new but less efficient gas plants to dispatch before existing but more efficient gas plants , leading to inefficient operations

• New Entry and Emissions - Inefficient Entry and Emission Rebound

- The unequal treatment of existing and new gas would create an incentive for new NGCCs to enter the market when that would not otherwise occur

- To the extent this ca used new gas generation to displace existing gas generation , there would be litt le if any meaningful emission reductions on a total system basis Excessive ne w entry could depress the carbon prices , reducing the value of other types of abatement and causing overall emissions to rebound.

• Long Term Policy - Transition Hurdle Most long term policy structures , such as carbon taxes or cap and trade mechanisms , are intended to cover both existing and new sources on a mass basis Regulating some sources on a mass basis and other sources on a rate basis would be inco nsistent w ith that and could hinder the transition to a l onge r term policy . As a consequence, mass goals should cover both existing and new sources. 5

## FORM OF GOAL Translation Method should be Prescribed While providing states with compliance flexibility is important , allowing them to choose how to translate rates into mass goals would undermine the emission benefits of the rule .
As shown below, this could lower the emissions benefits (relative to 

## 2012) from 

## 17°/o to


## 13 o/o -a reduction in emission benefits of almost 

## 25°/o. Lower 48 Covered Emissions Budget Million Metric Reduction from Reduction from Tonnes 

### 2005 2012 GDC with Load Growth 

### 1

, 536 32 % 20 % IPM Re s ults 

### 1

, 600 29 % 17 % Higher of the Two 

### 1

, 677 26 % 13 % --·--··- 

### To prevent this , the method for translating rate goals into mass goals should be prescribed. N ote : Tak e n from " T ransla t in g E m issio n R at e Goals to Mass Goals Under EP A ' s Clea n P ower P l a n ", Bru c e P hilli p s and l a in Kap l a n

, The N o rt h Br idge Group

, Decemb e r 2 01 4 

### 6FORM OF GOAL Load Growth Concern

• The most common question raised by states and generating companies about the desirability of mass goals is whether they might constrain economic growth.

• In part , this is based on misunderstandings-

- that carbon emissions are necessarily tied to economic growth

- that mass translation methods do not incorporate expectations of load growth .

• Nonetheless, to the extent the issue has to do with different growth expectations , allowing a mass goal to be adjusted over time could address this issue .

• This could be done using a " true-up " mechanism

• To ensure the resulting mass goals remain preferable to a rate goal -

- The emission rate and generation inputs would need to be carefully calibrated

- The mechanism would need to terminate in 2030 7FORM OF GOAL True-Up Mechanism

• Up-Front Decision: Made by a state as part of its implementation plan.

• Goal Adjustment: - General : Adjustment

= (actual minus expected load) x emission rate

- Load Difference : The difference between actual load and load under the CPP as estimated in the initial rate to mass goal translation calculation (net of EE)

- Emission Rate: • The emission rate would be the same as in the rate to mass goal translation methodology . • The adjusted mass goal would be consistent with the original mass goal had

it been based on what turned out to be actual load growth

.

- The resulting tonnage adjustment would be symmetrical (it could increase or decrease the mass goal)
• Timing: - Prospective Adjustment- for example, a true-up determined in 2022 based on 2021 actual load data would adjust the 2023 mass goal

- Could be done annually or periodically (every second or third year)

- Final adjustment made as part of setting the 2030 goal

• Example: (1 02 TWh actual load

- 100 TWh estimated load) * 1000 lbs/MWh I 2000 lbs/short ton

= 1

, 000

, 000 tons 8BROAD INTER-STATE TRADING Two Approaches

• Broad inter-state trading offers many benefits; most importantly, it can help address two key concerns expressed by others about the impact of the proposed CPP :

)> Electric reliability )> Compliance costs
• While the CPP proposal offers several ways to trade, these generally involve joining or establishing multi-state programs with neighboring states -which could be problematic:

)11> The effort required to join or develop such programs can be considerable .

)11> There may be a loss of control over some elements of state plans .

)11> The most promising trading opportunities may be with states outside of the local region .

• SOLUTIONS: 1 . Our preferred policy would be for EPA to establish a national trading program patterned off of the NOx SIP call 2 . Alternately , at a minimum , EPA should facilitate a streamlined mass-based system for states with mass goals to trade on a bilateral basis without joining multi-state programs. 9BROAD INTER-STATE TRADING Bilateral Trading

- Impediments

• There are currently several impediments for states considering bilateral trading :

)> The EPA has not publically acknowledged this form of trading

)> An inter-regional or national tracking system has not been offered

)> The CPP does not directly address the minimum conditions under which trading by sources between approved state programs through bilateral trade would be acceptable • This is relevant because price cap

, supplemental allowance and borrowing provisions co uld migrate across state programs and impact program performance.

)> The CPP ' s program implementation language may be controlling although the impact

is not clear • "

... a state plan must ( i) specify a process for annual reporting

. . . and ( ii) include a process and schedule for implementing corrective measures if

... " needed

• plans may not need corrective measures if the y inc lude "self-correcting mechanisms " which " i nherentl y require both interim progress and the full level of required emission performance ... "
• This raises numerous questions for states and the resulting uncertainty makes it less likely they will pursue this form of trading

. 10BROAD INTER-STATE TRADING Bilateral Trading - Facilitation EPA should facilitate this form of trading by providing clarifying guidance on a few design features: • Explicitly acknowledge that states with mass programs may trade credits on a bilateral basis without joining or developing a multi-state program

• Offer to track credits and trades if requested by states

• Clarify policy concerning several key features, including units (metric tonnes vs. short tons), compliance periods, banking and borrowing provisions, and price cap compatibility:

**~** Confirm that trading programs in states without price caps Are self-correcting mechanisms , may use a single 2020- 2029 initial compliance period

in which banking and borrowing is extensive
**~** Describe the provisions that states with price caps would need to adopt in order for their

programs to be considered self-correcting These might include the level of the price caps , supplemental allowances and related provisions This would also allow for a single initial compliance period and extensive borrowing

• Confirm that trading between any of these states would be allowable. 11INTERIMGOALS:AddresswithoutlossofenvironmentalintegrityStatesandstakeholdersconcernedaboutinterimgoalsarepushingavarietyof"fixes"totheproposalincluding:•Pricecaps•Reliabilitytriggers•Glidepaths(vs."cliffs")•Delayofinterimgoals•EliminatinginterimgoalsAlloftheseareaimedatthe2020interimgoals.[Notably,thereisalmostnopushbackonthe2030goals.]EPAshouldresist.Thegoalsarenottoostringentandstatescanpursuetwomechanismstofullymitigatetheseconcerns:1.Mass-basedcompliancewithborrowingunderthecap.2.BroaderinterstatetradingThesewouldfacilitatecompliancewithoutgivingupenvironmentalperformance.12CATF GOALS FOR THE FINAL RULE

• Form of emission goal
- Mass goals should be required or

, if not

, at least strongly facilitated

- Mass goals should cover both existing and new sources

- The method for translating rate to mass goals should be prescribed

• Inter-state trading - Prefer broad national trading platform, similar in structure to the NOx SIP call

- Alternately

, EPA should : 1. Acknowledge that states may trade without j oini ng or developing a new mult i-state program

2. Clarify policy concerning minimum key features : units

, banking/borrowing

, etc.

3. Offer to track cre dits
• The FIP should include these same goal and trading provisions

• Other issues for later discussion:

- Role of CCUS - Nuclear fix - Biomass - Other elements of a FIP 13

## CATF OUTEACH • State outreach - Regional stakeholder groups

- Foundation initiatives
• Industry outreach • Legal support • CRA support 14

# Date: March 10, 2015 Meeting : World Coa l Assoc iation Rule(s) Discus s ed: 

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