Output-based	regulations	(OBR)	can	

be	an	important	tool	for	

promoting	an	array	of	innovative	

energy	technologies	that	can	help	achieve	

national	environmental	and	energy	goals	

by	reducing	fuel	use.	OBR	encourages	

energy	efficiency	and	clean	energy	supply,	

such	as	combined	heat	and	power	(CHP),	

by	relating	emissions	to	the	productive	

output	of	the	process,	rather	than	the	

amount	of	fuel	burned.	

How
Do
Output-Based


Emission
Limits
Encourage


Clean
Energy?


Traditional	“input-based”	environmental	

regulations	for	power	generators	and	

boilers	establish	emission	limits	based	on	

heat	input	(e.g.,	pounds	per	million	British	

thermal	units	[lb/MMBtu]	heat	input)	or	

exhaust	concentration	(parts	per	million)	

in	the	exhaust	stream.	These	input-based	

limits	do	not	account	for	the	pollution	

prevention	benefits	of	increased	efficiency	

in	the	generation	of	heat	or	electricity.	

Output-based	emission	limits,	expressed	

as	emissions	per	unit	of	useful	energy	

output	(e.g.,	pounds	per	megawatt-hour	

[lb/MWh]),	on	the	other	hand,	promote	

clean	energy	by	accounting	for	the	air	

pollution	effects	of	energy	efficiency	in	

the	compliance	computation.	

For	example,	a	facility	that	installs	an	

energy-efficient	technology	has	lower	

Output-Based
Environmental
Regulations


An	Effective	Policy	to	Support	Clean	Energy	Supply	

What
Are
the
Benefits
of
Using
More
Efficient


Combustion
Technologies?


•	 Reduced
Fossil
Fuel
Use.	Encouraging	energy	efficiency	and	renewable	energy	

sources	will	reduce	the	demand	for	imported	fossil	fuels.	

•	 Multipollutant
Emission
Reductions.
The	use	of	efficiency	as	a	pollution	control	

measure	results	in	multipollutant	emission	reductions.	For	example,	a	source	that	

chooses	to	comply	with	NOx	limits	by	increasing	fuel	conversion	efficiency	will	also	

reduce	emissions	of	all	other	pollutants	as	well.	

•	 Multimedia
Environmental
Reductions.	By	encouraging	reduced	fuel	use,	an	OBR	

reduces	air,	water,	and	solid	waste	impacts	that	result	from	the	production,	processing,	

transportation,	and	combustion	of	fossil	fuels.	

•	 Technology
Innovation.
Encouraging	more	efficient	energy	generation	can	advance	

the	use	of	innovative	technologies,	such	as	CHP.	

•	 Compliance
Flexibility.
Allowing	the	use	of	energy	efficiency	as	part	of	an	emission	

control	strategy	provides	regulated	sources	with	an	additional	compliance	option.	This	

flexibility	enables	the	plant	operator	to	determine	the	most	cost-effective	way	to	reduce	

emissions,	while	providing	an	incentive	to	use	less	fuel.	

Draft	
emissions	because	it	burns	less	fuel.	However,	inputbased	emission	limits	do	not	count	the	reduced	

emissions	from	improved	energy	efficiency	toward	

compliance.	By	not	accounting	for	these	emission	

reductions,	input-based	emission	limits	can	present	a	

missed	opportunity	for	adopting	energy-efficiency	

improvements.	Output-based	emission	limits,	which	

do	account	for	the	emission	reduction	benefits	of	

energy	efficiency,	make	it	more	attractive	for	

regulated	sources	to	install	clean	energy	technologies	

because	these	technologies	provide	greater	

compliance	flexibility	and	the	opportunity	for	reduced	

compliance	costs.	

Output-based	emission	limits	are	particularly	

important	for	promoting	the	energy	and	

environmental	benefits	of	CHP.	CHP	units	produce	

both	electrical	and	thermal	output.	Output-based	

limits	can	be	designed	to	explicitly	account	for	both	

types	of	output	in	the	compliance	computation.	

Traditional	input-based	limits,	on	the	other	hand,	do	

not	account	for	the	pollution	prevention	benefits	of	

CHP	(see	Figure	1).	

Output-based	emission	limits	do	not	favor	any	

particular	technology,	nor	do	they	result	in	increased	

emissions.	They	simply	level	the	playing	field	by	

allowing	energy	efficiency	and	renewable	energy	to	

compete	on	an	equal	footing	economically	with	any	

other	method	of	reducing	emissions	(e.g.,	

combustion	controls	and	add-on	controls).	

In
What
Ways
Can
Output-Based


Approaches
Be
Incorporated
Into
Air


Regulatory
Approaches?


Output-based	regulatory	concepts	can	be	applied	to	

a	variety	of	air	regulatory	programs,	including:	

•		Conventional	emission	limits,	such	as	emission	

limits	in	State	Implementation	Plans	for	

Reasonably	Available	Control	Technology.1	

•		Emission	limits	for	small	distributed	generation	

(DG)	and	CHP.	Most	states	that	have	recently	

promulgated	emission	limits	for	DG	are	using	OBR.	

•		Allowance	allocation	in	emission	trading	programs.	

Emission	allowances	are	most	commonly	allocated	

based	on	either	heat	input	or	energy	output.	

Allocation	based	on	heat	input	gives	more	

allowances	to	less	efficient	units.	Allocation	based	

on	energy	output	gives	more	allowances	to	more	

efficient	units.	An	updating	allocation	system	

(where	allowances	are	reallocated	in	the	future)	

based	on	output	provides	an	ongoing	incentive	for	

improving	energy	efficiency.	

•		Allowance	allocation	set-asides	for	energy	

efficiency	and	renewable	energy.	In	addition	to	

allocating	allowances	to	regulated	sources,	a	cap	

and	trade	program	can	“set	aside”	a	portion	of	its	

allowances	for	allocation	to	energy	efficiency,	

renewable	energy,	and	CHP	projects	that	are	not	

regulated	under	the	cap	and	trade	program.	These	

unregulated	units	can	sell	the	allowances	to	

regulated	units	to	generate	additional	revenue.	

1EPA	has	used	an	output-based	approach	with	recognition	of	CHP	for	the	new	

source	performance	standards	(NSPS)	for	NOX	from	utility	boilers,	NSPS	for	

mercury	from	coal-fired	utility	boilers,	and	National	Emission	Standards	for	

Hazardous	Air	Pollutants	for	combustion	turbines.	

Figure
1.
CHP
System
Efficiency


Source:	EPA	2004.	

2	
Which
States
Have
Established


Output-Based
Environmental


Regulations?


Several	states	have	been	at	the	forefront	of	adopting	

OBR	in	general	and,	in	particular,	developing	rules	

that	account	for	the	efficiency	benefits	of	CHP.	

Table	1	presents	a	summary	of	state	OBR	programs.	

Features	of	several	state	OBR	programs	are	

highlighted	below.	

Connecticut
has	promulgated	an	OBR	for	NOx,	

particulate	matter,	CO,	and	CO2	from	small	DG	(<	15	

MW	capacity),	including	CHP.	Connecticut's	regulation	

values	the	efficiency	of	CHP	based	on	the	emissions	

that	are	avoided	by	not	having	separate	electric	and	

thermal	generation.	Connecticut	also	allocates	

allowances	based	on	energy	output	in	their	NOx	

trading	program.	For	more	information,	visit	

www.ct.gov/dep/lib/dep/air/regulations/mainregs/sec	

42.pdf.	

Table
1.



State
Output-Based
Regulations



California
 Small	DG	Rule*	

Connecitcut
 Allowance	Allocation/trading	

Small	DG	Rule*	

Delaware
 Small	DG	Rule*	

Indiana
 Allowance	Allocation/set-asides	

Maine
 Small	DG	Rule	

Maryland
 Allowance	Allocation/set-asides	

Massachusetts
 Allowance	Allocation/trading*	

Small	DG	Rule	

Multipollutant	Regulation	

Allowance	Allocation/set-asides	

New
Jersey
 Allowance	Allocation/trading	

Allowance	Allocation/set-asides	

Ohio
 Allowance	Allocation/set-asides	

Texas
 Conventional	NOx	Limits	

Small	DG	Rule*	

New
 Multipollutant	Regulation	

Hampshire


New
York
 Small	DG	Rule	

Allowance	Allocation/set-asides	

*Includes	recognition	of	CHP	through	inclusion	

of	thermal	credit.	

Indiana's
NOx	trading	program	includes	a	set-aside	

of	allowance	allocations	for	energy	efficiency	and	

renewable	energy.	Indiana	allocates	1,103	tons	of	

NOx	allowances	each	year	for	projects	that	reduce	

the	consumption	of	electricity,	reduce	the	

consumption	of	energy	other	than	electricity,	or	

generate	electricity	using	renewable	energy.	Eligible	

projects	can	involve	combined	cycle	systems,	CHP,	

microturbines,	or	fuel	cells.	For	more	information,	

visit	www.in.gov/idem/programs/air/sip.	

The	Massachusetts
NOx	cap	and	trade	program	

employs	useful	output,	including	the	thermal	output	

of	CHP,	to	allocate	emission	allowances	to	affected	

sources	(i.e.,	generators	>	25	MW).	This	approach	

provides	a	significant	economic	incentive	for	CHP	

within	the	emissions	cap.	Massachusetts	also	has	a	

multipollutant	emission	regulation	(i.e,	NOx,	SO2,	Hg,	

CO2)	for	existing	power	plants,	which	uses	an	

output-based	format	for	conventional	emission	limits.	

For	more	information,	visit	

www.mass.gov/dep/air/laws/pbsareg.pdf	or	

www.mass.gov/dep/air/laws/729final.doc.	

In	2001,	Texas
promulgated	a	standard	permit	with	

output-based	emission	limits	for	small	electric	

generators.	The	permit	sets	different	NOx	limits	

(lb/MWh)	based	on	facility	size,	location,	and	level	of	

utilization.	The	compliance	calculation	accounts	for	

the	thermal	output	of	CHP	units	by	converting	the	

measured	steam	output	(Btu)	to	an	equivalent	

electrical	output	(MWh).	For	more	information,	visit	

www.tceq.state.tx.us/assets/public/permitting/air/	

NewSourceReview/Combustion/segu_permitonly.pdf.	

Elements
of
a
Successful
Policy


Based	on	the	experiences	of	state	environmental	

agencies	that	have	developed	OBR,	a	number	of	best	

practices	have	emerged	for	designing	and	

implementing	effective	OBR.	These	best	practices	

include:	

•		Conduct
internal
education
to	ensure	that	state	

environmental	regulators	understand	the	benefits,	

principles,	and	mechanisms	of	OBR	and	CHP.	

•		Evaluate
the
state's
overall
air
pollution


regulatory
program.
Regulatory	programs	are	

routinely	reviewed	and	revised,	and	occasionally	

new	programs	are	mandated	by	state	or	federal	

legislation.	States	can	take	advantage	of	those	

opportunities	to	evaluate	their	regulatory	programs	

to	determine	whether	their	regulations	are	

3	
structured	to	encourage	energy	efficiency,	pollution	

prevention,	and	renewable	resources.	

•		Coordinate
with
other
state
agencies
that


can
lend
support.
State	energy	offices,	energy	

research	and	development	offices,	and	economic	

development	offices	can	be	important	supporters	

in	promoting	OBR,	efficiency,	and	CHP.	Their	

perspective	on	the	importance	of	energy	efficiency	

and	pollution	prevention	can	be	very	valuable	

when	formulating	OBR	policies.	

•		Determine
what
types
of
DG
and
CHP


technologies
and
applications
might
be


affected
and	whether	there	are	any	specific	

technology	issues	that	the	regulation	needs	to	

address.	Consult	with	the	Public	Service	

Commission,	Independent	System	Operator,	and	

owners	or	operations	of	DG	and	CHP	units	to	

inform	regulatory	determinations.	

•		Gather/review
available
output-based


emission
data
for
regulated
sources.


Alternatively,	convert	available	data	to	outputbased	format.	Obtain	information	from	equipment	

providers	on	technologies	and	emissions	profiles,	

and	capitalize	on	experience	and	work	already	

conducted	by	other	states.	

•		Evaluate
alternative
approaches
to
account


for
multiple
outputs
of
CHP
units.


•		Train
permit
writers
on	implementation	of	the	

new	rules,	once	adopted.	

EPA
Assistance
Available


The	EPA	CHP	Partnership	is	a	voluntary	program	that	

seeks	to	reduce	the	environmental	impact	of	power	

generation	by	promoting	the	use	of	cost-effective	

CHP.	The	Partnership	assists	state	policy	makers	and	

regulators	to	evaluate	opportunities	to	encourage	

CHP	through	the	implementation	of	policies	and	

programs.	See	www.epa.gov/chp.	

Additional
Resources


EPA	has	developed	Output-based	Regulations:	

A	Handbook	for	Air	Regulators,	which	explains	the	

benefits	of	output-based	emission	limits,	how	to	

develop	OBR,	and	the	experience	of	several	states	in	

implementing	OBR.	This	handbook	is	intended	as	a	

resource	for	air	regulators	in	evaluating	opportunities	

to	adopt	OBR	and	writing	regulations.	The	handbook	

is	available	at	www.epa.gov/chp/state_resources.htm.	

EPA	has	created	The	Clean	Energy-Environment	

Guide	to	Action.	The	Guide	provides	an	overview	of	

clean	energy	supply	technology	options	and,	in	

addition	to	OBR,	presents	a	range	of	policies	that	

states	have	adopted	to	encourage	continued	growth	

of	clean	energy	technologies	and	energy	efficiency.	

The	Guide	is	available	at	www.epa.gov/cleanenergy/	

stateandlocal/guidetoaction.htm.	

Developing	and	Updating	Output-Based	NOx	

Allowance	Allocations.	This	EPA	guidance	document	

was	the	result	of	a	1999	stakeholder	process	to	

develop	approaches	to	output-based	allocation	of	

emission	trading	allowances,	including	allocation	to	

CHP	facilities.	See	

www.epa.gov/airmarkets/progsregs/nox/docs/finalout	

putguidanc.pdf.	

Analysis	of	Output-Based	Allocation	of	Emission	

Trading	Allowances.	This	report	for	the	U.S.	

Combined	Heat	and	Power	Association	provides	

background	on	emission	trading	programs	and	the	

benefits	of	output-based	allocation,	with	a	particular	

focus	on	CHP.	See	http://uschpa.admgt.com/	

allocationfinal.pdf.	

For
more
information,
contact:


Claudia Tighe

Climate Protection Partnerships Division

Phone: 202-343-9920

e-mail: tighe.claudia@epa.gov

Last	updated	March	5,	2008	 4