Air Resources Board 

Mary D. Nichols, Chairman


1001 1 Street • P.O. Box 2815


Sacramento, California 95812 • vwvw.arb.ca.gov

^ 

Matthew Rodriquez


Secretary for


Environmental Protection

^


Edmund G. Brown Jr. 

Govemor 

December 27, 2013 _ 

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c^ ^-, Ci ^^„	

f 4 j 

Ms. Gina McCarthy, Administrator

m 

«; 

U.S. Environmental Protection Agency :3: 

Ariel Rios Building

1200 Pennsylvania Avenue, N.W. r„ 

Washington, D.C. 20460 "'

Dear Administrator McCarthy: 

The California Air Resources Board (ARB or Board) extends our thanks to the 

U.S. Environmental Protection Agency (U.S. EPA or EPA) for meeting with us and 

representatives from California's energy agencies and local air districts last month to 

discuss our experience reducing carbon pollution in the electric power sector. We 

appreciate U.S. EPA's efforts to solicit state leadership perspectives on the most 

effective framework to achieve reductions under section 111(d) of the Clean Air Act 

(Act). We support U.S. EPA's efforts to reduce carbon emissions from power plants 

with a strong standard and we applaud your willingness to explore a range of 

mechanisms to set and enforce compliance with the standard. We offer these 

comments, developed in consultation with the California Energy Commission (CEC), 

California Public Utility Commission (CPUC), and California lndependent System 

Operator (CAISO), as an initial response to U.S. EPA's questions to the states, and look 

forward to further conversations. We are also coordinating our efforts with California's 

many air districts, which have the primary responsibility for stationary source permitting 

in our state. ARB and other California agencies have also provided comments in 

several multi-state letters, including comments coordinated by the Georgetown Climate 

Center. This letter builds upon those efforts by providing more detailed 

recommendations and additional information on California's programs. 

ARB advocates a rigorous and equitable approach that will achieve very significant 

reductions while using flexibilities inherent in the power grid to support cost-effective 

compliance with the section 111(d) standard. The standard should recognize the 

significant progress made by many states, including California, while supporting the 

additional reductions ultimately needed to achieve the 80 percent reduction in 

greenhouse gas (GHG) emissions below 1990 levels by 2050, which may be necessary 

to stabilize the climate. We are interested in helping U.S. EPA develop program 

The energy challenge facing California is real. Every Californian needs to take immediate action to reduce energy consumption. 


For a list of simple ways you can reduce demand and cut your energy costs, see our website: http://www.arb.ca.gov . California Environmental Protection Agency 

Printed on Recycled Paper 
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 2 

elements that would be attractive to other states and that will result in a dramatically 

cleaner national power sector. To reach this target, the standards will have to drive 

emission control policies both at individual sources and across the power grid. 

In the context of our successes to date and desire to continue to use our suite of 

programs and policies to reduce GHGs, we are providing overarching comments on the 

design of the 111(d) guidelines for U.S. EPA's consideration. These comments are 

based on the following core principles: 

1) The standards, while acknowledging the diversity of the many states' power 

fleets and energy policies, should recognize that every state can prosper with a 

low carbon economy, and provide tools for states to move in that direction. 

U.S. EPA should recognize that the best systems of emission reduction now 

demonstrated can be broadly applied to help move all states toward lower 

emitting power sectors as long as sufficient time is provided to them. 

2) The standards should recognize that electricity system-level programs, such as 

energy efficiency measures, can cost-effectively curtail emissions from covered 

111(d) sources. Emissions reductions associated with such programs 

accordingly must inform both the level of the standards and compliance 

pathways available to reach that level. 

3) EPA should, to the greatest extent possible, build upon working programs in the 

states, supporting the continued operation and extension of these programs as 

tools to achieve and demonstrate compliance with the standards in substantial 

part. While solidifying existing progress, the standards should also provide 

direction and incentives for states to learn from successful programs operating 

outside their borders. 

4) The standards should balance state policy-making autonomy with the need for 

accountability by providing clear tools for states to use in assessing 

programmatic and source level compliance using robust monitoring, verification, 

and reporting systems. 

5) While maintaining accountability for both sources and states, the standards 

should be designed to maintain state control over energy programs and other 

system-level policies, while providing for federal oversight where necessary. 

6) The standards must be carefully structured to avoid causing criteria pollutant and 

toxic pollutant increases in areas that cannot support such increases.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 3 

It is our desire to work with U.S. EPA staff to further explore and refine specific 

programmatic elements and to provide U.S. EPA with the data it needs to support the 

framework described in this lefter. 

I.	Setting the Level of the Standard and Translating the Best Systems of 

Emission Reduction Into Enforceable State Plans 

EPA should take a systems-level approach to the standard, recognize progress 

already made by early-mover states, and set a mass-based emissions 

performance target (perhaps with a rate-based compliance option) commensurate 

with state demonstrated performance. Recognizing that a flexible systems-level 

approach can achieve large reductions, U.S. EPA should set a very stringent 

standard. 

States should be permitted to use a variety of enforcement approaches to 

demonstrate compliance with the federal standard; a rigorous monitoring, 

verification, and reporting system should be included as an essentia/ element for 

demonstrating compliance with this flexible, system-based approach; and 

program-level compliance will be facilitated by a high degree of air and energy 

agency coordination. 

A. EPA Must Consider System-Level Programs and Policies in Setting the 

Level of the Standard in Concert With Mechanisms That Directly Reduce 

Emissions Within the Fenceline 

The section 111(d) standards must require existing fossil plants to substantially curtail 

their greenhouse gas emissions, consistent with the "degree of emission limitation 

achievable through the application of the best system of emission reduction" (BSER).' 

Systems which can best reduce emissions from power plants do not operate exclusively 

within the fencelines of those plants. Rather, the integrated nature of the power grid 

means that policies which displace the need for fossil generation can often cut 

emissions from covered sources more deeply, and more cost-effectively than can 

engineering changes at the plants alone, though these source-level control efforts are a 

vital starting point. Ensuring that individual sources reduce their carbon emissions will 

improve the overall emissions profile of the system, support needed modernization, and 

in many cases reduce criteria air pollutants and toxics. U.S. EPA must require 

emissions reductions consistent with the full application of the best systems of emission 

reduction operating at both the plant and system levels. 

1 42 U.S.C. §§ 7411(a)(1) & (d).
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 4 

Both the President's ambitious Climate Action Plan and the Clean Air Act itself require 

U.S. EPA to act aggressively to limit carbon pollution. The Act is a "tech nology-forcing" 

statute, 2 designed to drive the rapid implementation of innovative systems of emission 

reduction. Although this technology-forcing mandate has been applied most frequently 

to new sources of emissions under section 111, the same essential directive applies to 

existing sources under section 111(d). That provision directs U.S. EPA and the states 

to extend similarly rigorous "standards of performance" to existing plants in the same 

source categories in which the new source standards drive innovation. Section 111(d), 

in other words, ensures that innovation spreads to the full source category, not only new 

facilities. The standards must work to drive emissions cuts throughout the source 

category consistent with the best systems of emission reduction. 

Specifically, the Clean Air Act charges U.S. EPA broadly with identifying the necessary 

degree of emission reduction which "reflects" that secured by "adequately 

demonstrated" systems, while taking nonair quality health and environmental impacts, 

energy requirements, and cost into account. 3 Existing source plans may also consider 

the remaining useful life of regulated sources. 4 Nothing in this directive limits U.S. EPA 

to analyzing only systems within the fenceline of covered sources. On the contrary— 

Emissions reductions at covered sources must reflect the operation of adequately 

demonstrated systems, but the systems themselves are not defined as co-extensive 

with the sources. Both "reflect" and "system" are sweeping terms that do not have 

fenceline limits, and the statute imposes none. 5 They indicate that U.S. EPA is to 

identify and consider all systems which can reasonably be used to reduce source 

category level emissions, regardless of the mechanism by which such a system 

operates. 

An examination of system-wide emissions reduction opportunities is warranted with 

regard to existing power plants because these plants are inherently embedded in the 

national power system. Power plants do not operate independently. They respond to 

needs across the grid, compete against each other in power markets, and are 

constrained by common reliability standards. These complex relationships mean that 

2 See, e.g., Sierra Club v. Costle, 657 F.2d 298, 364 (D.C. Cir. 1981); see also Lignite Energy Council v. 

U.S. EPA, 198 F.3d 930, 934 (D.C. Cir. 1999) (Achievability "looks 

toward what may be fairly projected for the regulated future, rather that the state of the art at present"). 

3 42 U.S.C. § 7411(a)(1). 

4 Id. § 7411(d)(1). 

5 See a/so, e.g. Webster's Third New International Dictionary of the English Language Unabridged 2322 

(1968) (defining "system" at the time of the creation of section 111(d) as "a complex unity formed of many 

often diverse parts subject to a common plan or serving a common purpose"); Engine Manufacturers 

Ass'n v. South Coast Air Quality Management District, 541 U.S. 246, 252-53 (2004) (stating that where 

statute does not separately define term, courts presume that "the ordinary meaning of that language 

accurately expresses the legislative purpose.") (quotations and citation omitted).
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 5 

power plants respond to each others' behavior, ramping up or ramping down as plants 

come on- and off-line, and as market needs change. As a result, emissions from these 

sources are particularly amenable to control by grid-level changes, such as energy 

efficiency programs, environmentally-focused dispatch rules and procurement policies, 

and renewable power supplies, which can displace dirtier generation. 

The effects of these grid-level programs must be included in U.S. EPA's considerations 

because the BSER inquiry is designed to identify "demonstrated" systems which can 

produce "achievable" emissions reductions, and these demonstrated policies greatly 

increase the achievability of large reductions. 6 U.S. EPA must capture all source-level 

reductions available in its standard-setting as well—and some of these reductions may 

be substantial—but U.S. EPA may not artificially terminate its standard-setting analysis 

at the fenceline. Beginning at the fenceline, U.S. EPA should evaluate all emissions 

reductions opportunities. 7

 California air districts, which have the primary responsibility 

for addressing stationary source emissions are well positioned to assist U.S. EPA in that 

inquiry. But, grid-level strategies are also plainly "adequately demonstrated," and show 

that a large "degree of emission limitation" is "achievable" if they are applied to reduce 

emissions from existing sources.8 

This "achievability" consideration is ultimately central to the statute's purpose because it 

links the grid-level policies and programs which states have demonstrated with the 

"degree of emission reduction," which existing sources must ultimately achieve as a 

reflection of the operation of those systems of emission reduction. In essence, greater 

reductions are "achievable" if a greater range of policies are available to support them. 

Sources can curtail their emissions more sharply, over shorter time periods, if the grid 

can more fully compensate for reduced capacity factors at high-carbon generators. 

Because grid-level programs reduce the cost of reductions while shortening the time 

needed to achieve large reductions, U.S. EPA can, and must, conclude on its review of 

these programs that large reductions can be required of the population of existing 

sources. 

The statute further enables this approach by directing that the state plan development 

process under section 111(d) "shall" be procedurally "similar to that provided by [section 

6 See 42 U.S.C. § 7411(a)(1). 

' U.S. EPA should investigate the degree of reductions possible from a full suite of source-level 

engineering and fuel-switching programs, including plant upgrades like turbine blade replacements, and 

co-firing or modifying facilities to use lower-carbon fuel, as well as considering standards which may 

facilitate the retirement or repowering of the oldest, most inefficient plants which have reached the end of 

their remaining useful life. Such measures at these older plants will likely be more achievable if other 

system-level policies facilitate these changes by reducing demand for these plants. 

8 See 42 U.S.C. § 7411(d)(1).
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 6 

110 of the Act]," 9 under which states develop State Implementation Plans (SIP) to attain 

compliance with the national ambient air quality standards (NAAQS) for criteria 

pollutants. 10 The SIP process has long afforded states a great deal of flexibility to seek 

required pollution reductions from a wide array of programs. Similar flexibilities are 

important when addressing existing sources under section 111 because some portion of 

the emission reductions available from these sources may often be most achievably and 

cost-effectively secured through system-level efforts. 

EPA has repeatedly confirmed that grid-level programs fall within the Clean Air Act, 

most recently in an expansive "Roadmap for Incorporating Energy Efficiency/Renewable 

Energy [(EE/RE)] Policies and Programs into State and Tribal Implementation Plans" 

under section 110 of the Act." Section 111(d)'s direct cross-reference to section 110, 

and the acknowledged efficacy of these programs at controlling air pollutants, including 

the pollutants which section 111(d) is designed to address, indicates the 

appropriateness of including these measures in the BSER determination. In the 

Roadmap, U.S. EPA itself concludes that "EE/RE policies and programs offer the 

potential to achieve emission reductions at a cost that can be lower than traditional 

control measures," and, critically, may therefore "be a cost-effective strategy that state... 

agencies can use ... to help attain and maintain compliance with NAAQS, as well as 

achieviny other regulatory or non-regulatory objectives such as ... limiting greenhouse 

gases."' We agree. 

States' successes in reducing emissions help to indicate the performance level 

U.S. EPA must require. 13 Our own experience, and that of many other states, confirms 

that a very large degree of reduction is possible with policies which reduce the need for 

fossil power, as well as requiring maximum pollution controls at plants themselves. 

California's comprehensive approach to GHG reduction has secured very cost-effective 

carbon pollution reductions through energy efficiency programs, renewable power and 

storage procurement processes, and economy wide Cap-and-Trade Programs, among 

other efforts. While we understand that each state will need to find a plan that works for 

9 Id. 

10 See id. § 7410(a). 

" U.S. EPA, Roadmap for Incorporating Energy Efficiency/Renewable Energy Policies and Programs into 

State and Tribal Implementation Plans (2012); see also, e.g., U.S. EPA, Guidance on SIP Credits for 

Emission Reductions from Electric-Sector Energy Efficiency and Renewable Energy Measures 

^August 5, 2004). 

2 Roadmap at 12 (emphasis added). 

13 The Georgetown Climate Center has recently released a helpful report detailing many of these 

successes. See Georgetown Climate Center, Reducing Carbon Emissions in the Power Sector: State 

and Company Successes (2013), available at: 

http://www.georgetownclimate.org/sites/default/files/Reducing Carbon Emissions in the Power SectorSuccess-Stories. pdf.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 7 

its particular circumstances, our experiences underline that successful programs will 

certainly find substantial emissions reductions from taking a grid-level approach. Our 

collective experiences show that it is achievable to reduce fossil plant emissions deeply 

and rapidly; the statute requires that U.S. EPA work with the states to achieve this 

degree of emission reduction. 

We emphasize that the broad analysis required by the statute leads to a policy quite 

difFerent from that urged by some commentators, who have called for U.S. EPA to 

require reductions commensurate only with what limited site-level improvements can 

achieve, perhaps while allowing extremely flexible system-level compliance options to 

achieve those reductions. The Clean Air Act's ambitious mandates do not permit 

U.S. EPA to allow for maximum flexibility to attain only a minimal target. We agree that 

states have substantial discretion as to the contents of their plans, subject to U.S. EPA's 

oversight, and expect that states will explore a variety of compliance approaches. But, 

this compliance flexibility for states and regulated sources is distinct from the initial 

broad analysis required of U.S. EPA as it sets the emission guideline which state plans 

are required to achieve. Indeed, to guarantee enforceable emissions reductions, such 

flexibility is best paired with a rigorous standard. 

B. Methods for Setting the Standard 

EPA must determine the degree of emission reduction which state section 111(d) plans 

must achieve. To do so, U.S. EPA will have to determine the achievability of emissions 

reductions from the collection of covered sources in each state. Existing state programs 

will be an important guide as U.S. EPA conducts this analysis. 

The 111(d) regulations translate the broad statutory mandate into a series of analytic 

steps under which U.S. EPA first identifies adequately demonstrated systems of 

emissions reduction, then develops "[i]nformation on the degree of emission reduction 

which is achievable with each system, together with information on the costs and 

environmental effects of applying each system to designated facilities," along with the 

time required, and finally identifies the degree of emission reduction possible with the 

application of the best of these of these systems.' 4 One way to view these 

requirements is that U.S. EPA is functionally filling in the data points needed to draw an 

abatement curve showing the amount of reductions possible for a given cost over a 

given period as different systems of reduction are brought to bear, and then selecting a 

required "degree of emission reduction" off that curve. 

As U.S. EPA works to identify the full range of emission reduction systems, it would 

both need to identify plant-level engineering changes (likely grouped into strategies 

14 See general1y40 C.F.R. § 60.22(b).
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 8 

applicable to categories of similar plants) or fuel shifts that could reduce emissions, and 

also to consider which grid-level approaches to source emissions reduction are 

sufficiently demonstrated and available as to be used to set the BSER-based emission 

limitation for all states. 

State policy successes demonstrate that certain "low-hanging fruit" system-level 

reductions are likely to be broadly available. For instance, though not all states may 

immediately be able to reach the energy-efficiency savings rates of the best-performing 

states, all states can certainly develop programs that capture a substantial portion of 

these savings. Similarly, though not all states may be able to immediately implement 

wide-ranging renewable portfolio standards, all states can certainly integrate some 

degree of zero emissions generation into their grids. Recognizing that varying 

conditions may argue for a somewhat conservative approach to emissions reduction 

forecasting from demonstrated system-level programs, U.S. EPA could work to identify 

the emissions profiles of these "good enough" programs—the reductions which should 

be achievable in many conditions—and associated cost profiles. In essence, U.S. EPA 

would develop information on a range of emission reduction options and associated 

costs per ton of reduction, layering upward from the facility level while using relatively 

conservative estimation protocols for grid-level policies and programs. 

EPA could then apply several different methods to translate this information into BSER 

emissions levels for each state. For instance, published research suggests requiring 

states to maximize reductions at a given marginal abatement cost of carbon may 

produce substantial reductions by leveraging all available control strategies below that 

cost. 15 Other proposals, based on setting final targets or emissions rates, are similarly 

ultimately based on determining the maximum degree of reduction possible at 

reasonable cost (though they translate that analysis through a different process). 16 The 

common thread these approaches share, consistent with the 111(d) regulations, is that 

they identify a range of emissions reductions and costs, and then set emission reduction 

requirements by requiring states to achieve reductions consistent with the best system 

of emission reduction, developed by considering the effects of the full application of all 

cost-effective programs. 

One possibility would be to use energy system modeling to determine for each state the 

maximum degree of emission reduction possible with the application of all cost-effective 

systems of emission reduction, which U.S. EPA has identified, thereby setting the BSER 

15 See, e.g., Dallas Burtraw & Matt Woermann, Resources for the Future, Technology F/exibility and 

Stringency for Greenhouse Gas Regulation (2013). 

16 See, e.g., Natural Resources Defense Council, Closing the PowerPlant PoIlution Loopho/e (2013).
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 9 

level for the existing sources in that state." U.S. EPA would first determine a carbon 

reduction cost it deemed reasonable, in light of the statute's urgent pollution reduction 

purpose,' $ and determine the degree of reductions possible from existing sources if a 

state employs all emissions reduction systems with a cost equal to, or below, the cost 

threshold. By populating the model with the full range of demonstrated emission 

reduction systems, including grid-level programs, U.S. EPA would likely determine that 

substantial reductions are possible in many states. The states would then submit 

111(d) plans for U.S. EPA approval which were designed to meet these reduction 

levels, with the particular policy design of each plan left to each state, within the 

statute's constraints. 

This approach has the advantage of equitably requiring similar levels of emission 

reduction effort and marginal cost in all states, while focusing program implementation 

initially on states with more cost-effective reduction opportunities. 

Focusing on an end goal of remaining emissions (whether generated through the 

process we suggest or another), rather than a reduction from a particular baseline, 

affords states the most flexibility, recognizes historical actions to improve energy 

efficiency and reduce GHG emissions from the electricity sector, and, as we discuss 

below, may remove the need to federalize some state programs because the emissions 

goal itself can be made federally enforceable. If a baseline approach is, nonetheless, 

used, the baseline should be set as near to the present as possible to gain real 

reductions. 

In implementing this, or any section 111(d) requirement, U.S. EPA could set either a 

mass-based or a rate-based "degree of emission reduction" but U.S. EPA should 

ensure that states can demonstrate compliance based on either metric. We prefer 

mass-based targets because they have the significant advantage of automatically 

accounting for reductions in the total mass of covered emissions as a result of 

displacing covered sources with energy efficiency or renewables. However, several 

groups have proposed ways of accounting for such strategies in a rate-based 

framework and these approaches may be workable. U.S. EPA, should, in any event, 

provide clear conversion protocols if it selects either a mass-based or rate-based metric. 

"We expect that compliance with any BSER level would be assessed with some degree of averaging in 

order to account in part for variation in emissions which unexpected changes in the power system (such 

as low hydroelectric years or unexpected plant closures) may cause in emissions levels in any given 

^eriod. 

8 We note, in this regard, that the courts have repeatedly held that Congress has already determined that 

substantial costs are worth bearing in order to secure the great benefits of air pollution control. See, e.g., 

Port/and Cement Ass'n v. Train, 513 F.2d 506, 508 (D.C. Cir. 1978) (reasonable to impose substantial 

costs unless there is a"gross disproportion" between costs and benefits).
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 10 

We note that in light of the substantial analytic task before it, we would support 

U.S. EPA using the upcoming proposal to ofFer its initial conclusions as to costs of 

reduction and the resulting state targets, and using the comment period as a chance to 

engage states and other stakeholders to enhance the data available to the agency in 

the final standard setting and plan-writing process moving forward. 

C. Implementation Timing 

EPA must determine a time frame in which states would apply these reduction 

measures; the time frame will also afFect implementation costs, and, hence required 

reductions. Over a longer time frame, more reductions are possible; shorter time 

frames will likely raise the cost of deeper cuts. 

One approach to setting the compliance schedule for the standard that recognizes the 

different states' starting points would link the time-scale with the magnitude of 

reductions required to meet the standard. The area classifications used for setting 

attainment deadlines for meeting the ambient air quality standards provides an analogy 

for U.S. EPA's consideration in setting the schedule. For example, U.S. EPA could use 

state carbon emission baselines and final standard targets to classify states as 

moderate, serious, severe, and extreme, in accordance with the magnitude of 

reductions needed. Factoring in cost, the amount of time needed to achieve the level of 

reductions could be estimated, with states designated as the equivalent of severe and 

extreme having more time to reach their carbon standard than states designated as 

serious or moderate. 

Compliance timeframes will vary depending on the level of reductions needed to meet a 

state's end goal. Long-term goals will help guide states in doing the long-term planning 

for investment needed for sustainable and continuing emission reductions from the 

power sector. However, if the compliance year is too distant from the starting point, 

then a credible policy regime for ongoing emission reductions is compromised. U.S. 

EPA should include regular evaluations of state progress in meeting a state's long-term 

goal. 19 An enforceable midterm target (or regular intervals) at which a state's program 

is evaluated should be established to ensure it remains on a trajectory consistent with 

meeting the end goal performance standard. If the state is not on track, then the 

section 111(d) plan should be revised to include additional emission reduction 

measures or to otherwise strengthen the plan. The regular eight-year review cycle for 

the section 111 program provides a natural point to set mid-term targets and supply 

program evaluations. At that time, recognizing ongoing progress in emission control 

19 We note that the 111(d) regulations provide for progress reports and increments of progress. See, e.g., 

40 C.F.R. § 60.25.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 11 

systems that the program will, in part, have driven, U.S. EPA must evaluate whether to 

further tighten targets or otherwise improve the program. 

D. Enforceability and the Content of State Plans 

Section 111(d) and its enforcing regulations create two distinct sets of accountability 

obligations—on the states to develop and enforce state plans, and on facilities regulated 

by those plans. Ultimately, both sets of obligations work to ensure that "standards of 

performance [apply] to any existing source" of the regulated air pollutants.20 

Sources must immediately take action to reduce emissions from processes in their 

direct control; thus, there should be no enforceability difficulty in requiring sources to 

achieve reductions consistent with various heat-rate and fuel-based improvements. 

California air districts, which are already implementing greenhouse gas best available 

control technology permitting under other provisions of the Clean Air Act, have 

demonstrated that many of these methods can produce substantial reductions; 

U.S. EPA should require reductions consistent with their full use. Some substantial 

degree of additional reductions will be more readily achieved if states also implement 

grid-level policies to reduce demand on covered sources, allowing them to more readily 

curtail their emissions and operations. To enable these reductions, U.S. EPA should 

explore a range of approaches to enforceability that will encourage both states and 

covered sources to implement the full range of reductions. 

We expect that many states will want to use allowance systems to guarantee 

enforceability. These systems automatically link source-based reductions with 

system-level programs by setting system-wide limits while requiring facilities to take 

responsibility for their emissions. In such a system, facilities are required to hold 

sufficient allowances to cover their emissions; available allowances are keyed to the 

total level of reduction required by covered sources. In that context, a requirement that 

sources hold sufficient allowances to cover all emissions can serve as an enforceable 

requirement to guarantee sources meet their emission budget, provided that sources 

cannot or will not acquire more sufficient allowances to exceed the budget. 

System-level programs reduce allowance prices and other compliance costs and 

support a lower total number of allowances by reducing demand for fossil power 

sources. Both California and the Regional Greenhouse Gas Initiative states have 

implemented such systems and other states may find them to be an economically 

efficient way of allocating compliance responsibilities among sources. We urge U.S. 

EPA to give states a clear path to seek approval of such programs. 

20 See 42 U.S.C. § 7411(d)(1). See a1so40 C.F.R. §§ 60.24(b)(3) ("[E]mission standards shall apply to all 

designated facilities within the state").
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 12 

Not all states may implement such systems. For these states it will be important to find 

ways to ensure that reductions from both source- and grid-level emissions reduction 

systems are federally enforceable. Section 111(d) ultimately requires that all covered 

sources reduce their emissions consistent with a state's plan, which is to be developed 

using procedures similar to the section 110 criteria pollutant planning process. 

Section 111(d) thus has something of a hybrid nature. It fuses section 111's general 

source-level focus with section 110's flexible state planning approach. The state 

planning requirement, which is designed to be similar to section 110 criteria pollutant 

plans, suggests that states and U.S. EPA have some discretion to utilize different 

approaches for guaranteeing enforceability, as they do in the section 110 context. This 

discretion will be important because not all system-level reduction opportunities are 

under the direct control of individual sources, but all reductions must be enforceable. 

The appropriate enforceability program design may vary with the circumstances of each 

individual state. We suggest that U.S. EPA explore structures under sources that may 

be held directly accountable (for instance, in Title V permits), at least for the degree of 

emission reduction attainable from source-level actions under their direct control (via 

efficiency measures, fuel-switching, and so on), while states are held responsible for a 

second tranche of emission reductions attributable to grid-level policies, which also 

reduce source emissions. 21 EPA should ensure that regulated sources have strong 

incentives to support the success of grid-level programs, perhaps by directing that plans 

require additional source reductions if state programs do not fully deliver reductions for 

which the state is responsible. We further suggest that the federally-enforceable 

requirement for this grid-level portion of the plan be the state's emissions target, rather 

than any particular state programs, in order to avoid unnecessarily federalizing state 

energy programs. We expect states would propose such hybrid approaches to 

U.S. EPA in their implementation plans, but suggest that U.S. EPA explicitly invite such 

innovative approaches in its proposal. 

EPA has taken a similar approach in the section 110 context while approving some of 

California's ozone state implementation plans. Under those plans, the state commits to 

an emissions target, with the state's overall emission reduction requirement serving as 

the primary federally enforceable requirement, leaving the state to develop programs to 

meet that federal requirement with programs that ultimately reduce source emissions 

but without federal enforceability for the individual programs. 22 This structure could 

21 We are aware there may be modeling approaches of sufficient rigor as to translate the effects of these 

programs directly into source-level requirements, and look forward to also exploring those approaches 

with U.S. EPA as the 111(d) process continues. 

22 See, e.g.,77 Fed. Reg. 12,652 (Mar. 1, 2012) (approving San Joaquin Valley ozone State 

Implementation Plan which set enforceable emission reductions to reduce ozone pollution, including an 

obligation to implement or design all emission reduction programs necessary to achieve these 

reductions).
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 13 

have the advantage of setting federally-enforceable reductions while leaving room for 

states to develop a range of innovative programs which might not themselves have to 

be federally enforceable. If state programs failed to achieve these additional reductions, 

the section 111(d) plans could automatically require program redesigns or additional 

source-level limits. 

As U.S. EPA has suggested in its Roadmap, states which incorporate existing energy 

efficiency or renewable energy programs into their baseline load growth and emissions 

projections need not make those programs separately federally enforceable. Instead, 

such programs merely set the business as usual emissions trajectory because they 

would be in force with or without a section 111(d) plan. See, e.g., 40 C.F.R. §§ 

60.25(b)(1) (providing for monitoring of regulated sources); 60.26 (requiring states to 

demonstrate legal authority to enforce emissions standards against regulated facilities). 

Although U.S. EPA will certainly need to verify these projections carefully, such an 

approach could provide further flexibility to states wishing to rely on grid-level programs 

to help meet emissions targets. 

Other solutions are available. U.S. EPA and the states will need to explore a range of 

options which ensure reductions from covered sources while leaving states room to 

develop innovative emission reduction approaches without adding an undue layer of 

federal enforcement to state energy program efforts. 

We strongly believe that nothing in the Act requires sources now participating in 

California's AB 32 Cap-and-Trade system to face redundant compliance requirements 

under the section 111(d) program. California's own program limits source emissions 

sharply and helps guarantee declining power sector emissions. We intend to work with 

U.S. EPA to demonstrate that sources participating in our allowance programs will also 

satisfy section 111(d) requirements and to take any necessary measures to ensure that 

all federal enforceability issues have been addressed. 

II.	The California Experience 

California has successfully driven large reductions in its carbon emissions 

through a variety of source- and system-level approaches which should inform 

U.S. EPA's evaluation of possible emissions nationally. 

California has made remarkable progress in developing and implementing new policies 

and strategies to reduce GHG emissions within the State's electricity sector. Consistent
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 14 

with the State's loading order, 23 CEC, CPUC, and ARB have adopted a suite of 

programs and regulations that are substantially reducing electricity-sector GHG 

emissions. California's comprehensive approach to GHG reduction has combined 

energy efficiency programs, renewable power and storage procurement processes, and 

economy wide Cap-and-Trade Programs, among other efforts. While we understand 

that each state will need to find a plan that works for its particular circumstances, our 

experiences underline that successful programs will find substantial emissions 

reductions from taking a grid-level approach. Section 111(d) and its implementing 

regulations require U.S. EPA to account for these successful state experiences. 

Presently, about 40 percent of the California's total GHG emissions are associated with 

the electricity sector and efforts to reduce electricity-related emissions are a key 

component of our efforts under the AB 32 Scoping Plan. The Scoping Plan was built on 

the principle that a balanced mix of strategies is the best way to cut emissions and grow 

the economy in a clean and sustainable direction. California is on track to meet the 

goals of AB 32 (1990 levels by 2020, or 431 MMTCO 2e24 from all sectors) and has 

implemented a comprehensive suite of ineasures across sectors that are moving the 

State toward a lower carbon future utilizing cleaner and more efficient energy, cleaner 

transportation, and a comprehensive Cap-and-Trade Program. The Cap-and-Trade 

Program will play a key role in ensuring that California remains on track to meet its 2020 

reduction target and will play an important role in achieving cost-effective reductions 

beyond 2020. U.S. EPA should recognize California's program portfolio as an effective 

system to obtain reductions from existing electrical generating units as it evaluates 

BSER. 

Our estimates show that the result of our many efforts has caused utility sector 

emissions to decline. Emissions from in-state and imported power fell by 16 percent 

(16 million metric tons) from 2005 to the 2010-12 averaging period. Emissions from 

both portions of the sector will continue to fall as a result of California's programs. By 

2025, we expect to cut our electricity sector emissions to below 80 million metric tons 

CO2e, a roughly 25 percent reduction from 2005 levels in that sector alone. California's 

carbon emissions rates (both of fossil generation alone and for all power used in the 

state) have also fallen, from 1,245 IbCO2e/MWh for fossil generation and 

875 IbCO2e/MWh for all power in 2005 to 1,090 IbCO2e/MWh and 775 IbCO2e/MWh in 

23 The "loading order" is California's preferred sequence for meeting electricity demands: energy 

efficiency and demand response first; renewable resources second; and efficient natural gas-fired power 

?lants third. 

4 ARB is proposing to update the 2020 goal via the Scoping Plan Update, weighting the 1990 emissions 

with 100-year GWPs from the IPCC's Fourth Assessment Report. The new target would be 431 

MMTCO2e, approximately a one percent increase from the 427 MMTCO2e target adopted by the Board 

in 2007.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 15 

2012, and are expected to decline to approximately 830 IbCO 2e/MWh and 

580 IbCO2e/MWh by 2025. 

The majority of GHG emission reductions for the California electricity sector are being 

driven by four key programs: (1) supply-side emission reductions; (2) energy efficiency 

programs, including utility-level programs and building and appliance energy efficiency 

standards; (3) renewables programs, including the 33 percent Renewable PortFolio 

Standard (RPS) and the Million Solar Roofs/California Solar Initiative program; 25 and 

(4) the Cap-and-Trade Regulation. The electricity sector is expected to achieve 

25 MMT of greenhouse gas reductions by 2020, with almost half of the reductions from 

energy efFiciency programs. Below we provide a description of these programs and the 

emission reductions achieved to date, and also describe the mechanism of verification 

for each program. 

Beyond the 40 percent of GHG emissions from the electricity sector emissions, the 

largest category of emissions is from the transportation sector. To support the reduction 

of these emissions, California Governor Edmund G. Brown Jr. issued an executive 

order setting a goal of 1.5 million zero-emission vehicles on California roads by 2025.26 

CPUC, ARB, CEC, and other state agencies are coordinating actions under the 

direction of the Governor's Zero Emission Vehicle Action Plan to eliminate regulatory 

barriers that impede consumer adoption of these vehicles. 27 While this effort will result 

in an increase in California's electricity consumption, it will also result in large GHG 

emissions reductions. Although overall statewide GHG emissions will be reduced in the 

long run from vehicle electrification, there is the potential to shift additional emissions to 

the power sector if that sector is not also carefully controlled. As a result, carbon 

reductions from electrical generating units are important to the State to ensure that 

growing electricity demand from zero-emission vehicles does not offset carbon emission 

reductions secured by that program in the transportation sector, further demonstrating 

why a strong standard is needed. 

A. Supply-Side Energy Efficiency Improvement Opportunities 

In California, power generation is largely from natural gas, and due to air quality 

considerations is generally very efficient. To further enhance efficiency, ARB approved 

a regulation in 2010 that requires the largest industrial facilities in California to conduct a 

25 This program encompasses three components: (1) the California Solar Initiative (CSI) that the CPUC 

administers within IOU service areas; (2) the New Solar Homes Partnership (NSHP) that the CEC 

administers within IOU service areas; and (3) various POU programs that are self-administered. AII three 

components received funding from the State to provide subsidies for solar PV under SB 1. 

26 California Executive Order B-16-2012, issued on March 23, 2012, 

http://gov.ca.gov/news.php?id=17463.

27 http://opr.ca.gov/docs/Governor%27s_Office_ZEV_Action_Plan_%2802-13%29.pdf
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 16 

one-time energy efficiency assessment of sources of GHGs to determine potential 

emission reduction opportunities, including those for criteria pollutants and toxic air 

contaminants. The industrial facilities subject to the regulation include all facilities with 

2009 GHG emissions of 0.5 MMTCO 2e or greater, as well as cement plants and 

transportation fuel refineries that emitted at least 0.25 MMTCO 2 e. Combined cycle 

electricity generating facilities built after 1995 are exempt. Fourteen electrical 

generation facilities were required to provide information under the regulation, which 

includes cost data. The reporting generating facilities include natural gas-fired boilers 

and turbines, as well as a small number of coal-fired boilers. Three coal-fired boiler 

facilities are included in the report, with a total generating capacity of 212 MW. Only 

one of the three facilities is still operating with coal as a fuel. The efficiency 

improvement methods identified fall into the following categories: change in operation 

of equipment, change in maintenance practices, change in management systems, 

process control, same but more efficient technologies, and investment in new 

technologies. A report summarizing the data collected for the electrical generation 

sector is expected to be publicly available in early 2014. 

B. Energy Efficiency Programs 

A variety of utility demand-side energy programs, along with appliance, building, and 

electronic energy efficiency programs support California's top priority to reduce the need 

for new energy resources to meet increasing demand. CPUC has developed an 

innovative series of utility-run efficiency programs which require investor-owned utilities 

to take advantage of all cost-effective energy efficiency; publicly owned utilities (POU) 

are also implementing efficiency programs. CEC continues to provide a leadership role 

in developing and adopting new appliance and building efficiency standards. Building 

efficiency standards were updated this year and now require 25 percent more efficiency 

from residential construction and 30 percent more efficiency from non-residential 

construction than the prior standards. 28 CEC also adopted aggressive energy efficiency 

standards for televisions in 2009, and first-in-the-nation energy efficiency standards for 

battery chargers in 2012.29 

California's experience demonstrates that demand-side energy efficiency is a 

particularly successful emission reduction system. 

28 Computed from California Energy Demand, 2012-2022 Final Forecast, June 2012, Form 2.2 on 

Committed Energy Impacts. 

29 CEC. 2013. California Energy Commission 2012 Accomplishments. 

http://www.energv.ca.gov/releases/2013 releases/2012 Accomplishments.pdf.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 17 

Utility Pro.grams 

California requires its investor-owned utilities to first meet any resource needs "through 

all available energy efficiency and demand reduction resources that are cost effective, 

reliable, and feasible." 30 CPUC ensures that these companies meet this goal by 

working with CEC to "identify all potentially achievable cost-effective electricity efficiency 

savings" and then translating these potential savings into "efficiency targets," which the 

investor-owned utilities must achieve in their resource procurement plans. 31 CPUC 

policy rules regarding energy efficiency programs for the investor-owned utilities have 

strict cost-effectiveness requirements, which specify that their energy efficiency 

portfolios as a whole must have higher benefits than costs. We invite U.S. EPA to 

review program details, including verification strategies, as set forth in the CPUC's 

Energy Efficiency Policy Manual.32 

California investor-owned utility programs regulated by the CPUC save about 

3,000 GWh per year, enough savings to power about 600,000 households. The 

programs are estimated to have cut CO 2 emissions by 3.8 million tons during 2010-11, 

the equivalent of removing over 700,000 cars from California's roads. Compared to the 

cost of other climate policies, energy efficiency provides substantial emissions 

reductions and should be an essential element of the BSER CO2 reduction target 

required by U.S. EPA of all state plan designs. Though not all states may immediately 

be able to reach the energy-efficiency savings rates of the best-performing states, all 

states can certainly develop programs that capture a substantial portion of these 

savings. 

CPUC and CEC have pursued utility-driven efficiency programs of this sort for decades 

and the target-setting mechanism itself has now been in place for almost a decade, with 

great success. While California has picked much of the "low hanging fruit" with respect 

to energy efficiency measures, it is significant to note that we are still finding cost 

effective energy efficiency programs after 20 years of implementation. A recent energy 

efficiency potential study, for instance, has identified tens of thousands of GWh in 

potential savings available over the next decade, indicating that efficiency continues to 

be a durable resource for reductions. Data from 2010-2012 also shows investor owned 

utility average benefits exceed costs in California by approximately 1.5 to 2.5 times for 

efficiency programs, based on metrics that assess total benefits and costs for all 

customers versus for the utility only, respectively; similar ratios for other states may be 

even more favorable. In addition, the current metrics do not include the potential 

30 Cal. Pub. Utility Code § 454.5(a)(9)(C). 

31 Id. § 454.55. 

32 Availab/e at: http://www.cpuc.ca.gov/NR/rdonlyres/7E3A4773-6D35-4D21-A7A2-

9895C1 E04A01/0/EEPolicyManualV5forPDF.pdf.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 18 

beneficial environmental aspects of these programs in the benefit-cost tests. 

CPUC continues to move forward, developing ambitious next generation targets for 

covered utilities. 

Publicly-owned utilities are also taking substantial energy efficiency measures. These 

entities vary a great deal in size, which impacts the range of energy efficiency programs 

that are offered. At the larger end of the spectrum are the Los Angeles Department of 

Water and Power (LADWP), Sacramento Municipal Utility District (SMUD), and Imperial 

Irrigation District. On the other end are dozens of POUs serving much smaller 

communities, including but not limited to the cities of Needles, Gridley, and Biggs. 

LADWP and SMUD together represent over half of the total retail electricity sales from 

public power (55.7 percent). As large as LADWP and SMUD are compared to other 

POUs, combined they are roughly one-fifth the size of the two largest investor-owned 

utilities (IOU), Pacific Gas & Electric, and Southern California Edison. 

Public power commitments to energy efficiency programs are extensive and 

comprehensive. Residential programs focus on energy audits, Energy Star® appliance 

rebates and replacements, lighting improvements, attic insulation, as well as incentives 

to install highly-efficient heating, ventilation and air conditioning (HVAC). Commercial 

and industrial programs target lighting, HVAC, and manufacturing/food processing 

equipment. POUs also partner with schools and public institutions to educate residents 

and implement a variety of beneficial programs. POUs across the state are currently 

evaluating and developing more advanced programs in the areas of 

commercial/industrial demand response, thermal energy storage, on-bill financing, 

customer behavior change, and "whole building" retrofits. 

The above programs have resulted in a realization of the following partial list of 

benefits:33 

• Public power programs reduced peak demand by more than 82.5 MW. Since 

2006, POUs have reduced peak demand by over 563 MW. 

The net annual kilowatt-hours savings totaled over 439,700 MWh. Since 2006, 

POUs achieved nearly 2.89 million MWh in savings through energy efficiency 

programs. 

• Applying the Total Resource Cost (TRC) societal test, the principal measure 

used in the industry to determine whether programs are cost-effective, the 

aggregated TRCs for public power equals 2.66 in FY11/12, meaning public 

33 California Municipal Utilities Association, Energy Efficiency in California's Public Power Sector— 2013 

Status Report
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 19 

power energy efficiency programs produce over two-and-a-half dollars in societal 

benefits for every dollar spent. 

Appliance Standards 

Building on its past appliance standards, CEC is currently in the pre-rulemaking phase 

to consider additional appliance types for coverage by Title 20 appliance standards. 

Appliances being considered include consumer electronics, lighting, water appliances, 

and several additional appliance types. Future California Title 20 updates and corollary 

collaborative work with the U.S. Department of Energy on appliance standards should 

focus both on realizing cost-effective energy savings and on incorporation of features 

that can assist in grid resilience and responsiveness. 

Proposition 39 

Funding from the California Clean Energy Jobs Act (Proposition 39), approved by 

California voters in November 2012 and subsequently refined through Senate Bill 73 

(Skinner, Chapter 29, Statutes of 2013), will provide a significant source of new revenue 

(an estimated $2.75 billion over five years) to support energy efficiency and clean 

energy projects in California's public schools (K-12) and community colleges. 

Local Governments 

At the local government level, several communities have created property-assessed 

clean energy financing districts (PACE programs) that allow residential and commercial 

property owners to finance renewable on-site generation and energy efficiency 

improvements through voluntary property tax assessments. 

State Buildings 

Governor Brown took specific action in 2012 to improve the energy efficiency of 

state owned buildings through Executive Order B-18-12, which directs State agencies to 

reduce their grid-based energy purchases by at least 20 percent by 2018. This 

Executive Order also directs State agencies to reduce the GHG emissions associated 

with the operating functions of their buildings by 10 percent by 2015, and 20 percent 

by 2020. 14

Existinq Buildings 

Assembly Bill 758 (Skinner, Chapter 470, Statutes of 2009), requires CEC to develop 

and implement a comprehensive energy efficiency program for all of California's existing 

buildings. CEC is currently drafting an Action Plan for 758, which will propose solutions 

for energy efficiency issues in California's existing buildings. 

34 Executive Order B-18-12, issued on April 25, 2012. See http://gov.ca.gov/news.php?id=17508.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 20 

Zero Net Energy (ZNE) 

In 2008, CPUC set forth ZNE goals in its long-term Energy Efficiency Strategic Plan and 

implementation roadmap for several Big Bold Energy Efficiency Strategies. CPUC's Big 

Bold Energy Efficiency Strategies, later updated in 2011, state that all new residential 

buildings shall be ZNE by 2020, new commercial buildings shall be ZNE by 2030, and 

half of existing commercial buildings shall be retrofitted to ZNE by 2030. It is expected 

that the major contributors to achieving this goal are building and appliance standards 

regulations. This effort is complemented by utility energy efficiency programs that 

motivate change in consumer behavior in areas outside of regulatory reach. 

CEC has made progress toward achieving the state's ZNE goals for new residential and 

new commercial buildings through periodically increasing stringency of the building and 

appliance standards, and broadening their reach. Working with CPUC, CEC is currently 

developing a definition for ZNE Code compliant buildings that it will publish in the 2013 

Integrated Energy Policy Report. ARB is in the process of updating the Scoping Plan, 

California's plan for reducing greenhouse gas emissions, and is committed to building 

upon the recent policies and goals adopted by CPUC and CEC and supporting the 

development of a statewide program requiring all new residential and commercial 

construction to operate with zero net energy use. 

C. Renewable Energy Programs 

Established in 2002 under Senate Bill 1078, accelerated in 2006 under Senate Bill 107 

and expanded in 2011 under Senate Bill 2, California's Renewables Portfolio Standard 

(RPS) is one of the most ambitious renewable energy standards in the country. The 

RPS program requires all California retail electric providers to increase procurement 

from eligible renewable energy resources to 33 percent of total procurement by 2020. 

The State has also established a separate but related renewable energy policy to 

complement the 33 percent RPS. As part of his Clean Energy Jobs Plan, Governor 

Brown set an aggressive target of adding 8,000 MW of centralized, large-scale 

renewable facilities and 12,000 MW of distributed renewable generation by 2020. Of 

the 12,000 MW distributed renewable generation goal, 4,000 MW has already come 

online. 

California has made substantial progress in developing new renewable generating 

resources to support the RPS and the Governor's goals. Approximately 2,000 MW of 

new renewable capacity came online in 2012, 35-1,600 MW of which is wind generation; 

another 2,000 MW of renewable generation is scheduled to come online before the end 

of 2013. California is now the nation's second largest producer of wind power.35 

35 California Public Utilities Commission, Renewables Portfolio Standard Quarterly Report, 3rd and 4th 

Quarter 2012, http://www.cpuc.ca.gov. 36 Wiser, Ryan, and Mark Bolinger. 2012. 2011 Wind Technologies Market Report. Lawrence Berkeley 

National Laboratories. U.S. Department of Energy. DOE/G0-102012-3472. August
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 21 

California leads the nation in solar photovoltaic capacity. 37 In 2012, California became 

the first state to install more than 1,000 MW of new solar capacit^ in a single year, from 

a combination of utility-scale projects and customer installations. $ The State's Million 

Solar Roofs/California Solar Initiative program enacted in 2006 (Senate Bill 1, Murray, 

Chapter 132) is driving much of this effort. The incentive-based program set a target for 

3,000 MW of self-generative solar, including solar water heating, by 2017. To date, 

over 1,400 MW of self-generating solar capacity has been installed under the incentives 

provided by this program. 

D. Cap-and-Trade Program 

On January 1, 2012, ARB launched the second-largest greenhouse gas Cap-and-Trade 

Program in the world. The Cap-and-Trade Regulation ensures progress toward the 

emissions target included in AB 32 and provides businesses flexibility to reduce 

emissions at the lowest possible cost. The Cap-and-Trade Regulation establishes a 

hard and declining cap on approximately 85 percent of total statewide GHG emissions. 

Under the Cap-and-Trade Regulation, ARB issues allowances equal to the total amount 

of allowable emissions and distributes them to regulated entities. One allowance equals 

one metric ton of GHGs. Each regulated entity must hold allowances equal to its 

emissions. 

The Cap-and-Trade Regulation gives companies the flexibility to trade allowances with 

others or take steps to cost-effectively reduce emissions at their own facilities. As the 

cap declines, aggregate emissions are reduced. Under the Cap-and-Trade Regulation, 

a portion of the allowances required for compliance are auctioned by the State. The 

State's portion of the proceeds from these auctions is to be used to fund projects to 

reduce GHG emissions. The Cap-and-Trade Regulation provides assurance that 

California's 2020 target will be met because the regulation sets a firm limit on 

85 percent of California's GHG emissions. 

Because the Cap-and-Trade Program applies only to California entities, ARB designed 

the regulation to minimize emissions leakage by requiring first jurisdictional deliverers of 

electricity to hold a compliance obligation—that is, the first entity to put electricity onto 

the California grid is responsible for these emissions—whether they are a power plant 

or an importer. 

37 Dutzik, Tony, and Rob Sargent. 2013. Lighting the Way: What We Can Learn From America's Top 12 

Solar States. Environment America Research and Policy Center. July. 

www environmentamericacenter.oro/sites/environment/files/reports/Lighting the way EnvAM scrn.pdf. 

3 Marshall, J. 2013. California Still Tops in Renewable Energy Rankings. 

http //www pgecurrents com/2013/08/22/california-still-tops-in-renewable-energy-rankings/. Accessed 

August 23, 2013.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 22 

ARB has implemented mechanisms to keep allowance prices within an acceptable 

range by allowing a limited amount of future allowances to be used for compliance 

should prices get too high. The continuation of the Cap-and-Trade Program post-2020 

will enhance the effectiveness of the new cost containment mechanism proposal. 

On January 1, 2014, California is scheduled to link its program with the Canadian 

Province of Quebec. California and Quebec have worked together to harmonize their 

regulations and coordinate on a joint auction platform and tracking system. 

The Cap-and-Trade Program limits the future emissions of GHGs by establishing an 

overall limit on emissions from most of the California economy—the "capped sectors." 

Within the capped sectors, some of the reductions are being accomplished through 

direct regulations, such as improved building and appliance efficiency standards, the 

low carbon fuel standard, and the 33 percent Renewables Portfolio Standard. Whatever 

additional reductions are needed to bring emissions within the cap is accomplished 

through price incentives posed by emissions allowance prices. Together, direct 

regulation and price incentives assure that emissions are brought down cost-effectively 

to the level of the overall cap. Reductions in the remainder of the economy—the 

"uncapped sector"—are being accomplished through specific measures, such as those 

for high-GWP gases and fugitive emissions from industrial sources. 

E. Program Monitoring, Verification, and Reporting 

If states opt to incorporate system-level plans into their section 111(d) compliance 

strategies, the robustness of monitoring and reporting components for these programs 

become critical to ensure reductions are realized. We outline some of the evaluation 

programs used in California, which may help inform U.S. EPA's evaluation of proposed 

state approaches. 

CPUC has built robust evaluation into all of its renewable energy, demand response 

and energy efficiency programs. The critical components are different depending on the 

type of program. 

For Energy Efficiency Programs, CPUC has employed a variety of incentives and 

penalties over the years to ensure compliance, refining its approach on a regular basis 

to improve program functionality. In recent years, CPUC has focused on "deep" 

retrofits, financing, and codes and standards. Utilities are rewarded on a wide range of 

metrics to ensure utilities focus on long-lived programs, including total program savings, 

effective program administration, and advocacy for improved standards. Measurement 

and evaluation is the key to this effort, and CPUC employs a staff of technical experts 

who work with outside consultants to measure program effectiveness and constantly
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 23 

improve understanding of energy savings through efficiency. To this end, CPUC has 

created a database of all energy efficiency measures that tracks the energy 

consumption and savings of each measure. The database is constantly refined and 

updated as new empirical data becomes available about each measure in the database. 

Information on evaluation, measurement, and verification for energy efficiency programs 

can be found here: http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/

For the RPS, CEC and CPUC work collaboratively to implement the program. The 

original RPS legislation assigned CEC with the responsibilities of certifying renewable 

facilities as eligible for the RPS, and designing and implementing a tracking and 

verification system to ensure that renewable energy output is counted only once for the 

purpose of the RPS and for verifying retail product claims in California or other states. 

Senate Bill X1-2 increased CEC's role with respect to POUs. As a result, CEC adopted 

regulations specifying procedures for enforcement of the RPS for POUs, and certifies 

and verifies eligible renewable energy resources procured by POUs and monitors their 

compliance with the RPS. CEC continues to certify and verify RPS procurements by 

retail sellers. CEC refers POU non-compliance issues to ARB, which may impose 

penalties. CPUC's responsibilities over IOUs, electric service providers, and community 

choice aggregators include determining annual procurement targets and enforcing 

compliance; reviewing and approving each IOU's renewable energy procurement plan; 

reviewing IOU contracts for RPS-eligible energy; and establishing the standard terms 

and conditions used by IOUs in their contracts for eligible renewable energy. CPUC 

issues program progress reports on a quarterly basis, and it makes an annual 

compliance report to the Legislature, which is required under State law. Utilities that do 

not meet their RPS goals are subject to a fine of $0.05 per kWh, up to $25 million per 

year. Those reports can be found here: 

http://www.cpuc.ca.gov/PUC/energy/Renewables/

For the California Solar Initiative, CPUC relies on robust measurement and evaluation 

to ensure that the program is on track to meet its goals. The program performs regular 

evaluations in a variety of performance metrics, including 1) Process evaluations, which 

evaluate how well the utilities are administering the program; 2) Impact evaluations, 

which measure capacity of systems installed, performance of systems, degradation, and 

other metrics; 3) Cost-effectiveness evaluations, which measure the benefits of the 

program compared with the costs; 4) Market transformation reports, which assess how 

well the program has transformed the market for distributed solar PV systems; 

5) Distributed Generation Impact Reports, which assess the technical impact of 

distributed solar PV systems on the functioning of the electric grid; and 6) External 

financial audits, which seek to ensure that the program administrators are properly 

tracking and reporting program expenses.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 24 

For the Cap-and-Trade Regulation administered by ARB, requirements to surrender 

allowances ensure emission reductions and provide compliance certainty using a 

state-level program that points to source-level controls. A requirement that sources 

surrender allowances on an annual basis can serve as an enforceable requirement to 

guarantee sources are on track to meet their emission budget, provided that sources 

cannot or will not acquire more sufficient allowances to exceed the budget. California's 

program limits source emissions, and helps guarantee declining power sector 

emissions. The current program has partial requirements at annual intervals, which 

includes a demonstration that the source is on a glide path to full compliance at the end 

of each compliance period. This flexibility is important to the design of the program and 

gives subject entities options to fulfill their obligations. 

California's Cap-and-Trade system is supported by extensive enforcement, monitoring, 

and verification systems. These include a comprehensive GHG reporting rule, 3g which 

requires a wide array of sources to report their 9reenhouse gases annually, subject to 

rigorous independent verification requirements. ° These reporting requirements ensure 

that sources fully comply with the Cap-and-Trade Regulation itself, which covers the 

vast bulk of greenhouse gas sources in the California economy (including the electric 

power sector, both electric power importers and exporters and individual generators).a' 

Both the reporting and Cap-and-Trade rules impose civil and criminal liability for 

violators, and ARB has developed an extensive enforcement program. In the electric 

power sector context, ARB also works closely with other energy regulators, including 

CPUC, CEC, CAISO, Federal Energy Regulatory Commission, and the Commodity 

Futures Trading Commission to detect and correct noncompliance. With this support, 

the Cap-and-Trade Program guarantees consistent, substantial, quantifiable, and 

enforceable reductions from all covered sources, including power plants. 

F. Intrastate Agency Program Coordination 

Section 111(d) planning for the energy sector requires careful collaboration between 

energy and environmental agencies. Under the Clean Air Act, state governors are free 

to designate the agencies responsible for compliance with the Act, and section 111(d) 

may well provide a case for directing multiple agencies to work together on the planning 

process, whether as formal designees for federal compliance purposes or simply as a 

matter of effective state coordination. 

California provides a good example of the positive results of such collaborative efforts. 

For a number of years, California regulators have been working to transition from the 

39 Cal. Code Regs. Titl. 17 §§ 95100 et seq. 

40 See, e.g., id. §§ 95101 (applicability); 95130-95133 (verification). 

41 See generally Cal. Code Regs. Title 17, §§ 95800 et seq.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 25 

"silo," single-purpose approach to regulations and make a concerted effort to 

collaborate not only across multi-media environmental programs but also across various 

overlapping jurisdictions under the topics of air and energy. California's push to meet a 

substantial portion of air quality and climate change goals in heavily polluted regions 

through electrification and alternative energy projects has necessitated close 

collaboration between the State's air and energy agencies, which includes all levels of 

management and staff. Presently, many issue-focused groups exist to handle the 

multiple levels of coordination and subject areas that cross air and energy programs. 

One of the key groups that may be used as a model for other states to follow is 

convened by the Governor's Office. The Energy Principals report and advise on the 

highest policy-level and most sensitive energy issues. The Principals group includes 

the State's leadership at ARB, CEC, CPUC, CAISO, and the State Water Board. These 

meetings provide an opportunity to discuss energy issues, set State priorities, resolve 

conflicts, and plan for the future. This group has addressed climate change planning, 

the retirement of the San Onofre Nuclear Generating Station, and the retirement of 

once-through cooling power plants to mitigate impacts to aquatic organisms, among 

other issues. Program success requires the cooperation of all involved agencies, and 

as a result of these concerted efforts, California air and energy agencies are 

coordinating more effectively than ever before and improving mutual understanding of 

each organization's concerns. 

California also coordinates state and regional air pollution control programs. ARB has 

an oversight role, with direct regulatory responsibilities in some areas (including 

California's climate programs), but California's air districts are on the front lines of many 

emission control efforts, especially with regard to stationary sources. California's air 

agencies work closely together, and with the state's energy regulators to reduce 

emissions while protecting ratepayers. 

III.	Cross-State Issues 

The interstate nature of the power grid raises complex questions. We look forward to 

working with U.S. EPA and our partner states to resolve these questions. Our initial 

efforts are focusing on tools that encourage states to collaborate and to account 

properly for reductions driven by these efforts. 

EPA shoutd include incentives for inter-state and regional collaboration. 

Because the U.S. electricity system crosses state lines, U.S. EPA guidelines should 

encourage regional cooperation. Connecting the markets for buying and selling 

electricity beyond state boundaries can increase local utilities' flexibility and reliability
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 26 

and provide consumer savings by enabling use of a wide variety of energy sources. 

Integrating our electricity markets expands user access to renewable energy sources. 

Recognizing and encouraging regional collaboration to reduce greenhouse gas 

emissions from the power plants that provide electricity to interstate markets is a 

possibility in a flexible, system-based approach. U.S. EPA should provide incentives to 

encourage states to work together in developing their section 111(d) plans to ensure 

that electricity imports and exports are properly accounted for, and opportunities to 

reduce emissions based on the efforts of partner states are recognized. 

The Pacific Coast Action Plan on Climate and Energy, signed by the leaders of British 

Columbia, California, Oregon, and Washington, could be used as a model for states that 

have import/export implications. The Action Plan represents a commitment to a 

comprehensive and far-reaching strategic alignment to combat climate change and 

promote clean energy by harmonizing GHG reduction targets, expanding use of 

zero-emission vehicles, adopting low carbon fuel standards, leading the way to zero-net 

energy buildings, and supporting strong federal policy on GHG emissions, among other 

goals. Through the Action Plan, the leaders agreed that all four jurisdictions will 

account for the costs of carbon pollution and, where appropriate and feasible, link 

programs to create consistency and predictability across the region. 

EPA's guidelines should address treatment of imported and exported electricity 

by allowing states that implement demand-side programs to take credit for those 

programs. 

We look forward to working with U.S. EPA to ensure that energy crossing state lines is 

properly accounted for. California State law requires it to take responsibility for carbon 

emissions from the electricity it uses regardless of the point of origin and accounts for 

emissions from both in-state generation and imported electricity. U.S. EPA should 

consider adopting a similar approach. Each state could be responsible for emissions 

associated with both in-state and imported power and would receive credit for reducing 

emissions through demand-side programs from both in-state and imported power. 

In the Cap-and-Trade Regulation, California implements this approach by requiring first 

deliverers of electricity to hold a compliance obligation. For imported electricity, the 

electricity importer is the first deliverer. The electricity importer is identified in two ways: 

(1) as the Purchasing-Selling Entity on the for the North American Electric Reliability 

Corporation (NERC) E-Tag when electricity is delivered between balancing authority 

areas, and (2) as the facility operator or scheduling coordinator when electricity does 

not cross balancing authorities. The criteria that led ARB to use this regulatory 

approach and identification of the first deliverer was that the first deliverer must be 

identifiable, ARB must rely on verifiable data, ARB must have jurisdiction over the first
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 27 

deliverer, and the approach must be able to be duplicated and integrated with a linked 

program in a regional or comprehensive GHG program. The regulation and resulting 

compliance obligation must facilitate an appropriate and timely price signal, minimize 

unintended market signals that would inhibit or interFere with market structure or 

operation, treat all first deliverers equally, whether they are in-state generators or 

electricity importers. 

Use of the first deliverer meets the necessary criteria because the electricity importer is 

clearly identified as the facility operator or scheduling coordinator or identified through 

the NERC E-tag, and it uses reliable data through the Mandatory Reporting Regulation, 

U.S. EPA, and the U.S. Energy Information Administration. This also treats in-state and 

out-of-state deliverers equally. The resulting carbon price is applied based on the 

actual emissions in State and out-of-state for specified sources or default emissions 

factor for unspecified sources. California's first-deliverer approach to treatment of 

electricity imports and exports is a model U.S. EPA could use as a national model. 

Future Collaboration 

California imports a significant proportion of its energy. In the future, the State may also 

export significant amounts of energy from renewable power sources at certain periods. 

These links tie us closely to our neighboring states and to the many states of the 

Western Energy Coordinating Council region. Due to the interconnectedness of the 

power grid, emission reductions occurring in one state may be the direct result of 

grid-level programs implemented in a neighboring state. In order to ensure that the 

state funding the program reducing emissions receives credit for the emission 

reductions resulting from them, importing states should be able to collaborate with 

exporting states to develop joint plans recognizing these relationships. This type of 

approach will necessitate states working closely together via both their air and energy 

agencies. We look forward to exploring carbon reduction opportunities throughout the 

regional grid with all these potential partners. The section 111(d) standards will help to 

support that cooperative effort. 

IV.	Relationshig with the 111(b) Standard 

While U.S. EPA is considering the 111(d) proposal, the agency is also currently setting 

performance standards for new sources of carbon pollution in the power sector under 

section 111(b) of the Clean Air Act. We will provide comments, if any, on the 111(b) 

standard at an appropriate time. For now, we emphasize that U.S. EPA should not view 

its technology analysis in the 111(b) context as constraining the emissions reductions it 

can secure from existing sources under the system-based approach, which the statute
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 28 

invites for existing sources under 111(d). It is entirely possible that the 111(d) standard 

could have a stronger limit than the 111(b) standard for new sources due to the 

systems-based approach we have advocated. 

V.	Conclusions 

We are committed to work closely with U.S. EPA to ensure that the section 111(d) 

power plant standards achieve significant national reductions, and to ensure that the 

actions that California facilities have taken and will be taking under AB 32 will be 

recognized and credited toward their 111(d) obligations. 

We look forward to incorporating section 111(d) compliance into our efforts. California 

is coordinating its energy policy more effectively than ever before and our climate goals 

have steered us to look at the electricity system in an integrated fashion. As such, we 

advocate for a flexible, system-wide approach built on being more efficient and more 

innovative to motivate cost-effective and meaningful carbon reductions from the electric 

power sector. 

Ultimately, air agencies will need to translate federal regulatory text into section 111(d) 

state plans within 12 months of U.S. EPA's finalization of the guidelines. We suggest 

that U.S. EPA share draft preamble and regulatory text with state and local air agencies 

prior to publication of the June 2014 proposal so potential issues and solutions can be 

developed prior to publication. We also suggest that U.S. EPA use the June 2014 

proposal to solicit information from states needed to help finalize the guidelines by 

June 2015, to help states get a running start on developing state plans by June 2016. 

We look forward to continued partnership and progress reducing GHG emissions as 

U.S. EPA formulates the 111(d) guidelines. Upon request we will provide additional 

details regarding the concepts and programs outlined herein. If you have any 

questions, please contact Mr. Richard W. Corey, Executive Officer, at (916) 445-4383. 

Sincerely, 

Mary D. Nichols 

Chairman 

cc:	See next page.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 29 

cc:	Mr. Stephen Berberich 

Chief Executive Officer 

California lndependent System Operator 

250 Outcropping Way 

Folsom, California 95630 

Mr. Jared Blumenfeld 

Regional Administrator 

Region 9 

U.S. Environmental Protection Agency 

75 Hawthorne Street 

San Francisco, California 94105 

Mr. Jack Broadbent 

Air Pollution Control Officer 

Bay Area Air Quality Management District 

939 Ellis Street 

San Francisco, California 94109 

Mr. Larry Greene 

Air Pollution Control Officer 

Sacramento Metropolitan 

Air Quality Management District 

777 12th Street, 3rd Floor 

Sacramento, California 95814 

Ms. Barbara Lee 

Air Pollution Control Officer 

Northern Sonoma County Air District 

150 Matheson Street 

Healdsburg, California 95448 

Ms. Janet McCabe 

Acting Assistant Administrator 

U.S. Environmental Protection Agency 

Ariel Rios Building 

1200 Pennsylvania Avenue, N.W. 

Washington, D.C. 20460 

Continued next page.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 30 

cc:	(continued) 

Mr. Robert Oglesby 

California Energy Commission 

1516 Ninth Street, MS-29 

Sacramento, California 95814-5512 

Mr. Michael Peevey, President 

California Public Utility Commission 

505 Van Ness Avenue 

San Francisco, California 94102 

Mr. Dennis Peters 

California lndependent System Operator 

250 Outcropping Way 

Folsom, California 95630 

Mr. Brian Turner 

Deputy Executive Director 

California Public Utilities Commission 

505 Van Ness Avenue 

San Francisco, California 94102 

Dr. Barry Wallerstein 

Air Pollution Control Officer 

South Coast Air Quality Management District 

21865 Copley Drive 

Diamond Bar, California 91765 

Mr. Dave Warner 

Deputy Air Pollution Control Officer 

San Joaquin Valley Air Pollution 

Control District 

1990 E. Gettysburg Avenue 

Fresno, California 93726 

Continued next page.
Ms. Gina McCarthy, Administrator 

December 27, 2013 

Page 31 

cc:	(continued) 

Mr. Robert Weisenmiller, Chair 

California Energy Commission 

1516 Ninth Street, MS-29 

Sacramento, California 95814-5512 

Richard W. Corey 

Executive Officer
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