From: Szabo, Aaron [mailto:Aaron_L_Szabo@omb.eop.gov]

Sent: Friday, June 26, 2015 3:56 PM

To: Vasu, Amy; Culligan, Kevin

Cc: Frey, Nathan J.

Subject: Additional Interagency Comments under EO 12866 & 13563 for the Clean 

Power Plan

Please see the attached documents as additional interagency comments for the Clean 

Power Plan to help inform ongoing interagency discussions. This information does not 

represent recommendations by interagency reviewers, but is meant to provide textual 

information to assist in the interagency review process. 

Aaron L. Szabo

Policy Analyst

Office of Management and Budget

202-395-3621

Aaron_L_Szabo@omb.eop.gov
***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

Compliance in Tons

Mechanism

It is possible for any generator to comply through the use of tons, whether it is subject to a generatorspecific rate or is operating in a world of separate or blended rates. In addition, there is always a way to 

comply based on tons that is equivalent to compliance in terms of MWh. In particular, any generator can 

comply with its given rate target through the purchase of some number of tons that are then subtracted 

from its numerator. In other words, a given generator is in compliance if:

EEEEEEssss ssssss − PPPPPPPPhaa aaaa TT

GG GG = tt

For example, if a coal plant generates at 2000 lbs/MWh and purchases 500 lbs CO2 for each MWh 

generated, its effective rate is 1500 lbs/MWh.

On the other hand, if a generator has an emissions rate below its target, any excess tons can be sold to 

other generators. Specifically, given a level of emissions and generation, the tons available for sale 

satisfies:

EEEEEE EE + TT AAAA AA AAAA ff SS

GG GG = tt

Renewable energy and energy efficiency create tons through a conversion factor equal to the weighted 

average of the two rates, where the weighting is determined based on the 2012 levels of generation 

used to allocate renewable energy generation as part of BSER (this is discussed in more detail below):

TT AAAA AA AAAA ff SS = mm ∗ (RR RR GG GG + AAAA GG GG ff EEEE)

where,

mm = ααss ss + ααgg gg = h aa aa tt

ss = ss tt gg = tt

GGss = 2012 ss GGgg = 2012

ααss = GGss

GGss + GGgg

ααgg = GGgg

GGss + GGgg

These tons can then be sold to covered sources for the purposes of compliance. 

Consistency with BSER

As part of building block 3 under the current BSER, generation from RE is added to the denominator of 

the steam and gas targets pro-rated based on 2012 generation:

ss = SS EEEEEE EE

SS GG + ααss ∗ RR GG gg = GG EEEEEE EEGG GG + ααgg ∗ RR GG
***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

Here, steam and gas emissions and generation are what remains after displacing that generation with 

the RE, and ααss and ααgg are the proportions of steam and gas generation used to distribute the RE

generation to the steam and gas rates.

These equations are equivalent to:

ss = SS EEEEEE EE − ss ∗ ααss ∗ RR GG

SS GG gg = GG EEEEEE EE − gg ∗ ααgg ∗ RR GG

GG GG

This shows how many tons are needed for these sources to come into compliance. The total number of 

tons is:

� ss ∗ ααss + gg ∗ ααgg� ∗ RR GG = h aa aa aa aa tt ∗ RR

In other words, the formula for the tons created by renewable energy generation given above gives 

precisely the number of tons needed for sources to come into compliance under BSER. Since the Eastern 

Interconnect creates the binding targets in BSER, the weighted average should be based on the values 

for that region.

With regards to building block 2, some gas emissions are added into the numerator of the steam target 

and some gas generation is added into the denominator:

ss = EEEEEE EE + AA GG EEEEEE EE

GG + AA GG GG

(Here, Gen includes the RE gen from building block 3 and the displacement from building block 2; 

similarly, Emissions includes both the displacement for buildings blocks 2 and 3.) This formula is 

equivalent to

ss = EEEEEE EE − ( ss ∗ AA GG GG − AA GG EEEEEE EE )

GG

This means that ( ss ∗ AA GG GG − AA GG EEEEEE EE ) extra tons must be created to 

represent the coal-to-gas shift. This can be done in a similar manner as is done for the creation of ERCs 

representing this shift.

These are both illustrative of the general fact that compliance in terms of additions to the denominator 

can always be turned into compliance via tons, ie, subtractions from the numerator. The important thing

is to ensure that sufficient tons are available to enable compliance and consistency with BSER. By 

choosing the weighted average rate (based on the same fractions used to distribute the RE in building 

block 3), one ensures that these tons are available, and that the compliance system is consistent with 

BSER.
***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4

Example Two-rate Compliance System

This document describes an example of how a two-rate compliance system could work with trading in 

tons. Many such systems are possible. This is not an endorsement of this particular system nor is there a 

recommendation that it be used. Instead, it is provided as a proof-of-concept that may provide textual 

information.

Definitions

ss = ss tt gg = tt

GGss = 2012 ss GGgg = 2012

ααss = GGss

GGss + GGgg

ααgg = GGgg

GGss + GGgg

mm = ααss ss + ααgg gg = h aa aa aa aa tt

In this potential implementation, tradable tons for use in offsetting emissions are created as follows:

1 MMMMh RR GG mm

1 MMMMh SS GG ( mm − ss)

1 MMMMh GG GG � mm − gg�

Note that the steam number is negative, so each MWh of steam demands additional tons beyond what 

is needed to cancel emissions in the numerator.

BSER:

Under this implementation of BSER, GGRR MWh of Renewable energy is deployed to displace steam and 

gas proportionally. In addition, ∆ MWh of coal-to-gas redispatch occurs. Let

γγss = ss ii γγgg = ii

This assumes that the additional emissions and generation from gas in the coal-to-gas redispatch are 

added to the steam rate. Then:

ss = γγss(GGss − ααssGGRR − ∆ ) + γγgg∆

GGss gg = γγgg�GGgg − ααggGGRR �

GGgg

mm = γγss(GGss − ααssGGRR − ∆ ) + γγgg�GGgg − ααggGGRR + ∆ �

GGss + GGgg

Note that, here, the MWh of coal-to-gas redispatch only appear in the steam rate and not in the gas 

rate, as opposed to appearing in both as is done in the current draft.

Consistency with BSER:
***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5

For gas to be in compliance under BSER, the following must hold:

γγgg�GGgg − ααggGGRR + ∆ � − TT

GGgg − ααggGGRR + ∆ = gg

Note that this does not take into account the additional tons that are created by the gas generation –

they are instead assumed to be part of the overall allowance supply. This can be solved to give:

TT = ∆ �γγgg − gg� + ggααggGGRR

For steam to be in compliance, the following must hold:

γγss(GGss − ααssGGRR − ∆ ) − TT

GGss − ααssGGRR − ∆ = ss

Again, this does not take into account the additional tons that steam generation must purchase. This can 

be solved to give:

TT = ∆ � ss − γγgg� + ssααssGGRR

Thus, the total demand for tons is:

∆ � ss − gg� + � ggααgg + ssααss�GGRR = ∆ � ss − gg� + mmGGRR

On the other hand, the total supply of tons is:

RR GG : mmGGRR

SS GG : ( mm − ss)(GGss − ααssGGRR − ∆ )

GG GG : � mm − gg��GGgg − ααggGGRR + ∆ �

Added together, this is:

mmGGRR + ∆ � ss − gg� + mm�GGss + GGgg − GGRR � − ssGGss − ggGGgg + mmGGRR = mmGGRR + ∆ � ss − gg�

Thus, the supply and demand for tons are equal, and compliance is achieved.