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MEMORANDUM 

DATE: 12/2/2015

TO: Cross-State Air Pollution Rule Update for the 2008 

Ozone NAAQS; Docket ID: EPA-HQ-OAR–2015-0500

FROM: Reid Harvey, Director, Clean Air Markets Division

SUBJECT: Inclusion of the Clean Power Plan in the baseline for 

the proposed Cross-State Air Pollution Rule Update for 

the 2008 Ozone NAAQS

SUMMARY

As noted in Section V of the preamble for the proposed

Cross-State Air Pollution Rule Update for the 2008 Ozone NAAQS 

(CSAPR Update), the EPA seeks comment on the data and 

assumptions used in the modeling for this rulemaking. One of the 

topics on which the EPA seeks comment is the use of Integrated 

Planning Model version 5.15 (IPM 5.15), including illustrative 

modeling of the Clean Power Plan, in the baseline as well as in 

the analytic policy case1 for the CSAPR Update rulemaking. The 

EPA specifically seeks comment both on using IPM 5.15 and on 

including the illustrative modeling of the Clean Power Plan2

(CPP) in the baseline. 

 

1 If the illustrative modeling of the CPP is included in the baseline for the 

CSAPR Update, then the CPP modeling would inherently also be included in 

subsequent policy cases that are additional to that baseline. 

2 The EPA’s assessment of the CPP for regulatory impact analysis was 

illustrative in nature as the modeling scenarios represent one of many 

implementation pathways available to states and utilities. For more 

information on the illustrative nature of this analysis, refer to the 

Regulatory Impact Analysis for the Clean Power Plan.
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This memo provides further discussion of considerations for 

including the illustrative modeling of the CPP in the baseline 

for this rulemaking, a discussion of the potential impact of the 

EPA’s illustrative modeling of the CPP on the CSAPR Update 

rulemaking and considerations for potentially excluding the 

illustrative modeling of the CPP in the baseline and policy case 

for the final CSAPR Update rule.

CONSIDERATIONS FOR INCLUDING THE CPP IN THE CSAPR UPDATE 

BASELINE

In accordance with Executive Orders 12866 and 13563, and 

Office of Management and Budget (OMB) Circular A-4, the analytic 

baseline for rulemakings should include all existing and final 

rules. In this case, adherence to E.O. 12866 and Circular A-4 

means the CSAPR Update should include the final CPP to the 

extent possible in its analytic baseline.3 The final CPP rule, 

which was signed on August 3, 2015, is now a part of the 

business-as-usual scenario that would be expected under market 

and existing regulatory conditions in the absence of the 

proposed CSAPR Update. The EPA took steps to reflect inclusion 

of the CPP in the baseline of the proposed CSAPR Update, which 

was signed on November 16, 2015. The baseline for the proposed 

CSAPR Update rule is discussed in Chapters 1 and 5 of the 

 

3 For consistency, the EPA proposes to use the same analytic baseline for the 

policy analysis and regulatory impact analysis for the CSAPR Update.
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Regulatory Impact Analysis (RIA), available in the docket for 

this proposal.4

One important justification for the requirement to include 

all existing and final rules in the baseline of subsequent 

rulemakings is to assure that the analysis of the subsequent 

rule appropriately evaluates the impacts of that rule in and of 

itself in isolation from other policy actions. This requirement 

supports transparent evaluation of the estimated impacts that 

are attributable solely to the rule under consideration. For 

example, in the context of environmental regulation to reduce 

air pollution, implementation of this requirement assures that 

the assessment of the subsequent rule does not double-count the 

air quality improvements that were already attributed to prior 

rules. Including the illustrative modeling of the CPP in the 

baseline of the CSAPR Update assures that the air quality 

improvements evaluated in the CSAPR Update analysis are 

attributable to impacts on the power sector of the proposal to 

update CSAPR alone, and avoids double-counting the impacts of 

the CPP, as well as all other federal and state regulations 

included in the IPM 5.15 base case. The RIA for the CSAPR Update

reports the expected benefits, costs and impacts of the proposed 

 

4 Docket ID: EPA-HQ-OAR-2015-0500
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CSAPR update for 2017, as well as select impacts, including 

emissions changes, for 2020. 

The base case used to analyze the proposed CSAPR Update is 

the IPM configuration the EPA used to analyze the CPP’s ratebased illustrative plan approach. This approach was one of two 

illustrative policy options analyzed in support of the final 

CPP.5

THE POTENTIAL EFFECT OF THE CPP ON CSAPR UPDATE

In theory, including or excluding the illustrative modeling 

of the CPP in the baseline for the CSAPR Update could influence 

the EPA’s assessment of which states significantly contribute to 

nonattainment or interfere with maintenance of the 2008 ozone 

NAAQS downwind and the EPA’s development of emissions budgets 

(i.e., the remedy). However, the EPA believes that including or 

excluding the illustrative modeling of the CPP in the baseline 

and policy case for the CSAPR Update rulemaking would not have a 

large impact on the CSAPR Update.

First, we note that the EPA’s modeling of the CPP does not 

estimate large changes in the power sector due to the CPP in the 

 

5 The EPA ran two illustrative scenarios for the CPP in IPM, a rate-based and 

a mass-based implementation scenario. In general, when discussing the 

inclusion of the CPP in modeling here, we are referring to the rate-based 

implementation scenario. For more information on the illustrative nature of 

this analysis, refer to the Regulatory Impact Analysis for the Clean Power 

Plan.
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policy analysis year used in the CSAPR Update (i.e., 2017—based 

on adjustments to the IPM 2018 model run year). Of the near-term 

(i.e., 2016 through 2018) changes in the power sector that are 

estimated in the illustrative CPP modeling, a majority of these 

changes were anticipated to occur in the model baseline of the 

CPP analysis itself, meaning that they would have occurred

without inclusion of the CPP and are not attributable to the 

CPP. Specifically, in the short-term prior to 2022 (note: 2022 

is the beginning of the CPP implementation period), the modeling 

results related to the power sector, such as generation, 

capacity, retirements, and prices, are largely driven by planned 

actions and other market forces that are already underway (such 

as low natural gas prices relative to coal), rather than the 

effect of the CPP. For example, the CPP baseline modeling 

includes capacity reductions that the model anticipates in the 

absence of the CPP.6 Of the estimated 71 GW reduction in coal 

generation capacity in model year 2016, roughly 60 GW occur in 

the baseline. The remaining changes in the power sector (e.g., 

11 GW reduction in goal generation capacity), which the 

illustrative modeling of the CPP assumes to occur as part of an 

overall least-cost “solution” for the CPP for the power sector

over a 40-year time horizon, are also small relative to the 

 

6 Docket ID: EPA–HQ–OAR–2013–0602
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power sector industry. In addition, as discussed in the 

considerations section below, estimates of capacity reductions 

from the EPA’s application of IPM in this scenario are likely an 

overestimate of near-term effects compared to expected real 

world implementation of the CPP for at least two reasons. 

First, some of the simplifying assumptions used in the modeling 

about state implementation decision-making don’t capture the

real world ability of states to develop implementation

approaches over the whole time period of the CPP that will 

minimize near-term effects. Second, the structure and design of 

the model tends to overstate near-term effects due to 

assumptions about perfect foresight of future prices and market 

conditions that don’t reflect actual uncertainties about the 

future state of the world, discussed later in this memo.

In addition, the way that the power sector modeling is used 

in the CSAPR Update limits the potential influence of the 

illustrative the CPP modeling on this rulemaking. As explained 

below, the inclusion of CPP in the modeling would not have a 

large impact on the EPA’s application of the 4-step CSAPR 

framework.

Regarding steps one and two, as already noted, the 

illustrative modeling of the CPP does not estimate large changes

in the power sector modeling for the CSAPR Update because the 

2017 summer ozone season is five years in advance of the initial 
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start of the CPP and thirteen years in advance of the CPP final 

period in 2030. 

Further, power sector emissions are only one component of 

total nitrogen oxides (NOX) emissions. Emissions from mobile 

sources, electric generating units (EGUs), and non-EGUs are all 

part of the EPA’s evaluation. Thus, EGUs are only part of the 

comprehensive evaluation of downwind receptors expected to have 

problems attaining or maintaining the 2008 ozone NAAQS (i.e., 

step 1) and upwind states’ contributions to these identified 

problems in amounts sufficient to “link” them to the downwind 

air quality problems (i.e., step 2). Because the modeled impact 

of the CPP is relatively small in comparison to power sector 

emissions and because power sector emissions are only one 

component7 of the total emissions used to evaluate steps one and 

two of the CSAPR framework, we do not anticipate that the CPP 

will have a large impact on the evaluation of these steps. For 

the proposal, the EPA conducted an analysis of the potential 

influence of IPM version 5.15 with the CPP in the baseline on 

steps 1 (i.e., identification of receptors) and step 2 (i.e., 

contributions sufficient to “link” upwind states). Details on 

this analysis and its results can be found in section V of the 

preamble.

 

7 The EPA notes that EGU emissions account for approximately 15 percent of NOX

emissions across the contiguous U.S. in our 2017 emissions inventory used for 

modeling.
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In step three of the CSAPR framework, we evaluate states 

linked to downwind air quality problems to identify upwind 

emissions that significantly contribute to nonattainment, or 

interfere with maintenance, of the 2008 ozone NAAQS downwind. 

Specifically, this step establishes emissions budgets (i.e., 

limits on emissions) for linked states, which reflect upwind 

emission reductions and apportionment of upwind responsibility.

The EPA proposes in the CSAPR Update to establish emissions 

budgets (tons) by multiplying modeled state-level emissions 

rates (lbs/mmBtu) and historic reported (i.e., 2014) heat-input

(mmBtu).

The proposed emissions budget-setting approach relies only 

in part on power sector modeling. Specifically, the EPA proposes 

to use the modeled state-level emissions rate as noted above in 

order to help calculate each state’s emission budget. To the 

extent that this emissions rate reflects modest changes in the 

power sector that the illustrative modeling attributes to CPP 

implementation in the CSAPR Update analysis year, we observe 

that the majority of these modeled changes redistribute 

generation from one fossil fuel-fired electric generating unit 

to another. Where generation is shifted between coal-fired units 

with similar NOX emissions characteristics, the resulting change 

in NOX emissions rate may not be significant. If generation 

shifts from coal- to natural gas-fired generation, then NOX
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emissions rates will generally be lower, depending on how wellcontrolled the units are. However, we note that even in the 

potential case of shifting generation from an uncontrolled coalfired unit to a well-controlled natural gas-fired unit, the 

resulting emissions rate would remain non-zero and would 

contribute some NOX emissions to the aggregate state-level 

emissions rate used in the CSAPR Update emissions budgetsetting.

In addition, by proposing to multiply the modeled statelevel emissions rates by historic reported (i.e., 2014) heatinput, the potential influence of the illustrative modeling of 

the CPP on the CSAPR Update’s remedy is even further reduced. 

The historic reported heat-input data are not influenced by the 

final CPP, which was announced on August 3, 2015 and therefore 

post-dates the 2014 historic data used in this rulemaking.

Additionally, using historical reported heat-input grounds the 

proposed emissions budget-setting approach in historically 

observed, non-modeled, data. In general, this approach reduces 

the influence of the model on the CSAPR Update emissions budgetsetting. Indeed, the EPA proposes to factor in the historical 

heat-input data so that model outputs alone do not directly 

determine the proposed CSAPR Update remedy. This approach aligns 

with the EPA’s general approach to using power sector modeling 

data at more aggregated geographic levels (i.e., state-level or 
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regional-level), rather than specific unit-level results, which 

may be relatively more uncertain.

The EPA also notes that the CSAPR Update proposal seeks 

comment on a range of emissions budget stringencies, reflecting 

power sector NOX mitigation potential that is achievable for the 

2017 ozone season and cost-effective from $500 per ton to 

$10,000 per ton of NOX removed. The proposed approach reflects 

NOX reductions at a cost threshold of $1,300 per ton. Given the 

multiple factors described above that mitigate the potential 

impact of the illustrative modeling of the CPP on the CSAPR 

Update emissions budgets, any potential impact of including or 

excluding the CPP in the baseline for the final CSAPR Update is 

within the range of NOX emissions budgets on which the EPA is 

seeking comment.

Finally, we note that the illustrative modeling of the CPP 

has no influence on step four, implementation through the CSAPR 

NOX ozone-season allowance trading program. Specifically, the 

proposed CSAPR NOX ozone-season allowance allocation approach 

would allocate allowances to existing units, independent of the 

EPA’s power sector modeling. Specifically, the EPA proposes to 

continue using the existing CSAPR allowance allocation approach, 

using ozone season heat input values for the period of 2010 

through 2014. As a result, the EPA’s proposed unit-level 

allocations would provide allowances to units that existed in 
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the past and would not deny those allowances to those units 

based on modeling that would suggest that the unit may not 

operate in the future.

The EPA does not anticipate that including or excluding the 

illustrative modeling of the CPP in the baseline would 

meaningfully influence the EPA’s evaluation of significant 

contribution to nonattainment or interference with maintenance 

of the 2008 ozone NAAQS in downwind areas, particularly given 

the range of other factors (e.g., cost thresholds) on which the 

EPA is also seeking comment.

CONSIDERATIONS FOR EXCLUDING THE CPP FROM THE CSAPR UPDATE 

BASELINE

Despite the general policy of including promulgated rules 

in the baseline and policy case and the limited impact of 

including the CPP in this rulemaking, there are several key 

uncertainties associated with implementation of the CPP that are 

not reflected in the modeling. These uncertainties are 

relatively unique to the CPP, due to the wide range of 

implementation flexibility and the role that states play in 

determining implementation. Thus, the EPA believes it is worth 

considering, and seeks comment on, whether and how the CPP 

should be included in the baseline and policy case for the final 

CSAPR Update rule.
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The illustrative policy case for the CPP used in our 

baseline for the CSAPR Update proposal necessarily entailed 

making simplifying assumptions regarding the form of 

implementation of the CPP. However, those simplifying 

assumptions do not reflect the wide range of approaches 

available to states in developing the state plans that will 

ultimately implement the CPP. State plans will be submitted over 

the next several years, and the interim performance period under 

the CPP does not begin until 2022. For instance, the IPM runs 

did not model all of the possible “glide paths” states may 

develop; rather, it modeled the state goals by using the interim 

steps that were provided by the EPA to help states in their 

planning processes. In addition, the IPM runs did not assume any 

interstate trading, which is another implementation option 

available to states under the CPP. 

Because of the inclusion of simplified modeling assumptions

that fail to capture all the compliance flexibilities, near term

impacts on the power sector in this scenario tend to be 

overstated (i.e., more costly deviations); in fact, the CPP 

itself not only avoids dictating near-term changes but it also 

provides states and utilities with ample options to minimize 

near-term impacts. For example, a source that would continue to 

cost effectively operate through procurement of emissions 

allowances in a trading scenario, may take a more costly
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compliance option of retirement in a modeling scenario where 

that flexibility is not represented. Because the CPP 

illustrative modeling was based on an assumption that states 

would use a specific form of rate-based implementation, the way 

in which the model optimized for a least-cost solution tended to 

front-load actions within the model (such as generation shifts 

that lead to reductions of capacity for some fuel sources and 

increases for others) in contrast to the emissions reduction 

flexibility the CPP, by design, created for states and sources. 

In effect, the front-loaded results generated by the model in 

this scenario are, in part, a result of a feature of the model 

itself. In reality, given the range of options that the CPP 

affords states in developing their state plans, there may be 

sufficient uncertainty regarding state plan design (in addition 

to uncertainty about other key parameters such as fuel prices 

and supplies) such that power plant operators will not take the

actions IPM identifies as being the least-cost solutions or will 

take them more slowly than modelled. Indeed, it is even possible 

that, because of the flexibility permitted in designing their 

plans, states could choose an implementation path that would 

completely avoid the actions that are forecast in the model to 

occur by 2018.

Thus, because the 2016-2018 time period is prior to 

approval or promulgation of state plans or implementation of a 
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federal plan, the actual effects of the CPP in that time period

are far from certain. In this respect, the CPP is more analogous

to the promulgation of a NAAQS, which triggers a similar 

planning and implementation process in which there is some 

uncertainty regarding how states and sources will meet the NAAQS 

until specific state implementation plans are adopted. Modeling 

based on assumptions about what those requirements will look 

like carries a higher degree of uncertainty than in the case of 

rules where source-specific requirements are established at the 

time of promulgation. For this reason, the EPA does not include 

specific assumed strategies of how the NAAQS will be attained in 

the baselines of subsequent rulemakings prior to specific state 

implementation plans being adopted, and it may be appropriate to 

extend that practice here, given similar uncertainties 

associated with how states will choose to formulate their plans 

in order to implement the CPP. Therefore, the EPA requests 

comment on whether to include the CPP in its baseline and policy 

case for the final rule.