From: Vasu, Amy 

Sent: Wednesday, July 29, 2015 12:08 PM 

To: nfrey@omb.eop.gov 

Cc: Szabo, Aaron; Harvey, Reid; Tsirigotis, Peter; Culligan, Kevin 

Subject: For review -- revised CEIP text for the CPP Final Rule 

Nathan, 

Attached is revised text on the Clean Energy Investment Program (CEIP), for Section VIII of the 

CPP Final Rule. 

Thank you. 

 

Amy 

 

~~~~~~~~~~~~~~~~~~~~~~~ 

Amy B. Vasu 

U.S. EPA / OAQPS 

Sector Policies and Programs Division 

email: vasu.amy@epa.gov 

phone: 919.541.0107 

<< CEIP revised text_CPP_7 29 15.docx >> 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

Revised draf CEIP language for the CPP Final Ruele, 7/29/15 

2. Provisions to encourage early action 

 Many commenters supported providing incentives for states 

and utilities to deploy CO2-reducing investments, such as RE and 

demand-side EE measures, as early as possible. In the proposal, 

the EPA requested comment on an approach that would recognize 

emission reductions that existing programs provide prior to the 

initial plan performance period starting from a specified date. 

We also requested comment on options for that specified date and 

on conditions that should apply to counting those pre-compliance 

emission reductions toward a state goal. The EPA received many 

comments requesting that the agency recognize early actions for 

the emission reductions they provide prior to the performance 

period, that the EPA allow those pre-compliance impacts to be 

counted toward meeting requirements under the rule, and that 

certain conditions should be applied to recognition of early 

reductions so as to ensure the emission reductions required in 

the rule. We also received comments from stakeholders regarding 

the disproportionate burdens that some communities already bear, 

and stating that all communities should have equal access to the 

benefits of clean and affordable energy. The EPA recognizes the 

validity and importance of these perspectives, and as a result 

has determined to provide a program – called the Clean Energy 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

Incentive Program (CEIP) – in which states may choose to 

participate. This section describes this program. 

 The CEIP is designed to reward investment in certain RE and 

demand-side EE projects that commence construction following the 

effective date of an approved final state plan and that generate 

MWh (RE) or reduce end-use energy demand (EE) during 2020 and 

2021. State participation in the program is optional; the EPA is 

establishing this program as an additional flexibility to 

facilitate achievement of the CO2 emission reductions required by 

this final rule, regardless of the type of state plan a state 

chooses to implement. 

Under the CEIP, a state may set aside allowances from its 

interim target or generate early action emission rate credits 

(ERCs, as defined in section VIII.K.2), and allocate early 

action allowances or ERCs to eligible projects for the MWh those 

projects generate or avoid in 2020 and 2021. A state 

implementing a mass-based plan approach, as described in section 

VIII.C, may issue early action allowances; a state implementing 

a rate-based plan approach, also described in section VIII.C, 

may issue early action ERCs. For each early action allowance or 

ERC a state allocates to such projects, the EPA will provide the 

state with an appropriate number of matching allowances or ERCs, 

as outlined below, for the state to allocate to the project. The 

EPA will match state-issued early action ERCs and allowances up 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

to an amount that represents the equivalent of 300 million short 

tons of CO2 emissions. The EPA has determined that the size of 

this matching pool is an appropriate reflection of the CO2

emission reductions that would be achieved by the additional 

early investment in RE and demand-side EE the agency expects 

will be incentivized by the CEIP. 

 For a state to be eligible for a matching award of 

allowances or ERCs from the EPA, it must demonstrate that it 

will award allowances or ERCs only to “eligible” projects. These 

are projects that: 

 Are located in or benefit a state that has submitted a 

final state plan that includes requirements establishing 

its participation in the CEIP; 

 Are implemented following the effective date of that 

state’s approved final state plan; 

 For RE: Generate metered MWh from wind or solar resources; 

 For EE: Result in quantified and verified avoided 

generation through demand-side EE, and that directly 

benefit low-income communities; and 

 Generate or avoid MWh in 2020 and 2021. 

 The following provisions outline how a state may award 

early action ERCs and allowances to eligible projects, and how 

the EPA will provide matching allowances to states. 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

 For RE projects that generate metered MWh from wind or 

solar resources: for every two MWh generated, the project 

will receive one early action ERC (or the equivalent number 

of allowances) from the state, and the EPA will provide one 

matching ERC (or the equivalent number of allowances) to 

the state to award to the project. 

 For EE projects that benefit low-income communities: for 

every two MWh in end-use demand savings achieved, the 

project will receive two early action ERCs (or the 

equivalent number of allowances) from the state, and the 

EPA will provide two matching ERCs (or the equivalent 

number of allowances) to the state to award to the project. 

 Early action allowances or ERCs awarded by the state, and 

matching allowances or ERCs awarded by the EPA pursuant to the 

CEIP, may be used for compliance by an affected EGU with its 

emission standards and are fully transferrable prior to such 

use. 

 The EPA discusses the CEIP in the proposed federal plan 

rule, and will address design and implementation details of the 

CEIP, including the appropriate factor for determining 

equivalence between allowances and MWh and how to determine a 

low-income community, in a subsequent action. Before doing so, 

the EPA will engage states and stakeholders to gather additional 

information concerning implementation topics, including the 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

provisions outlined below, and to solicit information about the 

concerns, interests and priorities of states, stakeholders and 

the public. 

 In order for a state that chooses to participate in the 

CEIP to be eligible for an allocation of allowances or ERCs from 

the EPA, a state must include in its initial submittal a nonbinding statement of intent to participate in the program. In 

the case of a state submitting a final plan by September 6, 

2016, the state plan would either include in its plan 

requirements establishing the necessary infrastructure to 

implement such a program and authorizing its affected EGUs to 

use early action allowances or ERCs as appropriate, or would 

include a non-binding statement of intent as part of its 

supporting documentation and revise its plan to include those 

requirements at a later date. 

 Following these state plan submittals in 2016, the agency 

will create an allowance or ERC account for each participating 

state that reflects the pro rata share – based on the amount of 

the reductions from 2012 levels the affected EGUs in the state 

are required to achieve relative to those in the other 

participating states – of the 300 million short ton CO2

emissions-equivalent pool that the state is eligible to receive. 

Thus, states whose EGUs have greater reduction obligations will 

be eligible to secure a larger proportion of the federal 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

allocation upon demonstration of quantified and verified MWh of 

RE generation or demand side-EE savings realized in 2020 and 

2021. 

 In its final state plan submission, due no later than 

September 6, 2018, or state plan revision if applicable, the 

state must include requirements for implementing the CEIP. If a 

state that indicated CEIP participation in its 2016 submittal 

either decides not to include the CEIP in its final plan, or 

includes state plan requirements for the CEIP that the EPA 

determines to be unapprovable, the EPA will redistribute the 

matching allowances or ERCs allocated to that state in 2016 to 

other qualifying states participating in the CEIP. Unused 

matching allowances or ERCs remaining in state accounts on 

January 1, 2023 will be retired by the EPA. 

 For purposes of establishing a state plan program eligible 

for an award of matching allowances or ERCs from the EPA, such a 

program must include a mechanism for awarding early action 

emission allowances or ERCs for actions that reduce or avoid CO2 

emissions in 2020 and 2021, and that is implemented in a way 

such that the early action allowances or ERCs allocated by the 

state would maintain the stringency of the state’s goal for 

emission performance from affected EGUs in the performance 

periods established in this rule. Specifically, the state must 

demonstrate in its plan that it has a mechanism in place that 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

enables issuance of ERCs or allowances from the state to parties 

effectuating reductions in 2020 and 2021 in a manner that would 

have no impact on the aggregate emission performance of affected 

EGUs required to meet rate-based or mass-based emission 

standards during the compliance periods.1 This demonstration is 

not required to account for matching ERCs or allowances that may 

be issued to the state by the EPA. Participation in this program 

is entirely voluntary, and nothing in these provisions would 

have the effect of requiring any particular affected EGU to 

achieve reductions prior to 2022, or requiring states to offer 

incentives for reductions achieved prior to 2022.2 These and 

other details will be developed in the subsequent action. 

 The EPA is providing the CEIP as an option for states 

                                                            

1 For example, under a mass-based implementation, the state plan 

could include a set-aside of early action allowances from an 

emissions budget that itself reflects the state goals. 

Allocation of those early action allowances to parties 

effectuating reductions in 2020 and 2021 would have no impact on 

the total emissions budget, which sets the total allowable 

emissions in the compliance periods. Alternatively, under a 

rate-based implementation, the state plan could require that 

early action ERCs issued to parties effectuating reductions in 

2020 and 2021 would be “borrowed” from the pool of ERCs created 

by the state during the interim compliance period. For every 

early action ERC awarded for actions in 2020 and 2021, the state 

would retire one ERC from the pool of ERCs created as a result 

of reductions achieved from 2022 onward. 

2 In addition to the Clean Energy Incentive Program, states may 

also offer credit for early investments in RE and demand-side EE 

according to the provisions of section VIII.K.1 of this final 

rule: a state may award ERCs to qualified providers that 

implement projects from 2013 onward that realize quantified and 

verified MWh results in 2022 and subsequent years.
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

implementing plans – and is including a similar program for the 

Federal Plan proposal being issued concurrently – for several 

reasons. Chief among them are those offered by commenters to the 

effect that the overall cost of achievement of the emission 

performance rates or state goals could be reduced by an approach 

that granted some form of beneficial recognition to emissions 

reduction investments that both occur and yield reductions prior 

to the first date on which the program mandates reductions or 

imposes emissions standards. Other commenters pointed out that 

to the extent that states and utilities would benefit from the 

availability of low-cost RE and other zero-emitting generation 

options during the interim and final periods, the EPA should 

include in the final guidelines provisions that accelerate 

deployment of RE resources, since in so doing the program would 

speed achievement of expected reductions in the cost of those 

technologies commensurate with their accelerated deployment. In 

addition, the EPA believes the CEIP can play an important role 

in supporting one of the critical policy benefits of this rule. 

In our analysis, we observed that by initiating the emission 

reduction mandate for EGUs in 2022, the rule created an 

investment environment that favored greater increases in the 

development and deployment of RE than we projected under the 

proposal. The incentives and market signal generated by the CEIP 

can help sustain the momentum toward greater RE investment in 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

the period between now and 2022 so as to offset any dampening 

effects that might be created by setting the mandatory 

compliance date two years later than at proposal. 

 The specific criteria the EPA is establishing for eligible 

RE projects reflect a variety of considerations. First, the EPA 

seeks to preserve the incentive for project developers to 

execute on planned investments in solar and wind technologies. 

Commenters raised concerns that the fast pace of reductions 

required by these guidelines could potentially shift investment 

from renewables to natural gas, thus dampening the incentive to 

develop wind and solar projects, in particular. Second, the EPA, 

consistent with the Clean Air Act’s directive to incentivize 

technology and to accelerate the decline in the costs of 

technology, seeks to drive the widespread development and 

deployment of wind and solar, as it is essential to longer term 

climate strategies. Third, in contrast to other CO2-reducing 

technologies – including other zero-emitting or RE technologies 

– solar and wind projects often require lead times of shorter 

duration, which would allow them to generate or avoid MWh 

beginning in 2020. Finally, the EPA notes that these guidelines 

provide significant incentives for other zero-emitting 

technologies, particularly nuclear power, and as a result we do 

not have the same basis for including them in the CEIP as we do 

for wind and solar generation. 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

 The specific criterion the EPA is establishing for eligible 

EE projects – namely that these projects provide benefits to 

low-income communities - is also consistent with the technologyforcing and development purposes of section 111. The EPA 

believes it is appropriate to offer an additional incentive to 

remove current barriers to implementing demand-side EE programs 

in low-income communities. While the EPA acknowledges that a 

number of states have demand-side EE programs focused on these 

communities,3 the agency also recognizes that there have been 

historic economic, logistical, and information barriers to 

implementing projects in these communities. As a result, the 

costs of implementing demand-side EE projects in these 

communities are typically higher than in other communities and 

stand as barrier to harvesting potentially cost effective 

reductions and advancing these technologies. The EPA intends for 

the CEIP to help incentivize increased deployment of projects 

that will deliver demand-side EE benefits to these communities, 

which will in turn lower the costs of these technologies. These 

lower costs will help new technologies penetrate in the future, 

thus improving the cost of implementation for the program 

overall, consistent with Congress’ goals in the New Source 

                                                            

3 Several of these programs are discussed in section IX of this 

preamble, including, for example, Maryland’s EmPOWER Low Income 

Energy Efficiency Program (LIEEP) and New York’s EmPower New 

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

Performance Standard provisions of the Act. Further, reducing 

barriers to demand-side EE in low-income communities will help 

ensure that the benefits of the Clean Power Plan are shared 

broadly across society and that potential adverse impacts on 

low-income ratepayers are avoided. It complements other steps 

the federal government is taking to bring clean energy 

technologies to these communities, as we discuss in section IX 

of this preamble. 

 More broadly, the CEIP responds to the urgency of meeting 

the challenge of climate change in two key ways. First, of 

course, it fosters reductions before 2022. Second, in targeting 

investments in wind, solar and demand-side EE, it focuses on the 

kinds of measures and technologies that are the essential 

foundation of longer term climate strategies, strategies that 

inevitably depend on the further development and widespread 

deployment of highly adaptable zero-emitting technologies. 

 We are not requiring that projects demonstrate to states 

that they are “additional” or surplus relative to a business-asusual or state goal-related baseline in order to be eligible. At 

the same time, we believe that including an incentive to develop 

projects that benefit low-income communities will increase the 

likelihood of investments being made that would not have been 

made otherwise. 

 In order to be awarded matching ERCs or allowances by the 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

EPA for projects that meet the eligibility criteria, a final 

state plan must have requirements establishing the appropriate 

infrastructure to issue early action ERCs and allowances to 

eligible project providers by 2020. The state must require that 

the state or its agent will, in accordance with state plan 

requirements approved as meeting the ERC issuance and EM&V 

requirements included in section VIII.K: (1) evaluate project 

proposals from RE and demand-side EE project providers, 

including the EM&V plans that must accompany such proposals; (2) 

evaluate monitoring and verification reports submitted by 

providers following project implementation, which contain the 

quantified and verified MWh of RE generation or energy savings 

achieved by the project in 2020 and 2021; (3) issue ERCs (or 

their equivalent in allowances) to eligible providers for these 

MWh results; (4) ensure that no MWh of renewable or avoided 

generation receives early action or matching ERCs (or their 

equivalent in allowances) more than once. 

 The CEIP will provide a number of benefits. First, the 

program will provide incentives designed to reduce energy bills 

early in the program through earlier and broader application of 

energy saving technologies, and help ensure that these benefits 

are shared with low-income communities. Second, the EPA believes 

that stimulating or supporting early investment in RE generation 

technologies could accelerate the rate at which the costs of 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

these technologies fall over the course of the interim 

performance period. In addition, the CEIP will provide affected 

EGUs and states with additional resources to help them achieve 

their state plan obligations. Finally, the program will improve 

the liquidity, in the early years of the program, of the ERC and 

allowance markets we expect to emerge for compliance with the 

requirements of these guidelines.4 

 The CEIP does not modify the CO2 emission performance rates 

or the final goals. The EPA is establishing this program as an 

option for states that wish to drive investments in RE and 

demand-side EE that will result in actual, early reductions in 

CO2 emissions from affected EGUs. States are also authorized to 

set their own glide path, or interim step performance rates or 

goals, so long as the interim and final performance rates or 

goals are met, and could do so in a way that takes into account 

the availability of the CEIP to assist affected EGUs in meeting 

the applicable glide path and performance rates or goals. While 

the EPA is not requiring states to take advantage of this 

                                                            

4 The Clean Energy Incentive Program is expected to provide 

states and affected EGUs additional flexibility in complying 

with the guidelines, and bears similarity in both design and 

purpose to the Compliance Supplement Pool, which the agency 

established as a part of the NOx SiP Call. See 63 FR 57356, 

57428-30 (Oct. 27, 1998). Certain aspects of the Compliance 

Supplement Pool were challenged in litigation and upheld by the 

D.C. Circuit Court of Appeals. See Michigan v. EPA, 213 F.3d 

663, 694 (D.C. Cir. 2000). 
*** E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review *** 

program, its availability simply enhances these already-existing 

implementation and compliance flexibilities while at the same 

time delivering meaningful benefits, particularly for low-income 

communities. The EPA looks forward to an upcoming public 

dialogue about the implementation details of the CEIP.