From: Higgins, Cortney [mailto:Cortney_Higgins@omb.eop.gov]

Sent: Thursday, May 22, 2014 11:50 AM

To: Wayland, Robertj
Cc: Elman, Barry; Culligan, Kevin Subject: Interagency Comments on RIN 2060-AR33

Hi Bob,

Here are high level comments on the last draft we received. I’ll be sending over more later today, and redlines today or tomorrow.

Regards, Cortney

<< Interagency Comments under EO 12886 on RIN 2060_AR33_05222014.docx >>

### Summary	of	Interagency	Working	Com ments	on	Draft	Language	under EO12866 Interagency	Review.		Subject to	Further	Policy	Review.

1 of 7 The interagency reviewers recognize the tremendous effort that EPA has undertaken and appreciate the effort

as wells as the outreach program that they’ve undertaken. Below are interagency comments, grouped by topic

area.



### Preamble
New Option . Take comment on a new option that a pplies Option 1 BSER assumptions over a 5- year period rather than a 10-year period: EPA usefully requests comment on a nested approach to Option 1 that would require complia nce within the 2020-2024 period (reflecting application of BSER for that period) as well as the overall 2020-2029 period (p. 398 in redlin e version). As a variant on this approach, EPA should propose a modification of Option 1 which uses the same assumptions as Option 1 for each building block, but reaches and maintains its final fixed emissions rate by 2025 instead of 2030. Introduction of this option could be handled in the same way as the new “Building Blocks 1 and 2 Only”
alternative BSER. Full tec hnical details on this option could be provided later, but EPA should provide relevant state targets through 2025 to inform commenter s. Moreover, relevant tables summarizing this new option should end in 2025 ( note: we make a similar request to present projections for EPA’s existing option 2 only through 2025)

.



### Increased Stringency in Option Take comment on strengthe ning individual BSER building blocks within Option 1 : EPA should at least take comment on the potential to strengthen each of the underlying BSER factors, including:

Capacity utilization : EPA should remove the specific re ference to taking comment on “75 percent” to encourage comment on the full range of capacity utilization above 70 percent. EPA should also include a more balanced pres entation regarding the vi ability of higher utilization rates for NGCCs. For example, EPA should highlight that individual NGCC units are designed to operate as baseload capacity and consider omitting the following text: “C ombining the results of the modeling with the factors likely to be present in the real world reinfo rces the support we expresse d above for the 70 percent utilization rate. We remain concerned, however, that higher NGCC utilization rates could be harder to
sustain and could exert further upward pressure on prices.”

New NGCC : EPA should request comment on including all cost-effective new NGCC potential, considering any state-specific cons traints. Alternatively, EPA could take comment on a range of deployment rates consistent with historical experi ence (e.g. ranging from the minimum annual rate since 2000 of 3.8 GW/year to the 15 GW/year average over the period from 2000-2013) with state-specific allocations based on weighted average share of nationa l generation. An assessment of state-specific new NGCC potential could be released la ter as a supplementary document a nd any analysis should consider state-specific constraints (e.g. long- term natural gas availability).

Renewables : EPA should follow through on its plan to request comment on more ambitious renewables assumptions. In partic ular, it should include state-specific estimates of cost-effective

### Summary	of	Interagency	Working	Com ments	on	Draft	Language	under EO12866 Interagency	Review.		Subject to	Further	Policy	Review.

2 of 7 renewables potential, subject to any state-specific constraints. An assessment of state-specific renewables potential coul d be released later as a supplementary document.

Efficiency : EPA should retain its current language that requests comment on efficiency improvement at rates of up to 2% per year versus the current rate of 1.5% per year.



### More Stringent Option out to 2030

. Take comment on a new option that strengthens BSER assumptions through 2030: EPA should ask for comments on a stronger version of Option 1 that includes the capacity utili zation, new NGCC and renewa bles strengthening opti ons discussed above.



### Mass

‐ Based Compliance: In its current draft, EPA helpfully di scusses the potential for states to use mass-based strategies for compliance purposes. Give n the advantages of this approach, and for consistency, EPA should also take comment on usi ng a mass-based trading system to define BSER.
EPA should also take comment on st rategies that could encourage a doption of efficien t market-based approaches. For example, EPA could take comment on requiring that states pur sue either mass-based or price-based regional strategies in orde r to be eligible for a 2-year extens ion for submission of their plans. At a minimum, EPA should take comment on the pot ential to require a mass- based demonstration of compliance for all state plans.

 EPA should take comment on additional provisio ns to bolster the in terim plans that are required by 2016. For example, EPA should ta ke comment on potentially requiring that interim plans include commitment to reach re quired emissions rates and enumeration of all measures that do not require state le gislation. Also, can EPA address or solicit comment on how the agency should judge wh at would be considered an adequate demonstration of "steps the st ate has already taken in furthe rance of actions needed to finalize a complete plan" for an interim state plan to justify an extension for submittal of a final plan?

 For clarity and to avoid misint erpretation of what state ta rgets mean, can EPA provide a formula/equation in the preamble that should be used by states for demonstrating that state plans will achieve emissi ons rate targets (complian ce equation, as opposed to a BSER target-setting equation)?



### Locking in Progress in Interim State Plans:

 EPA should take comment on additional provisions to bolster the interim plans that are required by 2016. For example, EPA should take commen t on requiring that in terim plans include commitments from each state to: 1) enumerate and implement by 2020 all measures available to them under existing state authorities; and, 2) seek new state legislation as required to meet their required emissions rates.

### Summary	of	Interagency	Working	Com ments	on	Draft	Language	under EO12866 Interagency	Review.		Subject to	Further	Policy	Review.

3 of 7  Can EPA address or solicit comment on how the ag ency should judge what would be considered an adequate demonstration of “steps the state ha s already taken in furtherance of actions needed to finalize a complete plan” for an interim state plan?

 Similarly, can EPA address or solicit comment on how EPA would judge whether adequate progress has been made among states pursui ng a regional approach (could an “executed agreement” be a requirement, for example)?



### Distributed Clean Energy Production

. Provide explicit language on distributed clean energy production as an eligible measure unde r Building Block 3 (p.107 and p 186ff). The proposed rule is currently silent on the overall contribution of distributed clean energy in meeting the carbon emissions goals proposed in Tables 6 a nd 7, and whether it is speci fically captured under Building Block 3. Building Block 4, as described on p.107 and elsewhere clearly refers to “demand-side energy efficiency” which would typically exclude renewable energy generati on, whereas Building Block 3 is described as “substituting generation at those EGUs with expanded low or zero carbon generation,” without any reference to di stributed generation of rene wable energy production.

We acknowledge that, while there may be a tension betw een large-scale point sour ces that contribute to meeting carbon emissions goals and a large number of smaller sources located across the consumer, residential, and industrial sectors, intermediaries and state RPS progr ams offer models for aggregation among multiple community-scale and on-site renewabl e energy sources. Under this framework, EPA
could avoid transactions with ev ery distributed renewable energy generation provider, while still including distributed generation as a recognized method of deliveri ng low- or zero carbon generation
under this rule.

Our recommendation is to add explicit references to on-site (rooftop, open land) and community-scale distributed generation under the Bu ilding Block 3 section. In addition, this section would benefit from examples of solar and other renewable energy sources that would contribute to the RPS targets, while providing direct benefits to states and local governments associated with lower-cost renewable energy deployment, job creation, and energy security.

We recommend adding language that includes distri buted generation under Building Block 3, including the following:

 P.107, line 11, add the following text (underlined):

3. Reducing emissions of affected EGUs in the amount that results from substituting generation at those EGUs with expanded low- or zero car bon generation, as well as from distributed renewable energy production, repres ented by community-scale and on -site generation serving the residential, commercial, and i ndustrial building sectors.

 p. 187, Building Block 3, add the following te xt, beginning on line 17 (underlined):

using an expanded amount of lower-carbon gene rating capacity, from on-site, community-scale, and utility-scale sources, to produce replacement generation.

### Summary	of	Interagency	Working	Com ments	on	Draft	Language	under EO12866 Interagency	Review.		Subject to	Further	Policy	Review.

4 of 7  Beginning on p. 188, “a. Renewable generating cap acity,” add a discussion of distributed generation from solar and other renewable energy sources. While large, ce ntralized power plants still supply almost all of our energy, smaller scale systems for delive ring clean energy much closer to consumers – including their own homes, schools and bus inesses – are rapidly gaining adoption.

Distributed renewable energy has seen a significant increase in its contribution to clean energy production over the past decade. According to the most recent (May 2014) White House Solar Progress Report, “(l)ast year wa s a record-breaking year for ne w solar installations, and the amount of solar power installed in the United Stat es has increased nearly eleven fold – from 1.2 gigawatts in 2008 to an estimated 13 gigawatts today, which is enough to power more than 2.2
million American homes.” 1 With the dramatic drop in th e price of solar PV, some 90,000
homeowners and businesses in the U.S. in stalled rooftop photovolta ic systems in 2012. 2

Cities and states have developed a variety of initiatives and pr ograms in support of distributed generation. These policies include state and local rebates and financial incentives for utility customers installing on-s ite solar or other renewable ener gy, property tax incentives for homes that include solar panels, net metering programs to allow the generators of distributed energy to sell power back to the utility via th e electricity grid at retail rates, and explicit allowance of thirdparty lease or power-purchase agreements (PPAs) – a popular and growing tool to facilitate onsite renewable energy generation. Currently, 43 states and the Distri ct of Columbia have policies supporting net metering, 22 states have policies that allow PPAs, and 38 states have property tax incentive programs.

The White House Progress Report also recognized the employment impacts of solar: “according to industry analysis, solar now employs nearly 14 3,000 workers in the United States, a growth of more than 50% since 2010. Jobs in the solar in dustry increased by more than 20% last year
alone.” 3 The American Solar Energy Society estimate s that an “aggressive deployment” of renewable energy and energy effi ciency together could net 4.5 million new jobs by 2030. These jobs would span a diverse range of skills and experience. 4

Finally, on-site renewable energy is playing an increasingly impor tant role in the affordable housing sector, helping low and moderate income residents take advantage of this technology. The Department of Housing and Urban Deve lopment (HUD) recently announced commitments from affordable housing providers and service pr oviders across the nation to install more than 150 megawatts of on-site renewable energy, more than doubling the amount of renewable energy on federally assisted multifamily buildings. This initiative is targeted at HUD’s multifamily assisted and public housing assets, as well as housing developed and supported by the

1 White House, Solar Progress Report: Advancing Toward a Clean Energy Future , May 2014, p.1.

2 Bloomberg Business Week , November 14, 2013.

3 White House, op. cit ., p.1.

4 Bezdek, Roger, American Solar Energy Society’s Estimating the Jobs Impact of Tackling Climate Change , American Solar Energy Society, October 2009.

### Summary	of	Interagency	Working	Com ments	on	Draft	Language	under EO12866 Interagency	Review.		Subject to	Further	Policy	Review.

5 of 7 Department of Agriculture’s Rural Developmen t programs and the Department of Treasury’s Low Income Housing Tax Credit program. Meeting this target will make use of on-site generation potential of tens of thousands of roofs constructed with federal assistance. This initiative will help expand the renewable en ergy market for multifamily residential housing, while also promoting grid re silience and energy security. 5



### Indicate Collaboration with Other Federal Agencies

. Include other agen cies as appropriate in the review of state plans (pp. 448 ff) We recommend adding a provision th at would engage subject matter experts from relevant federal agencies in the review of relevant portions of the state plans. We suggest including following sentence (underlined) after line 17, p.449, “ under section 110 of the Act:” EPA will utilize subject matter expertise of other federal agencies in the review of relevant portions of state plans, including, but not limited to the Department of Energy, the Department of Housing and Urban Development, the Department of the Interior, the Department of Defense, and the Department of Agriculture.



### Offsets. The treatment of offsets within the rule and the TSD is not clear. We believe that it is EPA’s intension is to exclude offsets when c onsidering compliance with Section 111(d) EGU GHG requirements. However, in se veral places in the text, EPA st ates that offsets can be used for compliance. In th ese instances, we believe that EP A is referring to compliance with independent state programs, not programs used to for compliance under Section 111(d). For example, the following text appears in the Preamble.

P. 416-417 We are proposing that states may demonstrate such emission performanceby affected EGUs either on an individual state basis or jointly on a multistate basis. All of the emission reduction measures included in the agency’s determination of BSER reduce CO 2 emissions from affected EGUs. As a result, the EPA is not proposing that out-of-sector GHG offsets could be applied to
demonstrated CO 2 emission performance by affected EGUs in a state plan.

However, states could still include in their plans emission limits for affected EGUs that include the ability to use GHG offsets for compliance, provided those emission limits would achieve the required level of emission performance in a state plan. All existing state emission budget trading programs addressing GHG emissions include out-of-sector project-based emission offsets, which may be used to cover a portion of the compliance obligation of affected sources. Other states may want to take a similar approach, for example, to incentivize GHG emission reductions from land use and agricultural waste management. How to address GHG offsets included in EGU emission limits when projecting emission performance under a state plan is addressed in the Projecting EGU CO 2 Emission Performance in State Plans

TSD.

5 http://portal.hud.gov/hudportal/HUD?src=/press/pr ess_releases_media_advis ories/2014/HUDNo_14-046

### Summary	of	Interagency	Working	Com ments	on	Draft	Language	under EO12866 Interagency	Review.		Subject to	Further	Policy	Review.

6 of 7 [One could conclude from this text that offsets could be used for compliance and that the EPA encourages states

to consider similar approaches. However, the TSD makes it clear that the EPA’s intention is to exclude offsets
from BSER.]

### Summary	of	Interagency	Working	Com ments	on	Draft	Language	under EO12866 Interagency	Review.		Subject to	Further	Policy	Review.

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