MEMORANDUM: From Chloe Kolman, Attorney

TO: Section 111 (b) Docket RE: EPAct05 DATE: July 29, 2015 **MEMORANDUM** Pursuant to its authority under section 111 (b) of the Clean Air Act, 42 U.S.C. § 7411(b) , the EPA proposed carbon pollution standards for new power plants on September 20, 2013

. 1 When establishing new source performance standards for a source category, the EPA sets the standard based on what it determines to be the “best system of emission reduction,” or BSER , that is “ adequately demonstrated” ( also taking into account additional factors enumerated in section 111)

. The EPA’s determination of the BSER for new sources is based in part on an assessment of technology in use or in development within the industry, including at pilot and demonstration projects, but need not be limited to technology that is in “actual routine use.” In establishing standards for new plants, the EPA may also consider the technology that “may fairly be projected for the regulated future .” 2 In 2005, C ongress passed the Energy and Policy Act of 2005, or EPAct05, 3 which included three similar provisions bearing on the EPA’s execution of its rulemaking powers under section 111 and two other sections of the Clean Air Act. These provisions , found in EPAct05 sections 402(i), 421(a), and 1307(b) (adding 26 U.S.C. § 48A(g) to the Internal Revenue Code), 4 bound the EPA’s ability to consider information from facilities receiving assistance under EPAct05 when assessing whether a particular technology, or emission reduction, has been “adequately demonstrated

. ” In the 111(b) proposed rule for new power plants, the EPA proposed that the BSER for fossil

- fuel fired steam EGUs requires the partial implementation of carbon capture and storage (“CCS”). Since 2005, a number of projects employing CCS, or components of CCS, have received support under EPAct05 . Consequently, in assessing the evidence for its determination of the BSER , the EPA has been compelled to interpret the scope of the limitation in the three EPAct05 provisions. As these provisions relate to grant programs and a tax credit administered by the Department of Energy and the Internal Revenue Service, the EPA solicits your views
on the EPA’s interpretation of this language. **Interpretation of Sections 402(i) and 421(a) of EPAct05, and of Section 48A(g) of the IRC** In considering sections 402(i), 421(a), and 48A(g), the EPA has concluded that each of the three provisions prevents the EPA, in determining the BSER, from finding that a technology or emission limit is adequately demonstrated based exclusively on evidence from facilities supported under EPAct05. However, the EPA interprets all three provisions to allow the EPA to consider and rely upon information from EPAct05

- supported facilities in combination with information from other facilities. 5 The EPA’s interpretation is based on the plain language of the three provi sions and Congressional intent that EPAct05 support the advanceme nt and commercialization of CCS technology.

1 The proposed rule was published in the Federal Register on January 8, 2014. 79 Fed. Reg. 1430. 2 See Portland Cement Ass’n v. Ruckelshaus , 486 F.2d 375, 391 (D.C. Cir. 1973). 3 Pub. L. 109

- 58 (Aug. 8, 2005). 4 See 42 U.S.C. §§ 15962(i), § 13573(e); 26 U.S.C. § 48A(g). 5 EPA solicited comment on this interpretation in its Notice of Data Availability and accompanying Technical Support Document, published in the Federal Register on February 26, 2014. 79 Fed. Reg. 10750

.**A. Sections 402(i) and 421(a)** 

S ections 402 and 421 o f EPAct05 establish two Department of Energy grant programs for projects advancing clean coal technologies

—the Clean Coal Power Initiative (“CCPI”) and the Clean Air Coal Program (“CACP”) . The language of the two limiting provisions bearing on the EPA’s consideration of projects receiving CCPI or CACP assistance, found in sections 402(i) and 421(a) respectively, is nearly identical. Section 402(i) reads: No technology, or level of emission reduction, solely by reason of the use of the technology, or the achievement of the emission reduction, by 1 or more facilities receiving assistance under this Act, shall be considered to be

— (1) adequately demonstrated for purpose s of section 7411 of this title; (2) achievable for purposes of section 7479 of this title; or (3) achievable in practice for purposes of section 7501 of this title. 42 U.S.C. § 15962(i)

. Section 421(a) reads: No technology, or level of emission reduction, shall be treated as adequately demonstrated for purpose [sic ] of section 7411 of this title, achievable for purposes of section 7479 of this title, or achievable in practice for purposes of section 7501 of this title solely by reason of the use of such te chnology, or the achievement of such emission reduction, by one or more facilities receiving assistance under section 13572(a)(1) of this title. 42 U.S.C. § 13573(e). The EPA believes the meaning of these two provisions, particularly when read together, is plain: no technology, or level of emission reduction, can be deemed to be adequately demonstrated where the exclusive

— sole

— basis for that conclusion is the evidence provided by EPAct05

- supported facilities. These provision thus limit the EPA from making a BSER determination where the only available evidence comes from the technology’s use (or the emission reduction’s achievement) at EPAct05 facilities. However, the limitation does not prevent the EPA from relying on information from EPAct05 facilities as p art of a broader array of support that also includes information from non

- EPAct05 facilities; i n that case, the EPAct05 information would not be the “sole” basis for the EPA’s conclusion. EPA received several public comments disputing this interpretation. S ome commenters suggest that the EPA misreads the relevance of the phrase “solely by reason of, ” which should be read as a narrow qualification on the “level of emission reduction.” Other commenters agree with the EPA’s parsing of the two provisions’ clau ses, but read the provisions to mean that the EPA may reference information from EPAct05 facilities but may not rely on that information where the EPA could not reach the same determination without it. Still others suggest that the EPA cannot consider EPAct05 facility information at all. Considering the grammar and syntax of sections 402(i) and 421(a), the EPA believes these comment er s are incorrect. 1. What does the clause beginning “solely by reason of” refer to? No technology, or level of emission reduction, **solely by reason of the use of the technology, or the achievement of the emission reduction,**  by 1 or more facilities receiving assistance under this Act, shall be considered to be

— (1) adequately demonstrated for purposes of section 7411 of this title . . . (Section 402(i).)EPA reads the language “solely by reason of the use of the technology, or the achievement of the emission

reduction , ” which appears in both provisions, as a single clause that informs the evidentiary basis for the EPA’s determination: the EPA may make a determination based on a technology or level of emission reduction at EPAct0 5 facilities, so long as the determination is not “solely by reason of” the use or achievement demonstrated at those facilities. However, some commenters believe this language should not be read as a single clause. Looking only at section 402(i), these com menters suggest that the language should be split so that “solely” only modifies the phrase “level of emission reduction,” while “the achievement of the emission reduction” becomes an additional list item like “technology” or “level of emission reduction

. ” These commenters would read section 402(i) to establish three categories that the EPA cannot consider to be adequately demonstrated based on information from EPAct05 facilities : (1)

“ technology ”; (2) “ level of emission reduction, solely by reason of the use of the technology”; and (3) “ the achievement of the emission reduction .” This interpretation is contrary to the plain language of these provisions. The whole clause “solely by reason of the use of the technology, or the achievement of the emission reduction ” 6 appears in both section s 402(i) and 421(a). In section 402(i), it follows directly after “no technology, or level of emission reduction ”

—giving rise to commenters’ suggested interpretation : No technology, or level of emission reductio n, solely by reason of the use of the technology, or the achievement of the emission reduction . . . shall be considered to be [] adequately demonstrated . . .
B ut in section 421(a), the clauses are rearranged and “solely by reason of” appears after the en umeration of the three Clean Air Act sections : No technology, or level of emission reduction, shall be treated as adequately demonstrated . . . solely by reason of the use of such technology, or the achievement of such emission reduction

. . . In section 421(a), it is impossible to regroup the language so that “solely” only modifies “level of emission reduction , ” which appears much earlier in the provision. 7 Even ignoring the clear structure of section 421(a) , the grammar and syntax of 402(i) alone cannot support the commenters’ reading . Unlike “technology” and “ level of emission reduction,” which lack articles, “the achievement of the emission reduction” begins with an article , “the.” I f commenters were correct that “the achievement of the emission reduction” should be read as a third category that the EPA is barred from considering, the statute would read “No technology, or [no] level of emission reduction, . . .
or [no ] the achievement of the emission reduction . . . shall be considered to be [] ad equately demonstrated

. . . . ” This reading is unsound

. By contrast, the EPA’s reading maintains the coherence of the provision by creating two parallel clauses:

6 Section 421(a) replaces “the technology” and “the emission reduction” with “such technology” and “such emission reduction.” Otherwise the language is identical. 7 C ommenters ignore this feature of section 421(a) and instead compare section 402(i) to th e sentence structure of section 48A(g), which puts “or level of emission reduction solely by reason of the use of the technology” in parentheses , as noted infra . While EPA acknowledges that the use of “solely” has a different effect in section 48A(g), commenters’ reading of “solely” in that provision cannot be imported to sections 402(i) and 421(a) because it is precluded by the use of the articles in section 402 (i), described infra , and is plainly contrary to the clause structure of 421(a). Accordingly, commenters’ observations about section 48A(g) on this point do not override the plain meaning of these two provisions.Clause 1: “No [(A)] technology, or [(B)] level of emission reduction,”

Clause 2: “solely b y reason of [(A)] the use of the technology, or [(B)] the achievement of the

emission reduction . . .” With this reading, the EPA gives effect to all of the language in section 402(i). 2. What is the scope of the limitation created by the term “solely”? No technology, or level of emission reduction, **solely** by reason of the use of the technology, or the achievement of the emission reduction, by 1 or more facilities receiving assistance under this Act, shall be considered to be

— (1) adequately demonstrated f

or purposes of section 7411 of this title . . . (Section 402(i).) EPA believes the meaning of the term “solely” in sections 402(i) and 421(a) is clear. The dictionary defines “solely” as “involving nothing except the person or thing mentioned” ; its synonym s include “only” and “exclusively

. ” 8 Accordingly, the EPA believes that it may rely on information from EPAct05 facilities so long as this information is not the only support for its determination. The EPA does not believe that the use of “solely” here can be read to imply a “but for” test as commenters suggest, whereby the EPA could not use EPAct05 facility information in any circumstance where , “but for” that information, it would not have made the same determination. The EPA believes that commenters have confused a “necessary” cause (the EPA’s determination would fail “but for” the EPAct05 information) with a “sufficient” cause (the EPAct05 information is the “ sole ” basis for the EPA’s determination). For example, the assent of each Supreme Court Justice in the majority may be necessary to a Court’s 5

- 4 decision (a “but for” cause) , but the assent of a single Justice in the majority is not sufficient for the outcome (the “sole” basis)

. For that reason , the EPA interprets sections 402(i) and 421(a) to allow it to rely on information from EPAct05 facilities even where that information is a necessary component of its determination, so long as the information from these facilities is not the sole support for the determination. 3. Is EPA barred from all consideration of EPAct05 facilities? No technology, or level of emission reduction, solely by reason of the use of the technology, or the achievement of the emission reduction, by 1 or more facilities receiving assistance under this Act, **shall be considered to be**

— (1) adequately demonstrated f

or purposes of section 7411 of this title . . . (Section 402(i).)
T he EPA does not agree that it is barred from all consideration of EPAct05 facilities because section 402(i) specifies that no technology or emission reduction “shall be considered to be [] adequately demonstrated” on the basis of EPAct05 information. Commenters attempt to read “shall be considered” as barring all “consideration , ” but this confuses two meanings of the verb “to consider.” Here, the use of the phrase “considered to be [] adequately demonstrated” makes clear that the language means “shall be deemed to be” or “ shall be adjudged to be.” The provision does not use “consider” in the sense of “think about” or “contemplate.” 9 The EPA’s interpretation is supported by the text of section 421(a), where

8 See MacMillan English Dictionary online, http://www.macmillandictionary.com/dictionary/american/solely. 9 See MacMillan English Dictionary online, http://www.macmillandictionary.com/dictionary/american/consider (definition includes both “to thinkCongress instead used the phrase “shall be treated as [] adequately demonstrated.” Both sections 402(i)

and 421(a) can thus be read naturally to mean that the EPA shall not “deem” these technologies to be adequately demonstrated on the b asis of EPAct05 facilities, but ne ither provision can be r ead to prohibit the EPA from “thinking about” these facilities.
**B. Section 48A(g)**  A similar, but more varied limitation appears in section 1307(b) of EPA ct05 , as codified at 26 U.S.C. § 48A(g)

. Unlike sections 402(i) and 421(a), which concern DOE grant programs, t his provision concerns tax incentives for facilities that employ clean coal technology . However, section 48A(g) includes some of the same language that appears in the two DOE grant provisions . It reads: No use of technology (or level of emission reduction solely by reason of the use of the technology), and no achievement of any emission reduction by the demonstration of any technology or performance level, by or at one or more facilities with respect to which a credit is allowed under this section, shall be considered to indicate that the technology or performance level is

— (1) adequately demonstrated for purposes of section 111 of the Clean Air Act ( 42 U.S.C. 7411); (2) achievable for purposes of section 169 of that Act (42 U.S.C. 7479); or achievable in practice for purposes of section 171 of such Act (42 U.S.C. 7501). 26 U.S.C. § 48A(g). Although this provision has some notable differences from sections 402(i) and 421(a) , the EPA believes that it creates a similar limitation. The EPA acknowledges that the addition of parentheses changes the meaning of the phrase “solely” in section 48A(g) (a deviation that, the EPA notes, accompanies several other small deviations in the language of section 48A(g) as compared to sections 402(i) and 421(a)) . However, the remaining language prescribes that the demonstration of a technology or performance level at an EPAct05

- supported facility cannot “be considered to indicate that the technology or performance level is [] adequately demonstrated .” This phrase is best interpreted to mean that the EPA shall not deem a technology o r emission level to be adequately demonstrated based exclusively on information from EPAct05 f acilities

. As in section 402(i) , the use of the verb “to consider” in section 48A(g) plainly means “to deem” or “to adjudge” rather than “to think about ” or “to contemplate.” Comparing the two possibilities, only the first definition (“to deem”) is intelligible in context: (1) “No use of technology . . . shall be [deemed] to indicate that the technology . . . is adequately demonstrated

. . . ” (2) “No use of technology . . . shall be [contemplated] to indicate that the technology . . . is adequately demonstra ted . . . ” Meanwhile, the verb “to indicate (that)” is defined as meaning “to show that something will happen, is true, or exists,” as in the sentence, “A survey indicated that 89 percent of people recycle paper.” 10 Under this definition, synonyms include “to show” or “to prove.” Accordingly, the limitation that “[n ]ouse of technology . . . by or at one or more [EPAct05

-supported facilities]

. . . shall be considered to indicate that the technology . . . is [] adequately demonstrated ” prevents the EPA from concluding that the use of a technology at an EPAct05 facility can be deemed to prove that the technology is adequately

about something carefully before making a decision of developing an opinion” and, when used with “to be,” “to have a particular opinion about someone or something”). 10 See MacMillan English Dictionary online, http://www.macmillandictionary.com/dictionary/american/indicate.demonstrated. This limitation thus prevents the EPA from making a BSER determination on EPAct05

evidence alone (which would require that the EPA believe the EPAct05 evidence, in itself, could be deemed to prove the EPA’s conclusion), but does not prevent the EPA from relying on that evidence in tandem with information from non

- EPAct05 facilities (where the EPAct05 information would not pro ve, but only support, the EPA’s conclusion). Section 48A(g) thus establishes a “sole basis” limitation, like that in sections 402(i) and 421(a), even where the broader language of the provision deviates from the construction in the other two sections. 11 While it is not necessary to conclude that section 48A(g), concerning IRS tax credits, be read to create similar limitation to those appearing in sections 402(i) and 421(a), concerning DOE grant programs , the EPA believes the natural reading of all three p rovisions warrants this outcome , as does the broader purpose of the subsidies established in these sections. Congress intended these programs to advance the development of clean coal technologies , and to serve as a bridge to their commercialization. Although Congress set reasonable limitations to ensure that EPAct05

- supported facilities did not form the exclusive basis for technological determinations under the Clean Air Act before such technology appeared elsewhere in the industry , it would be contrary to the intent of the legislation to preclude the EPA from recognizing advances in CCS technology when projecting the future availability of clean coal technologies for new sources. Allowing the EPA to rely on information from these demonstration projects, pro vided the EPA can show

— with other evidence

—

that these technologies are beginning to take root in the broader market, is most consistent with Congressional intent and with the plain language of these provisions.

11 Although in its proposed rule the EPA took comment on several other aspects of the limitation in section 48A(g)

—for example, when a tax credit under section 48A(g) is “allowed” for purposes of triggering the limitation

—the EPA is not finalizing any further interpretations at this time, as none is relevant to the particular facilities EPA has relied upon in reaching its determination.