1 TABLE OF CONTENTS

5.7 Treatment of interstate effects ...............

................................................... ............................. 3 5.7.1 State may claim the impact of a measure on CO 2 emissions from affected EGUs within its borders ................................

................................................... ........................... 3 5.7.2 State that implements the measure claims the emission effects .................................. ... 16 5.7.3 Cooperative multi-state accounting of interst ate emission effects .............................. .. 36 5.7.4 Tradable regional EE/RE credit market .......

................................................... ............... 42 5.7.5 Regional demonstration by states of emission performance ....................................... ... 81 5.7.6 Assessment of interstate effects by the EPA i n the course of state plan review ........... 93 5.7.7 Other .......................................

................................................... ......................................... 98 5.8 Projecting EGU CO2 Emission Performance .......

................................................... ........ 123 5.8.1 Electricity System Modeling Approaches for Pr ojecting EGU CO2 Emissions ........ 123 5.8.1a National-scale capacity expansion and dispat ch planning models ............................ 135 5.8.1b Utility-Scale Capacity Expansion and Dispatc h Planning Models............................ 135 5.8.1c Electricity System Dispatch Simulation Model

.................................................. ......... 135 5.8.1d Multi-Sector Models ........................

................................................... ........................... 137 5.8.2 Growth Tools for Projecting EGU Utilization a nd CO2 Emissions ............................ 139 5.8.3 Translating from a rate-based emission perfor mance goal to a mass-based emission performance goal ..................................

................................................... ..................... 139 5.8.3a Reference Case Scenario ....................

................................................... ........................ 145 5.8.3b Mass-Based CO2 Emission Goal Policy Scenario

.................................................. ..... 147 5.8.3c State Plan Policy Scenario .................

................................................... ......................... 147 5.8.4 Projecting CO2 emission performance under a s tate plan ......................................... . 147 5.8.5 Applied Considerations for Different Types of State Plans ...................................... ... 148 5.8.5a Approaches for Estimating the Future Effects of State Energy Efficiency Requirements, Programs, and Measures ..............

................................................... ... 149 5.8.5b Potential Uses of Energy Efficiency Projecti ons for State Plan Emission Projections

................................................... ................................................... ................................... 149 5.8.5c Data Issues and Considerations for Using and Developing Energy Efficiency Projections .......................................

................................................... ........................... 150 5.8.5e Renewable Portfolio Standards ..............

................................................... ................... 152 5.8.5f RPS as an Input to Electricity Sector Modeli ng ................................................ .......... 153 5.8.5g Data Needs for Estimating Generation Resulti ng from State RPS ........................... 154 5.8.5h Feed-In Tariff .............................

................................................... ................................. 154 5.8.5i Data Needs for Estimating Generation Resulti ng from Feed-In Tariff and Performance-Based Tax Incentives ..................

................................................... ........ 154 5.8.5j Emission Budget Trading Programs............

................................................... .............. 155 5.8.5.k Addressing the Sectoral Scope of Emission B udget Trading Programs .................. 155 5.8.5l Addressing Multi-Sector Emission Trading ...

................................................... ........... 155 5.8.5m Addressing Emission Offsets ................

................................................... .................... 155 5.8.5n Multi-State Emission Trading Programs ......

................................................... ........... 173 5.8.6 Process Considerations for conducting EGU CO2 emission projections ................... 176 5.8.6a Provision of the EPA Guidance ..............

................................................... ................... 177 5.8.6b Party that Translates the Rate-Based Goal to a Mass-Based Goal ........................... 1772

5.8.7 Other .......................................

................................................... ....................................... 182 5.9 Treatment of existing state regulations and pro grams ............................................. ....... 193 5.10 Treatment of New Fossil Fuel-fired EGUs ......

................................................... ............ 228 5.11 Consideration of a facility's " remaining useful life " in applying standards of performance........................................

................................................... ........................ 236 5.12 Design, Equipment, Work Practice, or Operation al Standards ................................... 27 3 5.13 Emissions averaging and trading ..............

................................................... ................... 275 5.14 State-specific Implementation Considerations .

................................................... ........... 305 5.15 Other ........................................

................................................... ....................................... 3253

5.7 TREATMENT OF INTERSTATE EFFECTS

This section addresses programs and measures in a s tate plan that may affect the emission performance of the interconnected electricity syste m beyond a state border. In addition, many state measures allow for actions in neighboring sta tes to meet the in-state requirement, or explicitly address CO 2 emissions in neighboring states. We have organized the comments in this section under 8 subsections, 5.7.0 to 5.7.7. Respon ses to the comment topics of these subsections are discussed below, along with summaries of the sp ecific public comments.

5.7.1 State may claim the impact of a measure on CO 2 emissions from affected EGUs within its borders

This section contains comments on the proposed meth od for accounting EE emission reduction

measures.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments disagreeing with proposed method for acco unting for EE emission reduction measures; tracking energy savings to a sp ecific utility; and symmetry between goal calculation and compliance measures, especially for EE.

Response 1: The treatment of EE has changed from the proposed approach. In the final rule, to the extent demand-side EE measures are tied to a st ate plan, the full quantified and verified MWh impacts of the measures may be used by an affec ted EGU or state to adjust a CO 2 emission rate, regardless of whether the demand-side EE savi ngs occur inside or outside the state or territory. Discounting is not required. For more i nformation about the treatment of in-state and out-of-state energy efficiency impacts, see section VIII.K and VIII.L of the preamble to the final rule.

The EPA revised the methodology used to calculate C O 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal. In order to ensure consistency with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, and to avoid double-counting or inconsi stent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impac ts of zero-emitting and low-emitting resource. Quantified and verified MWh impacts of q ualifying zero-emitting and low-emitting resources tied to a state plan may be used by an af fected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generatio n or demand-side EE savings occur inside or outside the state or territory. This ensures that a ffected EGUs receive full recognition for their investments, even if the impacts occur elsewhere, r emoving the need to determine exactly which EGUs reduced and changed power generation in respon se to the zero-emitting or low-emitting resource and removing what commenters below called the energy efficiency penalty described.4

Consistent with the EPA’s calculation of the CO 2 emission performance rates and state ratebased CO 2 goals in the final emission guidelines, the quanti fied and verified MWhs impacts are added to the denominator of an affected EGU’s repor ted CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non-emitting and low-emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emis sions estimated by applying an emissions factor to the MW hs, would double count CO 2 emissions impacts across the grid. For more information aboutspecific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand-side EE, including specific geographic eligibility requirements and limitations, see section VIII.K.1. a of the preamble to the final rule.

In this final rule, while the EPA allows the use of eligible EE measures to meet the emissions guidelines, demand-side EE is no longer incorporate d into the BSER. For more detail on BSER, refer to section V of the preamble to the final rul e.

The final rule allows for both rate-based and mass- based trading systems. Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in report ed stack CO 2 emissions and zero-emitting MWh impacts requiring e xplicit adjustments, the MWh accounting method corresponds with the use of MWh-d enominated Emission Rate Credits (ERCs) in the rate-based emission trading framework as specified in this rule.

The specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand-side EE are described in section VIII.K.1 of the preamble to the final rule. The same section also describes the eligibility requirements and conditions for resources to be used to adjust a CO 2 emission rate. The preamble to the proposed Federa l Plan describes the provisions related to proper quantification and verification o f MWhs from renewable electricity generation or demand-side EE savings in Section IV.D.8 of the preamble to the proposed Federal Plan. Information about the requirements for rate-based e mission trading programs and the issuance and tracking of ERCs are described in Sections VIII .C and VIII.K.2 of the preamble to the final rule. The final rule also allows for mass-based tra ding systems, as described in Sections VIII.C and VIII.J of the preamble.

The following are summaries of the specific public comments under this comment:

Multiple commenters had significant concerns about the proposed approach for crediting energy efficiency in state compliance plans. Commenters di sagreed with the proposed method for taking into account EE measures by discounting the emissio ns savings by the proportion of electricity imported and assumed to result in emission reductio ns that occur in exporting state. Commenters thought there should be equitable requirements with respect to both energy-exporting and energy-importing states. Commenters felt the EPA’s method of accounting for EE was inherently arbitrary and serves no valid purpose. Commenters s tated states that generate the most coal power, such as Wyoming, Montana, West Virginia and Kentucky, tend to be states that are small in population and, therefore, export a great deal o f the coal power they generate. Commenters stated there is therefore little connection between the amount by which these states may reduce their electricity consumption and the amount of coa l power these states will generate.5

Multiple commenters supported including 100 percentof the EE savings in the state, rather than the EPA proposal to devalue those savings by multip lying them by the in-state generation percentage. Commenters argued that the full benefi t of ratepayer investment in energy efficiency projects should accrue to the state implementing th e programs. Commenters stated that as currently proposed, the full benefit of energy effi ciency projects is not credited in a net importer state, nor is it accounted for in any other state, thereby eliminating a portion of these measures as a compliance mechanism.

Commenters indicated that pro-rating also creates a new problem by failing to give states that are net importers of electricity full credit for their EE measures, and this disparate treatment increases the burden on states that are net importe rs electricity in meeting their state goals. Rather than incorporating emissions reductions from EE into state goals differently based on whether the state imports electricity, commenters s tated that the EPA should eliminate EE from the state goals.

Commenters felt that it is important that net importers get fu ll credit for their investments in energy efficiency where such investments are reduci ng generation from fossil-fired resources. Commenters added that failing to provide full credi t for EE investments will mean that a significant amount of energy efficiency is not reco gnized as a compliance option, even when they are having the practical effect of displacing in-state generation. Commenters noted that Georgia (a net importer of electricity) would recei ve only 88% of the emissions reductions from EE investments under the proposed rule. Commenters stated that this would act as a disincentive for net importing states such as New Jersey to util ize cost effective EE as a compliance tool. Commenters asserted that a state that is willing to fund EE should be able to take full credit for that investment and noted this approach is consiste nt with the proposed compliance rules for Building Block 3 which would allow a state to take credit for RE purchased by the state, even if the resource is out-of-state. Commenters noted thatif the EPA only credits Wisconsin with 83.97% of its savings as proposed, then the state i s not being credited for $15 million in investments in 2012 alone. Commenters stated that t he EPA should grant the full credit for avoided emissions due to the EE measures to the sta te that instituted and paid for the measure, which is consistent with the proposed compliance ru les for Building Block 3. Commenters stated that if Virginia were to receive credit for the full 100 percent of its energy efficiency, the reduction would increase from 9 lbs/MWh to 14 lbs/M Wh. Commenters stated that the proposal essentially reduces North Carolina's EE savings cre dit by 13.88% even though North Carolina electricity consumers have been implementing and pa ying for 100% of the utility-sponsored EE and DSM programs implemented in the state. Commente rs stated that the "net importer" adjustment improperly shifts a portion of these ben efits to other states and leaves the corresponding costs of EE in the state producing EE savings. Commenters supported a consistent compliance approach where the state that implements energy efficiency measures claims equivalent emissions reduction benefits in its stat e compliance plan. Commenters stated allowing the state that implemented the EE program to claim the savings and emissions reductions benefit is consistent with the approach the EPA took when it calculated building block 4 savings. Commenters stated a significant portion of Washington's investor-owned utilities import fossil fuel generation from outside state bo rders. Commenters stated that dispatch of those out-of-state plants is dependent upon the load dema nd in Washington. Commenters stated if the state is unable to claim out-of-state efficiency sa vings, it distorts the value of energy efficiency implemented within the state. Commenters stated if the final rule only allows a state to claim the6

in-state emissions reductions of energy efficiency, the EPA would need to symmetrically adjust the building block 4 target to reflect the diminish ed energy efficiency savings.

Commenters noted that, as proposed, about 30 percen t of California's EE benefits would not be credited to any state. Commenters also noted that d etermining which EE savings displace generation inside and outside of California would e ntail complex modeling and an analysis of error and uncertainty; as such, it would be very di fficult to determine where the reductions occurred. Commenters noted that under the current a pproach, RE would count 100 percent towards compliance while EE would only count a frac tion of that which places EE at a disadvantage even though both resources are expecte d to have the same effect on dispatch of inor out-of-state resources. Commenters recommended t hat the EPA should use the same approach for EE and RE: the state that pays for the new reso urce (RE or EE programs) counts 100 percent of the new resource for compliance. Commenters stat ed that California's total EE savings are being devalued by approximately 30 percent before b eing applied to the BSER goal, therefore California utilities believe that the EPA should in clude 100 percent of California's modeled EE savings in the goal-setting process, and symmetrica lly include 100 percent of EE savings during compliance.

Commenters stated that in estimating emission reduc tions from building block 4, the EPA should make no adjustment for either net electricity-impor ting or net electricity-exporting states, and instead base estimated emission reductions on the " avoided net generation value." Commenters stated the opportunity for a state to reduce the am ount of greenhouse gases emitted using demand-side energy efficiency improvements depends on the size and composition of electricity loads in the state. Commenters stated that the EPA should recognize this in applying Building Block 4 to set state goals: estimating the amount o f annual incremental reductions in the state's electricity usage solely by applying an annual perc entage savings rate to a state's baseline annual sales, accounting for transmission and distribution system losses. Commenters stated the EPA should not then reduce this amount by the portion o f a state's load served by out-of-state generation, as proposed and as detailed in the Goal Computation TSD. Commenters stated this unbalanced adjustment does not reflect the load-bas ed nature of the energy efficiency opportunity, unfairly deprives importing states the full greenhouse gas reducing impact of demand-side EE measures its electricity customers p ay for, and leaves the excess efficiency in net-importing states unused in the target-setting p rocess, even though this excess efficiency will actually decrease affected EGU emissions. Commente rs stated making no adjustment in Step 5 for either net electricity-importing or -exporting states would best reflect the actual potential for energy efficiency in each state. Commenters stated if the EPA chooses to retain an adjustment, the EPA should scale up the estimated reduction in generation by affected EGUs in net electricity-exporting states to reflect an expectat ion that a portion of the generation avoided in conjunction with the demand-side energy efficiency efforts of other, net electricity-importing states would occur at those EGUs.

Commenters stated this adjustment also obviously cr eates wide disparities in setting state goals given that different states import and export diffe rent amounts of power. Commenters stated the adjustment requires states that consume all or mostof the power they generate to reduce electric consumption more than states that import a greater amount of their power. Commenters stated yet, in an integrated grid, there is no reason why a state should wish to generate more or less power in-state; how much a state should rely on in- state power should depend on interstate7

power economics. Commenters stated the entire thrus t of federal electricity policy over the last two decades has been to break down artificial barri ers and open up the power grid to the free movement of electrons so that consumers have the be nefit of the lowest cost sources of electricity wherever those sources are located. Com menters stated that indeed, the EPA's policy of promoting renewable energy depends on promoting large-scale, long-distance electric transmission, as the areas richest in renewable res ources (for instance in the Midwest wind belt) are not located near to the nation's major metropol itan areas. Commenters stated it therefore makes no sense to set state goals in part based on their percentage of in-state generation or to create an incentive for states to increase their us e of in-state generation.

In addition, commenters stated the EPA's adjustmentis arbitrary because it fails to account for all of the CO 2 emissions reductions that will be created by the e normous amount of energy efficiency that the EPA is assuming. Commenters sta ted that in the EPA's Ohio example, for instance, 14.03 percent of Ohio's saved electricity is not counted against any state's goal, yet all of Ohio's reduced consumption would avoid electric generation (and thus presumably CO 2 emissions) somewhere. Commenters stated that presum ably, that 14.03 percent savings should be credited to the states which purchase power from Oh io, but the EPA never performs that calculation nor would it be feasible to do so on a 50-state basis given the dynamics of the interstate electricity market. Commenters stated in the end, the EPA's attempt to superimpose state-by-state energy efficiency targets on the int erstate grid thus cannot help being arbitrary.

Several commenters had concerns about disincentiviz ing EE measures. Commenters stated that requirements must be easy to understand and not dis courage energy importing states from funding and implementing EE programs. Commenters st ated that this provision of the Proposed Rule risks diminishing the incentive for cost-effec tive, feasible emission reductions from EE measures, leaving significant EE on the table.

Commenters believed that the EPA should base effici ency goals on electricity use, not generation, to avoid penalizing electricity-exporti ng states since the EPA's approach, as currently proposed, would make states' ability to achieve eff iciency targets dependent on efficiency measures implemented in other states and would also impose higher efficiency savings requirements on electricity-exporting states as com pared to electricity-importing states. Commenters also wondered how the EPA expects an ele ctricity exporting state to effect demandside reductions in states to which it exports elect ricity (Is a state expected to add renewable generation that is not needed to meet in-state dema nd? Will it receive credit if, for example, an importing state installs renewable generation and t hus reduces demand from the exporting state?)

Commenters stated that the proposal would only allo w credit of a small portion of EE measures for some states. Commenters stated that only 12 pe rcent of their state's load is served by in-state, investor-owned, fossil-fuel EGUs in part because mu ch of the remaining load is served by fossil generation imported from EGUs in other states. Comm enters stated that this approach would affect the cost-effectiveness and overall continued use of EE in their state. Commenters stated that if they could only claim 12 percent of the res ulting emission reductions from their EE investment, then demonstrating cost-effectiveness o f that EE investment would not be viable. Commenters stated that in their state, this approac h would likely result in EE no longer being8

considered a cost-effective emissions reduction str ategy because only a small fraction of the energy savings can be attributed to reduction of em issions at in-state EGUs.

Commenters stated that in the case where a mass-bas ed system of compliance is utilized by a state importing power to their state, the remaining 88 percent of emission reductions may be surrendered to states whose ratepayers did not make that long-term investment in EE resulting in an unfair transfer of hundreds of millions of dolla rs of ratepayer investment. Commenters were also concerned about fairness. Some commenters sta ted that it would not be fair for neighboring states to take credit for EE savings from programs paid for and implemented in their state without a clear system for their reimbursement, whi le Commenters stated that this approach to calculate the impact of these savings would result in a very unfair outcome. Commenters provided a table that commenters said showed the st ates that would be negatively impacted and the extent of that impact. Commenters stated that they estimate that this approach would result in approximately 41 million MWh of state energy sav ings that would go unclaimed. Commenters stated that their state has seen EE measures to be the most sought after and least cost energy resource, under the EPA's base proposal, EE measure s would be relegated to the least-sought after and most-costly resource.

Commenters had concerns about the ability of states to meet their goals under the CPP if the proposed EE approach was included in a final rule. Commenters asserted that, if their state's compliance plan included "only those carbon dioxide emission reductions occurring in the state that result from demand-side EE programs and measur es implemented in the state," it would be extremely difficult and unnecessarily costly to mee t the 2030 goal set by the EPA. Commenters stated that a net-exporting state would have limite d in-state demand-side EE opportunities to offset the emissions at its affected EGUs relative to its in-state generation, while the state receiving the exporting state's generation could ge t credit only for efficiency that reduces in-state fossil generation, of which there may be relatively little.

Commenters claimed that this proposal would mean th at reductions stemming from EE programs in importing states could be "stranded," discouragi ng investment in EE measures. Commenters stated that the EPA's asymmetrical approach to impo rts and exports means that electricity that can be avoided by Building Block 4's EE measures ar e effectively "stranded": the state targets simply do not account for these reductions. Comment ers believed that the simplest and fairest "fix" to this problem is to avoid scaling down the obligations of importing states, and to recalibrate those states' targets to account for 10 0 percent of the demand reduction achieved through EE measures. Commenters noted that the EE t argets specified in Building Block 4 do not include any assumptions about how the responsib ility for implementing those measures should be distributed across the state's utilities or affected EGUs and it is therefore both feasible and fair to assign responsibility to in-state gener ators for achieving the level of EE savings specified in Building Block 4. Commenters stated th at their fix would make the EPA's methodologies for RE and EE consistent. Commenters also stated that the EPA's approach relies too heavily on the net importation factor from a si ngle year in setting state targets for 2030 as the percentage of energy that a state imports or export s can change significantly from year to year when units enter and exit the system and new transm ission lines are built. Commenters stated that basing the state's target on its export-to-imp ort ratio for one year could lead to targets that are either too high or too low. Commenters noted th at the EPA is not proposing that neighboring states, including states that are net exporters wou ld be allowed to claim credit for the portion of9

EE emission reductions that presumably occur in tho se states; thus, the "discounted" amount of the EE credit is simply lost, and could not be doub le-counted.

Commenters stated that if the EPA were to finalize its proposal where EE measures in net importing states must be discounted, the rule would skew state incentives away from investments in EE and toward investments in RE, reductions from which can be fully counted toward state compliance regardless of the RE-producing state's s tatus as a net importer or exporter, and regardless of whether the RE is generated in-state or out-of-state. Commenters added that the fact that net-importing states will have greater in centives to invest in RE than in EE is unreasonable given that each MWh of EE or RE is equ ally likely to reduce emissions by reducing the need for an extra MWh of generation fr om a fossil-fueled generator. Commenters stated that because the potential emission reductio n achievable by each MWh produced by an RE resource or saved by an EE investment is exactly th e same, the EPA should treat these resources equivalently for compliance. Commenters urged that the EPA not require states to demonstrate that each MWh of EE saved in the state has reduced emissions in the state (as opposed to a neighboring or interconnected states) and noted tha t by allowing states to claim 100% of each MWh of energy saved in the state toward state plan compliance, the EPA could avoid disadvantaging EE relative to other forms of emissi on reductions while ensuring that RE and EE are treated the same for purposes of compliance. Co mmenters stated that if the EPA is unwilling to allow net importers to receive full credit for t heir EE investments, the EPA should allow states to submit approvable multi-state or modular agreeme nts that apportion credit for EE among neighboring states.

Several commenters pointed out the different treatm ent in the proposal for EE and RE policies. Commenters asserted that this is not how the CPP tr eats any other emission reduction measure. Commenters stated that this accounting provision im poses a double standard, allowing full recognition for cross-state RE impacts, while denyi ng full recognition to analogous EE actions. Commenters stated that this strongly disincentivize s the use of EE as a compliance tool in power importing states and fails to reflect the carbon re duction benefits that are actually being achieved by statewide efficiency programs in such states whe n using a rate-based accounting approach. Commenters offered an example, comparing the treatm ent under the proposed CPP of a netimporting state installing solar panels and the ins tallation of more efficient installation. Commenters stated that the solar panels could be gi ven credit, regardless of where they were located; but the installation of the insulation wou ld only generate credit for part of the actual MWh of energy savings (and therefore emission reduc tions) based on the proportion covered by in-state generation sold to that state's customers. Commenters stated that these analogous cases should not be treated differently. Commenters comm ented on the difficulty of determining how much EE displaces generation inside and outside a s tate. Several commenters stated that the EPA's approach attributing EE savings assumes that a state could trace exactly which affected units generate less electricity as a result of incr eased EE. Commenters contended that the nature of the interconnected electric system make it impos sible to directly link certain EE measures with reduced utilization of specific units, let alo ne specific affected units. Commenters stated that the EPA is willing to accept a great deal of i mprecision in determining the magnitude of reductions that result from EE measures, including assigning an average 10-year life to EE measures and allowing states to make assumptions to project the amount of electricity that will be saved. Yet, commenters stated, the EPA asks sta tes to precisely assign "credit" for reductions associated with EE measures. Commenters stated thatit would be arbitrary if the EPA allowed a10

general level of imprecision when calculating the b enefits of EE, but then penalized states by requiring precise attribution of these estimated be nefits for compliance purposes. Commenters stated that if the EPA thinks it is possible to lin k demand-side EE connected to a specific affected EGU, then the EPA should provide further i nformation and guidance to states. Commenters noted that a utility would not know the value of potential energy efficiency measures until after the fact, since the emission r eduction value of these energy efficiency measures might be discounted by a factor not known until the end of the compliance period and also that the utility generally has no control over this discount factor. Commenters stated the EPA's methodology of pro-rating EE savings based on the net importation of electricity fails to resolve the uncertainty in whether a state's EE mea sures actually lead to energy measures and emissions reductions in the state.

Commenters added that an additional consideration i s where a generating facility is located on the dispatch stack. Commenters provided an example of North Carolina and South Carolina; North Carolina is an electricity importing state, m uch of which comes from South Carolina. Commenters stated that South Carolina doe s not have any coal-fired EGUs and only has combustion turbines and nuclear units. Commente rs stated that EE programs would never reduce the use of the nuclear units because they ar e at the bottom of the dispatch stack due to their low operating cost. Commenters stated that EE will affect the marginal generating unit, which will be a fossil unit in North Carolina, not the lowest cost nuclear unit. Commenters concluded that it is not appropriate for the EPA to require that North Carolina, for example, discount the CO 2 emission reductions related to EE undertaken in th e state based on the amount of electricity the state imports because EE program s in NC will not reduce the amount of electricity imported from nuclear plants in South C arolina.

Commenters stated that the EPA should provide guida nce for allowing states to take full credit for both EE and renewable or other low- and zero-ca rbon power resulting in interstate emissions avoidance. Commenters recommended that the guidance could suggest that such full crediting may be permitted if the importing and exporting sta tes both have rate-based targets, if they have a memorandum of understanding to avoid multiple sta tes counting the same savings, or if the energy savings are included in a registry that incl udes guards against double counting.

Commenters stated that according to an analysis by the American Council on an Energy Efficient Economy, efficiency potential is undercounted in ha lf the states and the EPA's described methodology would leave in excess of 41 million MWh out of computations for state targets. Commenters noted that several of these states are p articipating in the two existing carbon markets in the US and, as such, are using, and cred iting, EE in full under those regulatory
programs.

Commenters stated that imported electricity is more expensive and will be one of the first resources to be displaced; therefore, RE and EE onl y result in a small portion of in-state generation reductions. Commenters stated that this was confirmed using EIA 2013 data, which showed that electricity imports decreased from 18% in 2012 to 9% in 2013 in their state (North Carolina). Commenters stated that this was also con firmed using AVERT modeling of EPA's projected 2030 cumulative EE and RE impacts to gene ration. Commenters contended that the EPA's AVERT model predicted that only 5% of the avo ided generation from North Carolina EE and RE programs will actually occur in North Caroli na. Commenters stated that the results11

indicate that most of the avoided generation from E E and RE will take place outside of North Carolina and the remainder of the avoided generatio n was spread out among the southeast states. Commenters contended that allowing a state to only take credit for in-state CO 2 reductions occurring as a result of RE generation/EE measures creates a disincentive for implementing these building blocks within states that import electrici ty. Commenters stated that if the proposed rule is not revised, net importing states will not be ab le to achieve the required in-state CO 2 reductions.

Commenters noted various concerns regarding EE cred its, especially for states that are net importers of fossil generation yet are characterize d in the BSER calculation as net exporters of electricity overall. While commenters agreed that E E measures provide an important and cost effective component of BSER, commenters contended t hat, under the proposed approach, they would be unable to develop a cost-effective complia nce plan because the state would only be able to credit a small fraction of the investment i n EE that can be tracked to fossil-fuel generation in the state. Therefore, commenters added, they wo uld have to rely on much more expensive and potentially infeasible over-compliance with measure s contemplated in the other three building blocks. In summary, commenters stated that it was of utmost importance for them to be allowed to take credit for the full breadth of emission red uctions in their state compliance plan that are a result of EE investments.

Commenters noted that equity is an implicit elementof cost considerations, and the rule makes no effort to ensure that it is geographically equit able. Commenters stated that interstate electricity sales are important to many states, butthe building block is based only on in-state electricity generation, not consumption, while the state energy efficiency standards are based on retail sales (consumption) within the state and noton generation. Commenters noted that the EPA reduces the EE requirement in states when gener ation is less than consumption to apply only to its generation and but that the EPA makes n o compensating adjustment for electricity exporting states.

Commenters stated the generation unit affected by a given energy efficiency measure may be located in a different State than the implemented m easure. Commenters indicated that a State's inability to control the location of the impact of an efficiency measure on the GHG emissions within the State and the inability to address this issue without making arbitrary assumptions is indicative of the challenges associated with using end-use efficiency to control emissions and further indicates that it is not BSER.

Commenters stated that rewarding electricity-export ing states with a multiplier for energy efficiency achieved in-state carries with it an imp lication that neighboring electricity importing states are pursuing similar levels of energy effici ency; however, because of the potentially divergent incentives for pursuing energy efficiency as a means of compliance with the EPA's proposed 111(d) plan between electricity-importing and exporting states, such an assumption is potentially incorrect. Commenters stated that there is no guarantee that the additional energy efficiency credits an electricity-exporting state w ould get were actually being generated in other, electricity-importing states.

Commenters stated that the EPA's methodology of pro -rating EE savings based on the net importation of electricity not only fails to resolv e the uncertainty surrounding whether a state's12

EE measures actually lead to emissions reductions i n the state, but creates a new problem by failing to give states that are net importers of el ectricity full credit for their EE measures. Commenters stated that this increases the burden on states that are net importers of electricity in meeting their state goals. Commenters believed thatthe EPA should eliminate EE from the state goals.

Commenters stated that the impacts to the generator s and utilities will be difficult to discern in regions where there is not a match of service bound aries to political boundaries (i.e., state borders). Commenters stated that the regulators lik ely will require a common approach with which all participants comply to allow for the summ ation of the results for the entire state.

Commenters stated that if the ISO's modeling expert ise is deployed for developing the state's CO 2 rate goal, adjustments in the energy efficiency im pact due to whether or not a state is a power importer would be unnecessary. Commenters sta ted that the ISO modeling effort would account for the impact of the state's energy effici ency on the region's and states' fossil generation.

Commenters noted that even in states with verticall y integrated utilities, there are some independent power producers (also known as merchantplants) that are not affiliated with loadserving utilities. Where there is not common owners hip between the party currently implementing the EE program and the affected EGU, c ommenters believed the state will need to either administratively allocate or auction EE savi ngs generated by those programs, or adopt a tradable credit mechanism to enable affected EGUs t o acquire the credits needed to achieve their target emission rates. Commenters suggested that, i f the EPA could not allow states to take full credit for in-state EE investments, then a possible solution would be for the EPA to revisit their Block 4 emissions reduction goal computation. Comm enters added, though, that it would not be sufficient to simply adjust this goal to account fo r the small percentage of in-state energy that can be used for compliance, as this would provide a dis incentive for further EE investment.

Multiple commenters believed that it is near imposs ible to trace energy savings, or megawatts, to a specific generating unit and that the Building Bl ock 4 BSER would should be implemented in a manner which ensures that this level of tracking is not required.

Commenters stated Washington interprets the proposa l to require states to track efficiency savings to specific in-state EGUs subject to the Cl ean Power Plan. Commenters believed this is an unnecessary and complicated step to the rule. C ommenters stated it is inconsistent with the way the EPA established the emissions reduction goa l, and it is inconsistent with the EPA proposal to allow states to count all energy effici ency achieved and claimed through program implementation despite the intricacies of inter-sta te electricity transmission. Commenters stated it would significantly diminish the efficacy of a s tate's energy efficiency programs.

Commenters stated that Washington has been a leade r in energy efficiency since the late 1970s, and is nationally recognized for its programs, howe ver, in 2012 only 10 percent of Washington's in-state generation came from affected electric gen erating units. Commenters stated 99 percent of the state's generation came from unaffected sour ces such as hydroelectric power, nuclear, and wind, and the investor-owned utilities receive a si gnificant portion of their energy from out-ofstate EGUs. Commenters stated if Washington could o nly claim "those CO 2 emission reductions13

occurring (or projected to occur) in the state thatresult from demand-side EE measures implemented in the state," Washington would only cl aim a fraction of the efficiency savings it actually achieved, yet the building block 4 target assumes Washington could claim 100 percent of its savings compared to the small proportion of that the proposal implies would be available for use in demonstrating compliance. Commenters sta ted under this approach it is reasonable to assume that compliance with the plan would be unnec essarily expensive and challenging. If the final rule insists upon tracking back efficiency sa vings to an affected EGU, commenters recommended that the EPA symmetrically adjust the p rocess of setting the value for the building block 4 targets to account for the value of energy efficiency in reducing emissions from a state's fossil EGUs.

Commenters stated that it is impossible to trace en ergy savings, or megawatts, from EE to find out which generator would have run but for the EE s avings. Commenters noted that the EPA assesses the impact of EE programs through redu ctions in electricity sales but estimates the impact of EE programs only at the statewide-level b ecause, in many cases, it is impossible to determine whether a particular generator's electric ity sales were reduced due to EE. Commenters stated that the EPA cannot assess whether the megaw atts reduced through an EE measure displace fossil generation rather than RE or other zero-emitting generation and consequently, it is uncertain whether EE actually reduces CO 2

.

Commenters stated that it is not clear how the carb on reductions from EE will be attributed to a specific emitting generator, or to a utility that a chieves the additional efficiency.

Commenters stated that there should be some symmetr y between the goal calculation and the measures permitted for compliance. Commenters noted that the EPA currently calculates the contribution of EE measures to Alaska's target rate on the basis of statewide electric sales but believes that the EPA should calculate the amount g eneration is avoided due to EE measures as a percent of forecasted generation from affected EGUs or, in the alternative, allow statewide EE measures to count for compliance purposes.

Commenters said the guidance should provide states with needed clarity on the following items:

• Identify Remedies for the 111(d) State Energy Effic iency Penalty. The EPA should address and resolve the EE penalty created w hen EE projects are implemented in electricity-importing states. As pro posed, the rule would leave stranded and uncounted the emission reductions crea ted by energy efficiency in an importing state because neither the importing st ate, nor the generating state, could claim credit for emissions reductions equal t o 100% of those created by the energy efficiency program or project. (Further deta il provided on page 45 of the comment.)

• Encourage the Use of Tradable Credits. The EPA shou ld support the development and use of single-state and multi-state credit prog rams and other market-based systems. This will encourage the use of the least-c ost compliance options, which, in many cases, will involve comprehensive energy re trofits.14

Commenters stated the EPA should require that any s tate or states that include energy efficiency gains in multi-jurisdictional plans should be allow ed to include the potential savings in their targets. Commenters add that the EPA could also det ermine that a target adjustment might not be necessary if the potential change in the targets is small enough, as it might be from areas with low energy consumption.

Comment 2: Comments suggesting that the rule does not state w hether an exporting state can claim credit for EE gains in an importing state.

Response 2: The treatment of EE has changed from the proposed approach. In the final rule, to the extent demand-side EE measures are tied to a st ate plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand-side EE savings oc cur inside or outside the state or territory. For more information about the treatment of in-stat e and out-of-state energy efficiency impacts, see section VIII.L of the preamble to the final rul e. The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal. In order to ensure consistency with t he calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, and to avoi d double-counting or inconsistent adjustment approaches across states, t he final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero-emitting and low-emitting resource. Quantified and verified MWh impacts of qualifying zero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside o r outside the state or territory. This ensures that affected EGUs receive full recognition for the ir investments, even if the impacts occur elsewhere, removing the need to determine exactly w hich EGUs reduced and changed power generation in response to the zero-emitting or low- emitting resource.

The following are summaries of the specific public comments under this comment:

Commenters stated that states can take credit only for the effects of EE programs associated with electricity generated within their borders. Comment ers stated that this means that while EE in an importing state can benefit an exporting state by r educing the need for generation at higher carbon facilities serving the importer, the propose d rule does not explicitly state whether the exporting state may claim credit for the EE gains i n their compliance plans. Commenters stated that, if it cannot, it appears that this credit may be lost and this would reduce the incentive for th e importer to invest further in these programs. Comme nters stated that the EPA support of modular multi-state plans that allow states to fairly claim credit for these lower cost compliance options may also incentivize new EE measures.

Comment 3: Comments suggesting that each state plan submitted must ensure that credit for emissions avoided through EE is awarded only to EE measures and programs undertaken within that state.15

Response 3: In the final rule, to the extent demand-side EE me asures are tied to a state plan, the quantified and verified MWh impacts of eligible mea sures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand-sid e EE savings occur inside or outside the state or territory. For more information about the MWh accounting approach for adjusting a CO 2 emission performance rate, and requirements related to geographic eligibility, see section VIII.K.1 of the preamble t o the final rule. For more information about the treatment of in-state and out-of-state energy effic iency impacts, see section VIII.L of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated that, in order to simplify admini stration of EE crediting and assure adequate state oversight, each state plan submitted must ens ure that credit for emissions avoided through EE is awarded only to EE measures and programs unde rtaken within that state. Commenters stated that a state plan may not provide for credit ing of avoided emissions for EE programs and measures undertaken in other states. Commenters sta ted that as experience is gained with this program and systems for tracking the crediting of a voided CO 2 emissions are developed, the EPA should review and consider the possibility of expan ding the geography of acceptable EE investments.

Comment 4: Comments suggesting that the EPA allow approvable multi-state agreements.

Response 4: The EPA’s approach has changed since proposal. In the final rule, to the extent demand-side EE measures are tied to a state plan, t he MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand-si de EE savings occur inside or outside the state or ter ritory. For more information about the treatment of in-state and out-of-state energy effic iency impacts, see section VIII.L of the preamble to the final rule. The EPA is also allowin g multi-state plans in the final emission guidelines, see section VIII.C.5 of the preamble to the final rule

. The following are summaries of the specific public comments under this comment:

Commenters stated that if the EPA is unwilling to a llow net importers to receive full credit for their EE investments, the EPA should at least allow states to submit approvable multi-state agreements that apportion credit for EE among neigh boring states. Commenters contended that under this approach, these multi-state agreements c ould ensure that no state receives "double" credit for emission reductions from EE while allowi ng states that have invested in EE to quantify and receive full credit for their investments.

Comment 5: Comments requesting clarification regarding the tr eatment of EE by states that export electricity16

Response 5: The EPA’s approach has changed since proposal. In the final rule, to the extent demand-side EE measures are tied to a state plan, t he quantified and verified MWh impacts of the measures may be used by an affected EGU or stat e to adjust a CO 2 emission rate, regardless of whether the demand-side EE savings occur inside or outside the state or territory. For more information about the treatment of in-state and out -of-state energy efficiency impacts, see section VIII.L of the preamble to the final rule. There are a range of ways states can engage in multistate coordination, as described in Section VIII.C. 5 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters asked the following questions regarding treatment of EE for states that import/export electricity:

• Would it be possible for the EPA to apportion a sta te's excluded EE savings to the exporting states?

• Could states enter into bilateral or multi-state ag reements to apportion credit for EE?

• Can you explain how the EPA determined the level of each state's electricity imports/exports and which sales year they used? Wha t if these levels change over time?

5.7.2 State that implements the measure claims the emission effects

This section contains comments on the proposed meth od for accounting RE projects and a method recommended by some commenters for accountin g for EE emission reduction measures.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments supporting the EPA's proposal for claimin g RE.
Response 1: In the final rule, to the extent qualifying RE gen eration measures are tied to a state plan, the quantified and verified MWh impacts of th e measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE genera tion occurs inside or outside the state or territory. For more informati on about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand-side EE, the timing and the eligibility requirements for resources used to adju st a CO 2 emission rate, including renewable resources, see section VIII.K.1 of the final rule p reamble. The rule describes requirements and criteria related to proper quantification and verif ication of MWhs from renewable electricity generation or demand-side EE savings in section VII I. K.3 of the final rule preamble. For more information about how the BSER RE assumptions in th e final rule address concerns about17

crediting and about the treatment of in-state and o ut-of-state renewable energy impacts and the avoidance of double-counting, see also section VIII .L of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters agreed that a state should be a ble to take into account all of the carbon emission reductions from RE measures implemented by the state, regardless of where the energy is generated. Commenters stated that this should o nly be allowed when the environmental attributes of the energy are retired in that state, while other commenters stated that this should be allowed as long as the generation is not double-cou nted. Commenters stated that this should be allowed as long as there is a credible REC tracking system or they can demonstrate entities in the state have submitted environmental attributes (i.e. , credits) for those MWhs. Commenters stated that the ability to sell the environmental attribut es of renewable power to buyers that will retire the attributes for compliance or other purposes is a critical component of the business model of RE developers. Commenters recommended that any asse t or PPA that is recognized, approved and paid for by utility customers be given credit t o customers' state when accounting for CPP compliance. Commenters stated that the principles o f cost causation and fiscal responsibility are long-standing in the utility industry, and it is co nsistent with those principles that states that pay for RE should get credit for that RE for compliance

.
Commenters stated that the CPP, when finalized, sho uld not disrupt current and expanding interstate markets for RE and associated environmen tal attributes or credits. Commenters stated that the simplest, fairest, most reliable, and mostenvironmentally beneficial way to account for RE is to treat the credit for RE as a property righ t that accrues first to the entity that owns the right to sell or use the RE itself and that entity could then use that right to meet its obligations under any state or multi-state plan, or alternative ly sell or grant that right to another entity to us e in meeting its obligations. Commenters stated thatstates should have flexibility to enter into bilateral agreements regarding use of credits much like they would with a multi-state compliance option. Commenters stated that a state should not t ake credit for any existing RE programs that were included in another state's baseline and used to set that state's interim and final goals.

Commenters stated that the EPA should explicitly pr ohibit double counting, without providing a suggestion on which state should bear the burden of demonstrating that the reductions were not double counted; while commenters stated that the st ate receiving the credit must demonstrate that there had not been double counting. Commenters also stated that the EPA should require that every state that wishes to use RE MWh to demonstrat e compliance with its state goal demonstrate that the zero-carbon attributes of thatRE are dedicated to that state; commenters asserted that this would minimize double counting a nd avoid disruptive uncertainty in the underlying commercial markets.

Several commenters stated that the proposed approac h is consistent with the requirements of most state's RPS by allowing a state to take credit for RE generated in another state and it recognizes that RECs can be used for interstate tra ding. Commenters stated that they believe that RECs can be a useful tracking mechanism, but the ow nership of RECs should not take precedence over the fundamental principle that the state whose customers are paying for RE should receive compliance credit. Commenters stated that, in the event that the customers who18

paid for the energy did not acquire or no longer ho ld ownership of RECs, those who paid for the energy should receive compliance credit.

Commenters stated that allocating RECs in the final rule based solely on where the electricity is generated would work a manifest injustice on states and companies that have invested in the development of out-of-state RE. Commenters stated t hat the proposed approach will help to ensure the development of the most cost-effective r enewable resources. Commenters stated that limiting compliance to RE located within a given st ate could result in less efficient placement of RE resources. Commenters stated that if the rule on ly allowed for REC in the state where the generation occurred, use of prime locations would b e artificially constrained, resulting in higher costs and potentially less technically sound and ef ficient RE systems, which would create an unnecessary disincentive that could ultimately redu ce the amount of RE developed in the longterm. Commenters also stated that limiting credit t o the state of generation could unjustly reward owners and operators of affected EGUs that have notinvested in developing RE resources, but happen to be located in a state where another opera tor has built such resources. Commenters stated that under these circumstances, the owner or operator of an EGU with a high emission rate might avoid any responsibility to reduce emissions while the developer of the renewable resources might be unable to take any advantage of its investment in complying with the rule.

Commenters clarified that this approach means that in cases where one state has an RPS and purchases RE from another state that has a producti on tax credit, the EPA must consider the purchasing state to have the "enforceable measure" and give that state the credit for the RE. Commenters stated that doing otherwise would direct ly conflict with how RE has been treated for years under existing tracking systems.

Commenters stated that states should only be allowe d to take credit for RE generated in another state if they participate in an environmental credi ting accounting system for RE.

Commenters stated that states should also be allowe d to take credit for reductions in energy demand due to any local or municipal government's R E program. Commenters provided an example of reductions in energy demand resulting fr om RE programs in New Orleans, stating that these should be credited to Louisiana's compli ance with its state target. Commenters stated that similarly, where another state curtails genera tion that serves New Orleans, the costs imposed on New Orleans ratepayers should be shared in some manner. Commenters stated that if credits and costs are not shared across state borders in an equitable manner, states will have a powerful incentive to design their programs in a manner thatshifts as much of the cost impact of the program to the other state as possible, rather than designing programs in a regionally cooperative manner. Commenters suggested that, to address these issues, states should be able to work with one another to determine the best method for the ac counting of interstate credits from RE programs and that states should be able to determin e how to allocate the credits and costs, and ensure there is no double counting of reductions am ong states.

Commenters stated that, in order to avoid double co unting, states be prohibited from counting RE generation within their borders for compliance, if the associated RECs are used for compliance with out-of-state policies. Commenters s tated that because the District of Columbia does not have any fossil fuel power plants, they ar e not subject to the CPP; however, they urged EPA to prohibit a state from counting any RE power or RECs purchased by the District toward19

that state's compliance. Commenters stated that itis essential that the EPA recognize existing contracts that allocated environmental attributes t o particular counter parties in particular states.

Commenters stated that RECs are not the only way in which compliance with RES programs is measured and the EPA should not limit compliance cr edit to only RE represented by RECs. Commenters also stated that the EPA should not limi t RES programs as the only mechanism for including renewable generation. Commenters stated t hat the final guidelines should clarify that states can pursue a range of options to increase RE deployment and that RECs are not necessarily the best or only way for states to credit or trade RE across state lines.

Commenters believed that entities owning out of sta te RECs should get credit for those RECs in the states in which they are headquartered, regardl ess of whether they are in a multistate compliance arrangement with the state that generate s the energy.

Commenters stated that export and import of both un bundled and bundled RE and the corresponding greenhouse gas compliance value shoul d be unencumbered and should not be limited to contiguous states or ISO regions.

Commenters stated that if a state could only take c redit for RE generation that displaced in-state units, unanticipated new generation or retirements over the ten-year compliance period could change which fossil unit is displaced by RE generat ion, such that a wind farm for which a state could previously take credit is no longer available to the state as a compliance measure. Commenters stated that this uncertainty wo uld make it less likely for a state to include significant RE measures as part of its plan in comp arison to measures that would carry less uncertainty, such as increased gas dispatch of exis ting NGCCs. Commenters stated that the proposed accounting method of allowing states to ta ke credit for RE regardless of where displacement occurs will minimize this uncertainty and promote the use of RE in state plans.

Commenters stated the Proposal presents insurmounta ble challenges for states like Oregon that are net importers of fossil generation yet are char acterized in the EPA's BSER calculation as net exporters of electricity overall. Commenters provi ded an overview of EE in Oregon and stated that Oregon would not be able to develop a cost-eff ective compliance plan because the state would only be able to credit a small fraction of th e investment in energy efficiency that can be tracked to fossil-fuel generation in the state. Com menters stated this would effectively render as unusable otherwise cost-effective investments in en ergy efficiency that were assumed in setting the BSER, and force Oregon to rely on much more exp ensive and potentially infeasible overcompliance with measures contemplated in the other three building blocks. Commenters stated it is of utmost importance that the EPA allows Oregon to take credit for the full breadth of emission reductions resulting from energy efficienc y investments in its state compliance plan. Commenters recommended the EPA should adopt a consistent compliance approach requirement where the state that implements energy efficiency measures will claim the resulting emission reductions in its state compliance plan.

Comment 2: Comments suggesting disparity between how state go als and credits were derived.20

Response 2: In the final rule, the EPA adopted the denominator approach, not the numerator approach recommended by the reviewers that commente d on the proposed approach. The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal. In order t o ensure consistency with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, and to avoid double-counting or inconsistent adjustment ap proaches across states, the final rule prescribes a general accounting approach states mus t use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero- emitting and low-emitting resource. Quantified and verified MWh impacts of qualifying z ero-emitting and low-emitting resources, including eligible renewable energy resources, tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation occur inside or outside the state or territory. Consisten t with the EPA’s calculation of the CO 2 emission performance rates and state rate-based CO 2 goals in the final emission guidelines, the MWh impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. For more information about how the B SER RE assumptions in the final rule address concerns abou t crediting, see section V of the preamble. For more information about the treatment of in-state an d out-of-state renewable energy impacts and the avoidance of double-counting, see section VIII. L of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters stated that the final rule shou ld assign compliance credit to the state that produces the RE, no matter where the energy is used . Commenters did not express a preference for how RE is counted, but discussed compliance cha llenges given the proposed accounting method. Commenters stated that renewable generation should be counted with the state that generates the electricity both for purposes of dete rmining carbon dioxide intensity and for establishing compliance with the goal. Commenters s tated that the EPA should adopt an approach that is consistent with regard to goal set ting and compliance, while allowing states flexibility to establish agreements to utilize out- of-state renewable generation for compliance purposes. Commenters urged the EPA to adopt an appr oach that consistently and adequately addresses the legal, economic and technical implica tions of the RE compliance option.

Several commenters had concerns about RE exporting states. Commenters stated that the EPA's proposed approach for counting out-of-state RE for compliance could create significant compliance challenges for certain states that produ ce more RE than they consume. However, commenters stated that RE generation from these sta tes is used by others to satisfy current demand or RES requirements, reducing the amount of RE generation that these states could rely upon for compliance with the state goals. Further, commenters contended that these states have little control over whether and to whom the RE gene ration is sold (or whether and to whom the renewable attributes are sold). Commenters stated t hat these states have ambitious goals, but limited tools with which to comply with them. Comme nters stated that these "source" states, like Idaho, New Mexico or Wyoming, have RE targets predi cated, in part, on their high levels of RE generation in 2012. Commenters stated that these s tates are faced with a dilemma of having their targets established on the basis of RE to which the y do not have access, creating a conflict between the energy on which the goal is based versu s the energy which is available for21

compliance with that state goal. Commenters stated that the EPA should re-calculate the state goals for source states accordingly.

Commenters stated that given the disparity between their state's (Wyoming) exports and consumption, the differences between how the goal w as derived and credits for future renewable development eviscerate the EPA's growth assumptions . Commenters provided an example of energy produced from a 1,000 MW wind farm in Wyomin g, which transmits all of its electricity to California. Commenters noted that this generati on will be used to determine California's compliance with section 111(d), not Wyoming's. Comm enters stated that they see an analogue in the EPA's decision to exclude hydroelectric power f rom setting goals because no states are expected to develop any new large facilities. Comme nters concluded that in the context of new renewables on a scale that would make it possible t o reach Wyoming's Block 3 goal, there is no reason to expect new export facilities to be credit ed to Wyoming.

Commenters stated that for Montana to accomplish th e reductions, within the time frame allowed that all low and no carbon emission sources of elec tricity generation within the state of Montana must be included in the calculations to meet the as signed goals/standards. Commenters stated that if the proposed method for accounting for RE b ecomes final, then CO 2 emissions from EGUs within the State of Montana must be excluded f rom the calculations on an equal basis; MWh per MWh. Commenters concluded that this is the only equitable avenue for accurately calculating and determining the achievement of the goals/standards. Commenters stated that there is no feasible way for Montana to reach its g oal using the building blocks unless credit for renewables that are built in Montana, but whose ene rgy would flow out of state, is given to Montana.

Commenters stated that if another state is allowed to make claim to RE sources physically located outside their state, for determining carbon dioxide intensity and compliance, then they must also be required to account for the carbon dio xide emitted by power plants located outside their borders, whose sole purpose is to provide ene rgy to that State.

Commenters stated that if the method for calculatin g state goals does not change and the EPA decides, for compliance, to credit a state for only the RE consumed in the state, then the EPA should provide symmetrical treatment for carbon emi ssions and count only the carbon associated with fossil-fuel generated electricity consumed in a state. Commenters stated that, if the final CPP allows states to take credit for RE consumed in their state, but generated in another state, then those states should also be required to take c redit for the power and carbon emissions produced by the RE exporting state's fossil fuel po wer plants. Commenters stated that allowing other states to take credit for RE production witho ut also taking credit for the carbon emissions only makes it more certain that the RE Exporting st ate will not meet the EPA' s carbon goal.

Because the state targets are based on generation i n a state and not consumption, commenters wanted to know how the EPA expects an electricity e xporting state to effect demand side reductions in states to which it exports electricit y and asked if an exporting state is expected to add renewable generation that is not needed to meetin-state demand. Commenters also asked if an exporting state will get credit if an importing state installs renewable generation and thus reduces demand from the exporting state.22

Commenters stated that the proposed method for acco unting for RE is directly contradictory to the method the EPA used to calculate Maine's base r ate and goal rate of CO 2 production, which includes all of Maine's wind-generated RE in the to tal generation for the state, without regard for existing out-of-state PPAs. Commenters contended th at the EPA cannot have it both ways and stated that if the EPA considers RE generation with an out-of-state PPA to be part of Maine's existing energy generation mix, then the EPA must a llow new RE in Maine to be used as a compliance mechanism, regardless of any PPAs or REC s. Commenters stated that if this is not addressed in the final rule, it will de-incentivize development of wind power projects in Maine and other states. Commenters stated that local impa cts from RE developments are borne directly and primarily by local residents, and residents hav e a right to expect benefits from a project to counter the effects of any negative impacts. Commen ters stated that the host state bears the burden of any environmental impacts from these proj ects, and has invested time and effort in reviewing and permitting these projects and ongoing compliance. Commenters stated that it is inappropriate that the impacted resources should be devalued further through the loss of any benefit the host state might otherwise gain by usin g the projects as a compliance mechanism. Commenters stated that excess RE generation should then be allowed for compliance in states where the power is sold by PPA or credited through REC ownership.

Commenters stated that the EPA must credit RE for d etermining compliance consistent with the framework of counting all in-state EGU emissions fo r goal setting regardless of where the electricity is consumed. Commenters stated that if their state (Idaho) received credit for all RE generation within its borders, Idaho would have the flexibility to share its RE generation with states that export energy to Idaho. Commenters als o noted that this would be consistent with the way EPA considered in-state RE generation potential in setting each state's RE goal. Commenters stated that the proposal to ultimately g ive credit to consuming states is inconsistent with this methodology. Commenters urged that Idaho must be credited for generation that occurs within its borders.

Commenters stated that it was unfortunate that the proposal would not grant any emission reduction credits to Kansas for the zero emission w ind energy produced. Commenters stated that to capture credit for the RECs, Kansas will likely have to participate in some form of interstate program that would include states receiving Kansas wind energy. Commenters stated that an interstate program would require new statutory auth ority, significant groundwork in determining which states would participate, resources to develo p interstate agreements to create the entity that would administer the trading program, and time to c reate parallel regulations in each state to implement a program that would allow for Kansas to receive benefit from the zero carbon emissions associated with future wind energy develo pment. Commenters stated that states like Kansas should have the opportunity to develop a sta te plan that promotes the build-out of Kansas wind resources, for Kansas utilities as well as out of state utilities. Commenters encouraged the EPA to offer a solution to this issue in the final rule that gives Kansas the flexibility to provide for wind energy expansion that allows neighboring s tates as well as Kansas to develop plans that can meet their respective CO 2 emission reduction goals.

Commenters stated that RE should be credited to the state where it is generated, regardless of where it is consumed. Commenters noted that this is consistent with the way CO 2 emissions from affected EGUs, EE (credit only for demand-side EE m easures implemented in the state), and nuclear electricity are counted. Commenters specif ically commented on not using the same23

accounting method for nuclear electricity and RE an d stated that this creates a distortion within the proposed rule's carbon accounting that would un fairly penalize states that export renewable electricity. Similarly, commenters stated that ren ewable and nuclear resources should be counted towards compliance only in the state in which they are located, (renewable and nuclear energy should be counted consistently). Commenters stated that this approach would better reflect the manner in which the EPA set the goals, would be sim pler, would eliminate the need to address the possibility of double-counting, eliminate many inter-state conflicts that are likely to arise under the proposed RE crediting provisions, and it would remove a disincentive for multi-state plans under the proposed CPP. Commenters stated tha t multi-state plans, under the proposed CPP, allows states to claim compliance credit for a nother state's renewable resources without having to share that credit. Commenters stated thatcrediting the state that generates the RE would lower New Mexico's compliance gap from a "bas e case" of 211 lb/MWh to 83 lb/MWh and provides a better representation of the emissio n reductions that New Mexico would be able to achieve.

Comment 3: Comments suggesting that state plans should be uti lity-driven portfolios.

Response 3: In the final rule, to the extent qualifying RE gene ration measures are tied to a state plan, the quantified and verified MWh impacts of th e measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generat ion occurs inside or outside the state or territory. For more information about how the BSER RE assumpti ons in the final rule address concerns about crediting see sec tion V of the preamble to the final rule. For more information about the treatment of in-state an d out-of-state renewable energy impacts, see section VIII.L of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:
Commenters stated that the provisions of the CPP pr oposal are not suited to a situation where load is remote from generation, a characteristic th at affect small municipal entities like Missouri River Energy Services (MRES) and its members. Comm enters stated that the building blocks all presume that load and generation are located in the same state. Commenters stated that this means MRES' renewable wind energy resources in Iowa , Minnesota and North Dakota, as well as their nuclear resource, do not fall within the b oundaries of the state of Wyoming where their only fossil fuel EGUs emit CO 2 . Commenters stated that their EE and demand-side management programs in their member states generate CO 2 savings outside of Wyoming, in states where they have no affected units that emit CO 2 under the CPP.

Commenters stated that renewables have to be const ructed where the resources exist (and where there is adequate transmission), and those resource s are not necessarily located in the same state where all CO 2 emitting affected units are located. Commenters con tended that this fact also demands that utilities that acquire renewable resou rces should be entitled to use the credits where the utility's system needs them for compliance purp oses. Commenters stated that portability ensures that utilities pursue those resources that fit best with their system at the lowest cost, and promote a more efficient and economical generation portfolio and electric grid. Commenters stated that state plans should employ a utility-dri ven portfolio approach that recognizes the clean energy and EE (the non- CO 2 resources) owned by each utility, as well as the ot her building24

blocks. Commenters stated that in the event that a utility has non-emitting credits, that utility should be entitled to use those non-emitting credit s it owns to offset its CO 2 emissions in any state. Commenters stated that it is only fair that the customers who paid for the RE resource and the EE measures be entitled to take credit for them to offset their own emissions. Commenters stated that ratepayers are entitled to portability of their non-emitting resources in interstate commerce to use them for compliance against the CO 2 emissions from their resource located remote from their home state.

Commenters provided an example of the potential ine quity. Commenters stated that the example involves the Minnesota RES, as well its 1.5 percentEE goal. Commenters stated that both instate and out-of-state wholesale utilities serve th e load in Minnesota, and they do so with both renewable and fossil generation that are based in-s tate and outside of Minnesota. Commenters noted that Minnesota's CO 2 reduction goal is based on the generation located o nly in the state and stated that it would be unjust for Minnesota to cou nt all of the RE and EE used in the state by out-of-state entities towards CPP compliance. Comme nters stated that MRES has no generation contributing to the CO 2 emissions located in the state of Minnesota, but itdoes provide RE and EE based on the state's mandates. Commenters noted that the RE and EE has been paid for by MRES members in MN, IA, ND and SD and is generated in Iowa, Minnesota and North Dakota. Commenters stated that the state of Minneso ta should not be entitled to offset the emissions of its in-state EGUs with RE and EE from a utility that does not even emit any CO 2 in the state. Commenters contended that to reduce emis sions at an affected EGU by requiring utilities that do not own, operate, or otherwise pu rchase power from the EGU to invest in RE or EE flies in the face of fairness. Commenters stated that they may have an RES compliance obligation in Minnesota, but that does not entitle the state of Minnesota to take the RE paid for by MRES members and their customers to meet its sta te CO 2 reduction goal. Instead, commenters stated it is only fair that ratepayers g et the full benefit of their investments by allowing the utility owning the RECs to use those c redits for its own benefit to offset its own CO 2 emissions.

Comment 4: Comments expressing concerns that RE cannot be cre ated out of state.

Response 4: In the final rule, to the extent qualifying renewa ble energy generation is tied to a state plan, the quantified and verified MWh impacts of the renewable energy measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the generation occurs inside or outside the state or te rritory. For more information about the treatment of in-state and out-of-state renewable en ergy impacts, see section VIII.L of the preamble to the final rule.

Regarding double counting, it is proposed that EM&V plans must address how double counting will be avoided through the use of tracking and acc ounting procedures to ensure that two or more programs do not separately claim savings from the s ame EE project or measure (for example, two EGUs claiming savings from the same lighting re trofit). Other types of double counting must likewise be considered and avoided. For more d etails on EM&V provisions, see section VIII.K.3 of the preamble to the final rule, section IV.D.8 of the preamble to the proposed Federal Plan, and the draft guidance document.25

The following are summaries of the specific public comments under this comment:

Commenters stated that the proposed guidelines appe ar to say that credit for RE projects can only go to the state where the project is located, even though RE may help reduce emissions in another state. Commenters suggested that the RE sho uld be credited to the state that uses the RE and that verified RECs be used as evidence of emiss ion reductions in those cases where the RE generation took place in another state. Commenters stated that RECs should eliminate the potential for double counting of generation offsets

. Commenters were concerned that there are no provisi ons to allow for the interstate use of RE for compliance with the rule, and that the Red Rock Hyd roelectric Project which is under construction in Iowa may be limited to the state of Iowa only. Commenters said they have an exclusive power purchase agreement with a private w ind developer in another state which is a significant investment that their company chose to take proactively to augment its resource with a certain amount of renewable energy.

Commenters stated that under the proposed approach the credit for existing RE projects would accrue to the state that hosts them rather than the states that bankrolled them through binding purchased power agreements. Commenters contended th at this is clearly inequitable and must be addressed in the architecture of any rule that enta ils beyond-the-fence line mandates.

Comment 5: Comments suggesting that the EPA must avoid double -counting, regardless of the method for crediting RE.

Response 5: The EPA agrees that it is important to minimize th e risk of double-counting of emission impacts of measures, particularly across s tate plans, and has incorporated elements into the rule that seek to minimize it. It is proposed i n the Federal Plan that EM&V plans must address how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do n ot separately claim savings from the same EE project or measure. Other types of double counti ng must likewise be considered and avoided. For more details on EM&V provisions, see section VI II.K.3 of the preamble to the final rule, section IV.D.8 of the preamble to the proposed Fede ral Plan, and the draft guidance document

. States have the option to adopt multi-state plans, for either rate-based or mass-based plans, that reflect regional interactions. These plans engage m ultiple states in the same system for purposes of tracking mass-based allowances or issuing and tr ading unique rate-based Emission Rate Credits (ERCs) as described below.

Mass-based plans rely exclusively on reported stackemissions for determining whether a massbased CO 2 emission goal is achieved and avoids concerns about counting the same mass reductions in two different mass-based states.

For rate-based plan compliance, the final rule spec ifies a general accounting approach that inherently acts to minimize state rate differences that may influence distortionary investments and ensures that quantified and verified MWh impact s of qualifying zero-emitting and lowemitting resources are applied consistently across all affected EGUs. The EPA revised the26

methodology used to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal to better reflectthe regional nature of the grid among other things. Consistent with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines quantified and ver ified MWh impacts of qualifying zero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. Do uble-counting of CO 2 emission reductions is prevented, however, because the reported emissions from each unit are represented in the numerator of each of those unit’s emission rates an d the method disallows any adjustment to any EGU’s reported emissions.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring e xplicit adjustments, the accounting method corresponds with the use of M Wh-denominated ERCs in the rate-based emission trading framework specified in this rule. This MWh accounting method creates a crediting system or rate adjustment process that is indifferent to the rate-based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards

. An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, whe n developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

The EPA acknowledges in the final rule that there m ay be interactions between mass-based and rate-based plans regarding counting measures, speci fically where measures that provide substitute or avoided generation, such as RE and de mand-side EE, are located in a mass-based state and can also be used by a rate-based state in meeting the CO 2 performance rates or state goals. The EPA has determined that, in the contextof interactions among rate-based and massbased plans, there is not explicit double-counting of the CO 2 emission reductions associated with counting measures located in mass-based states, con sidering the accounting methods outlined in this final rule. Though there is no risk of double -counting emissions, in response to commenter concern that overall CO 2 emissions reductions would be foregone in situation s where a source in a rate-based state counts the MWh from measures in a mass-based state, but the generation from that measure acts solely to serve load in the mass- based state, the EPA is restricting the ability of rate-based state to claim emission reduction measur es, such as RE and demand-side EE, located in mass-based states. In order to avoid cutting som e states off from regional RE supplies that are assumed in the BSER building block 3 and incorporat ed in the CO 2 emission performance rates or state rate-based CO 2 goals in the emission guidelines, the EPA has deter mined that it is appropriate for rate-based states to count MWhs fro m RE located in mass-based states, subject to the condition that the generation in question was i ntended to meet electricity load in a state with a rate-based plan.27

For a discussion about the elements incorporated in to the final rule to minimize double-counting, see section VIII.L of the final rule preamble. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand- side EE and renewable energy, including eligibility dates and the types o f EE savings and RE MWhs that are eligible, see section VIII.K.1 of the final rule preamble. Re quirements for rate-based emission trading programs and the issuance and tracking of ERCs, inc luding qualifying measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule pre amble. Section IV.D.8 of the preamble to the proposed Federal Plan describes the provisions rela ted to proper ex post quantification and verification of MWhs from renewable electricity gen eration or demand-side EE savings to avoid overestimation as suggested by commenters. For info rmation about mass-based emission standards with a market-based emission budget tradi ng program, see section VIII.J.2.d of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters, in response to the EPA's request for co mment on whether RE-based emission reductions should be credited to the state where th e energy is generated rather than the state where the energy is used, stated that the EPA must avoid all incentives to double-count emission reductions or otherwise game the system. Commenters also stated that the EPA should design its state-based targets so that RE generation (rather t han importation) is incentivized wherever such generation is physically feasible, so that maximum RE capacity is fostered.

Comment 6: Comments suggesting that states exporting renewabl e energy may not receive credit for these exports without further agreements with importing states.

Response 6: In the final rule, to the extent qualifying renewa ble energy measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the generation occurs inside or outside the state or territory. For more informati on about the treatment of in-state and out-ofstate renewable energy impacts, see section VIII.L of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated that states can claim credit only for RE they consume and that is accounted for under their renewable policies; as a result, st ates exporting RE may not receive credit for these exports without further agreements with impor ting states. Commenters stated that, at the same time, energy exporting states may not be able to claim credit for these emission reductions either. Commenters concluded that the proposed acco unting method for RE may not capture all incentives for RE development in areas, like the We st, with many large export and import relationships.

Commenters stated that these import/export relation ships are particularly important in the West because there are numerous long distance power tran sfers in the region and that California is particularly interested in working with regional pa rtners to explore joint compliance options and ensure that RE is accounted for across state lines to strongly encourage further investments.28

Comment 7: Comments recommending that customer-sited distribu ted renewable generation within a state be credited like EE.

Response 7: In the final rule, the EPA recognizes the value of renewable energy as part of the Best System of Emission Reduction. Renewable energ y measures installed after 2012, including distributed renewable energy generation, that are t ied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO 2 emission rate, in the same way that eligible EE resources may be used, describ ed in section VIII.K.1 of the preamble to the final rule. The measures must also meet the eligibi lity requirements and provisions related to proper quantification and verification of MWhs from RE generation, as described in Ssection IV.D.8 of the preamble to the proposed Federal Plan

The following are summaries of the specific public comments under this comment:

Although commenters agreed that RE be credited base d on out-of-state PPAs, commenters recommended that EPA should credit increased, custo mer-sited distributed renewable generation within a state, which is implemented after the date of the publication of the Proposed Rule, similarly to its proposed treatment of end-use EE.

Comment 8: Comments suggesting that states should be able to take credit for emission reductions achieved out of state due to in-state en ergy efficiency policies.

Response 8: In the final rule, to the extent demand-side EE me asures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand-sid e EE savings occur inside or outside the state or territory. For more informati on about the treatment of in-state and out-ofstate energy efficiency impacts, see section VIII.L , Treatment of Interstate Effects, in the final rule preamble.

The following are summaries of the specific public comments under this comment:

Several commenters stated that a state should be ab le to take credit for emission reductions achieved out of state due to in-state EE policies. Commenters stated that the credit should only be taken as long as the reductions will not be doub le-counted. Commenters stated that the credit should only be taken as long as both the importing and exporting state select rate-based goals; and commenters added that states should not be requ ired to track savings back to the actual power plants or determine CO 2 emissions reductions due to electricity savings. Co mmenters stated that a state should not take credit any exis ting efficiency programs that were included in another state's baseline and used to set that state 's interim and final goals. Commenters stated that as long as both the emissions and the energy output from the energy resources are allocated only to the state that imports the energy, these sources will not be double counted, and the technical potential for leakage is reduced29

Several commenters believed that the state that fun ds the incentives and related program expenses incurred by the utility, should receive fu ll credit for savings realized at out-state EGUs under 111(d). Commenters stated that such treatmentof EE savings would be consistent with expected treatment of out-of-state RE generation co mpelled by the state. Commenters stated that this approach would accurately credit and ince ntivize EE investment in states that import fossil-fuel energy, thereby allowing the state to u se its EE infrastructure as a tool for compliance.

Commenters stated that this approach would be compa tible with their existing state laws. Commenters stated that this approach also provides parity between the mechanisms used to develop the BSER Block Four goal and compliance mec hanisms available to importers.

Several commenters stated that this approach would encourage energy importing states from funding and implementing EE programs and maximize t he impact of the most cost-effective resource available for reducing carbon emissions.

Commenters asked that the EPA recognize that EE mea sures in hydropower-based utility territory reduces GHG emissions and award credit fo r that without requiring EE mandates or other encumberments on utilities with de minimis GH G emissions of their own.

Commenters stated that states should have the abili ty to work with one another to determine the best method for accounting of such credits and cost s, without having to be in a regional program, ensuring there is no double counting of reductions among states.

Commenters stated that, in addition to changing the rule to allow EE measures to be claimed no matter where the emission reductions occur, the EPA should allow a state to use the marginal emissions rate of the region's net system mix or it s own average marginal emissions rate. Commenters claimed that this will allow each state to count the full value of its EE investments. Commenters stated that the EPA should allow each st ate to assign the avoided emission rate as the emissions rate of the marginal resources in the power pool.

Commenters stated that if the CPP is to achieve the degree of cost-effective carbon reductions that the RGGI model demonstrates are achievable, th e rules under which state compliance is enforced must allow for the full crediting of EE im pacts.

Commenters recommended that the EPA appropriately a ccount for voluntary EE actions by private actors not covered by the rule, so that suc h actions are not double counted by reducing any state's obligations under the rule.

Commenters requested that the EPA recognize the exi sting deployment process for EE in consumer-owned utilities (COUs) in the Pacific Nort hwest. Commenters described the process for bringing EE projects onboard. Commenters state d that significant EE acquisitions have come about due to collaboration with the NWPPC and the B onneville Power Administration (BPA). Commenters stated that every successive regional po wer plan adopted by the NWPPC is an overall 20 year forecast that offers resource guida nce accomplished through rigorous analysis and stakeholder involvement. Commenters stated thatEE goals are a part of that resource guidance prioritized along with renewables and coge neration. Commenters explained that BPA's power rate case sets the agency's budget, including budgeting for EE goals, informed by the Regional Technical Forum (RTF) which evaluates the cost effectiveness of EE measures.30

Commenters stated that COUs fund BPA EE programs th rough their power rates and many COUs supplement their EE programs by budgeting addi tional incentives in addition to contributions made through BPA programs.

Comment 9: Comments requesting additional guidance.

Response 9: In the final rule, to the extent qualifying RE gen eration and demand-side EE measures are tied to a state plan, the quantified a nd verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate under a rate-based approach, regardless of whether the RE generation or demand-s ide EE savings occur inside or outside the state or territory. The EPA will work with states u sing the rate-based approach that are interested in allowing the use of RE from outside the U.S. to adjust CO 2 emission rates as described in section VIII.K.1.a.(2)(c)(iii). Descriptions of th e types of qualifying generation that is eligible, including hydropower, is described in section VIII. K.1.a.(3). For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demandside EE, including specific geographic eligibility requirements and limitations and measurement and verification requirements to ensure that the MW hs are unique and creditable, see sections VIII.K.1 and VIII.K.3 of the preamble to the final rule. For more information on the treatment of in-state and out-of-state renewable energy and ener gy efficiency impacts, see section VIII.L of the preamble to the final rule

. The MWh accounting method corresponds with the use of MWh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading f ramework specified in this rule. An ERC is issued separately from any other instruments that m ay be issued for a MWh of energy generation or energy savings from a qualifying measure, such a s a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how exi sting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs. Requirements for ratebased emission trading programs and the issuance an d tracking of ERCs, including qualifying measures, programs or projects and addressing the p otential for interactions between ERCs and RECs, are in section VIII.K.2 of the preamble to th e final rule.

The following are summaries of the specific public comments under this comment:

Several commenters believed that additional conside ration, clarity and/or guidance was needed with respect to quantifying, assigning, or creditin g electricity generation that crosses state or regional boundaries.

Several commenters requested clarification on how R E is to be credited when RE is generated in one state but financed and/or used in another. Comm enters were unsure whether renewable generation imported from Canada could count towards 111(d) compliance. Commenters stated that the EPA should specifically address the manner in which interstate REC markets will be assessed for the purpose of compliance with the CPP . Commenters requested guidance on31

determining the beneficiary of RE and EE programs w here the implementing state imports power from an EGU located in another state.

Commenters recommended the EPA allow states to take credit for international sources of RE and EE where the following conditions are met: 1. t he new international resources used for crediting will result in reduced emissions from fos sil-fuel generation in the United States; and 2. the international resources are not double-counted as a non-emitting or low-emitting resource for a regulatory obligation of both the source country and Clean Power Plan compliance. Commenters expressed concern about the potential f or leakage between states and between new and existing generation and recommended the EPA sho uld ensure that generation shifts across borders does not allow power plants in the U.S. to comply with the clean power plan without actually achieving the anticipated reduction in car bon pollution.

Commenters believed states should be able to includ e import of Canadian low- and non-emitting electric generation in a state-driven portfolio pla n. Commenters also suggested that the requirements to use Canadian low- and non-emitting electric generation could be part of a state commitment approach in which the requirements would be only enforceable by the state. Commenters noted that electricity flows across stat e and international boundaries, and that load centers in U.S. states are often supplied in part b y resources in neighboring Canadian provinces, and vice versa. Commenters stated that the same acc ounting systems used for interstate tracking systems can be used to track emission effects and t o avoid double counting of emission reductions in the U.S.-Canada context. Commenters noted the following examples of tracking systems currently used: Midwest Renewable Energy Tr acking System (or "M-RETS") (used to track renewable energy in U.S. Midwestern states an d the province of Manitoba); Western Renewable Energy Generation Information System (or "WREGIS") (renewable energy registry and tracking system for the Western Interconnection , including the provinces of Alberta and BC); and New England Power Pool Generation Informat ion System ("NEPOOL GIS") (tracks renewable energy credits ("RECs") for both renewabl e generation sourced within the ISO-NE control area and for generation imported from adjac ent control areas, including provinces in eastern Canada).

Commenters noted that the Regional Greenhouse Gas I nitiative ("RGGI") program has used the importation of electricity from Canada to reduce th e utilization of fossil fuel-fired units in the RGGI region and thereby decrease the CO 2 emissions at covered EGUs and noted that several states include Canadian RECs in their RPS programs. Commenters recommended states be allowed to include these RECs in their state plans.

Commenters stated that clear accounting rules to aw ard credit for RE to the appropriate parties is needed. Commenters stated that the EPA also did notadequately address the issue of increased demand or competition for such out-of-state credits , which will affect availability and price of those credits. Commenters specifically requested t he EPA to provide guidance on avoiding double-counting. Commenters requested that the EPA include more discrete provisions in the CPP governing the quantification and credit of elec tricity generation. Commenters asked for guidance on what the EPA considers effective ways t o identify, allocate and ensure the integrity of out-of-state reductions caused by in-state RE pr ograms.32

Commenters asked how hydropower assets should be co unted and specifically how they should be counted when two states each want to count the s ame hydropower generation toward their goal. Commenters asked whether the owner of the hyd ropower asset or output gets to pick the highest bidder, or is it based on load (contract pa th) following.

Commenters asked for clarification on the following questions: who gets the credit when RE is developed in one state using that state's tax credi ts and other incentives, but then exported to another state for consumption; and how does this di ffer in a multi-state arrangement. Commenters stated that the Proposed Rule is unclear whether the transfer of REC count toward the recipient state's compliance efforts in the abs ence of a formal multi-state plan between those
two states.

Commenters urged the EPA to work collaboratively wi th states in developing definitive guidance that establishes a clear and workable framework on how states can account for and use RECs or RE generated from out-of-state resources.

Several comments stated that the EPA must clarify t hat the state paying for the RE generation may claim credit for that generation regardless of where the generation physically occurs. Commenters requested that this clarification be mad e in rule language. Commenters stated that the owner should be able to sell or grant the rightto another entity to use in meeting its obligations. Commenters also stated that if the EP A does not clarify that the state that owes the RE claims the credit, that there is a risk that the state hosting the RE production could also try to claim the compliance credit, which could lead to do uble counting of emissions reductions, and therefore a failure to meet the emissions reduction s targeted by CPP.

Commenters suggested that the EPA clearly state tha t renewable generation based upon out-ofstate PPAs are also creditable and they are credite d in a manner that does not require importing states to negotiate agreements with exporting state s. Commenters asked that the EPA clarify that bundled REC purchases from other states may count f or compliance.

Commenters claimed that failure to specify acceptab le and unacceptable attribution approaches for out-of-state RE introduces significant uncertai nty, risk of double-counting emissions reductions and RECs, and potential for serious dama ge to existing RE markets.

Commenters requested that the EPA provide guidance on affordable methods by which any state may quantify emissions occurring outside of state b oundaries when electricity or credits are being imported or exported, if the final CPP requir es such quantification be included in State Plans.

Commenters stated that new hydroelectric power mustbe available for compliance for the state that owns the energy, regardless of where the energ y is generated.

Commenters stated that the EPA should clarify that existing and future contracts that include RECs or other environment attributes also convey th e associated emissions reductions relevant to state CPP implementation plans while preserving fle xibility for regional and bilateral arrangements between states. Commenters contended that a lack of clarity will restrict utilities' ability to contract for renewable power across stat e lines, increasing compliance costs and artificially restricting the development of cost-ef fective renewable projects.33

Commenters stated that the EPA should provide guida nce to states for assessing the relative contribution of different state policies to a parti cular RE project. Commenters presented issues that required guidance, including: whether credit could be apportioned based on financial analysis of the contributions of each state's polic y to the viability of a RE project; or, credit coul d go solely to the holder of the REC associated with the RE generation. Commenters stated that this may be worked out through multi-state accounti ng agreements, but some form of guidance or default allocations would provide more certainty for states, utilities, and RE developers. Commenters encouraged the EPA to further develop an d describe what it means for a state to have "implemented" a RE measure in light of the int eractive nature of state and federal policies promoting clean energy.

Commenters stated that having the EPA be the final arbiter of whether a state has properly included RE emission reductions in a compliance pla n creates great uncertainty for individual states, which would not know until after the EPA as sessed all submitted state compliance plans whether they could count all of the RE included in a particular plan. Commenters were concerned that this could undermine a state's abili ty to demonstrate that a plan would achieve the target emission rate goal, and could result in time -consuming and expensive plan revisions that delay the start of compliance. Commenters suggested to avoid plan revisions related to possible RE double counting and to ensure against double cou nting in the first instance, the EPA should provide clear guidance as to how states should attr ibute RE.

Commenters stated that the EPA should provide state s with guidance on how to allocate RE built by electric utilities to serve customers in multipl e states. Commenters gave an example of KCP&L which serves customers in Kansas and Missouri . Commenters stated that most of KCP&L's fossil generation owned by the company is l ocated in Missouri, but most of the wind generation that has been built and is expected to b e built in the coming years is in Kansas. Commenters stated that wind resources are allocated to each state, based on customer demand, without any need to transfer RECs. Commenters conte nded that in such situations, the state that consumes the RE should be able to use it for compli ance. Commenters stated that the final guidelines should address how utilities can allocat e RE generation to different states, consistent with customer consumption patterns.

Commenters stated that the proposed guidelines do n ot specify how a state would demonstrate RE reductions included in a plan will not be double counted, but, in the absence of clear guidance from the EPA, it would seem to presuppose that states with potentially competing claims agree on how to apportion credit for RE redu ctions. Commenters stated that it appears that the EPA may intend to foreclose the use of som e RE emission reductions for compliance if states cannot agree on attribution. Commenters stat ed that this would be unfair to states (and the owners of RE generation) as it could increase compl iance costs by rendering some valid emission reductions unusable for compliance purpose s simply because states could not agree. Commenters asserted that the EPA should not disallo w the use of RE generation because it may have been double counted. Instead, Commenters state d, the EPA should articulate clearly how RE generation will be credited to states to preventagainst double counting and ensure that all reductions can be used for compliance.

Commenters stated that the proposal fails to establ ish a workable regulatory framework for addressing the accounting of electricity resources generated in one state but used in another.34

Commenters stated that our electricity system is in terconnected with many cross-state purchase agreements.

Commenters stated that the EPA should clarify how E E measures should be credited. Commenters urged the EPA to clarify EE measures are counted on a load-basis rather than a geographical basis.

Commenters stated that it will be important that th e guidance provided to the states in the final rule, clearly recognizes the strength of mass-based approaches in avoiding accounting difficulties.

Commenters stated that the proposed rule is vague a nd the final rule should be unmistakably clear that all RE produced in a state is also credi ted entirely to that state.

Commenters stated that Wyoming exports about 60% of its block 1 generation and asked if block 3 and 4 savings from other states can be applied to Wyoming's Block 1 exported production. Commenters also asked for clarification on whether block 3 and 4 savings only apply to Wyoming generation related to intrastate retail sal es and asked for guidance on how block 3 and 4 savings would be allocated among block 1 generato rs.

Comment 10: Comments requesting clarification on how RE shoul d be credited; lack of clarification is costing Navajo Nation jobs and rev enue.
Response 10: In the final rule, to the extent qualifying RE gen eration are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generat ion occurs inside or outside the state or territory. For more information aboutspecific geographic and other eligibility requirements for resources that can used to adjust a CO 2 emission rate, see section VIII.K.1 of the preamble to the final rule.

States, including areas of the Indian country, that do not have any affected EGUs within their borders may be providers of credits to adjust CO 2 emission rates, as discussed in Section VIII.K.1.a.(2)(c).

The accounting method corresponds with the use of M Wh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule. An ERC is issued separately from any other instruments that may be i ssued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how exi sting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.35

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibil ity requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects and addressing the p otential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule pre amble. For requirements related to the measurement and verification of eligible and unique MWhs, see Section VIII.K.3 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters commenting on the Tribal and Territories Supplemental Notice, provided comments on counting RE. Commenters stated that RE generated within a state should be credited toward meeting that states carbon reductio n rate. Commenters stated that the EPA should clarify that credits for RE should be assign ed to the entity that is purchasing the output, including the RECs (or merely the RECs from that re source), unless an alternate arrangement is specified through contract. Commenters urged the EP A to make an immediate clarification without waiting for the issuance of a final rule.

Commenters stated that they have repeatedly asked t he EPA to make this clarification and listed 6 different meetings or documents where commenters asked the EPA for clarification. Commenters stated that the EPA's act ion, and subsequent inaction by not clarifying its ambiguous statements, has created and continues to create direct and irreversible economic harm to the Navajo Nation economy and its citizens. Commenters explained that because of the ambiguity of whether RE development on tribal lands will count toward a state's emission reduction goal, one project is currently on hold in the Navajo Nation. Commenters contended that this project has the potential to be the first of many utility-scale RE projects developed within the Navajo Nation and that several hundred c onstruction jobs that the project would provide are on hold and in jeopardy. Commenters sta ted that absent an immediate clarification adopting the Navajo Nation's position, the Navajo N ation will likely lose all of the jobs and the direct and indirect economic growth associated with the project. Commenters stated that based on standard economic factors, the resulting lack of investment will cost the Navajo Nation economy over the life of the RE resource over $50 m illion in tax revenue alone. Commenters stated that the EPA should not engage in any behavi or that would limit the use of tribal RE resources in any state and should refrain in its fi nal rule from questioning the existing RE marketplace, which currently allows for interstate and inter-territorial sales and exchanges of RECs produced by RE projects.

Commenters contended that because the EPA asked for comment on whether states should only count RE generated in their state, the proposal is ambiguous about whether RE projects constructed on tribal lands will have to be include d in either a regional trading program or a multi-state plan in order for RECs from such projec ts to be distributed across multiple jurisdictions. Commenters stated that developers m ust be allowed to freely negotiate the sale and delivery of electricity and RECs across jurisdi ctions (including state and tribal boundaries) through various contractual mechanisms, such as PPA s, without fear that the value of those36

projects will be severely limited by an inability t o transfer the RECs for use to address CO 2 emission reductions under any state plan.

Commenters stated that the EPA is also mistaken tha t the Supplemental Proposed Rule will result in no additional costs to the Navajo Nation. Commenters provided the example of the utility-scale RE project that is currently on hold. Commenters stated that the Navajo Nation is currently losing out on $100 million worth of inves tments in RE resources on the Navajo Nation because of the ambiguity of whether RE development on tribal lands will count toward a state's emission reduction goal.

Commenters stated that in an environment that suffe rs from over 50% unemployment, the continued delay in job creation is unconscionable a nd should not be allowed to continue merely because of the ambiguity created by the CPP. Comme nters stated that the delay could also cause the project to not qualify for Federal tax credits and would lead to increasing the cost of the project. Commenters asserted that without immediate clarification by the EPA, additional project partners could have the same concerns, thereby stif ling the Navajo Nation's economic growth and jeopardizing its pursuit of a green economy. Co mmenters stated that the EPA should issue an immediate clarification and statement supporting th e current RE marketplace and the existing practice under which the use of RE and application of RECs is not bound by territorial restrictions. Commenters stated that this clarific ation should include that EPA has no interest in modifying the current RE development marketplace an d supports without conditions or questions multi-jurisdictional development of RE resources an d that such development can be contracted for use to meet compliance requirements for any sta te under the Proposed Rule for the States.

Commenters stated that the EPA should not interfere with RE project development in Indian Country. Commenters stated that the EPA should all ow Indian tribes to receive credits for RE projects the tribes develop and use on their lands. Commenters stated that the EPA should immediately state that its intent is not to hinder the development of RE projects on tribal lands and further clarify that the EPA explicitly rejects any prohibition against a state utilizing RE projects that occur outside its boundaries. Comment ers stated that the EPA should continue to leave the methodology for coordination for the sale and purchase of RECs and RE to the market and not attempt to dictate that methodology.

Commenters stated under the Energy Policy Act of 20 05, the federal government committed to support the development of energy resources, and in particular RE resources, on tribal lands. Commenters concluded that the EPA is contravening t he clear mandates of the EPA by creating a barrier to the development of RE on tribal lands in a manner that is discriminatory as compared to the states.

5.7.3 Cooperative multi-state accounting of interst ate emission effects

This section includes comments associated with mult i-state agreements.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.37

Comment 1: The EPA should provide guidance on how to attribut e reductions associated with RE before states submit compliance plans. EPA shoul d serve as the third party verifier.

Response 1: In the final rule, to the extent RE generation and demand-side EE measures are tied to a state plan, the MWh impacts of the measures ma y be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE genera tion or demand-side EE savings occur inside or outside the state or territory. The accounting method corresponds with the use of MWh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings fr om a qualifying measure, such as a renewable energy certificate (REC). An ERC may be i ssued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfoli o standards or energy efficiency resources standards. The EPA is aware of the potential for in teractions between ERCs and RECs or EECs and encourages the states to consider, when develop ing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect RE and demand-side EE, including specifi c geographic eligibility requirements and limitations, see section VIII.K.1 of the preamble t o the final rule. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects and addressing the p otential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule pre amble. For requirements related to the measurement and verification of eligible and unique MWhs, see Section VIII.K.3 of the preamble to the final rule. For more information on the treatment of in-state and out-of-state renewable energy and energy efficiency impacts, see section VIII.L of the preamble to the final rule, Treatment of Interstate Effects.

The following are summaries of the specific public comments under this comment:

Commenters supported the use of cooperative agreeme nts between states, but requested that EPA provide clear guidance as to how to attribute reduc tions associated with RE and EE before states submit their compliance plans. Commenters raised qu estions about how to address compliance in the case of generation resources located in one sta te, but serving customers in another state or multiple states. Commenters provided an example whe re utilities located in one state that have ownership in generation stations in another state m ay be interested in using EE measures adopted in the "home" state to offset the CO 2 emissions from generating stations in the other st ate, but would be unable to do so unless a multi-state plan is adopted. Commenters also pointed out a potential scenario in which one state may impose a CO 2 reduction obligation on a non-emitting utility in that state, and another state (where the utility has generation that emits CO 2 ) may require only CO 2 emitters to reduce CO 2 , which would effectively require utility to pay tw ice for reducing the same CO 2 emissions. Commenters also asked how an agreement could be reached when a state wants to claim credit for renewable ge neration built outside its borders, based on an38

assertion that the renewable project was built purs uant to that state's renewable policies. Commenters suggested that the proposed rule should be adjusted to provide incentives for developing cross-state energy efficiency and renewa ble energy to encourage these collaborative regional plans.

Commenters urged that EPA develop guidance on these issues. Commenters stated that there are many existing state and federal laws that already f ocus on generation and use of energy, including renewable resources and energy efficiency , in the Northwest region. Commenters stated the proposed EPA rule raises questions aboutthe general construct, timing, and interaction with these existing laws. Commenters stated it is u nclear how renewable energy credits (or actual energy) that comes into a state from a neighboring state would be accounted for in individual state implementation of the goals. Commenters note d that clear guidance may be useful to helping incentivize states to develop cooperative a pproaches and avoid scenarios were states may not be able to design multi-state plans prior to th e due date for compliance plans. Commenters also called on EPA regional support to design jointcompliance options and provide the data needed to support those options. Commenters suggest ed that states incorporate existing measurement and verification processes for determin ing the avoided MWh and emissions reductions from EE into regional protocols that can measure the impacts of EE at a regional level.

Commenters agreed that states must adopt a measurem ent and verification (M&V) program to accompany any plan elements beyond Building Blocks 1 and 2 in the final rule. Commenters stated the M&V program would also allow a state to take credit for reductions of emissions in another state where the implementing state now obta ins transmitted power, and ensure that two states do not claim the same reduction.

Commenters stated that EPA's approach of requiring a state to determine where the avoided generation has/will occur and only giving credit fo r in-state reductions is going to be burdensome to states in terms of planning, record keeping, and ensuring no double counting. Commenters stated that in order to prevent legal issues betwee n states and utilities, EPA should serve as the third party to examine how to handle the tracking o f avoided generation to prevent double counting where the EE/RE is paid for by one state, implemented by a second state, and the generation is avoided in a third state. Commenters also indicated that EPA needs to provide the states with a more concrete methodology for this ac counting/ modeling, a nation-wide reporting system, and third party verification of which unit avoided generation due to EE/RE in which

state.

Comment 2: Comments stating that the EPA should promote regio nal cooperation to prevent perverse incentives that could result in negative e conomic impacts between states. Additionally, costs to customers in DC will be affected by decisi ons made by other states.

Response 2: The final rule allows for multi-state coordination through a joint emission goal and among states retaining individual state goals, incl uding via trading programs, as well as multistate plans that address a subset of EGUs in a stat e. For more information, see section VIII.C.5 of the preamble to the final rule.39

The following are summaries of the specific public comments under this comment:

Commenters noted the potential cost impacts associa ted with the rule. Commenters expressed concerns that the proposed rule could have potentia l deleterious effects where regulated utilities provide customers with energy generated by faciliti es outside the state. Commenters noted that if a state's emission goals under the Proposed Rule cr eated a perverse incentive to close an electric utility, it could result in economic costs to custo mers in outside states. Commenters urged that EPA should promote consideration in working towards the common goal of carbon reduction among states. Commenters stated that although the D istrict of Columbia would not have to submit a state plan because it imports nearly all o f its electricity via the regional transmission grid managed by PJM, it will be affected by the act ions states within its region take to comply with their emissions guidelines. Commenters noted t hat decisions made by states throughout the PJM RTO region will ultimately affect District resi dents and ratepayers.

Comment 3: Comments suggesting a cooperative accounting agree ment would not address double-counting concerns.

Response 3: The EPA agrees that it must minimize the potential for double-counting. The final rule acknowledges the interactions between rate and mass states and includes elements that minimize the risk of double-counting as described i n section VIII.L of the preamble to the final rule.

It is proposed in the Federal Plan that EM&V plans must address how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the s ame EE project or measure (for example, two EGUs claiming savings from the same lighting re trofit). Other types of double counting must likewise be considered and avoided. For more d etails on EM&V provisions, see section VIII.K.3 of the preamble to the final rule, section IV.D.8 of the preamble to the proposed Federal Plan, and the draft guidance document.

The following are summaries of the specific public comments under this comment:

Commenters requested assurances that EPA will confi rm that double counting does not occur. Commenters expressed concerns that a cooperative ac counting agreement would not address double-counting concerns. Commenters noted that alt hough the proposal suggests that a massbased state could adjust the overall CO 2 emissions from the affected fleet to account for t he "export" of avoided CO 2 emission credits, RE and EE benefits are already a utomatically accounted for under a mass-based program as the exi stence of RE/EE measures, or "megawatts," displaces the state's or region's reliance on fossi l fuel-fired generation. Commenters argued that it is difficult to unravel the location and type of fo ssil fuel-fired generation the specific unit of RE or EE has displaced, therefore, any adjustment to t he overall CO 2 emissions from the mass-based state's affected fleet would be derived from assump tions (e.g., estimates of the magnitude by which to offset the emissions of the mass-based sta te's affected fleet). Commenters expressed concern that if an adjacent state that relies on a rate-based approach attempted to claim credit for RE produced in a mass-based state, this would resul t in unavoidable double-counting. Commenters stated they support the level of emissio n reductions in the proposed rule, but urged40

EPA to ensure that flexibility in the rule does notresult in double counting of emission reductions.

Commenters supported EPA's proposal giving states t he ability to take credits for renewables for compliance purposes as well as state renewable port folio standard requirements without duplicating compliance credit. Commenters noted tha t a crediting and tracking system will be needed to ensure that 111(d) compliance credit is n ot double counted between states. Commenters stressed that implementation of the Clea n Power Plan hinges on EPA's ability to accept or reject state proposals in order for the P lan to be effective. Commenters stated the EPA must disapprove a state's implementation plan if th e plan is deemed "unsatisfactory" or double counts RECs or avoided emissions already accounted for in other state implementation plans.

Comment 4: Comments regarding the duplication of emission red uctions between state plans.

Response 4: In the final rule, to the extent RE generation and demand-side EE measures are tied to a state plan, the MWh impacts of the measures ma y be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE genera tion or demand-side EE savings occur inside or outside the state or territory. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE, se e section VIII.K.1 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters responded to EPA's request for comments concerning duplicative emission reductions between state plans. Commenters stated t hat EPA should defer to states that agree on an alternate formula for allocating reductions betw een or among themselves, as long as doublecounting is avoided. Commenters stated that the fin al rule should clearly provide that it is up to the owners of renewable generation to indicate whic h entity gets credit for the renewable generation. Commenters indicated that the affected state plans will include and track these agreements, and EPA must respect these agreements a s long as there is no double-counting of the renewable generation for 111(d) compliance. Comment ers stated that EPA should provide flexibility in the final rule to not strand existin g utility pollution control assets, while providing for wind energy expansion that allows the host stat e as well as neighboring states to develop plans that can meet their respective CO 2 emission reduction goals.

Commenters noted that EPA requested comment on whet her an emission reduction becomes duplicative (and therefore cannot be used for demon strating performance in a plan) if it is used as part of another State's demonstration of emission p erformance under its CAA section 111(d) plan (79 FR 34913). Commenters stated that avoidance of double counting is an accounting issue for States to resolve and EPA's involvement should only be as a last resort. Commenters suggested that, upon resolution, state goals should be modifi ed as appropriate but the credits should not be voided resulting in no state benefit.41

Comment 5: Comments suggesting that the EPA should use certif ication tracking system to track emissions.

Response 5: The final rule allows for multi-state coordination through a joint emission goal and among states retaining individual state goals, incl uding via trading programs, as well as multistate plans that address a subset of EGUs in a stat e, as described in section VIII.C.5 of the preamble to the final rule. The final rule also inc ludes requirements for tracking systems used by states issuing emission rate credits under rate-bas ed emission trading approaches. For more information, see section VIII.K.2 of the preamble t o the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should encourage states participating in a multi-state plan to use existing all-generation certificate tracking system s, where they exist, or work with existing RE tracking systems to track emissions from affected E GUs. Commenters noted that projects often receive numerous tax credits and other incentives i n the state in which they are located, and that EPA should be receptive to state plans that coopera tively allocate credit for such resources through mutual agreement between states that genera te and use renewable electricity. Commenters stated that EPA must treat renewables co nsistently in state carbon emission baselines and targets.

Comment 6: States shouldn't have to join a multi-state compac t to share RE credits. The EPA should give deference to states' ongoing resource p lanning measures as a means for sustainable electricity supply planning and delivery.

Response 6: In the final emission guidelines, the EPA provides for multiple multi-state plan approaches that states may take to meet the emissio n guidelines. This includes multi-state plans with joint multi-state rate- or mass-based goals an d the ability to collaborate with other states in the implementation of rate- or mass-based emission trading programs though a single-state plan. These multi-state approaches are described in secti ons VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule.

Regarding renewable energy, the final rule bases th e Best System of Emission Reductions upon resources within a regional, not a state’s border. In the final rule, to the extent RE generation measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE genera tion occurs inside or outside the state or territory. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE, se e section VIII.K.1 of the final rule preamble. The final rule allows for multi-state coo rdination among states retaining individual state goals under rate-based and mass-based emissio n trading programs. Details can be found under section VIII.C.5 of the final rule preamble.

The following are summaries of the specific public comments under this comment:42

Several commenters stated that states should not ha ve to join a multi-state compact in order to effectively share the renewable resource credit. Co mmenters stated that EPA should not impose measures within the CPP that would compel Minnesota to cease the importing and exporting of energy resources needed to reliably and cost effect ively serve the energy needs of Minnesotans as part of CPP state target compliance requirements , and noted that EPA's proposed determination of a Best System of Emission Reductio ns is based upon resources within a state's borders. Commenters stated that EPA should give def erence to Minnesota's ongoing resource planning measures as a means for sustainable electr icity supply planning and delivery, and if necessary, demonstrating Minnesota compliance with the EPA proposed CPP. Commenters stated that EPA should permit states to allow regul ated sources to use tradable mass-based emissions credits purchased from sources in other s tates, without any formal multistate plan, so long as any ton of emissions allowance can only be used in one state. For states that use the ratebased emissions approach, EPA should clarify that r enewable energy generated in one state can be included in another state's compliance formula. Commenters agreed that multi-state cooperation is most likely to arise among states th at have individual state plans that recognize reductions or credits from other states, but indica ted EPA must clarify that states can cooperate without blending state goals into a multi-state goa l. Commenters stated that this approach should qualify as a multi-state approach eligible for an a dditional one year extension.

Comment 7: Comments regarding the practical implication of no t considering energy cooperative’s electric systems.

Response 7: The treatment of EE has changed from the proposed approach. In the final rule, to the extent demand-side EE measures are tied to a st ate plan, the full MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand-side EE savings occur inside or outside the state or territory.

The following are summaries of the specific public comments under this comment:

Commenters stated that the proposal fails to consid er the practical implications of an energy cooperative's electric system that crosses state bo undaries, particularly in the case of crediting reductions due to energy efficiency projects.

5.7.4 Tradable regional EE/RE credit market

This section addresses comments on tradable credit markets as a method of implementation and compliance with CPP.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments supporting tradable credit markets.43

Response 1: In the final rule, quantified and verified MWh impa cts of qualifying zero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. Con sistent with the EPA’s calculation of the CO 2 emission performance rates and state rate-based CO 2 goals in the final emission guidelines, the MWh impacts are added to the denominator of an affe cted EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of M Wh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy effic iency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how exi sting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibil ity requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects and addressing the p otential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule pre amble. Section IV.D.8 of the preamble to proposed Federal Plan describes the provisions rela ted to proper quantification and verification of MWhs from renewable electricity generation.

The following are summaries of the specific public comments under this comment:

Multiple commenters stated they believe that states should be able to take advantage of existing REC markets to track and take credit for renewable energy generated out-of-state; these commenters noted that a renewable energy certificat e (REC) issued by a tracking system would be a viable, effective, efficient option that would allow affected EGUs and other entities to demonstrate compliance with a renewable energy stan dard. Commenters noted that the use of regional REC markets is consistent with EPA's appro ach of determining state renewable targets based on the regional availability of renewable pow er resources. Commenters stated that allowing states to continue to use demonstrated and effective regional tracking systems to track RE will be the most efficient way to demonstrate CP P compliance. Commenters recommended that states be required (or strongly encouraged) to use current tracking systems in place for REC generation and tracking to avoid double counting (e .g. PJM-EIS GATS). Commenters stated that such tracking systems help states comply with renew able portfolio standard (RPS) obligations; other commenters stated that each state has the dis cretion to choose what level of RPS44

compliance it will allow through out-of-state RECs. Commenters noted that RECs convey RE attributes, the name and location of the generating unit, the fuel used to produce electricity, the use of renewable electricity to individual grid use rs, the date the generation unit went online, and avoided grid emissions associated with renewable ge neration. Multiple commenters supported states developing, expanding or participating in an environmental crediting accounting system for renewable energy that utilizes RECs. Commenters supported RECs from a utility perspective, and stated that the final rule should allow utiliti es the ability to utilize RECs to demonstrate compliance by surrendering or selling the RECs to e ntities or states needing additional environmental attributes. Commenters noted that the problem of double counting is minimized when RECs are properly issued, tracked, and retired . Commenters asserted that the benefit of tracking systems is the ability to identify the loc ation of certificate use and whether the certificate is used for compliance with a state RPS in the state where the generator is located, an adjoining state, or a state across the country. Com menters also noted that interstate trading programs would ensure reliability and reduce custom er rate impacts. Commenters stated that the use of markets would also help utilities determine how much renewable energy capacity they needed to install or have under contract. Commenter s also noted that reliance on the renewable energy market would provide greater RE generation o pportunities at lower cost and lower emissions; commenters asserted that the interstate trading of RECs is an integral component of the financing and deployment of RE generation. Comm enters also noted that a recent UCS report discussed the benefits of regional grid coordinatio n and highlighted several recent studies by grid operators showing that renewable energy can signifi cantly lower CO 2 emissions while maintaining reliable and affordable electricity. Co mmenters believed that allowing nationwide trading of RECs for compliance RE targets would low er compliance costs.

Commenters supported a trading mechanism as a means for states to accommodate utilities that do not have mechanisms to reduce emissions - e.g., NGCC units (which can be redispatched) or electrical load (to which energy efficiency measure s can be applied) - in all states where it has generation. Commenters urged that state plans must have some way for utilities to comply without the possibility of energy efficiency or dem and reduction measures in that state to offset generation.

Commenters recommended the EPA not modify the curre nt renewable energy development marketplace and recommended that any state by allow ed to use renewable energy resource contracts to meet their compliance requirements wit hout requiring multi-jurisdictional agreements.

Comment 2: Comments requesting recommendations on how to track the crediting of RE use.

Response 2: The EPA agrees that it is important to ensure that emission rate credits (ERCs) for qualifying measures, including RE MWh generation pr ojects and programs, are properly issued and tracked to avoid duplication or double claims. The final rule describes specific requirements and assurances states must include in their plan su bmittal, including tracking system requirements, to assure the integrity of a rate-bas ed emission trading approach. For more information, see section VIII.K.2 of the preamble t o the final rule.45

In the final rule, to the extent RE generation meas ures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or s tate to adjust a CO 2 emission rate, regardless of whether the RE generation occurs insi de or outside the state or territory.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of M Wh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consi der, when developing their state plan, how existing instruments that are used to meet other re gulatory requirements or in voluntary markets may interact with ERCs.

Multi-state plans, where multiple states submit a p lan to meet a joint rate-based or mass-based CO 2 goal, must meet all of the same requirements as a single state plan to be approvable. State plan requirements are addressed at section VIII.D.2 of the preamble to the final rule. In particular, a state plan must describe the plan app roach and geographic scope, as discussed in section VIII.D.2.a.(1) of the preamble to the final rule. In addition, states may collaborate in the implementation of single-state rate-based and mass- based emission trading programs, through the interstate transfer of ERCs and emission allowa nces, as discussed at section VIII.C.5.c. of the preamble to the final rule. RECs may not be used as a compliance unit under a rate-based emission standards plan type, as discussed at secti on VIII.K.2.f of the preamble to the final rule. However, RECs could be used as a compliance instrum ent under a state measure, such as a state RPS, addressed in the supporting material for a sta te measures plan type.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibil ity requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see section VIII.K.1 of the preamble to t he final rule. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects and the potential fo r interactions between ERCs and RECs, are in section VIII.K.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters provided recommendations on how to track the crediting of RE use. Commenters recommended EPA leverage the infrastruct ure for REC tracking that is in place in many states and regions. Commenters supported the u se of established REC tracking systems and believe they are a viable tool that affected EG US, regulators, and other entities can employ to help ensure compliance with an RE standard. Comm enters stated that the existing REC tracking systems would not likely need any major mo difications in order to be used to account for and verify out-of-state purchases of RE. For ex ample, commenters recommended the use of46

the existing M-RETs tracking system; commenters spe cifically listed procedures for review used in M-RETs to prevent double-counting. Commenters st ated that M-RETS tracks the amount of RE delivered to the interstate transmission system and the amount of RE that the utility retires for each state, and RECs may be used only once. Com menters provided that processes are in place to prevent double counting both for generatio n tracked within M-RETS and between MRETS and other tracking systems. Commenters also su pported the use of tracking systems such as WREGIS to expand the procurement of RE options f or states, and other commenters also pointed to the New England Power Pool Generation In formation System. Commenters supported the use of RGGI, stating that RGGI states have succ essfully implemented emissions limits within existing power markets without distortions, disrupt ions, or reliability issues. Commenters urged EPA to simplify the manner in which RGGI states can craft state plans to comply with the ESPS. Commenters noted that states would benefit from the ability to purchase more competitively priced RE as well as the ability to sell RECs to other states. Commenters pointed to North Carolina as a state with an established entity whic h verifies, tracks, and banks both RE generation and EE avoided generation. Commenters po inted to the Generation Attribution Tracking System (GATS) as a viable system for track ing RECs. Commenters noted that GATS has validations built into the tracking system to p rovide as a basis of certificate ownership and to prevent double counting from system registration th rough retirement of the certificates. Commenters asserted that incorporating a tradable-R EC program into a rate-based compliance mechanism would take advantage of existing tools an d resources and minimize a state's need to develop new mechanisms to demonstrate compliance. C ommenters gave examples of existing programs that could be used and referenced a docume nt for more information on the existing programs: Jan Hamrin, Clean Energy States Alliance, REC Definitions and Tracking Mechanisms Used by State RPS Programs (Jun. 2014), available at http://www.cesa.org/assets/2014-Files/RECs-Attribut e- Definitions-Hamrin-June-2014. Commenters suggested that EPA be clear that existin g REC and environmental attribute crediting platforms (including voluntary REC tracki ng systems) are acceptable tools for approvable state plans to use, and that for any exi sting or newly developed system to be approvable it must ensure that the same renewable M Wh do not generate or use credits that can be double counted.

Commenters pointed to a recent independent report ( see "Tracking Renewable Energy for the U.S. EPA's Clean Power Plan", June 25, 2014) that c oncluded that the current tracking infrastructure is sound and the risk of double coun ting renewables for the purposes of RPS compliance is remote. Commenters noted that most RE C tracking systems require that a facility be registered only in one tracking system, which en sures that claims are not being made for certificates over multiple tracking systems. Commen ters also noted that for most tracking systems, including GATS, there registry administrat ors also have the ability to identify duplication or double claims, that the registries p rovide public reports that are very similar to ensure comprehensive checks to prevent double count ing; and that the registries allow regulators access to centralized on-demand and current reports about retired certificates, account-holder information, and state, regional, or market-wide da ta. Commenters urged that similar reports could be designed and created based on the rules fo r 111(d) compliance; Commenters stated that the tracking systems have implemented many enhancem ents and changes to accommodate the changing needs of the States and could also accommo date the changes needed to support 111(d) compliance.47

Commenters noted that for state renewable policies that do not currently involve the transfer of RECs, states will need to incorporate accounting us ing RECs in order for the renewable energy to be assigned to different policies and counted un der 111(d). Commenters supported allowing RE regulations and programs that meet Evaluation, M easurement, and Verification (EM&V) requirements to generate RECs based on of the quant ity of energy savings or renewable energy generation. Commenters asserted that these states w ould not need to require the transfer of RECs, provided the RECs are retired in state and ar e not counted towards another mechanism being used for 111(d) compliance. Commenters recomm ended that EPA provide guidance to states regarding the acceptable RE that would counttowards compliance, and requested as well specific guidance on how states could reconcile exi sting RE policy and generation sources with the RE targets and generation sources indicated in the proposed rule.

Commenters expressed concern that some states lack infrastructure capable of planning and implementing RE measures on a state-specific basis, or have time to develop a joint implementation plan. Commenters recommended that as long as there is a basic level of consistency between state programs (e.g., similar c urrencies), any two or more states should be able to trade emission credits on a bilateral basis without a formal multistate compliance plan. Commenters pointed out that interstate REC trading would require coordinated regional action.

Commenters also asked EPA to allow the use of green house gas reductions secured outside of the power sector, as long as the reduction is made by facilities that are tied to the grid. As an example, commenters suggested that a Waste-to-Energ y facility that sells renewable energy to the grid could generate an offset in a state or reg ional trading system based on the avoided landfill methane emissions. Commenters specifically requested that RECs not be limited to utility scale projects, but be allowed to come from commercial and residential distributed solar systems.

Comment 3: Comments suggesting that the EPA should/should not mandate interstate trading.

Response 3: The final emission guidelines allow for, but do notrequire, multi-state plans. The final emission guidelines also provide for coordina tion among states in the implementation of single-state plans. The final emission guidelines p rovide for multiple multi-state plan approaches that states may take to meet the emission guideline s. This includes multi-state plans with joint multi-state rate- or mass-based goals, and the abil ity to collaborate with other states in the implementation of rate- or mass-based emission trad ing programs though a single-state plan. These multi-state approaches are described in secti ons VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters recommended that the EPA mandate interst ate trading of CO 2 credits. Commenters urged that although the proposed rule provides flex ibility to each state to make their own determination regarding regional CO 2 markets, it also allows for each state to "go it a lone" and does not require cooperative planning and stakehold er processes. Commenters asked that at a48

minimum, the EPA mandate that states perform compre hensive analysis of multistate and regionals CO 2 reductions plans before defaulting to a state only program.

Commenters asserted that the EPA cannot and should not mandate interstate trading programs. Commenters asserted that the Clean Air Act does notanticipate or define RECs, and that the inclusion of RECs is not workable in a regime where the state has obligations related to emitting units located in the state. Commenters further note d that because RECs are based on state laws, the definition of what fuel can be used to produce a REC may vary among the states.

Comment 4: Comments requesting the EPA to allow flexibility i n credit trading, e.g. allow states to account for RE using options other than R ECs.

Response 4: The EPA agrees that it is important to ensure that emission rate credits for qualifying measures, including RE MWh generation pr ojects and programs, are properly issued and tracked to avoid duplication or double claims. The final rule describes specific requirements and assurances states must include in their plan su bmittal, including tracking system requirements, to assure the integrity of a rate-bas ed emission trading approach. For more information, see section VIII.K.2 of the preamble t o the final rule.

In the final rule, to the extent qualifying RE gene ration measures are tied to a state plan, the MWh impacts of the measures may be used by an affec ted EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occur s inside or outside the state or territory.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of M Wh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consi der, when developing their state plan, how existing instruments that are used to meet other re gulatory requirements or in voluntary markets may interact with ERCs.

Multi-state plans, where multiple states submit a plan to meet a joint rate-based or mass-based CO 2 goal, must meet all of the same requirements as a single state plan to be approvable. State plan requirements are addressed at section VIII.D.2 of the preamble to the final rule. In particular, a state plan must describe the plan app roach and geographic scope, as discussed in section VIII.D.2.a.(1) of the preamble to the final rule. In addition, states may collaborate in the implementation of single-state rate-based and mass- based emission trading programs, through the interstate transfer of ERCs and emission allowa nces, as discussed at section VIII.C.5.c of the preamble to the final rule. RECs may not be used as a compliance unit under a rate-based49

emission standards plan type, as discussed at secti on VIII.K.2.f of the preamble to the final rule. However, RECs could be used as a compliance instrum ent under a state measure, such as a state RPS, addressed in the supporting material for a sta te measures plan type.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibil ity requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see section VIII.K.1 of the preamble to t he final rule. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects and the potential fo r interactions between ERCs and RECs, are in section VIII.K.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters requested that EPA allow flexib ility in the types of trading agreements allowed between states. Commenters stated that RE a nd EE credit trading among states should support compliance even in the absence of a compreh ensive regional plan. Commenters asked EPA to support approaches that allow states flexibi lity to allocate credits for RE an EE, as well as approaches which allow states to reach agreement s on the allocation of carbon liabilities. Commenters suggested that this would allow existing tracking mechanisms, such as WREGIS, to be compatible with the final rule.

Commenters requested that EPA not limit states' abi lity to include RE in state plans to RE that is represented by RECs. Commenters argued that RECs ar e not the best or only means of crediting or trading RE across state lines, and provided as e xamples both the use of bilateral contracts for RE as well as allowing accounting for the use of ut ility-owned in-state and out-of-state RE without the generation of a REC. Commenters also as serted that EPA should not limit states to RES programs as the only means of including RE in a compliance plan, and recommended that states could also consider performance-based incent ives, financial assistance programs, state integrated resource plans, or other regulatory prog rams.

Commenters requested EPA consider allowing or imple menting alternative trading platforms/registries. Commenters requested that EPA be open to state proposals to rely on alternative approaches for allocating RE, including through existing voluntary REC platforms or through a new section 111(d) platform or registry. Commenters also noted that other generation tracking systems can be used to calculate interstat e emissions from affected EGUs and help avoid double-counting. Commenters recommended allow ing states to approve carbon credit exchanges that allow facilities using renewable or other tools to sell their surplus emission reductions to other facilities; commenters urged th at such an exchange could also serve as a finance mechanism for technological upgrades and wo rker/community transition programs and work on either a single state or a regional basis. Commenters urged EPA to provide guidance for states or regions wishing to implement their own pr ograms.

Commenters noted that since renewable energy may be used both to comply with RPS and Clean Power Plan requirements, the ability to track renew able and carbon attributes separately for use in different regulatory programs should be consider ed. Commenters assured that the final rules50

should provide as much flexibility as possible and should not exclude certain types of credits or trading programs.

Comment 5: Comments suggesting the EPA separate the CPP from state RPS programs by establishing a Renewable Energy Carbon Attribute (R ECA) certificate.

Response 5: The final rule allows interested states to partici pate in interstate trading programs depending upon the type of approach the state selec ts and specifies a unique acceptable unit of trading under a rate-based approach, the emission r ate credit (ERC), a tradable compliance unit representing one MWh of electric generation (or red uced electricity use) with zero associated CO 2 emissions. Requirements for rate-based emission tr ading programs, including those related to issuance of ERCs based on RE generation and dema nd-side EE MWh savings, and tracking systems. For specific requirements under rate-based emission trading approaches, see section VIII.K.2 of the preamble to the final rule.
In section VIII.K.3.b of the preamble to the final rule, the EPA clarified that for energy generating resources, including RE, states may leve rage the programs and infrastructure they have in place for achievement of their RPS and take advantage of registries in place for the issuance and tracking of RECs. Many existing REC tr acking systems already include wellestablished safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar functions in rela tion to the final emission guidelines.

The following are summaries of the specific public comments under this comment:

Commenters argued that reliance on a state RPS REC tracking system as a basis for compliance with the Clean Power Plan is problematic because mo st states do not have a mandatory RPS and do not issue or use RECs. Commenters provided examp les of numerous definitions and practices among the state RPSs that may contradict or be inco mpatible. For example, commenters provided that some, but not all, state RPSs may all ow non-zero emitting resources such as biomass and coal wastes to be used for compliance, may allow RECs to be banked for varying amounts of time, or may define RECs as including en vironmental attributes or not. Commenters urged that the conflicting definitions and practice s of jurisdictional RPSs that use state RPS RECs would lead to duplication or use of ineligible resources (e.g., if a state claimed credit for a REC that has already been accounted for in a separa te state plan).

Commenters recommended that EPA separate the CPP fr om state RPS programs by establishing a Renewable Energy Carbon Attribute (RECA) certific ate or similar instrument that represents the CO 2 reduction attribute of one megawatt-hour of electr icity generated by a zero-emitting renewable resource. Commenters suggested that a RECA certificate could be created for each megawatt-hour of eligible renewable energy and gran ted to the renewable resource owner, who could then surrender the RECA certificate as part o f the state's Clean Power Plan compliance or trade the RECA certificate to another entity for th eir compliance obligation. Commenters recommended the state to provide documentation that it possesses and has retired an equivalent amount of RECA certificates. Commenters asserted th at under this approach, there would be no possibility of duplicate counting.51

Commenters noted that if a RECA approach is adopted , an eligible renewable resource would receive a RECA certificate and could also receive a REC separately for state RPS compliance purposes. Commenters explained that the RECA certif icate and the REC generated could be owned by separate entities and retired for separate purposes, or they could travel together under common ownership and be traded and retired together . Commenters further explained that retirement of the RECA certificate would determine which state may count the renewable energy in its state emission rate calculation.

Commenters further recommended that EPA permit the interstate trade of RECA certificates with or without the associated energy and irrespect ive of electrical boundaries; commenters explained that this would not result in double-coun ting because a state may only count renewable energy in its state emissions calculation if it own s and retires the RECA certificate. Commenters warned that if importation of renewable energy from out-of-state is prohibited, this would cause the unintended effect of inhibiting growth in the r enewable energy industry.

Comment 6: Comments stating that the EPA should provide the i nfrastructure necessary to facilitate basic tracking of allowances for intrast ate and interstate trading for any state that does not currently have a registry system, such as throu gh a default, opt-in national trading program.

Response 6: States participating in a trading program must inc lude in their state plan regulatory provisions that address the tracking of ERCs or emi ssion allowances through the use of a joint tracking system, interoperable tracking systems, or an EPA-administered (or approved) tracking system, as described in section VIII.C.5.c of the p reamble to the final rule. As described in subsection VIII.K.2, the EPA is exploring options f or providing an EPA-administered tracking system and is conducting an initial scoping assessm ent of tracking system support needs and functionality. The final rule also includes specifi c requirements for tracking systems under ratebased emission trading approaches in section VIII.K .2 of the preamble to the final rule.
Regarding the proposal of a national registry, the EPA’s approach provides flexibility to the states on how to design their registries and theref ore will not require states to submit to a national registry. To ensure the credibility of state regist ries for trading programs, the EPA provides recommended criteria in the draft EM&V guidance doc ument.

The following are summaries of the specific public comments under this comment:

Several commenters recommended that EPA provide the infrastructure necessary to facilitate basic tracking of allowances for intrastate and int erstate trading for any state that does not currently have a registry system, such as through a default, opt-in national trading program. Commenters noted that EPA has established similar p rograms for other pollutants, such as under the Acid Rain Program and the NOx Budget program. C ommenters recommended that EPA could provide a platform, support a third party to provide a platform, or work with states to build on existing platforms to alleviate the administrati ve and cost burden of developing a trading program for states. Commenters urged that EPA consi der such standardized credit trading or agreements to minimize "perverse market incentives or disincentives" that may result from state programs with difference compliance requirements. C ommenters stated that the national program52

should allow for the participation of states that a re using either rate-based or mass-based compliance plans, and should provide the infrastruc ture for states to accomplish multi-state approaches, such as providing or approving credit-t racking systems for states that wish to implement trading programs or accept credits from o ther states for compliance.

Commenters also recommended that the EPA could assi st the states by establishing a standard for credits and trading that can be used for compli ance purposes. Commenters stated that it would be appropriate to have trading systems for bo th emissions (pounds or tons of CO 2 ) and energy (megawatt-hours) from renewables and demand- side savings for rate-based programs and trading systems for emissions (pounds or tons of CO 2 ) for a mass-based program. Commenters stated that the EPA or some other agreed upon entit y could manage the trading systems, and an optional credit tracking system for emissions and e nergy could be provided for states.

Comment 7: Comments suggesting that the EPA encourage expansi on/linking of current tracking systems and/or consider guidance for devel opment of tracking mechanisms.

Response 7: As described in subsection VIII.K.2 of the preambl e to the final rule, the EPA is exploring options for providing an EPA-administered tracking system and is conducting an initial scoping assessment of tracking system suppo rt needs and functionality. The final rule includes specific requirements for issuance, use an d tracking of ERCs under rate-based emission trading approaches in section VIII.K.2 of the pream ble to the final rule. The final rule further provides eligibility requirements for resources tha t can be used to adjust a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters requested that EPA encourage the expansi on of the existing framework for the tracking/crediting renewable energy to allow for fu rther verification and quantification of emissions reductions from renewable energy. Comment ers recommended that current REC tracking systems be linked to reduce the possibilit y for double counting; commenters asserted that the existing tracking systems were written by APX and linking the systems should be relatively straightforward. Commenters recommended the use of single-state and multi-state credit programs and other market-based systems, as well as the use of emission reductions that are secured outside of the power sector, provided t he reductions are made by facilities tied to the grid. Commenters recommended that REC system operat ors collaborate to make a unified webbased tool available to stakeholders and EPA to ver ify the origin and trading history of a particular REC using the serial number. Commenters supported development of a regional trading system for the Southeastern states that wil l allow for tracking of renewable energy generated in the region for purposes of compliance with the Clean Power Plan. Commenters asserted that this database could be used to track renewable energy that is generated in-state and used by load-serving entities in that state for com pliance, as well as renewable energy generated out-of-state and transferred to a load-serving enti ty within the state. Commenters requested that the final rule should allow for both interstate and international trading, including the purchase of RECs from other nations such as Canada, which could be tracked using WREGIS, M-RETS, and NEPOOL GIS. Commenters also noted that power purcha se agreements (PPAs) could be used53

for importing RE from Canada. Commenters supported the inclusion of RPS standards and climate programs into state plans as an option to a llow states to import Canadian RECs.

Commenters recommended guidance for development of tracking mechanisms. Commenters suggested that EPA consider its January 2001 "Impro ving Air Quality through Economic Incentive Programs (EIP)" draft guidance to provide clarity to states regarding the creation of and tracking of EE and RE credits. Commenters argue d that the EIPs contain elements to ensure their integrity; include adequate monitoring, recor d keeping, and reporting; recommend tracking mechanisms; and prevent double counting. Commenters noted that in some cases, the EIP principles would need to be amended or clarified to satisfy CPP requirements.

Commenters requested that the EPA consider how non- ratepayer funded solutions to energy savings could be incorporated into EE trading mecha nisms. Commenters stated that private sector actors have played a driving role in develop ing a market for residential solar energy installations. Commenters believed that the private sector could play a similar role in residential energy efficiency installations if appropriate ince ntives were provided. However, commenters stated that to realize the potential of the private market to contribute to the creation of residentia l energy efficiency savings, EPA must:

• Permit states to set up market mechanisms that allo w private parties to develop and sell energy efficiency projects into such marke ts;

• Provide specific guidance to allow states to encour age private-sector undertaking or catalyzing the installation of residential energ y efficiency measures;

• Provide details in 111(d) guidance on specifics of crediting and enforcement mechanisms and program implementation models that w ould be acceptable from an EPA perspective for purposes of meeting complian ce requirements; and

• Support the creation of energy efficiency registrie s to ensure that the carbon dioxide emission reductions from energy efficiency measures is first registered and then retired (i.e. is not counted twice.) Presu mably, such a registry will be necessary for the savings that result from ratepaye r funded programs; we ask that the registry be designed to register and retire sav ings from all recognized sources, not only ratepayer-funded programs.

Comment 8: Comments suggesting the EPA should clarify how REC trading works between

states.

Response 8: In the final rule, quantified and verified MWh imp acts of qualifying zero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. Con sistent with the EPA’s calculation of the CO 2 emission performance rates and state rate-based CO 2 goals in the final emission guidelines, the54

MWhs impacts are added to the denominator of an aff ected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of M Wh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation from a qualifying measure, such as a ren ewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for in teractions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or i n voluntary markets may interact with ERCs.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibil ity requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see section VIII.K.1 of the preamble to t he final rule. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects, and a discussion of addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of t he preamble to the final rule. Section VIII.K.3 of the preamble to the final rule describe s the requirements and criteria related to proper quantification and verification of MWhs from renewa ble electricity generation.

The following are summaries of the specific public comments under this comment:

Commenters believed the rule should provide more sp ecific details on how REC trading and crediting would work between states. Commenters stated that the proposed rule is unclear as to how EPA will credit RE generation. Commenters asser ted the proposed rule only treats RE and EE by requiring the quantification of CO 2 reductions, but does not clearly explain how RECs will be treated. Commenters urged that it is unclea r whether a state can comply through longterm power purchase agreements of out-state-power o r RECs.

Several commenters stated that EPA should issue cle ar and certain crediting guidelines to reduce uncertainty, avoid double-counting, and avoid confl ict between states regarding how renewable energy generation should be allocated. Commenters stated that EPA's approach should reinfo rce incentives for states to fully leverage their progr ammatic and regulatory tools (e.g., tax credits; codes and standards), and for utilities and their r egulators to be willing to invest ratepayer dollars in RE measures and projects. Commenters specificall y wanted to know which state would get credit for renewable generation, for instance, if a renewable generator in one state sells RECs out of state, or if RE is generated outside of a state but meets in-state purchase agreements. Commenters stated the proposal is uncertain as to w hether EPA will only approve state plans that allow for the interstate transfer of renewable attr ibutes, or whether states may develop plans that mandate that the environmental attributes of renewa ble generation within the state be used for that state's compliance. Commenters stated that it is unclear whether a developer that owns the55

RECs from a project located in the state has the ab ility to sell them outside of the state and whether or not the RECs would count solely for proj ects located within the state. Commenters questioned how renewable resources will be treated if those resources are used for RPS requirements in another state and if the RPS is par t of the other State's compliance plan (State Plan). Commenters specifically asked about the case of a multi-state power company, and whether the power company which owns or purchases t he renewable energy would be able to choose which state receives credit. Commenters spec ifically requested that EPA mandate that each SIP permit the use of RECs from out of state. Commenters expressed concerns that the proposed rule does not tell states to cooperate in the use, purchase, or sale of RECs, which may result in some states keeping all RECs generated in the state. Commenters specifically requested that EPA allow excess renewable generatio n or credits to be sold to utilities in other states. Commenters were also concerned that the u ncertainties in the rule, as written, would subject retail electric providers to enforcement by the EPA and citizen lawsuits.

Commenters made multiple recommendations regarding the accounting of and treatment of credits for renewable energy. Commenters noted that the state limits were based a ssuming the renewable energy generated in a particular state wo uld get the full credit for that generation. If a state that receives the renewable energy gets to cl aim credit for it, Commenters believed they would also have to claim the CO 2 from fossil fueled units designated to generate po wer for that state. Commenters also believed the simplest approa ch is for states to claim all of the renewable energy within their borders and the CO 2 produced within their state regardless of the owne rship of the energy. Commenters argued that allowing stat es to use renewable energy generated in other states for compliance could place significant compliance burdens on states that have historically been the source of renewable generatio n but are not large consumers of this generation; specifically, a generating state may no t be able to benefit from renewable energy generation it incentivized. Commenters requested th at EPA should provide guidance clarifying that unless a contract specifies that the environme ntal attributes of a REC follows the purchaser, the compliance credit under 111(d) stays with the g enerating state.

Commenters suggested that credits be issued for all avoided carbon emissions resulting from state measures, regardless of where the avoided emi ssions occurred. Commenters noted that because the tradable credit system would be limited to affected EGUs, use of credits by these entities when complying with rate-based emission li mits would apply the avoided carbon emissions to the state that was responsible for the measure. Commenters recommended that EPA consider renewable resources on a load served basis for credit rather than based on geography. Commenters referred to Washington State's Energy I ndependence Act (RCW 19.285), which allows utilities to purchase renewable resources or RECs from out of state to comply. Commenters reiterated that the decision should be b ased on REC ownership to avoid double counting between states wherever RECs and electrici ty are not in the same place. Commenters recommended that EPA provide states direction on de termining REC ownership and that such ownership be tracked in REC accounting systems.

Commenters argued that entities that own out of sta te RECs should get credit for those RECs in the states in which they are headquartered in order to ensure that the entity that invested in the RE asset receives the value of that asset. Commente rs expressed doubt that multi-state compliance arrangements are a feasible means for ut ilities to receive credit for out of state RECs. Commenters asserted that allowing purchases of cred its from out of state will broaden the market56

of renewable resources and encourage construction o f new projects. Commenters wanted that limiting the transfer of renewable attributes withi n state boundaries would hold renewable generation captive within state lines and be disrup tive to wholesale renewable markets and power producers.

Commenters stated that the rule should require tha t compliance credit goes to the states where the purchasers of renewable energy generation or cr edits reside, whether the state plan is massbased or rate-based. Commenters stated that credit for RE should follow the renewable funding source (e.g., energy certificates (RECs) obtained f rom those resources and/or power purchase instruments that directly led to the development or continued operation of those resources.) Commenters stated that EPA should include a mechani sm to insure that ratepayer investments accrue to their goals, similar to how RECs apply to day. Commenters stated that for the small number of RE generation projects for which ownershi p of the environmental attributes are not apparent from the contract or REC, the EPA should c larify that the off-taker of the energy from such projects is entitled to claim credit for the e mission reductions attributable to the project.

Commenters urged that a state should be able to tak e credit for reductions provided that RECs are the required tracking mechanism and that RECs a re not counted for multiple states' 111(d) compliance (e.g. in multiple state RPSs), under mul tiple state programs within a state plan, or by multiple compliance entities within a state. Commenters stated that EPA should strongly encourage states to use an environmental attribute accounting system when demonstrating that the zero-carbon attributes of that RE are dedicated to that state. Commenters stated that REC programs that allow a utility to allocate RECs to s tates should be used to determine which state gets credit for the renewable energy generation in its compliance calculation. Commenters also specified that any state wishing to use renewable e nergy MWhs to demonstrate compliance should establish an environmental attribute credit accounting system wherein the state where that credit is ultimately retired is the state able to c ount the credit towards demonstration of compliance.

Several commenters also supported applying the cred it only to the state where the REC is retired. Commenters reiterated that it is the consumption an d not the generation of renewable electricity that qualifies for 111(d) compliance credit. Commen ters asserted that RECs represent all the environmental attributes associated with the renewa ble generation and are the primary mechanism for state RPS compliance, and noted that several states are already dependent on outof-state renewables to meet their RPS. Commenters i terated that states would need to demonstrate to EPA sufficient REC retirement to sat isfy the RPS or other measure included in the state plan. Commenters supported a requirement that states set up or participate in accounting systems or registries that will allowing for tradin g of renewable credits (similar to RECs) to prevent double-counting of credits. Commenters stat ed that EPA should retain the authority to find a state out of compliance if the state fails t o procure the required number of allowances to cover their emissions.

Commenters suggested that EPA may want to provide a n accounting option for those states that decline to adopt a credit policy so that they can n onetheless use renewable power to comply with their target. Commenters stated that a state electi ng this option should be required to otherwise establish that the environmental attributes associa ted with the renewable power it uses to demonstrate compliance were not also used by anothe r state.57

Commenters asked whether they would be able to rece ive credit for existing renewable sources to calculate their rate. Commenters also asked what options exist for net-me tering customers and how energy savings (e.g., from rooftop solar) would be credited to the State Plan.

Comment 9: Comments regarding the use of trading systems othe r than RECs.

Response 9: In the final rule, to the extent qualifying RE gen eration measures are tied to a state plan, the quantified and verified MWh impacts of th e measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE genera tion occurs inside or outside the state or territory. The final rule incl udes general eligibility requirements for resources, including RE resources which can be used to adjust the CO 2 emission rate and specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE, se e section VIII.K.1 of the final rule preamble of the CPP. The final ru le allows states to participate in interstate trading programs and specifies a unique acceptable unit of trading under a rate-based approach, the emission rate credit (ERC), a tradable complian ce unit representing one MWh of electric generation (or reduced electricity use) with zero a ssociated CO 2 emissions. Requirements for rate-based emission trading programs, including tho se related to issuance or ERCs for RE generation and the tracking of ERCs, is described u nder section VIII.K.2 of the final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand-side EE savings

The following are summaries of the specific public comments under this comment:

Commenters expressed concern that the proposed rule provided little guidance about how states that do not include a REC trading system can accoun t for renewable generation. Commenters provided as an example the use of power purchase ag reements (PPAs) for out-of-state renewables to satisfy RPS requirements, which leads power producers that own generation in multiple states to use the environmental attributes of generation in one state to help meet RPS obligations in another state, as well policies such as feed-in tariffs, tax credits, and grants. Commenters asserted that without clear accounting r ules from EPA, it could be impossible to distinguish between renewable energy generated in a state due to renewable energy measures implemented by another state, policy measures imple mented by the state where generation is located, or non-policy market reasons. Commenters s tated that the RECs associated with these types of power purchase agreements can vary and may lead to REC ownership uncertainty. Commenters suggested that for states choosing not t o use a REC tracking system, EPA should establish a default rule that would only allow the state to include renewable energy MWhs in its compliance plan if it can demonstrate that an entit y in that state has submitted credits for those MWhs. Commenters suggested a similar approach for v oluntary REC purchases in rate-based state plans. Commenters argued that if federal and/ or state agencies allow a state to take claiming rights away from a voluntary REC consumer, then the voluntary REC owner would have had its property rights taken without compensation. Comment ers disagreed with this approach, arguing that this system would fundamentally disrupt the de mand and financing for renewable energy projects. For voluntary REC purchases, commenters r equested that EPA provide guidance58

similar to California's AB 32 cap and trade program , which retires emission allowances equivalent to the avoided emissions associated with voluntary REC purchases.

Comment 10: Comments expressing concerns regarding double-coun ting, conflicts between state approaches.

Response 10: The EPA agrees with commenters that it is importan t to minimize the risk of double-counting of emission impacts of measures, pa rticularly across state plans, and has incorporated elements into the rule that seek to mi nimize it.

For example, states have the option to adopt multi- state plans, for either rate-based or massbased plans, that reflect regional interactions. Th ese plans engage multiple states in the same system for purposes of tracking mass-based allowanc es or issuing and trading unique rate-based Emission Rate Credits (ERCs) as described below.

Mass-based plans rely exclusively upon reported sta ck emissions for determining whether a mass-based CO 2 emission goal is achieved and avoids concerns abou t counting the same mass reductions in two different mass-based states.

For rate-based plan compliance, the final rule spec ifies a general accounting approach that inherently acts to minimize state rate differences that may influence distortionary investments and ensures that quantified and verified MWh impacts ofqualifying zero-emitting and lowemitting resources are applied consistently across all affected EGUs. The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal to better reflectthe regional nature of the grid among other things. Consistent with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines q uantified and verified MWh impacts of qualifying ze ro-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. Dou ble-counting of CO 2 emission reductions is prevented, however, because the reported emissions from each unit are represented in the numerator of each of those unit’s emission rates an d the method disallows any adjustment to any EGU’s reported emissions. The EPA will work with st ates using the rate-based approach that are interested in allowing the use of RE from outside t he U.S. to adjust CO 2 emission rates and documents the necessary conditions in Section VIII. K.1.a.(2)(c).

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of M Wh-denominated ERCs in the rate-based emission trading framework specified in this rule. This MWh accounting method creates a crediting system or rate adjustment process that is simpler to implement than one that requires an approximation of avoided CO 2 emissions and indifferent to the rate-based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards.59

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, whe n developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

The EPA acknowledges in the final rule that there m ay be interactions between mass-based and rate-based plans regarding counting measures, speci fically where measures that provide substitute or avoided generation, such as RE and de mand-side EE, are located in a mass-based state and can also be used by a rate-based state in meeting the CO 2 performance rates or state goals. The EPA has determined that, in the context of interactions among rate-based and massbased plans, there is not explicit double-counting of the CO 2 emission reductions associated with counting measures located in mass-based states, con sidering the accounting methods outlined in this final rule. Though there is no risk of double- counting emissions, in response to commenter concern that overall CO 2 emissions reductions would be foregone in situatio ns where a source in a rate-based state counts the MWh from measures in a mass-based state, but the generation from that measure acts solely to serve load in the mass- based state, the EPA is restricting the ability of rate-based state to claim emission reduction measur es, such as RE and demand-side EE, located in mass-based states. In order to avoid cutting som e states off from regional RE supplies that are assumed in the BSER building block 3 and incorporat ed in the CO 2 emission performance rates or state rate-based CO 2 goals in the emission guidelines, the EPA has dete rmined that it is appropriate for rate-based states to count MWhs fro m RE located in mass-based states, subject to the condition that the generation in question was i ntended to meet electricity load in a state with a rate-based plan.

For a discussion about the elements incorporated in to the final rule to minimize double-counting, see section VIII.L of the final rule preamble of th e CPP. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand -side EE and renewable energy, including eligibility dates and t he types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects, addressing the pote ntial for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP desc ribes the requirements and criteria related to proper ex post quantification and verification of M Whs from renewable electricity generation or demand-side EE savings to avoid overestimation as s uggested by commenters. For information about mass-based emission standards with a market-b ased emission budget trading program, see section VIII.C.2 and VIII.J.2 of the final rule pre amble of the CPP.

The following are summaries of the specific public comments under this comment:

Several commenters expressed concern that the propo sed rule presents potential for doublecounting of emission reductions resulting in underm ining the rule. Commenters stated that compliance and voluntary markets can only ensure en vironmental and contractual integrity if60

there is a single end-user or claimant for each spe cific REC and the emissions and environmental attributes it represents. Commenters added if there is explicit or implicit duplicate ownership claims to a REC for compliance or voluntary purpose s the REC is double counted and environmental and contractual integrity is compromi sed, and its value is lost. Commenters stated that double counting erodes the renewable energy ma rket by eliminating the value of the REC, thereby turning customers away and eliminating a re venue stream for renewable generators; no one wants--or is willing--to pay for something they do not get. Commenters requested EPA to explain how its position that RECs would be a poten tial mechanism for tracking energy savings and emission reductions from RE would prevent doubl e-counting. Commenters stated that if EPA finalizes the proposal based on a state's gener ation, the use of RECs will increase the chance for double counting of emission reductions. Commenters stated that RECs provide a means for renewable portfolio standards established by the states to be used as enforceable mechanisms as part of compliance plans. Commenters recommended that EPA set the renewable energy goal portion of the BSER based on retail sal es of electricity, stating that this would reduce any potential for states to double count emi ssion reductions.

Commenters also noted that "EPA should adopt measur es that address the proper accounting for all imports and exports of electricity, not merely the special cases of imports and exports associated with renewable energy and energy efficie ncy. The potential for double-counting exists for all such transactions."

Commenters expressed concerns regarding double-coun ting that could arise in regional trading agreements that include both rate-based and mass-ba sed approaches. Commenters expressed that since state rates and masses under the Proposed Rul e include only in-state generation from affected EGUs, imported and exported generation as well as renewable energy generation are not reflected in state rates; as such, Commenters asser ted that while state masses will automatically reflect the emissions impact of imported generation and renewable energy generation (both instate and imported), rate-based states could need t o make manual adjustments for reductions from RE (e.g., claims for out-of-state reductions f rom RPS programs) that would result in double-counting. Commenters also argued that tradin g of RE between states using the same reporting method (i.e. rate-to-rate or mass-to-mass trading of RE or RECs) could result in double counting of avoided emissions between the Clean Pow er Plan and state compliance markets for RE (RPS programs) and/or the voluntary RE market wh erever RECs (which convey avoided emissions as the compliance mechanism used in state RPSs and also as the currency for the voluntary market) and displaced generation (that is counted as avoided emissions under 111(d)) are not in the same state.

Commenters stated that EPA should provide guidance regarding the requirements for RECs and adjustments to rates and masses to avoid double cou nting. Commenters recommended that EPA provide the states with a template or checklist con taining all the required components for plans that rely on interstate trading to comply with the rates. Commenters asserted that states using rate-based systems must be required to track RE meg awatt-hours (MWh) to avoid emissions from a single RE MWh being applied under multiple s tate mechanisms/programs. Commenters asserted that adjustments to rates caused by renewa ble energy must be limited to renewable energy generation that has avoided emissions at aff ected EGUs, that has not been double counted, and that was included in the state plan.61

Several commenters supported the use of RECs, with standards for state verification set by the EPA, to avoid double-counting. Commenters argued th at RECs are the best way to track and account for RE and therefore are the best way to av oid double-counting. Commenters stated that EPA should provide that no adjustments be made to r ates for renewable energy without RECs and for renewable energy not included in a state pl an. Commenters argued that the RECs presented to the state for compliance should be eit her associated with the interconnect region (Eastern, Western or ERCOT) served by the utility, or should include documentation that ensures that the RECs are properly associated with power tr ansferred from one interconnect to the other. Commenters asked that EPA clarify that it will requ ire an upward adjustment to masses for renewables without RECs (e.g., power that is import ed without the RECs and in-state renewable generation where RECs are sold out of state) and fo r renewable energy not included in a state plan, unless the state can demonstrate that the ren ewable energy is not affecting the mass. Commenters stated that the zero-carbon generation u nderlying a REC may vary in the extent to which it results in actual aggregate emissions redu ctions. Commenters explained that the EPA cannot simply rely on RECs as a surrogate for those reductions. Commenters also proposed that all RECs used for compliance be valued based upon t he carbon emissions they avoid.

Commenters noted that there may not be a need for e valuation, monitoring and verification (EM&V) and tracking of every MWh of RE or EE saving s included in a mass-based plan to prevent double counting, while commenters asked tha t EPA clarify that adjustments will still be necessary under a mass-based approach to address in terstate effects. Commenters urged that EPA must also require mass-based multi-state region s to make similar adjustments as massbased states. Commenters provided as an example an instance where RGGI states may submit a multi-state, mass-based plan, and noted there is tr ading of electricity between RGGI and surrounding non-RGGI states, which could result in double counting unless the RGGI states adjust their mass.

Commenters questioned the proposed suggestion that a mass-based state could adjust the overall CO 2 emissions to account for the "export" of avoided C O 2 emission credits

. Commenters argued that RE and EE benefits are automatically accounted for under a mass-based program, which rends it impossible to unravel the location and typ e of fossil fuel-fired generation the specific unit of RE or EE has displaced. Commenters noted th at any adjustment to overall CO 2 emissions from a mass-based state's fleet would be derived fr om an arbitrary assumption because the state could not artificially subtract the RE or EE benefi t from its compliance demonstration. To address this issue, commenters recommended that EPA prohibit rate-based states from taking credit for renewable generation that is already acc ounted for under the cap of a mass-based state, or develop an alternative approach that addresses t he issue.

Commenters stated that whether a state adopts a mas s-based or rate-based program should not make a difference as long as the associated REC is retired appropriately, with the use of REC tracking systems. Commenters recommended that for s tates utilizing a mass-based approach, EPA should require the state to monitor its net ene rgy imports over the compliance period of the proposed rule. Commenters noted that if a state rea lizes a significant increase in net imports relative to its consumption, then EPA could require an analysis of the cause of the imports to ensure that the state is not implicitly crediting R E and/or EE measures adopted by another state. Commenters reiterated that a state should also requ ire utilities to provide evidence, and evaluate62

outside evidence, to reasonably estimate the amountof actual power from renewable energy resources that was actually delivered to the utilit y system and used.

Commenters argued that rate-based systems could cre ate the potential for "seams conflicts" with mass-based systems ; specifically, commenters argued that states within a single RTO using these different systems could meet their emissions goals by shifting generation from the mass-based state to the rate-based state, instead of reducing emissions. Commenters provided as an example that coal plants in a rate-based system that rely o n heat-rate improvements could be dispatched before (rather than after) lower emitting natural g as units in a mass-based system, because the production incentives in the rate-based state enabl e those units to lower their dispatch bids.

Commenters stated EPA's final rule - or, at a minim um, formal guidance to states - should include rules governing how states may account for interstate trades of zero-carbon credits and allowances to avoid double-counting. Commenters pro vided a set of rules that EPA could include in the final rules to ensure that mass- and rate-based states alike can use trading to respond more nimbly to evolving market conditions, and can harness RPS and CO 2 allowance programs to this end: (1) when a CO 2 allowance is sold from a mass-based state, the poo l of available allowances in that state is reduced, and generators in that state thus must reduce their emissions by one ton: the buyer state may deduct on e ton of carbon from the numerator of its compliance function (if it has a rate-based system) or may emit one more ton of carbon (if it has a mass-based system); (2) when a zero-carbon creditis sold from a rate-based state, that state may not take credit for the underlying zero-carbon generation, so as to avoid double-counting: the buyer state may deduct 0.5 ton of carbon from t he numerator of its compliance function (if it has a rate-based system) or may emit another 0.5 to n of carbon (if it has a mass-based system); (3) zero-carbon credits issued in mass-based states that use CO 2 allowances may not be used for compliance in any other state: using these credits for compliance outside their state of origin would necessarily result in double-counting of the emissions-reduction benefit, for the underlying zero-carbon generation would automatical ly "count" towards that state's mass-based emissions goal simply by not emitting carbon and no t requiring the purchase of allowances; (4) when a zero-carbon credit is sold from a mass-based state that does not use allowances, that state must reduce its emissions budget by 0.5 ton, so as to avoid double-counting: the buyer state may deduct 0.5 ton of carbon from the numerator of its compliance function (if it has a rate-based system) or may emit another 0.5 ton of carbon (if i t has a mass-based system). Commenters also provided 8 accounting rules designed to count each emission reduction once and only once: 1) when a mass-based state sells a CO 2 allowance, the selling state's generators must red uce their emissions by one ton; 2) when a mass-based state bu ys a CO 2 allowance, the buying state's generators may emit one more ton of carbon; 3) when a rate-based state buys a CO 2 allowance, the buying state may deduct one ton of carbon from the numerator of its compliance calculation; 4) when a rate-based state sells a REC, the selling state may not take credit for the REC or the underlying zero-carbon generation; 5) when a mass-b ased state that does not use allowances sells a REC, the selling state must reduce its emissions budget by 0.5 tons (assuming that the mass value of a REC is 0.5 tons of CO 2 ); 6) a mass-based state that uses allowances may n ot sell a REC to be used for Clean Power Plan compliance in a nother state; 7) When a rate-based state buys a REC, it may deduct 0.5 tons of carbon from t he numerator of its compliance calculation (assuming that the mass value of a REC is 0.5 tons of CO 2 ); and 8) when a mass-based state buys a REC, its generators may emit another 0.5 ton s of carbon (assuming that the mass value of a REC is 0.5 tons of CO 2 ).63

Commenters suggested that EPA provide clear and eff ective guidance regarding double-counting and how EPA will address complications that arise d ue to differences between state programs, regardless of the approach chosen to address inters tate effects. Commenters requested that EPA address how to handle when one state implements an RE program through an RPS, but the actual reduction of emissions occurs in another state. Com menters stated that the proposal appears to presuppose that states will either agree on how to proportion credit for RE reductions or that RE emission reductions for compliance will not be used where states cannot agree on distribution and the reduction may be double-counted. Commenters stated that this approach could increase compliance costs by rendering certain reductions un usable. Commenters inquired what requirements EPA would include to discourage double -counting and whether the requirements would interfere with existing markets or contracts.

Commenters differentiated between duplication and d ouble-counting. Commenters stated that if both states include the same generation (individual MWh) and resulting reductions in their state plans, then this is duplicative, but if both states report the same reductions in their emissions performance, then that is double counting. Commente rs encouraged EPA to differentiate between double-counting and double-claiming. Commen ters defined double claiming as an instance when two or more states (or entities withi n a state) take credit for having been responsible for a single RE/EE investment (e.g., a state or entity that compels an RE investment in another state could claim the investment, while the state where the renewable energy is built will try to claim responsibility for the same actio n). In contrast, commenters cited double counting as occurring when the marginal emissions r eductions reduced on the power grid (as estimated by dispatch modeling or AVERT) indicate t hat the emissions reduced as a result of the RE/EE investment occur outside the state that credi ts the RE generation towards its compliance goal. Commenters argued that EPA's proposed treatme nt of RE addresses double claiming but not double counting, making it highly likely that m ore than one state will take credit for emissions reduced. Commenters further argued that E PA's proposed treatment of EE addresses only double counting, and does not acknowledge the potential for double claiming that can happen within a state. Commenters stated that EPA s hould adequately address double-claiming through default rules and guidance: in the case of renewable energy, commenters recommended the state (or entity) that purchases the RE and/or the RE attribute should be able to take credit for the resulting emissions reductions. Commenters also recommended that in the case of EE, the credit be granted to the utility or to a governmententity that offers incentives for the EE investment, or if there are no incentives, the priv ate sector investor could keep the credit. Commenters further noted that double-claiming could be accounted for through the use of rules and tracking systems. Commenters urged that a feder al rule could clarify that the state that compels an RE investment in another state should ge t credit for it (and not the state where the clean energy is built, if different), or the rules could be applied at the state level to allocate EE emissions reductions between a utility energy effic iency program and an ESCO. Alternatively, commenters suggested that a tracking system such as MRETS could ensure that credits are only claimed once.

To avoid double-counting, commenters recommended th at RE and EE in a jurisdiction without any affected EGUs (where those measures have not ot herwise been accounted for) should be able to be credited to another state (e.g., through a mu lti-state plan or agreement). Commenters also suggested prohibiting rate-based states from taking credit for RE or EE that is already accounted for under a mass-based program in another state or multi-state group.64

Commenters stated that EPA should attempt to preven t double counting of renewable energy before it occurs by cross-referencing state plans t o check for double-counting and duplicative standards, and accounting for expected interstate i mpacts of RE when reviewing and approving plans. Commenters noted that EPA can jointly assess state plans and use regional modeling to identify potential double-counting. Commenters also pointed out that double counting between states due to rate- and mass-based compliance inter state effects could be avoided by using RECs in combination with EPA's cross-reference of state plans. Commenters recommended that EPA could avoid double-counting by providing guidance o n EM&V methodologies that would be acceptable for states to demonstrate and take credi t for emissions reductions achieved by EE and RE programs.

Commenters suggested that EPA consider a multi-stat e modeling approach to avoid doublecounting, which would seek to recognize emissions r eductions expected from EE/RE investments across all region, allowing all such in vestments to count towards compliance. Commenters described the approach as follows: state s in a region would model all of planned EE/RE investments together, and determine the resul ting marginal emissions reductions in each state; each state would then assign an emissions re duction value for each kWh of clean energy investment assumed in the state. Commenters noted t hat to demonstrate compliance, each kWh of EE/RE would earn emissions reductions at the in- state rate. Commenters asserted that although states would need to collaborate on modeli ng, they would not need to rely on each other for compliance. Additionally, Commenters asserted t hat this approach would capture all the emissions reductions from planned activities in the region that occur in each state, offering more credit than what would occur only through in-state investments.

Commenters did not consider there to be significantdouble-counting concerns. Commenters noted that although the generating units displaced by RE generation may not always be in the same state that implements the RE measure or where the RE is physically located, the displacement results in a reduction of mass emissio n, but not a reduction of the unit's emission rate. Commenters asserted that unless the displaced unit also takes credit for the RE generation, the reduced dispatch does not help the unit meet it s emission rate target. Commenters did not consider displaced generation and the generation of RECs to be double-counting. Commenters also acknowledged that there may be modest effects on the overall emission rate on the state level due to the displacement, but pointed out that the proposed approach to exclude peaking plants from the BSER rate would mean that displacem ent of peaking turbines would not change the state's emission rate; commenters disagreed wit h this exclusion. Commenters further noted that as long as all states involved in an exchange use rate-based plans, or all states within the same ISO or RTO adopted a mass-based system, there would be no double-counting concerns provided EPA adopts annual "true-up" procedures. Co mmenters noted that for certain states without their own emission reduction targets, doubl e-counting is not a concern. Commenters argued that it is not necessary to ensure against d ouble-counting of out-of-state RE, due to the presence of regional tracking systems already in pl ace which would account for the RE produced to support compliance with state goals.

Some commenters Commenters (22768, 23450) asserted that EPA's Proposed Guidelines would impose unfair or unequal obligations or engender co nflict among the states. One commenter Commenters (22768) argued that EPA has proposed con flicting approaches to crediting RE and EE reductions and for the treatment of individual s tate vs. multi-state plans. The commenter65

Commenters (22768) provided as an example the diffe rence between the proposed approach for states to take into account all RE measures impleme nted for purposes of compliance with a RPS (regardless of whether the RE is generated in-state or out-of-state) and the proposed approach to limit credit for EE-related emission reductions to in-state activities only. The commenter Commenters (22768) argued that the proposed rules a re overly simplistic and, as proposed, would create serious problems for states. Another c ommenter (23450) expressed concerns that states may have significantly different proposed ca rbon intensity goals and other unique characteristics, which would impose unworkable inte rstate compliance demonstration and recordkeeping obligations on utilities.; the commen ter Commenters specifically noted that utilities with regional territory or ownership cros sing the state lines of New Mexico, Texas, and Arizona could result in impossible compliance demon stration.

Commenters expressed concern that any trading syste m must be designed to ensure double counting is avoided, and that adequate safe guards are in place to verify that purchased RECs do ultimately displace fossil fuel-fired emissions in the United States. Commenters noted that if participation is expanded across national borders s uch that the EPA allows use of RECs generated outside of the United States for complian ce, then the EPA should require such agreements be tied to delivery of the associated el ectricity into the United States for displacement of domestic fossil fuel-fired generati on.

Comment 11: Comments requesting clarification on how to address unbundled RECs.

Response 11: In the final rule, quantified and verified MWh imp acts of qualifying zero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. Con sistent with the EPA’s calculation of the CO 2 emission performance rates and state rate-based CO 2 goals in the final emission guidelines, the MWhs impacts are added to the denominator of an aff ected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of u nique MWh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading f ramework specified in this rule.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation from a qualifying measure, such as a ren ewable energy certificate (REC), whether bundled or unbundled. An ERC may be issued, however , based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is awa re of the potential for interactions between ERCs and RECs and encourages the states to consider , when developing their state plan, how existing instruments that are used to meet other re gulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibil ity requirements for resources that can be used66

to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects, and a discussion of addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of t he final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP desc ribes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation. For additional information regarding how the final rule explicitly addresses double-counting concerns through the MWh accounting approach and th e allowance of multi-state plans, see section VIII.L of the final rule preamble of the CP P.

The following are summaries of the specific public comments under this comment:

Commenters stated that the proposal fails to adequa tely consider unbundled RECs. Commenters urged that because the proposal does not distinguis h between unbundled RECs and the typically bundled RECs, significant double-counting issues co uld occur. Commenters noted that the existing REC trading system allows for RECs to be s old separately from the underlying MWh of renewable energy generated ("unbundled"), resulting in remaining MWh of "null power" that may be consumed by customers on the grid in the for m of more carbon-intensive energy sources. Commenters also noted that unbundled RECs may be ge nerated when the utility to which the resource is interconnected has elected not to purch ase the REC; specifically, they noted that the Public Utilities Regulatory Policy Act ("PURPA") re quires utilities to purchase the output from small renewable energy generators, called qualifyin g facilities ("QFs"), but that the Federal Energy Regulatory Commission allows that a sale of this nature does not necessarily encompass RECs. Therefore, commenters asserted that RECs gene rated by a QF do not always transfer to the utility even though the utility purchases the p ower, which could create a possible doublecounting situation if the interconnected utility tr ies to take credit for the null power. Commenters also noted that many net metering customers are notrequired to transfer the RECs generated by their systems to the utility. Commenters stated tha t compliance would be complicated based on the ownership of unbundled RECs by entities such as independent power productions that are not regulated by state utility commissions. Commenters noted that the proposed rule is unclear on its intent regarding the treatment of these renewable e nergy attributes and is ambiguous on how states may count the bundled or unbundled RECs for compliance. Commenters reiterated that an implementing state or entity should be able to clai m the environmental attributes of purchased renewable electricity from out-of-state generation, regardless of where it occurs, in its state compliance plan. Commenters requested that EPA prov ide clarification on which state retains the ability to claim emission reductions attributable t o RE and RECs on a bundled or unbundled basis and how states should avoid double counting i n instances in which one state claims credit for emissions reductions caused by renewable genera tion and another state that holds the environmental attributes of the same energy also cl aims credit.

Commenters requested that EPA limit double-counting by ensuring that the carbon-free attributes and the energy itself are not separated (i.e., EPA should only allow bundled RECs). Commenters argued that a bundled REC follows the pr oposed idea that limits credit of RE to states that actually consume the electricity. Comme nters recommended that EPA not allow stand-alone (decoupled) Renewable Energy Certificat es (REC's) to fulfill the proposed state goals, but instead evaluate the energy that is actu ally delivered to the utility or state claiming67

credit for those emissions reductions. Commenters a rgued that allowing REC's that are not combined with actual energy delivery would allow al ready over-performing states to monetize already existing or planned renewable energy genera tion with limited additional reductions in carbon dioxide emissions. Commenters asserted that companies that are already purchasing RE from out-of-region and receiving the RECs associate d should be credited for those purchases. Commenters requested that where RECs and electricit y are bundled, the contract for purchase of the RECs should accompany the purchase of the elect ricity to ensure that multiple parties are not using the same MWh of renewable energy generation t o comply with their RPS obligations.

Commenters recommended that EPA specify that PPAs, where RECs are tied to electricity consumed, should be included as a compliance option for Section 111(d) state compliance plans. Commenters also requested that EPA 1) clarify that a generating state is not permitted to avoid emissions if the RECs are sold to another state, se parate from null power, for RE generating capacity, and 2) assign an attribute profile for nu ll power (i.e., an average or marginal grid emission value minus the renewable attributes for t he purpose of calculating emissions from this null power). Commenters cautioned against using REC s as a form of emission offsets for which they were never intended.

Commenters argued that EPA should not constrain sta tes as to whether credits are bundled with electric power or not, but should leave the option to the market and individual states. Commenters contended that such decisions should be left to the market and individual state policies and that states should allow private actor s to freely contract for environmental attribute credits associated with renewable power separate fr om the power itself, letting the market determine the best use of the attribute. Commenters also requested that EPA not disaggregate avoided emissions from RECs for 111(d) compliance. Commenters stated that disaggregating avoided emissions would 1) not avoid the need for t racking such emissions, 2) disrupt RPSs if the RPS could not claim the full benefit of the avo ided emissions, 3) limit the use of RPSs for 111(d) where the RPS currently allows unbundled REC s, and 4) increase the costs of compliance for states which would have to pay for avoided emis sions that are currently separate from the REC. Commenters asserted that both RECs and the car bon reduction attributes of RE are distinct from the electricity and should be separately trade d; Commenters stated that the REC should be able to be used to comply with a utility's RPS obli gation as well as for purposes of compliance with CAA section 111(d). Commenters asserted that a llowing unbundled GHG attributes is consistent with current state renewable programs wh ich allow interstate movement of renewable or environmental attributes to meet supply and dema nd, and would allow states to develop their compliance strategy through a diverse mix of renewa bles that is not dependent on state-specific renewable resources. Commenters further argued thatallowing unbundled environmental attributes would foster more efficient and robust G HG emission reductions and lead to lower costs, less regulatory burden, and greater technolo gical innovation.

Commenters argued that restrictions or prohibitions on imports and exports, including any requirement that those attributes be bundled with t he electricity itself, would have unintended consequences for both individual states and states participating in multi-state arrangements, including artificial price signals and other barrie rs. Commenters asserted that any federal limits on the interstate flow of renewable attributes woul d skew in favor of a small subset of renewable technologies, decrease cost-effectiveness, and decr ease flexibility to the states. Commenters requested that EPA encourage states to establish br oad markets beyond geopolitical or NERC68

grid regions and work with ISOs to help align the v arious generation attribute tracking systems with each other and properly track RECs.

Commenters noted that EPA should require the contin ued use of tracking systems for these environmental attributes, which are already used to support state RPS programs, for compliance purposes. Commenters argued against the creation of a new credit system for trading low-carbon attributes; Commenters urged that the RE and low ca rbon attributes significantly overlap, and a separate tracking system for each is unnecessary. C ommenters reiterated that in markets where RECs and electricity are sold separately, the REC s hould only be retired once and used to satisfy one state's RPS compliance requirement. Commenters urged that if a state does not use a tracking system for environmental attributes, the s tate should only be allowed to include renewable energy MWhs in its compliance plan if it can demonstrate entities in the state have submitted environmental attribute credits for them.

Comment 12: Comments regarding levels of credit.

Response 12: In the final rule, to the extent qualifying RE gen eration and demand-side energy efficiency measures are tied to a state plan, the q uantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. It is not necessary to determine the emission impacts of the MWhs as they will be reflected in the reported stack CO 2 emissions of affected EGUs. The MWh accounting meth od addresses interstate effects, because it inherently accounts for how generation replaceme nt and CO 2 emission reduction impacts may cross state borders and is indifferent to avoided C O 2 emission rates; it creates the same number of zero-emitting credits or adjustment for each MWh of energy generation or savings, wherever they occur. Details regarding the accounting approa ch for adjusting CO 2 emission rate is included in Section VIII.K.1 of the final rule prea mble of the CPP. A full discussion of treatment of interstate effects under the final guidelines is included in Section VIII.L of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters suggested that different levels of credi t should be awarded to RE and EE resource types based on each resource type's output profile and the region to which its generation is physically delivered, during both the plan approval and the compliance phase. Commenters stated that carbon emission reductions provided by RE and EE vary significantly depending on the time and location in which the resource is deli vered. Commenters requested that the impact of location and time of production on emissions red uctions should be accounted for, using either emissions calculation tools (such as AVERT) or stan dardized regional estimates. Commenters further requested that in the process of retiring a REC in the compliance phase, states should be required to demonstrate the type and region of the resources that produced the REC.

Comment 13: Treatment of RECs for distributed generation.69

Response 13: See section VIII.L of the final preamble to the CP P for the response to this

comment.
The following are summaries of the specific public comments under this comment:

Commenters asserted that the EPA must address cases where a load-serving utility treats distributed generation as a load-side resource and adjusts load forecasts to reflect anticipated growth in customer-sited generation. Commenters sta ted that if a utility adjusts load forecasts to reflect anticipated growth, it should not count the full capacity-based generation under Building Block 3, otherwise the generation would be double-c ounted.

Comment 14: Comments that the EPA should not impose restrictio ns on RECs/REC markets.

Response 14: In the final rule, the MWh accounting method corres ponds with the use of Emission Rate Credits (ERCs) in the rate-based emis sion trading framework specified in this rule. The accounting method is consistent with the methodology used to calculate CO 2 emission performance rates and state rate-based CO 2 goals in the final rule, requires a quantification and verification of the MWh generated or avoided by an eligible measure, and thus Emission Rate Credits (ERCs) or adjustments are denominated in MW h.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC) or an energy efficiency credit (EEC). An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs that are used to meet state renewable port folio standards or energy efficiency resources standards. The EPA is aware of the potent ial for interactions between ERCs and RECs or EECs and encourages but does not require the sta tes to consider, when developing their state plan, how existing instruments that are used to mee t other regulatory requirements or in voluntary markets may interact with ERCs and if the y want to amend their policies in some way to reflect their priorities and circumstances.

The final rule also describes a wide variety of ERC providers or entities implementing EE/RE programs or projects that could potentially be issu ed ERCs provided that the measures meet the eligibility requirements described in Section VIII. K.1 of the final rule preamble of the CPP and the measurement and verification requirements in Se ction VIII.K.3 of the final rule preamble of the CPP. For more information about the requirement s for ERC issuance related to rate-based emission trading approaches and ERC providers, see Section VIII.K.2 of the final rule preamble of the CPP.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect demand-side EE and eligibility requireme nts for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects, addressing the pote ntial for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP. Section70

VIII.K.3 of the final rule preamble of the CPP desc ribes the requirements and criteria related to proper ex post quantification and verification of M Whs from renewable electricity generation or demand-side EE savings

The following are summaries of the specific public comments under this comment:

Several commenters expressed that EPA should not im pose restrictions on the form of credits or interrupt existing markets. Commenters noted that although some state RPSs requ ire that electricity from qualifying renewable energy source s be produced or delivered within the state or a specified grid region, EPA should not impose thes e restrictions. Commenters also requested that EPA not dictate the form of the credit, but al low states to use renewable energy generated as part of a new or existing RPS program, as part of t he voluntary renewable energy market, or as separate credits developed specifically as part of a state plan. Commenters described their vision of the accounting framework, stated that the enviro nmental attributes would start with the RE generator for each unit of RE generated and then th e environmental attributes could then be transferred using any instrument consistent with th e law of the state where the generator was located. Commenters provided some examples of how i nstruments could be structured, including bundled with power in a bilateral contract; unbundl ed and sold separately from power; kept and retired by the owner of the renewable facility (suc h as if that owner were a utility or also owned EGUs); transferred or sold as part of a net meterin g agreement for distributed renewable generation. Commenters asserted that EPA should notdictate the form of acceptable environmental attribute credits. Commenters reques ted that EPA not promulgate any restrictions on the fungibility of allowances in regional credit markets (such as in RGGI), even if it means that the total allowances held by affected units wi th one state might exceed the individual state budget; Commenters asserted that EPA must apply an emissions cap to all of the states included in the plan. Commenters argued that a state plan th at claims the credit for all in-state renewable energy generation would invalidate existing contrac ts that have already transferred all environmental attributes out-of-state, introducing significant uncertainty into the marketplace. Commenters requested that EPA should make clear tha t state plans do not alter current contractual agreements between renewable energy pro ject developers and purchasers of power and/or environmental credits. Commenters urged thata final rule should encourage new markets and avoid disrupting current and expanding intersta te markets, including the cross-border sale of renewable energy and attributes.

Commenters noted that in some cases, load-serving u tilities do not receive RECs from customersited generation (e.g., rooftop solar panels). Comm enters stated that depending on the states, RECs may be transferred to a utility without any ad ditional payment, the REC may be transferred to the utility only if it has offered a n incentive to the customer, or the REC may be retained by the customer. Commenters stated that in order to avoid double-counting, utilities or states may need to amend rules or laws to take poss ession of the RECs.

Comment 15: Comments suggesting that EPA provide options for c ooperatives to sell credits for RE.71

Response 15: In the final rule, the MWh accounting method corre sponds with the use of Emission Rate Credits (ERCs) in the rate-based emis sion trading framework specified in this rule. The final rule includes requirements specific to rate-based emission trading programs that states must include in their plan to ensure the int egrity of a rate-based approach that includes an emission trading program. These requirements includ e, among other things, provisions for issuance of ERCs by the state and/or its designated agent. The final rule also describes a wide variety of ERC providers or entities implementing E E/RE programs or projects that could potentially be issued ERCs provided that the measur es meet the eligibility requirements described in section VIII.K.1 of the final rule pre amble of the CPP and the measurement and verification requirements in section VIII.K.3. For more information about the requirements for ERC issuance related to rate-based emission trading approaches and ERC providers, see section VIII.K.2 of the final rule preamble.

The following are summaries of the specific public comments under this comment:

Commenters suggested that the EPA develop a rule op tion that specifically lays out the opportunity for cooperatives to sell credits that w ould encourage cooperatives to transition to renewable energy sources. Commenters urged that coo peratives provide electric service to much of rural America.

Comment 16: Comments suggesting the final rule should assign R ECs to IPPs to credit shutdown of EGUs.

Response 16: Consistent with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, quantified and verified MWh impacts of qualifying zeroemitting and low-emitting resources that substitute for or avoid generation from an affected EGU and are tied to a state plan may be used by an affe cted EGU or state to adjust a CO 2 emission rate. The accounting approach requires a quantifica tion of the MWh generated or avoided by an eligible measure, and thus Emission Rate Credits (E RCs) or adjustments are denominated in MWh.

A rate based trading program would provide for the implementation and enforcement of rate based emission standards for a state plan that allo ws its affected EGUs to adjust a rate by the use of an ERC. For states that choose a rate-based emis sion trading program, the EPA is finalizing requirements specific to the program a state mus do cument including: provisions for issuance of ERCs by the state and/or its designated agent; prov isions for tracking ERCs, from issuance through submission for compliance; and the administ rative process for submission of ERCs by the owner or operator of an affected EGU to the sta te, in order to adjust its reported CO 2 emission rate when demonstrating compliance with a rate-based emission standard. These requirements must be submitted for inclusion in the federally enforceable plan, per the statutory requirement that states provide for the implementat ion and enforcement of emission standards.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC) or an energy efficiency credit (EEC). The EPA is aware of the potential for interactions72

between ERCs and RECs or EECs and encourages but do es not require the states to consider, when developing their state plan, how existing inst ruments that are used to meet other regulatory requirements or in voluntary markets may interact w ith ERCs.

If a state wants to include in their state plan the planned retirement of an individual affected EGU, the retirement could be codified in the state plan by adopting an emission standard of 0 CO 2 lb/MWh as of a certain date. The state would thus include in the state plan an emission standard of 0 CO 2 lb/MWh for that affected EGU that applies after a specified date. The owners of the affected EGUs could apply for ERCs through t he appropriate state ERC trading system.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect demand-side EE and eligibility requireme nts for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects, addressing the pote ntial for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP desc ribes the requirements and criteria related to proper ex post quantification and verification of M Whs from renewable electricity generation or demand-side EE savings.

The following are summaries of the specific public comments under this comment:

Commenters stated that the final rule should accoun t for a way for independent power producers (IPPs) to be issued a tradable REC for measures suc h as early shutdown of EGUs or agreements to dispatch an EGU under a state or EPA program. Commenters recommended that these credits, which are needed to meet the early reduction goals of the CPP, should be given directly to IPPs, dispatched stations, and regulated utilities. Comme nters also requested that if an EGU voluntarily reduces emissions more than required to meet state goals, that EPA track such "overcompliance" to allow EE claims and RECs to be traded across states or to be utilized as adjustments to achieve compliance for other states.

Comment 17: Comments suggesting the proposal does not support market-based plans or capand-trade plans.

Response 17: EPA disagrees with the comments opposing the use o f market-based plans. As discussed in Section VIII.C of the final rule pream ble of the CPP, many commenters suggested that states should be encouraged to join or form ma rket-based programs. Many commenters touted the economic efficiency benefits of such app roaches, and noted that such programs have features that support electric reliability. The EPA agrees with these comments, and notes that it encouraged such approaches in the proposal. While t he EPA is not requiring states to join and/or form regional market-based programs, we note that s uch programs can be helpful for many reasons, including features that support reliabilit y. Market-based programs allow greater flexibility for affected EGUs both in the short-ter m and long-term. Under a market-based program, affected EGUs have the ability to obtain s ufficient allowances or credits to cover their73

emissions in order to comply with their emission st andards. Additionally, we continue to encourage states to cooperate regionally. Regional cooperation in planning and reliability assessments is an important tool to meeting system needs in the most cost-effective, efficient, and reliable way.

The final rule addresses the use of emission budgettrading programs, including provisions required for such programs and the design of such p rograms in the context of a state plan. This includes program design approaches that ensure achi evement of a state mass-based CO 2 emission goal (or mass-based CO 2 goal plus new source CO 2 emission complement) (section VIII.J.2.b), as well as how states can use emission budget tradi ng programs with broader source coverage and other flexibility features, like out-of-sector offsets and certain cost containment requirements, such as the programs currently implem ented by California and the RGGI participating states (section VIII.J.2.c). Achievem ent of the state mass-based CO 2 goal would be determined based solely on stack CO 2 emissions from affected EGUs. Where a state progra m includes the ability of an affected emission source to use GHG offsets to meet a portion of its allowance compliance obligation, no “credit” is app lied to reported CO 2 emissions by the affected EGU. The use of offset allowances or credi ts in such programs merely allows an affected EGU to emit a ton of CO 2 in the amount of submitted offset allowances or cr edits. In all cases, there is no adjustment applied to reported s tack emissions of CO 2 from an affected EGU when determining compliance with its emission limit

.

Section VIII.J.2.d addresses other considerations f or the design of emission budget trading programs that states may want to consider, such as allowance allocation approaches. Section VIII.J.3 addresses multi-state coordination among e mission budget trading programs used in states that retain their individual state mass-base d CO 2 goals. The rule also includes in Section VIII.K.2 provisions required for states that choose to implement a market-based rate-based trading program to ensure the integrity of the prog ram.

See section V.A of the final rule preamble of the C PP for EPA’s response to the comment's concern that trading programs increase emissions;

The following are summaries of the specific public comments under this comment:

Commenters did not support the use of market-based trading programs, or cap and trade programs, to account for emissions reductions. Comm enters argued that such an approach would not actually prohibit polluters from polluting, butwould merely require them to purchase the right to pollute more by buying "credits". Commente rs also asserted that such an approach would not actually reduce pollution, and that a cap-and-t rade approach would not drive emission reduction, as it does not force large polluters to clean up their emissions. Commenters pointed to a comparison of EPA's Acid Rain Program with Europe an Union and Japan regulatory "command and control" systems as an example of wher e trading has resulted in lower emissions reductions that would be acquired by strict regulat ion.

Commenters further argued that the allowance of off sets is counterproductive to such plans. Commenters noted that although EPA denies the use o f offsets in the proposed rule, it allows states to join existing market programs that may al ready allow for offsets. Commenters argued that by allowing states to join existing markets, t hese offsets would be introduced into an even74

larger market, including international markets, and therefore EPA would be unable to limit such offsets.

Comment 18: Comments requesting the EPA establish credit tradi ng systems for EE, similar to RECs.

Response 18: In the final rule, consistent with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, quantified and verified MWh impacts of qualifying zero-emitting and low-emitting resources , tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside o r outside the state or territory.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of M Wh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule. This MWh accounting method creates a crediting system or rat e adjustment process that is indifferent to the rate-based CO 2 emission goals of individual states, or the specif ic CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards.

An ERC represents one MWh of zero-emitting generati on and is issued separately from any other instruments that may be issued for a MWh of e nergy generation or energy savings from a qualifying measure, such as a renewable energy cert ificate (REC). An ERC may be issued, however, based on the same data and verification re quirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how exi sting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs. When demonstrating compliance with a rate-based standard, an affected EGU would report its CO 2 lb/MWh emission rate to the state regulatory body and would also su rrender to the state any ERCs it wishes to use to adjust its reported emission rate.

The EPA received a number of comments from states a nd stakeholders about the value of the EPA’s support in developing and/or administering tr acking systems to support state administration of rate-based emission trading syste ms. This could include regional systems and/or a national system. The EPA is exploring opti ons for providing such support and is conducting an initial scoping assessment of trackin g system support needs and functionality.

The EPA acknowledges in the final rule that there m ay be interactions between mass-based and rate-based plans regarding counting measures, speci fically where measures that provide substitute or avoided generation, such as RE and de mand-side EE, are located in a mass-based state and can also be used by a rate-based state in meeting the CO 2 performance rates or state goals. The EPA has determined that, in the context of interactions among rate-based and massbased plans, there is not explicit double-counting of the CO 2 emission reductions associated with counting measures located in mass-based states, con sidering the accounting methods outlined in75

this final rule. Though there is no risk of double- counting emissions, in response to commenter concern that overall CO 2 emissions reductions would be foregone in situatio ns where a source in a rate-based state counts the MWh from measures in a mass-based state, but the generation from that measure acts solely to serve load in the mass- based state, the EPA is restricting the ability of rate-based state to claim emission reduction measur es, such as RE and demand-side EE, located in mass-based states. In order to avoid cutting som e states off from regional RE supplies that are assumed in the BSER building block 3 and incorporat ed in the CO 2 emission performance rates or state rate-based CO 2 goals in the emission guidelines, the EPA has dete rmined that it is appropriate for rate-based states to count MWhs fro m RE located in mass-based states, subject to the condition that the generation in question was i ntended to meet electricity load in a state with a rate-based plan.

For a discussion about the elements incorporated in to the final rule to minimize double-counting, see Section VIII.L. For more information about spec ific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand-side EE and re newable energy, including eligibility dates and the types of EE savings and RE MWhs that are el igible, see Section VIII.K.1. Requirements for rate-based emission trading programs and the is suance and tracking of ERCs, including qualifying measures, programs or projects, addressi ng the potential for interactions between ERCs and RECs or EECs, are addressed in section VII I.K.2. Section VIII.K.3 of the rule describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or deman d-side EE savings to avoid overestimation as suggested by commenters. For information about m ass-based emission standards with a market-based emission budget trading program, see S ection VIII.C.2 and VIII.J.2.

The following are summaries of the specific public comments under this comment:

Commenters stated they think the proposal also lack clarity regarding which entities and states would be able to use EE credits, whether interstate trading could be used to comply with the Clean Power Plan, and how out-of-state EE would be credited. Commenters disagreed with EPA's approach to EE that would credit only the sha re of the savings that are expected to reduce emissions at in-state EGUs. Commenters felt that th e EPA's approach would result in EE being considered a less desirable compliance option. Comm enters recommended that the EPA allow states to take credit for the full value of the ene rgy efficiency investments with a state.

Several commenters provided comments on accounting and tracking interstate emission reductions due to EE and avoiding double counting. Commenters referred to the option for states to take credit for emission reductions achieved out of state due to in-state EE, stated that this option would not result in double counting if it is combined with a clear accounting mechanism. Commenters stated that EPA should reinforce incenti ves for states to fully leverage their programmatic and regulatory tools (e.g., tax credit s; codes and standards), and for utilities and their regulators to be willing to invest ratepayer dollars in EE measures and projects.

Commenters stated that EPA should craft an accounti ng protocol for states to take credit for outof-state emission reductions due to in-state EE. Commenters attached a C2ES brief to their comment letter, entitled Cross-State Electricity Lo ad Reductions Under EPA's Proposed Clean Power Plan (also available at http: //www.c2es.org/publications/ cross-state-electricity-loadreductions-under-epas-proposed-clean-power-plan). C ommenters stated that the brief discusses76

options for claiming credit for emission reductions that occur across state lines. Commenters encouraged EPA to work with states to determine an accounting protocol. Commenters contended that due to these interstate effects, sim ply measuring emissions and generation within a state may not be enough to show that reductions a re being made. Commenters stated that a state may have to demonstrate what steps it took to cut generation to prevent two states claiming credit for the same emission reduction. Commenters stated that making sure there are no inadvertent disincentives will ensure effective eff iciency programs that could even exceed EPA's targets.

Commenters stated that states should have the abili ty to work with one another to determine the best method for accounting of such credits and cost s, without having to be in a regional program, ensuring there is no double counting of reductions among states. Commenters stated that EPA can assist the states through detailed guidance on the ways it considers most effective to identify, allocate and ensure the integrity of EE credits sha red among states, but without taking on a more substantive oversight role.

Commenters recommended the EPA allow states to esta blish credit-trading platforms similar to those used for RECs (i.e., NEPOOL, PJM EIS GATS) th at enable energy savings to be traded. Commenters also recommended that EPA identify or fa cilitate an optional standardized credit tracking system for energy savings that states coul d join if they do not already have a system in place. Commenters stated that while such an interst ate system does not currently exist, a clear signal from EPA that such a system would allow stat es to take full advantage of low-cost emission reduction measures from energy savings wou ld likely

facilitate the creation of such a system. Commenter s stated that such a system, which states could join at their discretion, would particularly help t hose states without a tracking system already in place. Commenters stated that this would allow stat es acting together to take advantage of the lowest cost emission reduction opportunities throug h EE without having to participate in full multi-state compliance plans. Commenters urged EPA to provide a clear signal of its support for an interstate energy savings trading platform.

Commenters also recommended that EPA build on the e xisting REC tracking system concepts to provide verification, tracking, and banking of EE a voided generation in MWh at the national level. Commenters stated that EPA should consider c reating and maintaining its own system of tracking compliance for interstate credits and trad ing to ensure appropriate and consistent treatment of compliance actions and avoiding errors in crediting of results.

Commenters stated that unlike with RE, where there is a risk that a competing claim may be staked by the state where the RE resource is locate d, or by the purchaser of "null power," when all states are rate-based there is no reason that a nother state would lay claim to those reductions, since they would only be identified by the entity i mplementing the EE program. Commenters stated that, even where a fossil unit is displaced in a state other than the state taking credit for t he EE, that will not result in double counting so long as EPA adopts the annual true-up procedure that Commenters recommended for states with mass-ba sed limits . Commenters stated that because the mass-limited unit will have less genera tion factored into its rate-to-mass conversion, its overall mass target will be lower, neutralizing the benefit it received by having its emissions reduced due to an out-of-state EE program. Commente rs contended that no double-counting will77

occur due to displacement of affected EGUs in rate- based states. Commenters stated that crediting 100% of EE results would not result in do uble-counting if EPA requires states using a mass-based compliance plan to account for any poten tial double counting issues in its state compliance plan by discounting its emission reducti on compliance number by any emission reductions that are the result of out-of-state inve stments in EE or RE. Commenters also mentioned that this may provide incentive for state s to participate in a multi-state compliance approach. Similarly, commenters stated that double counting EE savings can be addressed by requiring any states that opt for a mass-based targ et and that export electricity to rate-based states to adjust the baseline generation they use to set t he mass-based target to ensure that no double counting occurs.

Commenters stated that rate based compliance states that are investing in EE measures should include a commitment in the state compliance plans to provide any necessary data to mass-based compliance states upon request and EPA should verif y the cross-state emission reductions resulting from EE measures in its review of each st ate's compliance plans. In addition, commenters stated that this approach may provide an incentive for states to participate in a multi-state compliance approach.

Commenters stated that there is a legitimate concer n of double counting when a state chooses a rate-based approach and gets full credit for energy savings achieved in the state, but then imports a significant amount of electricity from a state th at chooses a mass-based approach. Commenters stated that it would be reasonable for the EPA to r equire an energy savings adjustment within the state where the savings occurs in this case. Commen ters suggested that EPA could set a threshold for applying an adjustment factor during the implem entation phase (e.g., it is required if a state that chooses the rate-based approach imports more t han 5% of its electricity from a state that chooses the mass-based approach in any particular y ear). Commenters stated that this adjustment would not be necessary if an importing state choose s the mass-based approach for compliance.

Commenters stated that EPA should require states to include provisions in their state plans to avoid double counting of energy savings among the v arious EE policies and programs included in the plans (e.g., for projects that participate i n both utility and non-utility programs). Commenters contended that states should be given th e flexibility to determine which programs will receive the credits where there is overlap, an d to indicate how double counting will be avoided.

Commenters stated that their state is in the proces s of discussing how to avoid double-counting emission reductions from EE with other states, and encouraged EPA to continue to work with states on this critical issue prior to finalizing t he rule so that the CPP provides a workable solution for all states.

Comment 19: Comments regarding carbon pricing through RTOs/ISO s.
Response 19: In the final rule, the EPA offers states the flexi bility to choose the state plan approach that works best for their priorities and c ircumstances. States can choose an emissions standards approach by placing federally enforceable emissions standards on their affected EGUs78

but implement complementary energy efficiency progr ams don’t explicitly receive credit under the final guidelines but lower the cost of complian ce. Under the state measures approach, states can adopt a plan that does not place all the obliga tions on affected EGUs but includes measures implemented by the state, or by entities other than affected EGUs, that result in avoided generation and CO 2 emission reductions at affected EGUs.

Measures implemented under the state measures plan type could include RE and demand-side EE requirements and deployment programs. This type of plan could align with existing state resource planning in the electricity sector, includ ing RE and demand-side EE investments by state-regulated electric utilities. The state measu res plan type also can accommodate emission budget trading programs that address a broader set of emission sources than just affected EGUs subject to CAA section 111(d) and could accommodate imposition by a state of a fee for CO 2 emissions from affected EGUs, an approach suggested by a number of commenters.

This plan type would allow the state to implement a suite of state measures that are adopted, implemented, and enforceable only under state law, and rely upon such measures in achieving the required level of CO 2 emission performance from affected EGUs. The state measures under this plan type could be measures involving entities other than affected EGUs, or a combination of such measures with emission standards for affect ed EGUs, so long as the state demonstrates that such measures will result in achievement of a state’s mass-based CO 2 goal (or mass-based CO 2 goal plus new source complement). For more informa tion about the specific requirements related to the emissions standards and state measur es approaches, see Section VIII.C.

The following are summaries of the specific public comments under this comment:

Commenters requested that EPA explicitly allow for carbon pricing as a "beyond the fenceline" compliance option for states and consider drafting a model rule for states on the adoption of carbon pricing schemes. Commenters argued that this approach would utilize the existing market structure to determine least-cost compliance soluti ons and would explicitly reflect reliability contributions of plants. Commenters stated that car bon pricing would incorporate both long-term and short-term operational and reliability concerns and could be used to incentivize lower-carbon emitting resources. Commenters suggested that EPA c ould translate the proposed carbon emission reduction targets into targets for regiona l power markets (RTOs/ISOs) and apply those reductions through a market-based carbon price. Com menters argued that implementing carbon prices through RTOs/ISOs would provide for a "predi ctable and stable system" and could be more efficient and cost-effective than direct contr ol of individual generation sources or a stateby-state carbon pricing approach.

Comment 20: Comments Opposing RTOs leading trade markets.

Response 20: In the final rule, the EPA offers states the flexi bility to choose the state plan approach that works best for their priorities and c ircumstances. It does not create new authorities or requirements for regional transmission organizat ions but does acknowledge that RTOs may have or be able to provide data, analyses and/or ex pertise that can support state decision making,79

particularly with respect to multi-state plans as d escribed in Section VIII.C.5 and demonstrating performance as described in VIII.D.2.a.(3) of the f inal rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters opposed giving regional transmission org anizations (RTOs) the authority to create new markets as a compliance vehicle. Commenters sta ted that RTOs have currently assumed the operation of competitive energy, capacity, ancillar y service, and other markets, in which they currently centrally dispatch EGUs based on the marg inal cost of operation of each individual unit based on EGU bids submitted to the RTO. Commenters noted that factoring CO 2 compliance costs into existing EGU bids could result in dispat ch of EGUs on a lower CO 2 emission rate if the focus remains on consumers and transparency. Ho wever, commenters stated opposition to RTOs running these trading platforms or other new m arkets based on concerns regarding a lack of consumer focus or transparency in existing energ y and capacity markets. Commenters further iterated that if new markets or trading platforms a re rule by RTOs, this would significantly complicate the competitive energy market and could add unnecessary costs.

Comment 21: Comments supporting "alternative compliance paymen ts" in interstate trading.

Response 21: The final rule addresses the use of emission budge t trading programs, including provisions required for such programs and the desig n of such programs in the context of a state plan. This includes program design approaches that ensure achievement of a state mass-based CO 2 emission goal (or mass-based CO 2 goal plus new source CO 2 emission complement) (section VIII.J.2.b), as well as how states can use emission budget trading programs with broader source coverage and other flexibility features, lik e out-of-sector offsets and certain cost containment requirements, such as the programs curr ently implemented by California and the RGGI participating states (section VIII.J.2.c).

In the case where an emission budget trading progra m contains elements that functionally expand the emission budget in certain circumstances , such as the inclusion of an alternate compliance payment option, compliance by affected E GUs with the mass-based emission standards would not necessarily ensure that CO 2 emissions from affected EGUs do not exceed the state’s mass-based CO 2 goal (or mass-based CO 2 goal plus new source CO 2 emission complement). States could modify such programs to r emove flexibility mechanisms that functionally expand the emission budget, such as ou t-of-sector offsets and certain cost containment reserve mechanisms, and submit the prog ram under an emission standards plan type.

Where a state chooses to retain such flexibility me chanisms as part of an emission budget trading program, the program may only be implemented as par t of a state measures plan type because these state flexibility mechanisms would not assure CO 2 emissions from affected EGUs do not exceed the state’s mass-based CO 2 goal (or mass-based CO 2 goal plus new source CO 2 emission complement). A description of the state measures pl an type and related requirements is provided in section VIII.C and Section VIII.J.2.

The following are summaries of the specific public comments under this comment:80

Commenters supported interstate emissions credit tr ading and a concept of "alternative compliance payments" that facilities could use when compliance costs exceeded the level of compliance payment. Commenters stated that this wou ld create state-based clean technology funds that could be used for projects to reduce car bon pollution in these states.

Comment 22: Comments suggesting that Tribal lands should not b e precluded from participating in carbon trading programs or require d to have a 111(d) plan to sell RE to other

states.

Response 22: See section VIII.G of the final rule preamble of t he CPP for the EPA’s response to comments associated with RE sources on tribal lands that can be used for CPP compliance in a state. See section I.A of the final rule preamble o f the CPP for the EPA’s response to the comments regarding continued EPA engagement with Tr ibes on the CPP.

The following are summaries of the specific public comments under this comment:

Commenters noted that the proposed rule allows stat es to use qualifying renewable energy sources in other states to count towards meeting th e state renewable portfolio standards. Commenters requested that this same opportunity be provided to Indian Tribes that sell renewable energy generated on tribal lands. Comment ers requested that EPA engage Tribes in a discussion about this opportunity and how it may fi t under the proposed rule. Commenters requested that EPA clarify the role that RECs will play in determining which jurisdiction or affected entity receives credit for renewable energ y generation. Commenters asked whether RE would be counted in cases where renewables are buil t on tribal land and purchased by a utility for use beyond tribal land.

Commenters asserted that EPA must clarify that trib al lands are not precluded from participating in carbon trading programs. Commenters requested that tribes should have the ma ximum flexibility to participate, with or without a triba l 111(d) plan, partial plan, or federal plan. Commenters also requested that EPA permit a hybrid approach and clarify that electric utilities are also able to participate in carbon credit tradi ng plans separate and apart from the tribal government. Commenters argued that allowing such tr ading would be consistent with Section 111(d) and existing emissions trading programs, sim ilar to the Municipal Waste Combustor 111(d) rules. Commenters urged that EPA could also permit this hybrid approach through its discretionary authority under CAA section 301(d) an d the Tribal Air Rule.

Commenters noted that some tribal authorities may w ant to ensure that the tribe receives tradable REC allowances for any RE developed on tribal land, regardless of who owns or operates the renewable resource. Commenters asked EPA to clarify whether a state, tribal nation, territory, or regulated entity can claim credit to renewable ener gy without holding the REC. Commenters noted that should a tribal authority choose to seek authority for and develop an implementation plan that includes the development of renewable ene rgy, it would need to negotiate with its business partners concerning REC ownership from ren ewable energy resources located on tribal lands.81

Commenters recommended that EPA allow a Tribal set- aside as part of an interstate emissions credit trading program. Commenters suggested the program be modeled after a similar annual SO2 set-aside that grew out of the Western Regional Air Partnership. Commenters reiterated that this set-aside what intended to help ensure equitab le treatment for tribal economies and prevent barriers to economic development. Commenters affir med that the same rationale exists today and a set-aside should be incorporated into any nat ional trading program under the proposed rule.

Commenters also asserted that EPA should not inhibi t the sale or exchange of tribal allowances in any state, such as by requiring the tribe to hav e a federal 111(d) plan or participate in a multijurisdictional plan in order of the allowances to b e used. Commenters noted that tribes may have or develop excess carbon allowances that it could s ell or trade in an open market, and that tribes should have the right to participate in such market s (such as the RGGI program). Commenters strong opposed any rule that would condition a trib e's ability to have RE resources on tribal lands count toward a state's 111(d) goal on the premise t hat the tribe has a 111(d) plan, Commenters argued that such requirements did not exists prior to the proposed rule and would be overly burdensome to tribes.

5.7.5 Regional demonstration by states of emission performance

This section addresses comments on regional develop ment and implementation of a plan to comply with the CPP.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments supporting regional demonstration by stat es of emission performance; the EPA should encourage coordination between state s for regional programs to reduce costs; supports regional emissions cap that allows for div ersity in state portfolios; RGGI as a prime example of a successful regional program; regional demonstration should be an option, not compelled.

Response 1: The EPA recognizes that there are multiple incenti ves for states to collaborate by implementing a multi-state plan. That is why EPA ha s promulgated a final rule that allows states to meet an aggregated joint goal, regardless of the specific level of their individual goals, because states share grid regions and impacts from plan implementation will be regional in nature. Further, multiple analyses, including those by ISOs and RTOs, indicate that regional approaches could achieve state goals at lesser costthan individual state plan approaches. However, the EPA also recognizes the value in allow ing for collaboration where states retain individual goals. These approaches could provide so me of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi-state plan with a joint goal. As a result, the EPA has finalized the additional m ulti-state approaches described above in section VIII.C.5 of the final rule preamble of the CPP to provide for coordination while82

maintaining individual goals. These approaches woul d allow for interstate transfer of energy rate credits (ERCs) or emission allowances while retaini ng individual state goals.

The EPA is allowing for streamlined multi-state tra ding approach, states can develop their own programs and trade eligible RE or demand side EE wi th other states through a trade-ready system. The EPA is providing maximum flexibility in the types of state plans states can use to implement the emission guidelines. For states wishi ng to participate in a multi-state plan, the EPA is finalizing three forms of submittal that sta tes may choose for the submittal of a multistate plan. See Section VIII.C.5 of the final rule preamble of the CPP for details on the different multi-state plan approaches the EPA finalized in th is final CPP rule

In terms of how EE is can be used for compliance, s tates can adjust their CO 2 emissions rate from eligible demand side EE and do not need to be implemented in its home states. This approach has changed from the proposal as suggested by the commenter below. See Section VIII.K.1 of the final rule preamble of the CPP for further details on how to use demand side EE in rate based plans.

The following are summaries of the specific public comments under this comment:

Commenters support an approach where states are all owed to demonstrate compliance with emission performance on a regional basis. Commenter s believed the EPA should encourage interstate coordination and collaboration because a n interstate approach can reduce costs and help avoid challenges that arise when limiting syst ems to a specific state.

Commenters noted that while the EPA has suggested a regional approach under which states' individual rate-based goals would be replaced by a single regional goal that would be equal to the weighted average of the state goals, it may notreceive support from states whose goals are less stringent than the regional weighted average. Commenters stated a regional approach more likely to secure support would allow states to reta in their individual goals, but would provide for credit trading between the states as a compliance m easure. Commenters noted that interstate cooperation can lower the administrative burden on states and compliance entities, and help resolve equity issues that arise between power-expo rting and power-importing states. Commenters (23597) noted that interstate programs h ave already been successful in a variety of contexts and specifically mentioned the Acid Rain P rogram, Cross-State Air Pollution Rule, regional haze initiatives, programs to address ozon e transport issues, and RGGI. Commenters believed that RGGI has demonstrated that a regional program that is closely aligned with the borders of an electricity grid is more efficient th an programs that are constrained by state borders. Commenters also noted that a regional prog ram can avoid market distortions. As an example, commenters mentioned the situation that wo uld arise if one state's energy efficiency investments reduce emissions in a neighboring state . Commenters noted that in a regional program both states would be able to reap the emiss ion reduction benefits of that energy efficiency. Commenters also highlighted RGGI as a s uccessful multi-state program that includes features of mass-based caps and interstate trading, and noted the economic benefits of the
program.

Commenters recommended that EPA allow and assist st ates preferring a multi-state approach the flexibility to design one that does not by necessit y mirror RGGI. Commenters stated that a state's83

participation in a multi-state agreement should not require that state's compliance goal to be absorbed, or blended, into a regional goal.

Commenters stated the final rule should also ensure that states making energy efficiency or renewable energy investments be given credit for th ose efforts. Commenters believed that individual states participating in a regional progr am may reduce emissions through a variety of state-specific energy programs like renewable portf olio standards and energy efficiency programs. Commenters suggested that the regional em ission cap can operate as an umbrella, encompassing and accounting for the emission reduct ions from these complementary programs. Commenters noted that because overall emissions are limited by the emissions cap, the complementary programs would not need to be federal ly enforceable. Commenters also stated that complementary programs would also serve to red uce the cost of complying with the regional emissions cap. Commenters noted that RGGI is one ex ample of this approach being successfully implemented. Commenters stated that the RGGI states are well-positioned to comply with the proposed CPP by using the existing RGGI model. Comm enters noted, however, that in order to demonstrate that the RGGI cap will be adequately st ringent to comply with EPA's targets, the RGGI states will have to 1) Extend the RGGI cap to 2030, 2) Correct the cap decline trajectory, and 3) Restructure the cost containment reserve. Co mmenters stated that whether through direct participation in RGGI or through the creation of a similar program, states should take advantage of the successful blueprint that already exists in the Northeast. Commenters stated that as an alternative to participation in RGGI, groups of sta tes may choose to develop their own massbased trading program as a CPP compliance mechanism . Commenters also stated should states choose this option, EPA should draw on the RGGI exp erience to facilitate interstate trading. Commenters requested that EPA make it as easy as po ssible for regional approaches to emerge. Commenters stated that this would allow interested states to incorporate policies that envision the development of regional linkages over time, rat her than requiring states to work out all the details by the plan submission deadlines. Commenter s also requested that EPA indicate that state plans that rely on discrete multi-state agreements would be approvable. Commenters stated that EPA should be explicit in the final rule about this regional flexibility, and provide guidance on a model approach, as it will achieve the goals of the Clean Air Act without putting an unnecessary burden on utilities.

Comment 2: Comments suggesting that the EPA should not compel RE regionalization.

Response 2: The final rule continues to give states significan t flexibility in how they comply with requirements, including single state and multi -state plans and using both BSER and nonBSER measures as a means to comply. For example, RE measures can greatly assist states and affected EGUs in meeting the standards and/or state plan. Many studies assume that state plans will simply apply the BSER and do not recognize the large number of compliance approaches and opportunities that states and affected EGUs hav e available to them. States do not need to adopt the assumptions the EPA uses to set BSER.

EPA disagrees with the commenter that EPA’s renewab le energy targets are too stringent. The global market for RE is projected to grow to $460 b illion per year by 2030. RE growth is further encouraged by the significant amount of existing na tural resources that can support RE84

production in the United States. In the Energy Info rmation Administration’s Annual Energy Outlook 2015, RE generation grows substantially fro m 2013 to 2040 in the reference case and all alternative cases.

The basis for quantifying building block 3 generati on has been modified to incorporate historical deployment patterns for RE technologies as well as the economic potential identified through modeling projections. The introduction of historica l capacity additions to the final methodology further grounds building block 3 generation in demo nstrated levels of RE deployment that have been successfully incorporated into the power syste m. This adjustment also serves to harmonize the approach across all three building blocks in wh ich historical data is the primary basis for identifying emission reduction opportunities under the BSER.

For further details on the EPA’s assumptions for RE under BB3 See Section V.E of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:
Commenters requested that EPA not compel regionaliz ation of renewable energy targets as a means for enabling states to adapt to EPA's Block 3 renewable energy target. Commenters stated that MISO analysis indicates that EPA renewable tar gets have been set too stringent for the MISO states, due to high costs per ton CO 2 reduction. Commenters suggested that states should have the option of entering into regional collabora tions that help develop mutually beneficial renewable deployment measures.

Comment 3: Comments suggesting that implementation of the rul e should be delayed.

Response 3: Commenters observed and EPA agrees that due to the interconnected nature of the power sector, units are not limited to such emissio n reduction measures within their state, and indeed any operational decisions that units take ne cessarily influence operational decisions at other units throughout the interconnected grid. As a result, in the final rule, we are finalizing CO 2 emission performance rates, informed by regional em ission reduction potential, for fossil fuelfired electric utility steam generating units and s tationary combustion turbines that are applied consistently across all affected EGUs. As the same source category-specific performance rates are applied to all units in the contiguous U.S. reg ardless of the state in which they are located, any differences between state goals in this final r ule stem only from the relative prevalence in each state of fossil fuel-fired electric utility st eam generating units and stationary combustion turbines. The EPA has determined that commenters re ceived ample time for response to comments to all information related to regionalize RE targets.

The EPA disagrees with the commenter’s concern that the rule needs to be delayed because of reliability concerns. For example, the Analysis Group recently analyzed reliability co nsiderations in MISO as the region considers how to comply with the final rule. The Analysis Group found that despite the large amount of coal that will lik ely retire in MISO in the coming years, the entities responsible for electric system reliabilit y in MISO are prepared to collaboratively address any reliability issues that arise and that there is a “strong tool kit for managing `Essential Reliability Services‘ needed to assure high-quality electric service .”85

The following are summaries of the specific public comments under this comment:

Commenters stated that the issuance of the final ru le should be delayed until EPA provides specifics on regional goals. Commenters were concer ned that allocating renewable energy on a state-by-state basis is problematic based on the la ck of specificity set forth in the NODA. Commenters noted that the absence of any demonstrat ion that such an approach represents BSER precludes EPA from pursuing such an approach in the final rule. Commenters stated that if EPA wants to pursue this approach in the final rule, th en it must delay issuance of the final rule and issue a revised proposed rule that specifies the pr oposed regions, the proposed regional goals, the methodology for apportioning goals and renewable en ergy to individual states, and the impact of this approach on states' emission rate requirements

.

Commenters stated that until NERC has validated the reliability impacts of the proposed rule, implementation must be delayed. Commenters noted th at Regional Transmission Organizations have indicated that the rule will cause thermal ove rloads and low voltage, while at the same time jeopardizing the reserve margin required for contin ued reliable operation. Commenters also noted concern about the compliance problems the pro posed rule presents for a utility that relies on a single, coal- fired power plant in one state t o serve load in completely different states.

Comment 4: Comments suggesting the proposed rule discourages regional cooperation.

Response 4: The EPA disagrees with the commenter’s concern. Th e final rule encourages regional cooperation in many ways. There are multip le incentives for states to collaborate by implementing a multi-state plan to meet an aggregat ed joint goal, regardless of the specific level of their individual goals, because states share gri d regions and impacts from plan implementation will be regional in nature. Further, multiple analy ses, including those by ISOs and RTOs, indicate that regional approaches could achieve sta te goals at lesser cost than individual state plan approaches.

The accounting approach described by the commenter is also inaccurate and does not reflect the final CPP rule accounting structure. The EPA is fin alizing the ability for states to choose to implement a rate based or mass based approach. Natu rally, the accounting structure for rate based plans are different than mass based plans, bu t in neither case does the same state have to assess both the emissions and clean energy generati on for their individual plan.

In the final rule, quantified and verified MWh impa cts of qualifying zero-emitting and lowemitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory.

See Section VIII.C of the final preamble that descr ibes the different rate and mass based plans. Section VIII.K.2.a of the final rule preamble of th e CPP below describes the basic accounting method for adjusting a CO 2 emission rate, as well as eligibility requirements for measures that may be used for adjusting a CO 2 emission rate. See Section VIII.J of the final rul e preamble of the CPP on additional considerations for mass based plans.86

The following are summaries of the specific public comments under this comment:

Commenters argued that although the proposed rule a ppears to encourage regional cooperation, the structure of the proposed rule discourages regi onal cooperation by pitting utilities against utilities and states against states. Specifically, commenters asserted that the proposed rule limits each state to counting both carbon-emitting and cle an generation located within the state, which would make regional cooperation difficult.

Comment 5: Comments suggesting that the EPA should not alloca te RECs at a regional level, but allow states to verify RECs and use a power del ivery review.

Response 5: Under all types of state plans, states must ensure that the emission reduction measures counted as part of meeting their plan requ irements are not duplicative of any measures that are counted by another state, in order to avoi d double counting of the MWhs of generation or energy savings that these measure produce. See Sect ion VIII.L of the final rule preamble of the CPP that addresses the commenter’s concern about av oiding double counting between rate based and mass based plans.

The EPA is finalizing requirements specific to rate -based emission trading programs as requirements the EPA has determined are necessary t o assure the integrity of a rate-based approach. These specific requirements for a rate-ba sed emission trading program include provisions for issuance of ERCs by the state and/or its designated agent; provisions for tracking ERCs, from issuance through submission for complian ce; and the administrative process for submission of ERCs by the owner or operator of an a ffected EGU to the state, in order to adjust its reported CO 2 emission rate when demonstrating compliance with a rate-based emission standard.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy effic iency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how exi sting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

Requirements for rate-based emission trading progra ms and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are in section VIII.K.2 of t he final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP desc ribes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation and demand-side EE.

The following are summaries of the specific public comments under this comment:87

Commenters argued that allocating RE targets at a r egional level, as opposed to state level, would introduce unnecessary complexity. Commenters suggested that states take responsibility for verifying RECs and the RECs presented by utilit ies to demonstrate compliance. Commenters asserted that using RECs would avoid confusion betw een states with major RE generation and the states that import that power. Commenters also recommended that utilities purchasing delivered RE and RECs should receive the credit for compliance purposed. Rather than using a regional REC compliance target, commenters favored a power delivery review to ensure that states provide guidance and incentives that ensure delivery of RE to their states while facilitating continued commerce in energy among the states. Comm enters asserted that a power delivery review would encourage regionalization while avoidi ng the severing of single utilities with integrated planning, transmission and distribution systems into multiple regions. Commenters noted that EPA should ensure there is no double-cou nting resulting from power transfers in or out of states with mass-based emission targets.

Comment 6: Comments supporting regional emission targets; sta tes should be allowed to apportion the regional emissions cap among states a s they see fit.

Response 6: The EPA disagrees that regional emission goals sho uld supersede individual state goals. The EPA has promulgated a final rule that al lows states to meet an aggregated joint goal, regardless of the specific level of their individua l goals, because states share grid regions and impacts from plan implementation will be regional i n nature. However, the EPA also recognizes the value in allowing for collaboration where state s retain individual goals. These approaches could provide some of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi-state plan with a join t goal. As a result, the EPA has finalized the additional multi-state approaches described above i n section VIII.C.5 of the final preamble to provide for coordination while maintaining individu al goals. These approaches would allow for interstate transfer of energy rate credits (ERCs) o r emission allowances while retaining individual state goals. See section VIII.K.2 of the final rule preamble of the CPP for EPA’s tracking system requirements.

The following are summaries of the specific public comments under this comment:

Commenters stated that meeting a regional emission cap should supersede individual state emission limits. Commenters believed that it should not matter how the participating states elect to apportion the regional emissions cap among the s tates provided the overall regional emissions cap complies with the guidelines. Commenters stated that although a particular state's actual emissions could theoretically exceed its individual state emission budget, they stated that this should not affect EPA's decision to accept a region al program as a pathway for compliance. Commenters questioned how states are to address int erstate issues in their plans, as EPA has no authority to require states to join interstate emis sion reduction efforts. Commenters agreed that states should be able to design programs to accountfor the interstate nature of electricity generation through existing state public utility co mmissions and environmental regulatory institutions. Commenters stated that under a mass-b ased approach, a state that joins an interstate88

plan should be able to establish emission targets f or the broad group of participating states rather than an individual state target, provided EPA can t rack compliance in the same way as an individual state plan.

Comment 7: Comments regarding enforcement of regional plans; enforceability of emission

caps.
Response 7: The EPA agrees with these commenters’ suggestions. For a mass-based emission trading program approach, the state plan would incl ude as its federally enforceable emission standards requirements that specify the emission bu dget and related compliance requirements and mechanisms. These requirements would include: C O 2 emission monitoring, reporting, and recordkeeping requirements for affected EGUs; provi sions for state allocation of allowances; provisions for tracking of allowances, from issuanc e through submission for compliance; and the process for affected EGUs to demonstrate compliance (allowance “true-up” with reported CO 2 emissions). Mass-based emission standards that take the form of an emission budget trading program must be quantifiable, verifiable, enforceab le, non-duplicative and permanent. This includes the requirement for an affected EGU to surrender emission allowances equal to reported CO 2 emissions, and meet monitoring and reporting requi rements for CO 2 emissions, among other requirements. These requirements may be submitted a s part of the federally enforceable state plan through mechanisms with the appropriate legal authority and effect, such as state regulations, title V permit requirements for affect ed EGUs, and other possible instruments that impose these requirements specifically with respectto affected EGUs.

For additional information about different mass bas ed trading program designs that are allowable under this final CPP rule see Section VIII.J of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters believed that a regional budget trading program is easily enforced. Commenters stated that under a budget trading program like RGG I, they noted enforceability, measurement, and verification are already incorporated into the program, since sources are required to obtain and hold a sufficient amount of allowances by the c ompliance deadline to cover emissions over the compliance period. Commenters noted this is a r egulatory requirement that is generally incorporated as a federally enforceable condition i n each source's operating permit. Commenters stated the emission cap is enforceable directly aga inst individual sources, with the failure of a source to hold sufficient allowances being a violat ion of the state's program and the source's permit. Commenters stated compliance with the 111(d ) emissions cap is then confirmed through "true-up" process in which states deduct allowances to cover emissions. Commenters believed this same approach could be incorporated into an ap proved Section 111(d) plan.

Comment 8: Cost escalation limits for regional programs; stat es must demonstrate that these limits do not result in excess emissions.89

Response 8: The final rule addresses the use of emission budge t trading programs, including provisions required for such programs and the desig n of such programs in the context of a state plan. This includes program design approaches that ensure achievement of a state mass-based CO 2 emission goal (or mass-based CO 2 goal plus new source CO 2 emission complement) (section VIII.J.2.b), as well as how states can use emission budget trading programs with broader source coverage and other flexibility features, lik e out-of-sector offsets and certain cost containment requirements, such as the programs curr ently implemented by California and the RGGI participating states (section VIII.J.2.c).

Under this approach, the full set of regulations es tablishing the emission budget trading program that applies to affected EGUs and other fossil fuel -fired EGUs and other emission sources (if relevant) must be described as supporting documenta tion in the state plan submittal. This structure is appropriate to ensure that states with an emission budget trading program that addresses both affected EGUs and other fossil fuel- fired EGUs do not inappropriately submit requirements regarding entities other than affected EGUs for inclusion in the federally enforceable state plan.

Such state programs could include a number of diff erent design elements. This includes broader program scope, where a program includes other emiss ion sources beyond affected EGUs subject to CAA section 111(d) and new fossil fuel-fired EGU s, such as industrial sources. Programs might also include design elements that make allowa nces available in addition to the established emission budget. This includes project-based offsetallowances or credits from GHG emission reduction projects outside the covered sector and c ost containment reserve provisions that make additional allowances available at specified allowa nce prices.

In the case where an emission budget trading progra m contains elements that functionally expand the emission budget in certain circumstances , such as the inclusion of an alternate compliance payment option, compliance by affected E GUs with the mass-based emission standards would not necessarily ensure that CO 2 emissions from affected EGUs do not exceed the state’s mass-based CO 2 goal (or mass-based CO 2 goal plus new source CO 2 emission complement). States could modify such programs to r emove flexibility mechanisms that functionally expand the emission budget, such as ou t-of-sector offsets and certain cost containment reserve mechanisms, and submit the prog ram under an emission standards plan type.

Where a state chooses to retain such flexibility me chanisms as part of an emission budget trading program, the program may only be implemented as par t of a state measures plan type because these state flexibility mechanisms would not assure CO 2 emissions from affected EGUs do not exceed the state’s mass-based CO 2 goal (or mass-based CO 2 goal plus new source CO 2 emission complement). A description of the state measures pl an type and related requirements is provided in section VIII.C and Section VIII.J.2 of the final rule preamble of the CPP.

Emission budget trading programs that include unaff ected EGUs must be submitted as a part of a state measures plan type. Where an emission budget trading program addresses affected EGUs and other fossil fuel-fired EGUs, the requirements that must be included in the state plan are the federally enforceable emission standards in the sta te plan that apply specifically to affected90

EGUs, and the requirements that specifically requir e affected EGUs to participate in and comply with the requirements of the emission budget tradin g program.

If a state chooses to implement a mass-based progra m including both affected EGUs and new EGUs, and the total allowable emissions is in exces s of the presumptively approvable power sector mass budget for that state, the state must p rovide a projection of CO 2 emission performance. Likewise, if a state chooses a state m easures state plan approach, a projection of CO 2 emission performance is required. For details on t he requirements for all state plans that must do CO 2 performance demonstration see Section VIII.D.2. (a ) of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that regional budget trading prog rams may have design elements intended to limit sharp cost escalations. Commenters noted thatRGGI allows sources to use offsets for a small portion (three percent) of their compliance o bligations, and the program revisions that will take effect in 2014 include a Cost Containment Rese rve (CCR) allow the distribution of a limited amount of additional allowances if prices exceed sp ecified levels. These elements, commenters noted, are intended to respond to unforeseen marketconditions, such as greater-than-anticipated demand growth, but they may lessen emission reducti ons. Commenters stated that States participating in RGGI or similar regional programs should be able to either demonstrate that these design elements will not allow emissions in e xcess of those allowed by EPA's emission guideline, or include supplemental measures to ensu re consistency with EPA's guideline.

Commenters recommended the EPA develop a mechanism to address any differences in the scope of sources covered by the Section 111(d) guid elines and the scope of sources subject to the requirements of the emission budget trading program . Commenters noted, for example, that RGGI may include certain smaller sources that may n ot be covered by the section 111(d) guidelines. Commenters noted if the additional sour ces cause the regional budget to be higher than the guidelines, then participating states woul d have to demonstrate that emissions from the sources covered by section 111(d) comply with the g uidelines. Commenters believed the EPA should provide a rigorous and equitable methodology to determine compliance in these situations.

Comment 9: Comments suggesting the final rule should allow fo r non-contiguous states to form multi-state plans; rule should consider that curren t markets do not match state boundaries.

Response 9: The EPA agrees that non-contiguous states can form multi-state agreements. The EPA is finalizing a multi-state plan approach that enables states to retain their individual state goals for affected EGUs and submit individual plans , but to coordinate plan implementation with other states through the interstate transfer of ERC s or emission allowances. This approach facilitates interstate emission trading without req uiring states to submit joint plans.

The EPA further clarified how multi-state plans wit h a joint goal for affected EGUs may be implemented. States may participate in more than on e multi-state plan, if necessary, for example, to address affected EGUs in states that are served by more than one ISO or RTO. For example, a91

subset of affected EGUs in a state may participate in a multi-state plan. These clarifications are discussed in section VIII.C.5.d of the final rule p reamble of the CPP.

In the final rule, quantified and verified MWh impa cts of qualifying zero-emitting and lowemitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory, and is un related to import or export of neighboring states. An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). ERC may be issued, however, based on the sam e data and verification requirements used by existing REC tracking systems for issuance of RE Cs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how exi sting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibil ity requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1. Requirements for ra te-based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for interactions between E RCs and RECs, are in section VIII.K.2 of the final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper qua ntification and verification of MWhs from renewable electricity generation and demand-side EE

. In terms of electric grid regions used for determin ing BSER. The EPA recognizes that the North American electric grid has developed into a large, interconnected system. Electricity from a diverse set of generation resources such as natural gas, nuclear, coal, and renewables is distributed over high-voltage transmission lines di vided across the continental United States into three synchronous interconnections – the Eastern In terconnection, Western Interconnection, and the Texas Interconnection. These three synchronous systems each act like a single machine.

The following are summaries of the specific public comments under this comment:

Commenters provided comments on the appearance thatthe proposed rule does not allow regional agreements between non-contiguous states. Commenters stated that the proposal only appears to allow contiguous states to participate i n a regional demonstration of emission performance, which would obviate the need to specif ically assign RE reductions to specific states. Commenters asserted that there are states t hat are not contiguous but that may want to participate in multi-state plans or that may want t o use out of state RECs or RE generation from non-contiguous states to demonstrate compliance. Co mmenters noted that many states allow the purchase of RECs over large, multistate regions, as well as the acquisition of RE or zeroemissions attributes of RE through bilateral contra cts or building in-state- or out-of-state- RE generation, and are not limited to actions in "neig hboring" states. Commenters stated that limiting regional demonstrations to contiguous stat es would increase the cost of compliance. Commenters requested that imports/exports of renewa ble energy not be limited to contiguous92

states or ISO regions, but not extended to internat ional imports. Commenters further remarked that additional restrictions or prohibitions on imp orts and exports (including requirements that attributes be bundled with generation) could resultin artificial barriers and price signals in the market which could impede interstate flow of renewa ble energy. Commenters noted that the State where the renewable attribute is applied shou ld be the state that applies that renewable electricity to their carbon intensity reductions, f ollowing the renewable attribute contract path. Commenters argued that the proposed rule does not r ecognize that regional power markets and balancing authorities do not match state geographic boundaries; commenters also argued that many states are split among multiple balancing auth orities and will require additional guidance to comply with the rule. Commenters further noted t hat EPA did not define " electric grid region".

Comment 10: Role of FERC, impacts on consumer rates, and inequ ities in assigning state emission rates.

Response 10: In the development of the final rule, EPA official s worked closely with DOE and Federal Energy Regulatory Commission (FERC) officia ls to ensure, to the greatest extent possible, that actions taken by states and affected EGUs to comply with the final rule mitigate potential electric system reliability issues. Senio r EPA officials met with each of the FERC Commissioners and EPA staff had frequent contact wi th FERC staff throughout the development the rule. FERC held four technical conferences to d iscuss implications of compliance approaches to the rule for electric reliability. EPA staff att ended the four conferences and EPA leadership spoke at all of them. The EPA, DOE, and FERC will c ontinue to work together to ensure electric grid reliability in the development and implementat ion of state plans. For more information about reliability considerations, see Section II.D and for more detail about EPA consultations about reliability, see section II.K of the final ru le preamble of the CPP.

The EPA recognizes that there are multiple incentiv es for states to collaborate by implementing a multi-state plan. That is why EPA has promulgated a final rule that allows states to meet an aggregated joint goal, regardless of the specific l evel of their individual goals, because states share grid regions and impacts from plan implementa tion will be regional in nature. Further, multiple analyses, including those by ISOs and RTOs , indicate that regional approaches could achieve state goals at lesser cost than individual state plan approaches. However, the EPA also recognizes the value in allowing for collaboration where states retain individual goals. These approaches could provide some of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi-state pla n with a joint goal. As a result, the EPA has finalized the additional multi-state approaches des cribed above in section VIII.C.5 of the final rule preamble of the CPP to provide for coordinatio n while maintaining individual goals. These approaches would allow for interstate transfer of e nergy rate credits (ERCs) or emission allowances while retaining individual state goals.

The final CPP is also allowing a state plan design that allows states to include new sources under certain conditions. A state may elect to use is mas s-based emission standards applied to affected EGUs. Under this approach, the plan would include f ederally enforceable emission standards for mass CO 2 emissions from affected EGUs. The plan would be de signed to achieve the mass-based93

CO 2 goal for a state’s affected EGUs (see section VII) or a level of CO 2 emissions equal to or less than the mass-based CO 2 goal plus the new source complement CO 2 emissions (see section VIII.J.2.b of the final rule preamble of the CPP fo r details.) For example, a state plan designed to meet a state mass-based CO 2 goal for affected EGUs plus a new source complemen t could include a mass-based emission budget trading progra m that applies to both affected EGUs, as well as new fossil fuel-fired EGUs. The program req uirements for affected EGUs would be federally enforceable, while the program requiremen ts for other fossil fuel-fired EGUs would be state-enforceable. This approach is described furth er in section VIII.J.2 of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that through FERC, the federal go vernment has been actively encouraging, and in some instances requiring, the regional and i nter-regional coordination of electric industry construction, operation, and markets. Commenters st ated FERC has aggressively encouraged the creation and membership in regional transmission or ganizations (RTOs). Commenters stated that the Proposed Regulation challenges the regional eco nomic dispatch currently employed by PJM and that under the Proposed Regulation, CO 2 dispatch considerations may vary from State to State. Additionally, commenters stated that States must make significant decisions about whether fossil-fuel units will be forced to retire or opera te under substantial environmental constraints, both of which can detrimentally affect reliability and customer rates regulated by FERC. Commenters also stated that while parts of the Prop osed Regulation encourage the States to band together to achieve compliance on a regional scale, the inequity of the disparate carbon emission rates and the uncertainty regarding compliance comp licates attempts at regional compliance through cooperation. Commenters stated that by assi gning disparate State emission rates, the Proposed Regulation tilts the playing field againstStates that are assigned excessively low carbon emission rates for existing units below the emission rates required of new units.

5.7.6 Assessment of interstate effects by the EPA i n the course of state plan review

This section addresses comments on EPA's assessmentof interstate effects during state plan review.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Assessment of interstate effects by the EPA may cr eate uncertainty for individual states; EPA must address how it will assess interst ate effects for RE/EE; the EPA should provide a mechanism for states to evaluate plans that would be acceptable.

Response 1 : In the final rule, EPA revised the methodology us ed to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal to better reflect the regional nature of the grid among other things. In order to ensure consistency with the94

calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, to avoid double-counting or inconsisten t adjustment approaches across states, and to provide certainty to states regarding acceptable ac counting methods, the final rule prescribes a general accounting approach states must use to adju st the CO 2 emission rate of an affected source to reflect the MWh impacts of zero-emitting and low-emitting resource. Quantified and verified MWh impacts of qualifying zero-emitting an d low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occu r inside or outside the state or territory. This ensures that affected EGUs receive full recogn ition for their investments, even if the impacts occur elsewhere, removing the need to deter mine exactly which EGUs reduced and changed power generation in response to the zero-em itting or low-emitting resource.

The final rule does not preclude states from determ ining resource adequacy and conducting integrated resource planning but may provide an opp ortunity for collaboration on resource planning and priorities as states develop their sta te plans.

For a discussion about the elements incorporated in to the final rule to minimize double-counting, and how the rule addresses interstate effects, see section VIII.L of the final rule preamble of the CPP. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand-side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Se ction VIII.K.1 of the final rule preamble of the CPP. Section VIII.K.3 of the final rule preambl e of the CPP describes the requirements and criteria related to proper ex post quantification a nd verification of MWhs from renewable electricity generation or demand-side EE. For infor mation about state plan approaches, see Section VIII.C of the final rule preamble of the CP P.

The following are summaries of the specific public comments under this comment :

Commenters stated that if EPA is the final assessor of interstate effects, it may create uncertainty for individual states. Commenters asserted that sta tes would not know whether they could include all RE generation included in a plan until after an EPA assessment of all submitted plans. They argued that this could undermine a state's abi lity to achieve target emission rates. Commenters suggested that EPA provide clear guidanc e as to how states should attribute RE reductions. Specifically, commenters requested thatEPA provide guidance on how to allocate RE built by electric utilities to serve customers i n multiple states, considering customer consumption patterns.

Commenters raised several questions related to how EPA would assess interstate effects in the course of a state plan review. Commenters asked how statewide strategies would become a part of utility plans and how EE measures would be treat ed by EPA in their evaluations. Commenters suggested that EPA provide examples of strategies a nd how they might count towards emissions reductions, as well as offer a mechanism for states to consistently evaluate plans and strategies to determine if they will constitute an acceptable pla n. Commenters also stated that EPA should not intrude on the right of states to determine resourc e adequacy and integrated resource planning.95

Comment 2: The EPA should provide guidance on how to allocate RE that serves customers in multiple states.

Response 2: In the final rule, EPA revised the methodology use d to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal to be base d upon three building blocks and better reflect the r egional nature of the grid. In order to ensure consistency with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, to provide consistent an d transparent approach to accounting for RE and demand-side EE, and to avoid double-counting or inconsistent adjustment approaches across states, the final rule prescribes a general account ing approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero-emitting and low-emitting resource. Quantified and verified MWh impacts of qu alifying zero-emitting and low-emitting resources tied to a state plan may be used by an af fected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generatio n or demand-side EE savings occur inside or outside the state or territory. This ensures that a ffected EGUs receive full recognition for their investments, even if the impacts occur elsewhere, r emoving the need to determine exactly which EGUs reduced and changed power generation in respon se to the zero-emitting or low-emitting

resource.

For a discussion about the elements incorporated in to the final rule to minimize double-counting, and how the rule addresses interstate effects, see Section VIII.L. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand -side EE and renewable energy, including eligibility dates a nd the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1. Section VIII.K. 3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or deman d-side EE. For information about state plan approaches, see Section VIII.C of the final ru le preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters urged that EPA provide clear and unequiv ocal guidance to states regarding renewable energy and energy efficiency in order to ensure that plan approval processes are consistent. Commenters stated that otherwise, EPA w ill invite disparate treatment of renewable energy and energy efficiency among states, and may lead to states rushing to submit plans in order to be the first to get their approach to RE a nd EE approved and thus, setting a "standard" for what can be approved. Commenters stated this wi ll force EPA to follow the approach adopted in the first approved plan or risk creating conflic ts with subsequent approved plans.

Commenters noted that this can occur not only withi n the same EPA Region (for example, between North Dakota and South Dakota), it is likel y to occur between Regions (such as Iowa and Minnesota). Commenters gave an example whereby Minnesota and North Dakota disagree over whether Minnesota can count North Dakota wind under building block 3, Minnesota could expedite its rulemaking process in a race to beat N orth Dakota's plan submission and approval. Commenters stated that assuming Minnesota did so, a nd included a provision that allows it to count out-of-state wind in North Dakota (and elsewh ere), the approval of Minnesota's plan would effectively prohibit North Dakota from counti ng wind located in its own state and owned by utilities that operate fossil facilities in Nort h Dakota. Commenters stated that because96

Minnesota is located in EPA Region 5 and North Dako ta is in EPA Region 8, it not only sets up a conflict between the states themselves, but poten tially creates a Region by Region conflict. Commenters also stated that unless EPA states in un certain terms that all renewable energy and energy efficiency is the property of the utility ow ner and freely transferable for use in any state, it creates a regulatory morass where Wyoming, for e xample, could allow a utility to use RE and EE generated elsewhere to offset CO 2 emissions in the state, while Minnesota claims tha t it is entitled to use for its own compliance all RE and E E within its state borders.

Comment 3: The EPA must ensure emission reductions are not er oded due to changes in electricity generation between neighboring states w ith different plan structures.

Response 3: EPA acknowledges in the final rule that there may be interactions between massbased and rate-based plans regarding counting measu res, specifically where measures that provide substitute or avoided generation, such as R E and demand-side EE, are located in a massbased state and can also be used by a rate-based st ate in meeting the CO 2 performance rates or state goals. EPA has determined that, in the contex t of interactions among rate-based and massbased plans, there is not explicit double-counting of the CO 2 emission reductions associated with counting measures located in mass-based states, con sidering the accounting methods outlined in this final rule.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero-emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of M Wh-denominated ERCs in the rate-based emission trading framework specified in this rule. This MWh accounting method creates a crediting system or rate adjustment process that is indifferent to the rate-based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards

. Though there is no risk of double-counting emission s, in response to commenter concern that overall CO 2 emissions reductions would be foregone in situatio ns where a source in a rate-based state counts the MWh from measures in a mass-based state, but the generation from that measure acts solely to serve load in the mass-based state, the EPA is restricting the ability of rate-based state to claim emission reduction measures, such as RE and demand-side EE, located in massbased states. In order to avoid cutting some states off from regional RE supplies that are assumed in the BSER building block 3 and incorporated in th e CO 2 emission performance rates or state rate-based CO 2 goals in the emission guidelines, the EPA has dete rmined that it is appropriate for rate-based states to count MWhs from RE located in mass-based states, subject to the condition that the generation in question was intended to mee t electricity load in a state with a rate-based plan.

For a discussion about the elements incorporated in to the final rule to minimize double-counting, see Section VIII.L. For more information about spec ific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand-side EE and re newable energy, including eligibility dates and the types of EE savings and RE MWhs that are el igible, see section VIII.K.1 of the final rule preamble of the CPP. Requirements for rate-based em ission trading programs and the issuance97

and tracking of ERCs, including qualifying measures , programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP. Section VIII.K. 3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or deman d-side EE savings to avoid overestimation as suggested by commenters. For information about m ass-based emission standards with a market-based emission budget trading program, see S ection VIII.C.2 and VIII.J.2 of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that in order to fulfill the stat utory mandate to address harmful air pollution through limitations on emissions, the EPA must ensu re that states achieve the necessary reductions through the actions taken in their plans and that emission reductions are not eroded due to changes in electricity generation between ne ighboring states that have different plan structures (rate vs. mass) or different target rate s.

Comment 4: Guidance needed on accounting for CO 2 emissions from owned or purchased generation located in different states.

Response 4: In the final rule, EPA revised the methodology use d to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal to be base d upon three building blocks and better reflect the r egional nature of the grid. In order to ensure consistency with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, and to avoid double-coun ting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero-emitting and lowemitting resource. Quantified and verified MWh impa cts of qualifying zero-emitting and lowemitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. This ensu res that affected EGUs receive full recognition for their investments, even if the impacts occur el sewhere, removing the need to determine exactly which EGUs reduced and changed power genera tion in response to the zero-emitting or low-emitting resource.

EPA offers states the flexibility to choose the sta te plan approach and assign the responsibility for CO 2 reductions and emission performance rates across t he fleet of their affected EGUs in a manner that works best for their priorities and cir cumstances and still meets the emission guidelines. States can choose an emissions standard s approach by placing federally enforceable emissions standards on their affected EGUs but impl ement complementary energy efficiency programs don’t explicitly receive credit under the final guidelines but lower the cost of compliance. Under the state measures approach, stat es can adopt a plan that does not place all the obligations on affected EGUs but includes measures implemented by the state, or by entities other than affected EGUs, that result in avoided ge neration and CO 2 emission reductions at affected EGUs.98

For a discussion about the elements incorporated in to the final rule to minimize double-counting, and how the rule addresses interstate effects, see section VIII.L of the final rule preamble of the CPP. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand-side EE and renewable energy, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see se ction VIII.K.1. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewa ble electricity generation or demand-side EE. For information about state plan approaches, se e Section VIII.C of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should apply 111(d) stan dards at the EGU, limited to technologies that can be implemented specifically at the EGU. Gi ven the EPA's approach to proposing BSER as the entire electric system, commenters suggested that a state plan for implementation should equitably distribute the burden of required improve ments, emission reductions and the cost of implementing emission reductions across all electri c customers and utilities within a state. Commenters stated that all electricity customers an d utilities should fairly share and contribute to carbon dioxide reductions in order to meet the ener gy policy being proposed by the EPA.

Commenters stated that language should be added to the proposed CPP in the State Plan Components section, clarifying how owned or purchas ed generation, and associated CO 2 emissions, from generating units located in differe nt states should be accounted, regardless of the development and implementation of multi-state plans

. Commenters noted that item 8 of 12 in that section discusses possible accounting for rene wables including wind and EE for distribution utilities that operate in multiple states.

5.7.7 Other

This section contains comments on the treatment of interstate effects that are not addressed in other subsections of 5.7.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: General support for multi-state approaches. Propos ed rule did not provide enough information on how states may develop multi-state a greements.
Response 1: In the final rule, the EPA views the ability of a state to implement an individual plan or a multi-state plan as a significant flexibi lity that allows a state to tailor implementation o f its plan to state policy objectives and circumstanc es. The EPA sees particular value in multi-state plans, which allow states to implement a plan in a coordinated fashion with other states. Such approaches can lead to more efficient implementatio n, lower compliance costs for affected EGUs99

and lower impacts on electricity ratepayers. Coordi nated approaches also will help states identify and address any potential electric reliability impa cts when developing plans.

The EPA received broad support in comments for allo wing states to implement multi-state plan approaches, and has made multiple changes in the fi nal rule to address many suggestions outlining different approaches states may want to t ake. These changes are intended to provide streamlined approaches for multi-state coordination while maintaining transparency and assuring that the CO 2 emission performance rates or state CO 2 emission goals are achieved.

The EPA is finalizing two approaches that allow sta tes to coordinate implementation in order to meet the emission guidelines, as described in secti on VIII.C.5 of the final rule preamble of the CPP.

In response to comments, the EPA is also further cl arifying how multi-state plans with a joint goal for affected EGUs may be implemented. The EPA is clarifying that states may participate in more than one multi-state plan, if necessary, for e xample, to address affected EGUs in states that are served by more than one ISO or RTO. The EPA is further clarifying that a subset of affected EGUs in a state may participate in a multi-state pl an. These clarifications are discussed in section VIII.C.5.d of the final rule preamble of the CPP an d the forms of submittal that states may choose for a multi-state plan are discussed in Sect ion VIII.E.4 of the final rule preamble of the CPP.

The EPA agrees that the development of a multi-stat e plan may require additional time and, in this final rule the EPA is allowing for states part icipating in a multi-state plan to submit a request for a 2 year extension as described in Section VIII .E.2 of the final rule preamble of the CPP.

While the final rule does not explicitly require nu merous state agencies and other organizations to work together in a regulatory context, the EPA e ncourages states to work engage key stakeholders as they develop their plan. EPA does not require the inclusion of an interstate enforcement mechanism. Specific details regarding t he elements required in a multi-state plan are described in Section VIII.E.4 of the final rule preamble of the CPP. In the final rule, quantified and verified MWh impacts of qualifying z ero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or d emand-side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate-based CO 2 goals in the final emission guidelines which bette r reflects the regional nature of the grid and does n ot include demand-side EE in the calculation of BSER, the MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in repor ted stack CO 2 emissions and zero-emitting MWh impacts requiring e xplicit adjustments, the accounting method corresponds with the use of MWh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading framework specified in this rule. The MWh accounting method addresses interstate effects, because it inherently accounts for how generation replacement and CO 2 emission reduction impacts may cross state borders and is indifferent to avoided CO 2 emission rates; it creates the same number of zero- emitting credits or adjustment for each MWh of energy generation or savings, wherever they occu r.100

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation or energy savings from a qualifying meas ure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy effic iency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how exi sting instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

The EPA received a number of comments from states a nd stakeholders about the value of the EPA’s support in developing and/or administering tr acking systems to support state administration of rate-based emission trading syste ms. This could include regional systems and/or a national system. The EPA is exploring opti ons for providing such support and is conducting an initial scoping assessment of trackin g system support needs and functionality.

The EPA will also provide support and technical res ources to assist states as they develop For more information about specific methods to adjust t he CO 2 emission rate of an affected EGU to reflect renewable energy generation and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects and addressing the p otential for interactions between ERCs and RECs, are in section VIII.K.2 of the final rule pre amble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation and demand-side EE.

The following are summaries of the specific public comments under this comment:

Commenters supported multi-state coordination for c ompliance, stating that multi-state approaches will encourage more efficient and cost-e ffective compliance options. Commenters noted that there have been several successful multi -state programs, such as regional haze regulations and RGGI. Commenters supported allowing states the flexibility to design programs that allow for multi-state collaboration, including mechanisms to trade RE and EE credits, or agreements to allocated avoided emissions from RE a nd EE. Commenters suggested that EPA clarify the variety of collaborative options availa ble to states to encourage participation in multistate plans. Commenters inquired whether multi-stat e arrangements needed to include an interstate enforcement mechanism. Commenters asked that EPA provide guidance on the full range of potential multistate approaches, including agreements about renewable energy and energy efficiency, frameworks allowing emission red uction credits to cross state lines, and joint state plans. Commenters suggested that EPA and DOE make available information about regional electricity flows and interstate impacts o f state programs to support collaboration, and provide guidance on how states can collaborate regi onally. Commenters also supported providing an extended timeline for development of a multi-state plan.

Commenters supported multi-state coordination to ad dress multi-state utilities. Commenters stated that a utility with compliance obligations a rising from both 111(d) and RPS laws in multiple states cannot retire a REC for RPS complia nce in one state (where the RPS is part of the101

state's plan) and submit the same REC or MWh for an other state's 111(d) compliance, without a multi-state agreement that ensures the total level of emissions reductions remains the same. Commenters noted that if states have combined their compliance obligations in a manner that ensures equivalent total emissions reductions, this approach could provide a low cost, efficient course of action.

Commenters asserted that the proposed rule did not provide enough information on how states may develop multi-state agreements. Commenters urge d that in states where no multi-state program currently exists, EPA's proposed guidelines will require numerous state agencies and other organizations to work together in a regulator y context. Commenters noted that due to the complexity of these multi-state arrangements, the w idespread usage of this approach in the nearterm is unlikely. Commenters further agreed with th e proposed approach to apply actual CO 2 emissions to the state in which they are generated. However, commenters also stated that it is problematic to limit compliance to only those actio ns within a state's borders when it comes to renewable electric generation. Commenters requested that the state's compliance plans allow for interstate transfer of carbon-free generation (MWH) or the credit for this type of generation, and that EPA establish procedures in their final regula tions that provide clear guidance on the process in which carbon-free generation could be tracked on an interstate basis. Commenters further suggested that EPA consider being "the clearinghous e" for carbon-free generation tracking, to ensure the transferred MWH are accounted for. Comme nters argued that this approach would expedite the use of interstate renewable generation without the need for lengthy negotiations between state agencies.

Finally, Commenters expressed concern with the prop osed rule's recommendation to require states that are net importers of power to transfer or discount the reductions achieved by end-use EE programs to the states where the generation occu rs. Commenters argued that the transferring or discounting process was unnecessarily burdensome ; specifically, Commenters argued that it is unnecessary to add the burden of determining the ge nerating source for each MWH consumed in every state, since Building Block 4 establishes the same 2030 annual cumulative energy efficiency target of 1.5% for all states. Commenter s requested that EPA allow states to adjust their MWH generated by the state's achieved level o f end-use EE.

Comment 2: Multi-state approaches should include a process to address states joining/leaving the arrangement.

Response 2: The EPA agrees that a multi-state approach should include a process to address states joining or leaving a collaborative process o r arrangement and provides explicit details in Section VIII.E.7.a of the final rule preamble of th e CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that multi-state approaches shoul d include a process to address states joining or leaving a collaborative process or arrangement. Commenters recommended that EPA work with states to identify "on-ramps" and "off-ramps" in multi-state plans. Commenters recommended that EPA provide guidance on how states could use a plan revision or other102

mechanism to join or form future multi-state collab orations. Commenters expressed concern with how complying states in a multi-state arrangement w ould deal with potentially non-complying

states.

Comment 3 : Comments on how state compliance plays into compl iance in other regional markets.

Response 3 : In the final rule, mass-based plans rely exclusiv ely upon reported stack emissions for determining whether a mass-based CO 2 emission goal is achieved by the state or affected EGUs while for rate-based plan compliance, the fina l rule specifies a general accounting approach where quantified and verified MWh impacts of qualifying zero-emitting and lowemitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate. The final rule does not explicitly r equire an assessment of how state compliance plays into the compliance of other regional markets as it is not relevant to compliance with the final rule. For more information about plan perform ance demonstration, see Section VIII.F.2 of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters asked the EPA to consider not only wheth er states are meeting their own compliance goals, but also how state goals would pl ay into the compliance of other regional markets.

Comment 4: The EPA should emphasize model plan components to facilitate state deployment of renewable energy and demand-side energy efficien cy.
Response 4: In the final rule, the EPA encourages the use of r enewable energy and energy efficiency to meet a mass-based or rate-based appro ach. Construction and use of renewable energy in a mass-based state can replace affected E GU generation and help bring the state closer to compliance. Under a rate-based approach, the fin al guidelines provide specific detail regarding criteria, eligibility and measurement and verificat ion requirements related to the renewable energy and energy efficiency measures that may be u sed by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. The final rule also describes how and under what circumstances, under a rate-based state plan approa ch, eligible renewable energy and demandside energy efficiency may be issued an emission ra te credit that can be used in a rate-based trading program.

EPA is proposing a rate-based and a mass-based mode l rule for potential use by any state. The proposed model rule includes a set of presumptively approvable EM&V provisions that, if adopted, will likely satisfy the broad requirements for quantifying and verifying savings established in the final emissions guidelines. Thes e provisions address a broad range of EM&V components, such as the application of protocols an d guidelines, usage of EM&V methods,103

determination of effective measure life (EUL), and others. Taken together, these provisions constitute a presumptively approvable approach for using demand-side EE to generate “emission rate credits” (ERCs) for use in state-led emission trading programs, and to otherwise adjust an EGU or statewide emission rate (consistent with the state plan submittal). To help states and EE providers satisfy the model rule provisions for EM& V, the draft EM&V guidance provides additional detail on options and approaches for imp lementing the provisions.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect demand-side EE and eligibility requireme nts for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1 of the final rule pr eamble of the CPP. Requirements for rate-based emission trading programs and the issuance and trac king of ERCs, including qualifying measures, programs or projects, addressing the pote ntial for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP desc ribes the requirements and criteria related to proper ex post quantification and verification of M Whs from renewable electricity generation or demand-side EE savings. For more information about the EM&V provisions proposed for the model rule and the draft guidance document, see Sec tion IV.D.8 of the preamble to the proposed Federal Plan and the draft guidance document.

The following are summaries of the specific public comments under this comment:
Commenters asserted that EPA should emphasize model plan components to facilitate state deployment of renewable energy and demand-side ener gy efficiency

. Commenters also requested that EPA specify minimum criteria or requirements f or each policy approach to ensure enforceability.

Comment 5: Concerns with state-by-state approach; rule must r ecognize complexity of ownership of EGUs generating RE and differing regul atory structures between states.

Response 5: EPA revised the methodology used to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal to better reflect the regional nature of the grid among other things. Consistent w ith the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines quantified and verified MWh impacts of qualifying zero-emitting and low-emittin g resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside o r outside the state or territory. The final rule allows interested states to participate in intersta te trading programs depending upon the type of approach the state selects and specifies a unique a cceptable unit of trading under a rate-based approach, the emission rate credit (ERC), a tradabl e compliance unit representing one MWh of electric generation (or reduced electricity use) wi th zero associated CO 2 emissions.

An ERC is issued separately from any other instrume nts that may be issued for a MWh of energy generation from a qualifying measure, such as a ren ewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio104

standards. The EPA is aware of the potential for in teractions between ERCs and RECs and encourages but does not require that the states to consider, when developing their state plan, how existing instruments that are used to meet other re gulatory requirements or in voluntary markets may interact with ERCs.

As described in the summary of major provisions sec tion of the final rule (Section I.A.3), the EPA recognizes that each state has differing policy considerations – including varying regional emission reduction opportunities and existing state programs and measures – and that the characteristics of the electricity system in each s tate (e.g., utility regulatory structure and generation mix) also differ. Therefore, as in the p roposal, each state will have the latitude to design a program to meet source-category specific e mission performance rates or the equivalent statewide rate- or mass-based goal in a manner that reflects its particular circumstances and energy and environmental policy objectives. Each st ate can do so on its own, or a state can collaborate with other states and/or tribal governm ents on multi-state plans, or states can include in their plans the trading tools that EGUs can use to realize additional opportunities for cost savings while continuing to operate across the inte rstate system through which electricity is produced. A state would also have the option of ado pting the model rules for either a rate- or a mass-based program that the EPA is proposing concurrently with this action.

The final rule clarifies a role for ISO/RTO assessm ent of reliability implications as states develop their plans as specified in Section VIII.G. 2.c of the final rule preamble of the CPP.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy generation and energy e fficiency, including eligibility requirements for resources that can be used to adjust a CO 2 emission rate, see Section VIII.K.1 of the final r ule preamble of the CPP. Requirements for rate-based em ission trading programs and the issuance and tracking of ERCs, including qualifying measures , programs or projects, and a discussion of addressing the potential for interactions between E RCs and RECs, are in section VIII.K.2 of the final rule preamble of the CPP. Section VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper qua ntification and verification of MWhs from renewable electricity generation. For more informat ion about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand- side EE and renewable energy, including eligibility dates and the types of EE savings and R E MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP. Section VIII .K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or deman d-side EE savings.

The following are summaries of the specific public comments under this comment:
Several commenters expressed concerns regarding the use of a state-by-state approach to achieve compliance given the presence of interstate effects

. Commenters noted that the proposed goals, which are state-based, fail to account for the factthat the national electricity system operates across both state and/or tribal lines.

Commenters asserted that EPA must clarify that all non-emitting energy and associated credits/attributes may be used in any state for com pliance, and that the owner of the generation has the sole right to determine when and where to u se the eligible generation and/or its105

credits/attributes for compliance. Commenters argue d that no state should be able to unilaterally claim a right to utilize generation, credits, or at tributes to which it does not directly have title. Commenters asserted that utilities have developed t heir portfolio of resources to achieve certain goals and have been free to choose such resources b ased on where the resource is located, the nature of the resource, the capital costs, the oper ating costs, available transmission, permitting and land use acquisition, and other factors. As suc h, Commenters argued that the final rule should in no way authorize the interference with co ntract or property rights of utilities to their own generation, and that utilities should be free t o use the non-emitting resources and attributes in interstate commerce without fear of any state-im posed restrictions. Commenters made similar comments with respect to energy efficiency, stating that EPA must make explicit that energy savings must also be available for compliance in an y state, regardless of where the savings occur, and that the proposed rule does not authorize state s to interfere with the contract, property rights, or usage of energy savings in which utilities have made investment. Commenters urged EPA to provide in the final rule that renewable energy cre dits would be initially allocated to the entities that own the right to use or sell the renewable pow er associated with such credits.

Commenters expressed concern that the state-by-stat e approach negatively affects resources located in states and owned by entities that do notserve retail load or have retail service territory in that state. Commenters noted that if each affect ed resource in a state must comply with the state's plan, the entity would not have the ability to apply lower-cost compliance methodologies without EPA support of flexible allocation of RE an d EE compliance attributes among entities in the state. Commenters argued that the approach in t he proposed rule will prevent utilities from constructing renewable resources, because there are no assurances that those resources can be used to achieve compliance with CO 2 reduction goals in the various states in which the y operate. Commenters remarked that the proposed rule limits u tilities to the interests of states, which could limit renewable resources to those located within s tate borders. Commenters urged that this could discourage utilities from investing in clean energy in a state if the energy credits are not transferable, and would force utilities to locate r enewables only in the states where they emit CO 2 , which could increase costs.

Commenters asserted that energy-importing states wo uld be at the mercy of another state's plan to comply with the rule. Commenters suggested that a neighboring state could consider moving a large share of the compliance costs to consumers in an energy-importing state to meet its goals. Commenters stated that this could have unintended i mpacts on organized markets that cross state borders, and give certain states and unfair economi c advantage. Commenters stated that the proposed rule requires states to make substantial c arbon reductions to in-state generation fleets that often include units that serve only other Stat es. Commenters stated that the proposed rule potentially places those facilities at a disadvanta ge compared to in-state facilities that are used to serve in-state customers. Specifically, commenters urged that the proposed rule could create substantial additional stranded costs for these fac ilities.

Commenters provided that utilities in a tribal area may be owned by participants in neighboring states, by both private and public participants, an d may include utilities with operating facilities located in multiple jurisdictions. Commenters argue d that the proposed rule fails to provide clear rules on how multi-jurisdictional entities will be regulated and receive credit for reductions. Commenters) also asserted that the proposed rule on ly proposes default rules on calculations for states plans as a whole, and ignores non-state enti ties that operate across state line or multi-106

jurisdictional entities. Commenters argued that uti lities which reduce coal by increasing lowemitting or zero-emitting generation do not receive any credits for such reductions because they are not the EGU operator.

Commenters also stated that the proposed rule appea rs to assume that the procurement of RE stops at state boundaries, and does not recognize t he complexity of sources and ownership partners that must be taken into consideration with developing an implementation plan. Commenters reiterated that states procure electrici ty through RECs from EGUs that are diverse in terms of geographic location, fuel source, and o wnership partners, including large for-profit investor owned utilities, municipal utilities, and multi-state cooperatives. Commenters also noted that these states may include EGU and transmission facilities within multiple regional transmission organizations. Commenters argued that the complexities of EGU ownership will complicate development of appropriate state plans, and may warrant more time for development.

Commenters asserted that the state-by-state approac h is at odds with an interconnected, interstate wholesale market where power is routinely pro duced in one state and consumed in another, and where a transmission system may be interconnect ed with several transmission and power authorities. Commenters also noted that the FERC ha s been actively establishing policies and regulations that encourage vibrant wholesale market s and it is not clear how to reconcile these policies with EPA's emissions reduction proposal.

Commenters stated that the way the Proposed Guideli nes are written, EE and CO 2 reduction requirements are calculated on a state basis; but E E impacts generation requirements that are realized on a cross-state border system basis. Comm enters stated that EE benefits (avoided energy and capacity) impact a utility operating com pany's entire system. Commenters noted that the generation system for a utility may be located in different states, whereby establishing carbon reduction goals on a state-by-state basis may lead to cross-subsidization between states with respect to EE program costs. Commenters stated thatthe Proposed Guidelines do not include the specifics for utilities in RTOs/ISOs, other than th at the RTOs/ISOs will help the states develop their plans. Commenters contended that the Proposed Guidelines are so vague on this point that it is difficult to provide meaningful comments regardi ng RTOs/ISOs and the impact of EE. Also, commenters stated that the Proposed Guidelines do n ot differentiate between retail choice states and vertically integrated states, which will greatl y impact the extent to which RTOs/ISOs will need to participate. Commenters stated that in reta il choice states like Ohio, where the utility customers are purchasing retail generation from Com petitive Retail Electric Service (CRES) providers, it is unclear how the CO 2 requirement will be calculated as the CRES provide r may be located in a different state. Therefore, Commenters encouraged EPA to develop guidelines that contain sufficient detail so that electric utilitie s have the opportunity to understand how these rules impact them and their customers before being implemented. Commenters contended that the lack of detail in the Proposed Guidelines has t he effect of creating significant uncertainty as to how these requirements will impact their electri c power producing company and in turn, will likely increase the costs of providing electric ser vice.

Commenters stressed the importance of recognizing t he inherent differences in rate-based versus competitive energy markets and the need to provide for electric grid reliability. Commenters noted that there will be issues between EGUs in sta tes that operate in a competitive energy market and EGUs in states that operate in a rate-ba sed market that EPA must consider in a107

balanced way. As an example, commenters asked how t he Clean Power Plan Rule will achieve economic and regulatory parity based on the expandi ng zone of influence of Regional Transmission Organizations (RTOs). Commenters quest ioned whether EPA could extend its regulatory authority in order to influence decision s made by RTOs, and how state agencies are to regulate decisions made by RTOs.

Comment 6: Unfair or unequal obligations among states; propos ed rules would engender conflict among states.

Response 6: In the final rule, quantified and verified MWh imp acts of qualifying zero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. Thi s ensures that affected EGUs receive full recognition for their investments even if the impac ts occur elsewhere, removes the need to determine exactly which EGUs reduced and changed po wer generation in response to the zeroemitting or low-emitting resource and ensures that quantified and verified MWh impacts of qualifying zero-emitting and low-emitting resources are applied consistently across all affected EGUs. The accounting method corresponds with the us e of MWh-denominated Emission Rate Credits (ERCs) in the rate-based emission trading f ramework specified in this rule. The accounting method only requires a quantification of the MWh generated or avoided by an eligible measure, and thus credits or adjustments c an be denominated in MWh and do not need to represent an approximation of the CO 2 emission reductions that result from those MWhs. T his creates a crediting system or rate adjustment proce ss that is simpler to implement than one that requires an approximation of avoided CO 2 emissions. The MWh accounting method also creates a crediting system or rate adjustment process that is indifferent to the rate-based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or standards

. For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect demand-side EE and eligibility requireme nts for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1. Requirements for ra te-based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions between ERCs and REC s or EECs, are addressed in section VIII.K.2 of the final rule preamble of the CPP. Sec tion VIII.K.3 of the final rule preamble of the CPP describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electricity gen eration or demand-side EE savings. For more information about Interstate effects, see sect ion VIII.L of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters asserted that EPA's Proposed Guidelines would impose unfair or unequal obligations or engender conflict among the states. Commenters argued that EPA has proposed conflicting approaches to crediting RE and EE reduc tions and for the treatment of individual108

state vs. multi-state plans. Commenters provided as an example the difference between the proposed approach for states to take into account a ll RE measures implemented for purposes of compliance with a RPS (regardless of whether the RE is generated in-state or out-of-state) and the proposed approach to limit credit for EE-relate d emission reductions to in-state activities only. Commenters argued that the proposed rules are overly simplistic and, as proposed, would create serious problems for states. Commenters expr essed concerns that states may have significantly different proposed carbon intensity g oals and other unique characteristics, which would impose unworkable interstate compliance demon stration and recordkeeping obligations on utilities. Commenters specifically noted that utili ties with regional territory or ownership crossing the state lines of New Mexico, Texas, and Arizona could result in impossible compliance demonstration.

Comment 7: Rule does not credit non-RE energy and should trea t all power fairly for accounting purposes.

Response 7: The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate-based CO 2 goals from the one used in the proposal. In order to ensure consistency with the calculation of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, and to avoid double-coun ting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero-emitting and lowemitting resource. Quantified and verified MWh impa cts of qualifying zero-emitting and lowemitting resources, tied to a state plan may be use d by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. This ensu res that affected EGUs receive full recognition for their investments, even if the impacts occur el sewhere, removing the need to determine exactly which EGUs reduced and changed power genera tion in response to the zero-emitting or low-emitting resource.

For more information about specific methods to adju st the CO 2 emission rate of an affected EGU to reflect renewable energy and eligibility require ments for resources that can be used to adjust a CO 2 emission rate, including the eligibility of nuclea r, hydropower and international RE in Section VIII.K.1 of the final rule preamble of the CPP. For more information about how the rule and accounting method addresses interstate effects, see Section VIII.L of the final rule preamble of the CPP. .

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA did not address intersta te accounting of CO 2 reductions associated with interstate implications related to the trading /transmission of all power, not just RE and EE measures and regardless of the fuel used to generat e it. Commenters stated that EPA also did not address accounting of CO 2 reductions associated with international implicati ons.

Commenters stated that nuclear power is transmitted across state and international boundaries and are one way that states reduce the need to buil d higher-emitting in-state base load resources.109

Commenters stated that, to the extent that power fr om new and existing nuclear units could be included in state compliance plans, interstate "imp orts" of nuclear generation could be a potentially important compliance tool that EPA shou ld recognize. Commenters (stated that EPA should treat different types of generation (e.g., f ossil or nuclear generation) fairly for "crediting" purposes, and treat MWh as they are purchased or co nveyed across state lines in a similar manner for accounting purposes.

Commenters stated that failure to recognize the int erstate impacts of nuclear generation could create significant compliance challenges for neighb oring states. Commenters stated that if nuclear units that serve multiple states are premat urely retired, before the estimated 80 year operating period used in the proposal, all of the s tates that consume power from these units could face unexpected compliance challenges. Commenters s tated that these states may have to increase generation from existing affected fossil-b ased units to replace the nuclear generation and the state may no longer be able to demonstrate that it is reducing its emission rate consistent with its projected compliance glide path, unless th e additional fossil-based units were accounted for in the state plan.

Commenters stated that many states rely on that reg ion's extensive network of federal and Canadian hydropower facilities to keep emissions lo w and to minimize the need to build higheremitting base load resources. Commenters stated tha t these important interstate and international uses of hydropower generation have no role in compl iance under the proposed section 111(d) guidelines. Commenters contended that, to the exten t that EPA allows hydropower to be used for compliance, the Agency should recognize that, like other renewable generation, this power is transmitted and traded across interstate and intern ational boundaries. Commenters stated that the continued operation of existing hydropower generati on is critical to the achievement of the state emission rate goals for many states and if this gen eration had to be replaced, this could create significant compliance challenges for many states.

Commenters stated that some states have taken steps to decrease imports of coal-based electricity by replacing this power with that generated by new, in-state NGCCs. Commenters stated that not only do the proposed guidelines not recognize this interstate issue, they saddle states that already have made investments in new NGCCs with stringent s tandards, which decreases CO 2 emissions, but increases in-state emission rates.

Commenters stated that EPA's proposed guidelines pl ace the entire burden of reducing emissions from existing affected units on the state in which an affected EGU is located. Commenters stated that this does not recognize that power from in-sta te EGUs often serves customers in other states and unfairly saddles some states with the obligatio n to reduce emissions related to the power consumed in other states.

Commenters stated that energy with and without rene wable characteristics is imported and exported across state boundaries and EPA must put f orward a workable solution for EGUs that participate in multiple state markets. Commenters s tated that the liability for emissions is tied jurisdictionally to the state in which the emission s are generated even though the energy may be, consumed across a wide geographic region. Commenter s stated this forces an exporting state to accept the emissions burden of an exporting unit, i ncluding the burden to achieve the necessary reductions to achieve the state goal, even though t he state itself uses only a portion of the energy.110

Commenters stated that because EPA has developed a system approach one that crosses state boundaries - but relies on states to address emissi ons from units whose benefits cross borders, the liabilities and benefits are mismatched. Commenters stated that unlike RECs which states will seek to claim, fossil fuel energy consumed in anoth er state will be perceived as a liability in the state in which the energy is generated, creating an other set of equity issues for EPA to resolve.

Commenters stated EPA's proposed model for dealing with multistate projects envisions that CO 2 would be accounted for in the state in which it wa s emitted even though that may burden the ''jurisdictional" state and provide no benefit. Com menters stated that an owner who has paid for a low-carbon-intensity resource located in another st ate should get the benefit of that low intensity resource. Commenters asserted that transferring a p ortion of that liability to a purchasing state must be done by rule. Commenters stated that no sta te would voluntarily add to its compliance reduction burden or allow a low intensity resource to be pilfered away.

Commenters believed that under the proposed state-b y-state compliance approach the CO 2 emissions from fossil-fired units should be credite d to the state where the electricity from that unit is consumed.

Commenters stated that the EPA has been unclear on how types of generation including nuclear will be credited to states in meeting carbon dioxid e emission targets. The commenters stated the EPA should provide clear standards for how each typ e of generation resource will be credited, and ensure that credit is consistent with goal sett ing.

Commenters stated that the draft rule offers no cre dit or recognition of nuclear power plants' zero-emission generation to owning partners outside of the states in which these plants are located The commenters stated that the proposed rul e does not appropriately recognize nuclear assets as a whole or to its owner and their custome rs. The commenters recommended to provide zero-emission credit for their commitment. The comm enters suggested that the final rules should ensure that the states establish credit for complia nce purposes by allowing the MWh obtained from nuclear power, as delivered based on ownership , to those corresponding states. The commenters stated that this approach would directly serve and support the EPA's principal objective of ensuring continued operation of the na tion's largest source of carbon-free generating capacity.

Comment 8: The EPA should clarify how to split emissions for co-owned fossil-fuel utilities that provide power to multiple states; address reli ability concerns

Response 8: On reliability concerns, during the development of the final rule, EPA officials worked closely with DOE and Federal Energy Regulato ry Commission (FERC) officials to ensure, to the greatest extent possible, that actio ns taken by states and affected EGUs to comply with the final rule mitigate potential electric sys tem reliability issues. Senior EPA officials met with each of the FERC Commissioners and EPA staff h ad frequent contact with FERC staff throughout the development the rule. FERC held four technical conferences to discuss implications of compliance approaches to the rule f or electric reliability. EPA staff attended the four conferences and EPA leadership spoke at all of them. The EPA, DOE, and FERC will111

continue to work together to ensure electric grid r eliability in the development and implementation of state plans. For more information about reliability considerations, see Section II.D and for more detail about EPA consultations ab out reliability, see Section II.K of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Several commenters requested clarification on how t o split emissions from co-owned fossil-fuel fired plants that provide power to multiple states. Commenters stated that it is unclear how compliance requirements for these utilities would b e addressed, especially where a utility may have conflicting compliance requirements based on t he regulations of two different states. Commenters requested whether a specific agreement o r trading scheme with each state would need to be negotiated, or whether one state would b e required to absorb all emissions.

Commenters stated that failure to account for elect ric utilities whose operations traverse state boundaries and serve retail customers in multiple s tates will result in stranded costs and additional costs. Commenters provided as an example the state of Virginia, which may be affected by the carbon emission rates set in West V irginia, Ohio, and North Carolina based on co-owned operations that traverse these states and serve Virginia customers.

Commenters urged that if states are not provided wi th reasonable emission rates and flexibility to achieve compliance, states could face additional co sts for the construction and operation of new generation need to replace generation affected in o ther states. Commenters argued that the reliance on developing state plans with respect to generation located within the state borders does not match up with how electricity flows between sta tes. Commenters specifically expressed concerns about North Carolina's system-wide dispatc h, which is based on ownership by multiple investor-owned utilities that are located in and se rve portions of both North and South Carolina, and uses least-cost dispatch to cycle EGUs between the states to reduce costs. Commenters provided as an example a case where South Carolina' s compliance plan may require early retirements of the IOU generating units in its stat e (without needing North Carolina's input on the development of the plan), which could result in Nor th Carolina ratepayers paying for both early retired generation plants as well as for new genera tion to meet demand, as well as disruptions in reliability.

Commenters stated that the heavy reliance on state plans without clear guidance fails to address cross-border issues for utilities, such as the inte rstate transfer of RE/EE credits by the owner of the generation or energy savings. Commenters argued that RE and EE credits/attributes must be treated fairly and the utility or third party that owns the credits must be allowed to exercise its property rights to use those credits in any state o f its choice. Commenters asserted that this fairness is essential to the effectiveness of integ rated resource planning in which utilities carefully plan how to meet their obligation to prov ide reliable electric service in an economical and environmentally sensitive manner.

Commenters noted that the proposal specifically fai ls to take into account the issues that may arise among co-owners of NGCC units for compliance with building block 2. Specifically, Commenters noted that each owner of an NGCC unit wo uld have a different set of needs, expectations, and contractual obligations, especial ly where owners have competing interests and112

obligations in other states. Commenters provided as an example a situation where a partial owner of NGCC units may prefer to operate an out-of-state NGCC unit to meet its demand instead of an in-state unit, even if the in-state unit is needed to comply with the in-state reduction goals. Commenters provided a scenario in which a utility l ocated in one state builds an NGCC unit in another state where the affected EGU would be in on e RTO and the NGCC and load in another. Commenters stressed that the proposed rule does notprovided guidance on how the utilities or the RTO must deal with dispatching power from a gen erator in one RTO to reduce emissions of an EGU in another RTO.

Comment 9: Proposed rule does not address interstate reserve- sharing agreements.

Response 9: EPA believes it has been clear that sources are re sponsible for emissions; if the source is in a state, its emissions will be covered under the state plan. See the section VIII.C of the final preamble to the CPP. However, the rule gi ves considerable flexibility to states to determine just how the emissions from the source wi ll be treated in the context of a sharing arrangement. For example, the source could purchase emissions rate credits, or some other means of complying decided upon by the state plan. These arrangements could address the specifics of existing agreements to ensure that sha ring commitments amount parties to the agreements could be met.

The following are summaries of the specific public comments under this comment:

Commenters expressed concerns that the proposed rul e does not address interstate reservesharing agreements that are designed to ensure reli ability for customers. Specifically, Commenters discussed North Carolina's membership in a regional reserve sharing agreement that allows its members to pool reserve generation resou rces on a prorated basis, which commits multiple balancing authorities to maintain a share of sufficient reserves to maintain system stability. Commenters provided that North Carolina' s balancing authorities meet their reserve obligations by having hydro, including pumped stora ge hydro power plants and fast-starting combustion turbine plants, available to start or ra mp up, which are not affected EGUs under the proposed rule. Commenters stated that the proposed rule raises the question of whether the emissions related to the power that is used to repl enish the pumped water would be attributed to North Carolina, or to other states in the reserve-s haring agreement that benefit from the reservesharing event.

Comment 10: The EPA should prohibit states from discriminating against out-of-state imports of electricity.

Response 10: In the final rule, to the extent qualifying RE gen eration and demand-side energy efficiency measures are tied to a state plan, the q uantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation occurs inside or outside the state or territory. It is not necessary to determine the emission impacts of the MWhs as they will be reflected in the reported stack CO 2113

emissions of affected EGUs. The MWh accounting meth od addresses interstate effects, because it inherently accounts for how generation replaceme nt and CO 2 emission reduction impacts may cross state borders and is indifferent to avoided C O 2 emission rates; it creates the same number of zero-emitting credits or adjustment for each MWh of energy generation or savings, wherever they occur.

Details regarding the accounting approach for adjus ting CO 2 emission rate is included in Section VIII.K.1 of the final rule preamble of the CPP. Req uirements related to measurement and verification of qualifying MWhs are described in Se ction VIII.K.3. A full discussion of treatment of interstate effects under the final gui delines is included in Section VIII.L of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters expressed concern that based on the prop osed rules requirement for states to implement programs that reduce carbon emissions fro m generation sources within state borders, some states may attempt to shift compliance costs b y shifting those reductions to imported power. Commenters noted that an issue may arise whe re an entity with a compliance cost for generation in one state exports that power into ano ther state and is charged additional compliance costs for the export of power into the receiving st ate. Commenters requested that EPA prohibit states from discriminating against out-of-state imp orts of electricity; specifically, Commenters requested that for power generated in an exporting state where there is a price on carbon emissions from generation sources, the importing st ate should be required to deem the generated power to have a zero carbon footprint upon being im ported. Commenters recommended that EPA require each SIP to contain a non-discriminatio n clause for any state importing or exporting power from another state when both states are compl iant with the rule. Commenters further urged that EPA could enforce such a provision by wi thholding approval of a SIP if the state plan is not set up with such a clause.

Comment 11: Tribal & Territorial Treatment of energy flows fro m international generation (RE and fossil-fuel).

Response 11: The final rule prescribes a general accounting app roach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero-emitting and low-emitting resource. Quantified and verified MWh impacts of qualifying zero-emitting and low-emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory. The EPA will work with states using the rate-based approach that are interested in allowing the use of RE from outside the U.S. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand-side EE, see section VIII.K of the final rule preamble of the CPP . The same section also describes the eligibility requirements and conditions for resources to be used to adjust a CO 2 emission rate, including specific discussions rega rding hydroelectric power and eligibility for the use of RE from outside the U.S. The rule describes the requirements and114

criteria related to proper quantification and verif ication of MWhs from renewable electricity generation or demand-side EE savings in Section VII I.K.3 of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Several commenters remarked on the appropriate trea tment of energy flows across international borders. Commenters noted that Canada is a significant suppl ier of RE to the United States, while other commenters noted that Mexico has the po tential to increase its export of RE to the United States in the form of wind energy. Commenter s noted many American utilities rely on Canadian hydropower to offset fossil fuel-fired gen eration, and that Canadian hydropower is already sold into regional electric markets. Commen ters commenting on the Tribal and Territories Supplemental Notice, stated that intern ational imports of RE (or other qualifying resources) should be equally recognized as CPP comp liance options. Commenters also stated that EPA should also allow the use of RE purchased from other countries for compliance with the CPP. Commenters stated that there is large pote ntial for expansion of wind and hydropower capacity in Canada and if EPA does not allow cross- border RE to count towards compliance, these carbon-free resources may go undeveloped.

Commenters stated that if a state or region relies on international RE, then the RE potential should be identified and included in the state or r egion's target setting and state plan. Commenters supported treating RE imported to the Un ited States similarly to RE generation within the United States, and be allowed to take cr edit for the imported RE. Commenters iterated that because the rule allows for out-of-state renew ables to be counted toward a state's emissions targets, the rule should be expanded to explicitly include out-of-country renewable resources. Commenters stated that states should be allowed to include policies in their state plans that take into account existing hydropower generation, just a s existing wind and solar energy resources are available as options for state goal compliance. Com menters also stated that the plan should allow a state to designate out-of-nation hydro as an elig ible renewable resource. Commenters stated that hydropower should count without limitation on size. Commenters specified that the rule should include international renewable resources wh ich meet Renewable Portfolio Standards (RPS) requirements. Commenters requested that EPA p rovide a clear statement that international renewables can be included in SIPs. Commenters note d that U.S., Mexican, and Canadian electric grids and infrastructure currently rely on each other for energy supply and should continue to be leveraged to encourage the advanceme nt of renewable energy. Commenters further argued that allowing cross-border trade in electricity would enable states to gain access to a more diversified portfolio of renewable resources , produced over a wider geographic area, which would mitigate issues associated with variabi lity in renewable resources. Commenters noted that three REC registries currently encompass Canadian provinces and Mexican states. Additionally, commenters stated that to allow out-o f-country RE would support states which are currently looking to collaborate on the expansion o f bi-national energy markets, as well as coincide with President Obama's U.S-Mexico Bilatera l Framework on Clean Energy and Climate Change, which seeks to expand RE development along the U.S.-Mexico border. Commenters specifically stated that RE emissions offsets shoul d be calculated using a rigorous marginal resource modeling exercise that considers various s cenarios and future GHG policies. Commenters provided as an example a recent study of Manitoba Hydro exports to the United States out to 2030.115

Several commenters also provided comments on allowi ng the use of RE, especially hydropower, purchased from Canada and other countries. Commenters argued that the ability to access hydro capacity in Canada is an important and often cost-e ffective means to reduce emissions from affected EGUs. Commenters specifically noted that i f they were to enter into a new PPA with Manitoba Hydro, this would be considered in their d ispatch offerings and Integrated Resource Planning process and lead to lower emissions. Comme nters expressed concern that if the final rule suggested that such a PPA would not have 111(d ) compliance value, or leaves this uncertain, utilities will have less incentive to shift to zero -carbon generating resources. Commenters recommended that imported Canadian hydroelectricity be fully credited towards achieving CPP compliance when it can be demonstrated that the env ironmental attributes of the hydroelectricity is not being double counted. Commenters referred to a letter from Canadian Ambassador Gary Doer to EPA Administrator McCarthy that the Canadia n Government's view is that the lower emissions from Canadian-sourced electricity can ser ve as a useful resource to help some US regions to achieve compliance with EPA's proposed C PP requirements. Commenters also stated that Ambassador Doer also affirmed that the environ mental attributes from Canadian-sourced electricity can satisfy documentation requirements that the resource is not being double counted for the environmental benefits. Commenters stated t hat EPA should enable the unrestricted use of imported Canadian hydroelectricity as an approve d resource creditable for satisfying EPA's CPP state BSER target compliance requirements. Comm enters stated that EPA must reevaluate the decision to not allow RE, specifically hydropow er, imported from across national borders as a compliance option. Commenters stated that hydropo wer is a zero-carbon source of energy regardless of where it is generated, and atmospheri c carbon does not respect national borders. Commenters stated that whether RE is imported or ge nerated locally, it negates in direct one-toone correspondence the necessity to generate electr icity through combustion of fossil fuels. Commenters stated that given the expressed purpose of the proposed rule, all such options should be allowed as compliance mechanisms, to the extent that overall carbon production from fossil fuel combustion is reduced. Commenters added that t he CPP should not create any artificial barriers to electricity trade between the U.S. and Canada, and it should facilitate the use of all clean resources. Commenters supported counting inte rnational RE towards compliance, but requested that generation from any renewable energy resource existing as of the date of the proposed rule not count towards compliance. Comment ers stated that EPA excluded existing hydropower resources from the RE baseline and has m ade clear that states will not be able to take renewable energy credit for existing hydropowe r, and the same restriction must apply to imported hydropower. Commenters stated that althoug h states may wish to take credit for new imports (as in new contracts) from existing renewab le sources rate, for non-hydro renewables, energy from existing sources should be treated simi larly in the international and interstate

contexts.

Several commenters supported EPA's proposal to exam ine mechanisms to ensure that international RE generation actually offsets fossil -fuel fired generation in the jurisdiction taking credit for that generation

. Commenters noted that because of the risk of cross -border leakage, and because EGUs outside of the U.S. are not subjec t to the CPP, such safeguards are appropriate. Commenters suggested that EPA could ad dress this situation by requiring the entity seeking to take credit to provide evidence that the electricity generated was intended for U.S. consumption, such as through the existence of a pow er purchase agreement or firm transmission service rights. Commenters stated that EPA should o nly require that states demonstrate the displacement of fossil-fuel fired generating units by international resources to the extent that they116

demonstrate displacement of in-state resources. Com menters also stated that EPA may need to work with states in order to verify increased RE im ports are coupled with a decrease in power sector emissions, and that the environmental benefi ts of these imports are not double counted. In making these determinations, commenters recommended that EPA and states consider Canadian and provincial air regulations and greenhouse gas g oals, renewable energy credit tracking, economics, and other factors. Commenters stated tha t for rate-based systems, EPA could set forth appropriate parameters and safeguards to ensu re that in-state or in-region emissions are actually reduced by the imported RE.

Commenters addressed concerns with double-counting resulting from imported renewable

. Commenters urged that double-counting can be avoide d either through PPA provisions that establish clear and unique ownership of the environ mental attributes of purchased generation, or through REC tracking on established registries, suc h as M-RETS. Commenters stated that tracking systems have operating procedures in place to prevent double counting by tracking the RECs within the system and between other tracking s ystems. Commenters described the procedures that Canadian hydropower producers use t o register RECs and transfer energy into the US. Commenters stated that the rules applicable to REC markets strictly preclude double counting and that the RECs allocated to U.S. custom ers are no longer available for any use or claims within Canada. Commenters urged that the wel l-established systems of RECs have proven to be an effective means of preventing "doub le counting" of renewable generation. Commenters supported counting international RE towa rds compliance, particularly imported hydroelectric generation from Quebec. Commenters n oted that because Quebec is subject to an emission cap, this helps to avoid potential double- counting issues that may arise when considering the crediting of imported renewable pow er. Commenters also argued that because over 99% of the energy produced in Quebec is derive d from non-emitting hydroelectric power, importing hydroelectric power would not lead to inc reased generation of carbon emissions to meet Quebec's domestic power needs.

Commenters stated that it is inappropriate to allow international imports. Commenters stated that international imports should not be allowed because they will not reduce GHG emissions from the U.S. Commenters argued that if a state or regio n chooses to take advantage of international energy, it should not be allowed to take credit for reduced utilization of international facilities that emit more CO 2 than is allowed for designated facilities within i ts jurisdiction. Commenters reiterated that if U.S. jurisdictions are allowed t o increase reliance on electricity generated by international fossil-fuel EGUs to decrease utilizat ion on U.S. facilities, then it could create a perverse incentive that increases dirtier energy fl ows. Commenters requested that EPA clarify in the final rule that a designated facility may not c omply by shifting generation from designated facilities to international fossil-fuel plants with equal or higher CO 2 rates. Commenters acknowledged that although EPA cannot treat generat ion from international sources less favorably than domestic sources (per NAFTA and GATT regulations), it can treat international energy flows as though they are domestic flows. The refore, commenters reasoned that the final rule should make clear that regardless of the sourc e (domestic or international), states must not comply by replacing generation with higher CO 2 emitting sources.

Commenters argued that the proposed rule should als o consider exported carbon emissions. Commenters urged that states that export fossil fue l should be required to count the impacts of117

those exports against their progress towards the ta rgets if the exports go to locations outside the jurisdiction of the proposed rule.

Some commenters stated that imports and exports of RE should not be limited to contiguous states or ISO regions.

Comment 12: Imports and exports of RE should not be limited to contiguous states or ISO regions.

Response 12: This final rule does not in any way restrict the im ports and exports of RE generation across states. Regarding whether such RE is eligible for the issuance of ERCs under a rate-based state plan, section VIII.K of the preamb le states that all eligible emission reduction measures, including RE generation, may occur in any state, with certain limitations. To the extent these measures are tied to a state plan thes e measures may be used to adjust a CO 2 emission rate, regardless of whether the associated generation or electricity savings occur inside or outside the state. Once a state has issued ERCs for that RE, then the ERCs can only be traded with state with compatible trading rules.
The following are summaries of the specific public comments under this comment :

Commenters stated that imports and exports of RE sh ould not be limited to contiguous states or ISO regions.

Comment 13: The EPA should develop a model electric utility co de to support RE/EE incentives.

Response 13: The EPA appreciates the comment. RE and demand-sid e EE are an integral part of this final rule, and can play a significant role in state-plan compliance. In the discussion of state plans in section VIII, the final rule provides sign ificant detail on how states can have RE and demand-side EE play a strong role in state plans.

The following are summaries of the specific public comments under this comment:

Commenters urged the EPA, the Department of Energy, and FERC to jointly develop a statelevel model of electric utility code that incorpora tes RE/EE incentives for utilities (e.g., allowing higher rates of return on investments in carbon-fre e power, allowances to collect a bounty on green systems connected to the grid, or being allow to keep a percentage of the savings for each kWh avoided by end-use efficiency programs). Commen ters urged that such a model electric utility code is needed for states to spur reforms a nd encourage utility participation in the CPP.118

Comment 14: When modeling its compliance plan, a state should consider what its neighboring states are doing and how that might affect them.

Response 14: The EPA agrees that, when developing their plan, a state would benefit from considering what its neighboring states are doing a nd how that might affect them. In the final rule, the EPA encourages states to collaborate form ally or informally, considering the potential benefit of a regional or multi-state plan. For more information about multi-state plans, see Section VIII.C.5 of the final rule preamble of the CPP. For specific requirements related to developing a state plan projection, see Section VII I.D.2.a. (3) of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters mentioned that "state compliance plans s hould address how their compliance activities affect and interact with neighboring sta tes" including "the expected change in the net electricity imports to a state." Commenters stated that quantitative modeling should be done if practical and qualitative and analytical evaluation might be sufficient as long as the state considers its own and neighbors plans with regard t o: complying with assigned emissions rate targets; participating in a regional emissions rate averaging program; converting assigned emission rate targets into state-specific emissions caps; and converting assigned emission rate targets to caps to join a regional cap-and-trade pr ogram.

Comment 15: Commerce Clause implications of interstate trading

Response 15: EPA assumes that commenters’ reference to the “pot ential Commerce Clause issues” with cross-state crediting is a reference t o the “dormant” or “negative” Commerce Clause doctrine. That doctrine concerns limitations on the power of states—absent federal authorization—to enact laws that discriminate again st interstate commerce either facially or ineffect. With respect to interstate crediting, secti on VIII.K.1.a(2) of the final rule preamble explains the eligibility requirements for resources used to adjust a CO 2 emission rate, including the geographic eligibility requirements. Eligible e mission reduction measures may occur in any state, with certain exceptions described in that se ction. For the reasons stated in sections V.A–B and VIII.L of the final rule preamble, and in the L egal Memorandum accompanying the final rule, trading of credits or allowances—both interst ate and intrastate—is permissible under the federal regulatory scheme authorized by Clean Air A ct section 111(d). Accordingly, there are no dormant Commerce Clause issues for a trading progra m included in a satisfactory state plan approved pursuant to federal law. See, e.g., Hillsi de Dairy, Inc. v. Lyons, 539 U.S. 59, 66 (U.S. 2003) (citing Prudential Ins. Co. v. Benjamin, 328 U.S. 408 (1946)) (“Congress certainly has the power to authorize state regulations that burden or discriminate against interstate commerce”); Ne. Bancorp. v. Bd. of Governors of Fed. Reserve Sy s., 472 U.S. 159, 174–75 (1985) (state action authorized by federal law is “invulnerable t o constitutional attack under the Commerce Clause).

The following are summaries of the specific public comments under this comment:119

Commenters asked, in the context of cross-state cre diting for EE and RE, if the EPA has evaluated potential Commerce Clause issues.

Comment 16: Emissions leakage from state to state; States shou ld have additional compliance obligations to account for inter-state leakage. CPP will limit leakage and level the playing field.

Response 16: There are other ways in which differing characteris tics across states and sources could create risks of increased emissions under thi s rule through double counting of emission reduction measures or through foregone emission red uctions due to movement of generation from one affected EGU to another affected EGU. The final rule addresses these concerns: first, through the characteristics of goal-setting and the framework of state plans, and second, through specific requirements intended to minimize the risk of double counting and increased emissions. More information on these concerns is provided in s ection VIII.L of the preamble.

The final rule also specifically deals with the iss ue of emissions leakage to new unaffected sources, and how it affects the equivalence of rate -based and mass-based goals to the CO2 emission performance rates as an expression of BSER . Under this final rule, states have the opportunity to adopt rate-based or mass-based state goals as their emission standards as an alternative to the CO2 emission performance rates. The final rule demonstrates how the ratebased and mass-based state goals that the EPA has c alculated are an equivalent expression of BSER as compared to the CO2 emission performance ra tes. As part of this demonstration, the EPA shows how the goals equivalently provide incent ives to generate to existing affected EGUs and new sources, otherwise the form of the goal cou ld result in emission leakage (defined in section VII.D).

The rate-based goals included in the final rule min imize leakage because under a rate-based state goal, similar to the subcategory-specific emission performance rates, existing lower-emitting affected EGUs, primarily NGCC, are incentivized to increase their utilization in order to improve the average emission rates of affected EGUs overall . New units that are not subject to the ratebased state goal, and that are not an allowable mea sure for adjusting an EGU’s CO 2 emission rate, will not experience this incentive to increas e utilization. As a result, the imposition of a rate-based goal on affected EGUs is unlikely to enc ourage increased generation and emissions from unaffected new EGUs as compared to the CO2 emi ssion performance rates.

Mass-based goals for existing sources, incur a leak age risk to the extent that they incent generation shifts from affected EGUs to unaffected fossil fuel-fired sources in a way that has a potential for leakage and may not be an equivalent expression of BSER. This occurs because, unlike in a rate-based system where rate-based aver aging lowers the cost of generation from existing NGCC units relative to generation from new NGCC units, in a mass-based system the allowance price increases the cost of generation fr om existing NGCC units relative to generation from new NGCC units. The final rule addresses this concern by requiring states that adopt massbased state goals to demonstrate that they have add ressed leakage in their state plan. In Section VII.D of the final rule preamble of the CPP, the EP A details the concerns regarding leakage in state goals and specifies that potential emission l eakage must be addressed in a state plan with120

mass-based emission standards. Specific options sta tes can use to demonstrate that potential leakage has been addressed are in Section VIII.J.2. b of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that the CPP will strengthen the RGGI program by reducing the potential for leakage. Commenters noted that by regulating carbon emissions in other US states (beyond the RGGI states), the CPP will strengthen the RGGI prog ram by leveling the economic playing field between in-region EGUs regulated under RGGI and EGU s in neighboring states that do not currently regulate carbon emissions from EGUs. Comm enters noted that regardless of location, reducing carbon emissions from EGUs will benefit al l states, so it is appropriate that the CPP will subject all EGUs to similar requirements. Comm enters stated that particularly perverse potential outcome of the status quo is emissions "l eakage," in which EGUs in adjoining states increase generation (and emissions) in response to any economic signal provided by the RGGI program. Commenters stated that strengthening RGGI by reducing the potential for leakage is therefore an important benefit of the CPP.

Commenters said that EPA should require states to h ave additional compliance obligations if there were substantive changes in inter-state elect ricity transmissions. Commenters suggested three approaches: (1) "If a state increases its netelectricity exports by more than 10 percent from a base year period the emissions rate standard thatshould apply to the associated incremental increase in electricity generation should be the mo re stringent of the state's standard or the average standard in the state's power region." (2) "States might be required to hold electricity transfer credits for electricity imports or exports that are greater than those observed in a base year period." And (3) "State's might be required to adjust the emissions rate calculation that is applied within their states compliance plan to prov ide incentives for greater utilization of low or nonemitting resources so that there is no increase in total emissions." Commenters also said that "to mitigate leakage the state standards could be c alibrated to achieve greater conformity in the production incentive within a region or across the nation." Commenters also suggested that if needed states should use an output based allocation . Commenters calculated a net production incentive and did modeling to show that transmissio n limitations and location on the electricity grid are factors that need to be considered when lo oking at emissions leakage. In order to minimize leakage, commenters suggested a uniform cr edit price or having emissions rate standards adjusted to align with production incenti ves. Commenters also modeled many cap and trade program scenarios and suggested only giving a production incentive to lower-emitting or non-emitting resources if an output based allocatio n was used.

Commenters encouraged EPA to take action "to reduce the variation in state targets by increasing the GHG emissions reductions required in states that currently have less ambitious targets" to reduce the level of emissions leakage f rom state to state. Commenters defined environmental leakage as the "transfer of emissions from one region to another." Commenters stated that the regulations should be crafted in a way that ensures overall reduction in emissions and does not merely transfer emissions from one sta te to another. Commenters stated that analysis suggested that leakage could be "14-19% of the total GHG emissions reductions" as proposed. Commenters explained that there are two f orms of leakage: rate to rate leakage and rate to mass leakage. Commenters presented four sub sections on leakage entitled: rate to rate leakage; rate to mass leakage; NRDC modeling of lea kage potential; and policy options for states121

to address emissions leakage. Commenters described rate to rate leakage and recommended "that EPA exclude existing renewables from its calculatio ns of a state's initial emissions level." Then, commenters stated, "If EPA does this, and expands b uilding block 1 to include opportunities for co-firing natural gas at coal plants or new natural gas plants in Building Block 2, then the risk of leakage will decrease. However, some risk of leakag e will remain unless EPA standardizes state emissions targets across grid regions." Commenters described rate to mass leakage and affirmed that they believe that "mass based programs are sup erior to rate based programs." However, commenters were concerned because "there are bounda ry challenges between a state employing a rate-based program and a state employing a mass-b ased program." Commenters gave an example using West Virginia and Maryland (which is in RGGI) and stated that "under the Clean Power Plan, shifting 10 MWh of natural gas generati on from Maryland to West Virginia would generate a credit equal to approximately 7,480 lbs CO 2 in West Virginia without resulting in a commensurate decrease in the RGGI cap (assuming the natural gas plant has an emissions rate of 1,000 lbs CO 2 /MWh)." Commenters used the IPM model to analyze th e potential for leakage using the NRDC Reference Case (RC3) and analyzing t wo scenarios, the Mass Equivalents Case where all states were assumed to adopt a mass-based program, and a Leakage Case where all states were assumed to adopt mass-based programs, e xcept for Pennsylvania and New Mexico. Commenters stated that "Pennsylvania and New Mexico were assumed to adopt the proposed June 2014 rate-based state targets. These two state s were selected for this study because they may represent pronounced opportunities for leakage in their respective interconnected grid systems. The rate-based targets in Pennsylvania and New Mexico exceed the emissions rate of new natural gas combined cycle units, and they are located in proximity to states participating in cap-and-trade programs like the Regional Greenhouse Gas Initiative (RGGI) and California's AB32, respectively. The combination of these effect s mean that each state could choose to build significant amounts of new NGCC units and export so me of this generation to neighboring states, while still complying with its own rate tar get." Commenters stated that "in this analysis, we observed dynamics reflecting emissions leakage i n Pennsylvania prior to the 2030 final compliance date" and that "in New Mexico, we observ ed minimal emissions leakage". Commenters concluded that "the potential for emissi ons leakage is significant and must be addressed by EPA and states in their plans. The pot ential for leakage may be sensitive to natural gas price differentials and transmission capacity b etween rate-based and mass-based states." Commenters presented policy options for states to a ddress emissions leakage and recommended that "EPA describe a methodology for how they will measure and evaluate leakage over time." Commenters also recommended "that the responsibilit y to address leakage be placed on the states that increase electricity production, as the y are the states that otherwise benefit from their less stringent emissions rate." Commenters presente d four approaches to address leakage: first jurisdictional delivery approach, ex post evaluatio n and adjustment of state-level emissions reductions, require all states to evaluate statewid e power sector performance against mass-based targets, and ex ante adjustment to level the playin g field for generation. Under the first jurisdictional delivery approach commenters stated that "an entity that exports power out of a given state is required to submit credits to the st ate equal to the emissions leakage that would otherwise occur absent the submission of emissions credits." For the ex post evaluation and adjustment of state-level emissions reductions appr oach commenters stated that "EPA could require states to evaluate shifts in their balance of electricity supply and demand on an annual or bi-annual basis and account for any shifts through automatic ex-post adjustment of their GHG programs." For the require all states to evaluate s tatewide power sector performance against122

mass-based targets approach commenters stated that "EPA could eliminate the threat of leakage by requiring all states, including those that adopt a rate-based approach, to evaluate whether the state's actual emissions exceeded the mass-based ta rget that the state would have been subject to had it adopted a mass-based approach. States that e xceeded their mass-based target would be required to adjust for excess emissions." For the e x ante adjustment to level the playing field for generation approach, commenters stated, "all new ge neration would be compared to the emissions rate for new units established under 111( b) or the state rate standard, whichever is lower, in order to prevent sources from taking adva ntage of less ambitious state emissions targets." Commenters further stated that there are advantages to the ex ante approach because if "EPA applies an up-front adjustment at the plant le vel" it "provides greater certainty for project developers." Commenters also said, "There is an adv antage to placing them on plants whose generation increases: doing so avoids further penal izing plants that are already being outcompeted in the marketplace".

Commenters stated that "EPA has the authority and r esponsibility to require state plans to address leakage", that " requiring states to prevent leakage does not compro mise state flexibility " and that leakage could eliminate about 30% of the e xpected reductions from the Clean Power Plan. Commenters recommended that EPA adopt the fol lowing policies in the final rule: "1. All state plans must have provisions to prevent leakage : a. Responsibility could be assigned to states that increase net exports or reduce net imports; b. Alternatively, responsibility could be assigned to states that increase net imports or reduce net e xports. 2. Set consistent rules for the treatment of all new fossil resources: a. Allowing states to elect to include or exclude new sources results in high leakage potential; b. If it is not feasible to require all states to account for new sources then all states should be required to exclude both new source emissions and generation from their compliance demonstrations. 3. Consistent with EPA's proposed methodologies for translating rate standards to mass standards, states that adopta mass-based standard must either - a. Exclude generation served by new sources from the load used to convert from a rate standard to a mass standard; or b. Adopt a standard that is based on t he inclusion of these megawatt- hours and count the emissions from new sources against the st andard. 4. EPA should revise the methodology for treatment of Energy Efficiency as a component of BSER to credit states for 100% of reduced generation to support statewide sal es, regardless of whether the state is a net importer or exporter (provided that EPA requires st ates to prevent leakage due to interstate electricity trades)." Commenters also stated that " all state plans should be specifically required to include a process for maintaining the required leve l of performance reflected in the original BSER if net import levels fluctuate by more than a de minimis amount. Commenters also proposed several options that EPA could use to addr ess leakage including the following: provide each state with a mass standard that reflects the B SER; allow states to adopt a rate standard, but provide a mass-based backstop for states that adoptrate standards in order to ensure that no state increases emissions beyond a level environmentally equivalent to BSER; or impose an average emissions rate standard for each grid region or the whole nation. Commenters also noted that

" the best state-driven solution to prevent leakage c aused by incremental electricity imports/exports would be for states to join regiona l programs with a uniform emission rate standard within the power markets in which they par ticipate."123

5.8 PROJECTING EGU CO 2 EMISSION PERFORMANCE

This section addresses comments on Projecting EGU C O 2 Emission Performance. We have organized the comments in this section under seven subsections, 5.8.1 to 5.8.7. Responses to the comment topics of these subsections are discussed b elow along with summaries the specific public comments.

5.8.1 Electricity System Modeling Approaches for Pr ojecting EGU CO 2 Emissions

This section addresses comments on electricity syst em modeling approaches for projecting EGU CO 2 emissions. We have organized the comments in this section under four subsections, 5.8.1a to 5.8.1d. Responses to the comment topics of these subsections are discussed below along with summaries the specific public comments.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding IPM accounting of decommissioni ng expenses.
Response 1: IPM accounts for decommissioning of nuclear units, but not other types of units.

The following are summaries of the specific public comments under this comment:

Commenters asked if the EPA has considered the exte nt to which IPM accounts for decommissioning expenses for units.

Comment 2: Comments regarding a reliability safety valve.

Response 2: The EPA has addressed reliability safety valve com ments in Section VIII.G.2 of the final rule preamble of the CPP. Please refer to thi s section for EPA’s rationale and considerations related to reliability safety valve.

The following are summaries of the specific public comments under this comment:

Commenters stated that they supported "the concept of a reliability safety valve as proposed by PJM and other RTOs." Commenters thought that if the re was no reliability safety valve, "there is no means for RTOs to ensure availability of short-t erm capacity during times of peak usage." Furthermore, commenters stated that, "If the safety valve is evoked to ensure reliability of the electric grid, state rates should be adjusted to ac count for the trigger of the safety valve."124

Commenters requested that the following option (amo ng others) be implemented to improve the workability of the proposed guideline rule and to p rovide additional compliance flexibility to meet the emission targets established in the propos al: commenters urged EPA to include a safety valve or "off-ramp" to address both unexpected scen arios and to address electric system reliability or adverse rate impacts.

Comment 3: Comments regarding IPM assumptions for Florida.

Response 3: The EPA disagrees. For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. See the RIA chapter 3. IPM is a multi-regi onal, dynamic, deterministic linear programming model of the U.S. electric power sector that the has been successfully used by EPA and private companies for over two decades to evalu ate the economic and emission impacts of prospective environmental policies. Projections ref lect the most recent and accurate information available. EPA has reviewed comments on IPM and has updated the model for use in the final rule; EPA believes the model results used in the fi nal rule are reasonable.

The commenter statement that IPM uses nameplate cap acity is incorrect; IPM uses net dependable capability.

The following are summaries of the specific public comments under this comment:

Commenters stated that the IPM has "flaws that resu lt in inaccurate and unachievable compliance projections for Florida." Specifically, commenters said that IPM has errors because it used nameplate capacity instead of net capacity. Co mmenters said that EPA's model inter mixes nameplate capacity and net generation for projectin g natural gas fired units resulting in an almost 19% overstatement of summer net MWh from natural ga s and leads to an exaggeration in coalfired retirements. Commenters stated that the IPM B ase case has 160 Florida units retiring by 2016 when the owners have identified that only 81 o f these units will retire by 2016. Commenters provided a table listing out the units. Commenters stated that this results in lower projected compliance costs for the Clean Power Plan . Commenters requested EPA correct the errors in NEEDS and EMP, rerun the Base Case and Po licy Case, recalculate the compliance costs, and give stakeholders an opportunity to comm ent on the revisions. Commenters further stated that IPM showed "dramatic impacts on Florida " which are different from the FPSC's projections. Commenters said that IPM predicts in 2 025, natural gas would provide over 85% of Florida's electricity and coal would only provide 2 % while FPSC predicts that in 2022, natural gas fired combined cycle units will provide 59% of Florida's electricity and coal fired will produce 22 % of Florida's electricity.

Comment 4: Comments regarding IPM modeling results.

Response 4: The EPA disagrees. For this rule, IPM is not used f or state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. See the RIA chapter 3. IPM is a multi-regi onal, dynamic, deterministic linear125

programming model of the U.S. electric power sector that the has been successfully used by EPA and private companies for over two decades to evalu ate the economic and emission impacts of prospective environmental policies. Projections ref lect the most recent and accurate information available. EPA has reviewed comments on IPM and has updated the model for use in the final rule. Although opinions of future coal production a nd use in individual areas will differ, IPM projections will reflect general industry trends, s uch as increasing coal production in areas like the Illinois basin and decreasing coal production i n Central Appalachia in West Virginia and Kentucky referenced in the comment. EPA believes th e model results as used in the final rule are reasonable.

The following are summaries of the specific public comments under this comment:

Commenters questioned the reliability of EPA's econ omic modeling of the electricity sector since they believed that some IPM modeling results in "odd and unlikely projections, such as that by 2020, 37% of the coal used for electricity gener ation in West Virginia will come from Illinois (none is now), and that only 11% of the coal used i n Kentucky will come from that state (as opposed to 66% at present)."

Comment 5: Comments regarding modeling and revisiting models due to changing circumstances.

Response 5: In response to comments about state policy and ana lytic needs, the EPA, in consultation with U.S. DOE and other federal agenci es, continued to refine its toolbox of decision support resources at: http://www2.epa.gov/ www2.epa.gov/cleanpowerplantoolbox. The site includes information on regulatory requirement s, including state plan guidance and state plan decision support. The state plan guidance section s erves as a central repository for the final emission guidelines, RIA, guidance documents, TSDs and other supporting materials. The state plan decision support section includes information to help states evaluate different approaches and measures they might consider as they initiate p lan development. This section includes, for example, a summary of existing state climate and RE and demand-side EE policies and programs, information on electric utility actions t hat reduce CO 2 , and tools and information to estimate the emissions impact of RE and demand-side EE programs, including the AVERT model. For more information about Resources for Sta tes to Consider in Developing Plans, see Section VIII.H of the final rule preamble of the CPP

. The EPA is not requiring specific tools or emission quantification methodologies which states and/or affected EGUs must use when demonstrating th e emission guidelines will be met as long as the method is technically sound and meet the cri teria in the preamble.

Energy storage technologies could be used to facili tate achievement of the CO 2 emission performance levels for affected EGUs, or a state ra te-based or mass-based CO 2 goal for affected EGUs, in the emission guidelines. However, MWh outp ut from an energy storage technology could not be used to adjust the reported CO 2 emission rate of an affected EGU. It could facilit ate greater grid penetration levels of RE generating te chnologies that are eligible for use in adjusting the reported CO 2 emission rate of an affected EGU. The treatment of energy storage under a rate-126

based state plan, and the rationale for this treatm ent is discussed in section VIII.K.1.a.(5) of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this comment:

Commenters stated that, "With the development of al l types of storage, solar can substantially displace natural gas and coal EGUs, and play an eve n more significant role in reducing carbon emissions." Commenters recommended that methodologi es and models be developed for states to account for the benefits provided by storage tha t increase the use of solar power. Furthermore, commenters recommended that "EPA and the states per iodically revisit the applications and models in the plan to account for new technologies and improved valuation curves," since they expect that the costs associated with storage will come down as energy storage increases.

Commenters stated that EPA may recommend tools such as AVERT and provide methodologies to calculate and apply emission impacts of energy e fficiency projects, programs, and policies, but that EPA should also allow states to submit their o wn calculation methodologies and conversion approaches to EPA.

Commenters stated that "the final rule should reduc e its dependency on modeling" due to the uncertainty with the forecasts and the approximatio ns that go into modeling algorithms. Commenters also pointed out that "the calculation o f avoided emissions is a very complex, uncertain, and nontransparent process" and assignin g CO 2 credits for RE and EE requires regional level modeling. Commenters further stated that if states choose a mass-based limit then the state "would develop RPS/EE mandates to reduce the fossil generation requirements in order to stay under the CO 2 mass limit" or "establish CO 2 and offset markets" which should give people incentives to develop RE/EE.

Comment 6: Comments regarding IPM pollution control equipmentlife.

Response 6: The use of a 15 year life rather than a longer lif e for retrofits in IPM is based on comments from industry and others about the most ap propriate period, given issues of physical life of the asset, life of the underlying facilitie s, and financing issues.

The following are summaries of the specific public comments under this comment:

Commenters stated that for the Clean Power Plan IPM analysis EPA assumed a fifteen year life for recently installed pollution control equipment but for other rules, such as the Regional Haze Rule, EPA assumed a twenty-year life. Commenters st ated that " If there is a basis upon which EPA believes it is appropriate to use different ass umptions for different programs, EPA should clearly explain why it has done so."

Comment 7: Comments regarding Regional Transmission Organizat ions (RTOs).127

Response 7: The EPA recognizes in the Preamble Section A.3.b t hat Regional Transmission Organizations contribute to ensuring reliability of the electric system and keeping the grid in balance. The EPA staff met with RTO council on seve ral occasions to collect their ideas. The EPA encourages states that reside in an RTO to have discussion with their RTO as they develop their plans. As described in Section II.J of the fi nal rule preamble of the CPP, in all state plans, as part of the supporting documentation, states mus t include a description of their required consultation with relevant ISOs/RTOs and/or plannin g/reliability authorities during plan development, including any recommendations and othe r comments provided by those authorities.

The following are summaries of the specific public comments under this comment:

Commenters asserted that the proposed Clean Power Plan does not adequately address the ro le of Regional Transmission Organizations (RTOs) and Inde pendent System Operators (ISOs) in the transmission and distribution of electricity , or how they may factor into implementing a state plan. Commenters stated that most of Nebraska's uti lities are members of the Southwest Power Pool (SPP)

, a RTO that spans all or parts of Arkansas, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, Oklahoma, and Texas. [ FERC, Electric Power Markets, SPP (http://www.ferc.gov/market-oversight/mkt-electric/ spp.asp) ] Commenters noted that the SPP manages the sale

, transmission

, and distribution of electricity, and is responsible for transmission system maintenance and expansion planning; supply f orecasting

, reliability coordination, and load balancing; and energy market operations within its service area. [ Southwest Power Pool/ About SPP (http://www.spp.org/section.asp?pageid=1) ] Commenters noted that the SPP also retains regional dispatch authority over member uti lities, deciding when to dispatch which power plants and to what degree on a daily basis, which c an cause significant changes in power plant utilization from day to day as member states exportor import power to and from other states depending on regional conditions.

In short, commenters stated that RTOs and ISOs form a crucial component of electric grid management, and their regional dispatch and balanci ng authority is essential to achieving the objectives of the Clean Power Plan, particularly wi th respect to any multi-state plans that may be put in place. Commenters stated that RTOs and ISOs do not recognize state boundaries in determining dispatch, which is at odds with the sin gle- or multi-state plan approach of the Clean Power Plan. Commenters therefore requested that the EPA revise the Clean Power Plan to adequately address the role of these organizations.

Commenters agreed with EPA that "ISO/RTO analytic s upport would allow the state to monitor the effects of its plan on the regional electricity system..." and "...could help states assure that their plans are consistent with region-wide system reliability." Hence, commenters respectfully submitted that consultation with relevant system op erators and planners (such as ISOs/RTOs) can provide substantial value in the development of the Final Rule and State Plans. Commenters stated that appropriate consultations will allow EP A, states, and other entities responsible for grid reliability to identify potential reliability impacts, taking into consideration the intra-state, inter-state, and regional transmission and generati on characteristics of system operations and planning that are critical to grid reliability. Fur ther, because the Proposed Rule already sets forth a continuum of steps and processes, commenters stat ed that there are a wide variety of potential128

paths to compliance and substantial flexibility wit h respect to the timing and stringency of any interim goals. Accordingly, commenters recommended that consultation occurs as early as possible and throughout all stages of Final Rule im plementation, as necessary. Commenters stated this sort of "rolling" consultation will hel p ensure that the Final Rule does not negatively impact state, multi-state, and/or regional grid rel iability. Additionally, commenters stated that the incorporation of the commenters' proposals discusse d elsewhere into the Final Rule would facilitate such consultation with ISOs/RTOs.

Commenters requested that EPA require State Plans t o include a component that describes the evaluation of impacts to state, multi-state, and/or regional grid reliability from the implementation of the proposed State Plan

. Commenters explained that, in organized market regions, ISO/RTOs would perform the evaluation. Com menters noted that in vertically integrated regions, the registered entities responsible for re liability in the state and/or region, e.g., reliabi lity coordinator, planning coordinator, etc., with indep endent review by the North American Electric Reliability Corporation ("NERC") or the Regional En tity, would perform the evaluation. Commenters stated that this component would also de scribe the assessment results and how the State Plan considered and/or addressed any identifi ed impacts to grid reliability during the development of the State Plan. Commenters stated th at appropriate NERC-registered entities (i.e., Reliability Coordinators and Planning Author ities) can facilitate the identification and consideration of electric system reliability in the development of State Plans (these are typically system operators and planners - e.g., ISOs/RTOs in organized market regions of the country).

Commenters stated that EPA must rely on RTOs and ut ilities to determine what changes to generation mix are feasible while still ensuring re liability of the electric grid.

Commenters stated that given both the complexity of the electric generating sector and the vital importance of a reliable supply of electricity for the Nation's security and the economic wellbeing and physical safety of its citizens, any fina l EPA emission guideline must allow the States to respond dynamically to the wide range of sometim es unpredictable conditions involving the Nation's electrical generating resources, and t he final guideline should be developed in full coordination with the Federal Energy Regulatory Com mission and North American Electric Reliability Corporation.

Commenters requested EPA hold an RTO summit. Commen ters stated that they believe that "compliance through fuel-shifting is most cost effe ctive when implemented over a wide geographic area." Commenters encouraged EPA to hold an "RTO Summit" so utilities could explore this concept further.

Comment 8: Comments regarding public utility commissions.

Response 8: The EPA in the final emission guidelines is not re quiring states to change their existing processes for interacting with their publi c utility commissions or divisions with their state. States will need to demonstrate they have ad equate legal authority and funding to implement the measures in a state plan. The EPA rec ognizes that multiple stakeholders within a state will need to be a part of the state plan deve lopment and encourages that interaction. See129

section VIII.D.2.a(6) of the final rule preamble of the CPP that discusses the details surrounding stakeholder engagement.

The following are summaries of the specific public comments under this comment:

Commenters stated that a primary tenet of the enabl ing legislation that created public utility divisions (PUDs) is governance by a locally-elected Board of Commissioners. Commenters stated that implementation of the 111(d) rule shoul d be structured in a manner that allows states to use existing processes to interact with PUDs, th ereby minimizing the impact on local, publicly-owned utilities - particularly when their GHG emissions are de minimis.

Comment 9: Comments regarding public participation.

Response 9: In the final emission guidelines, states must meetthe minimum public participation requirements of the final guidelines including a pu blic hearing, and meaningful engagement with all members of the public and affected parties. One of the required components of an initial plan submittal to the EPA is a description of the public participation opportunities such as stakeholder and community meetings or public hearings throughou t the 2 or 3 year plan development process. The EPA recognizes the importance of engag ing community members like the NASUCA members and the state public utility commiss ions. The EPA can not require states to meet with specific organizations however, there sho uld be ample opportunity for these important stakeholders to comment and engage with the environ mental state agencies and inform the state plan process. Refer to section VIII.D.2.a of the fi nal rule preamble of the CPP for details on this topic.

The following are summaries of the specific public comments under this comment:

Commenters asked that EPA ensure that National Asso ciation of State Utility Consumer Advocates (NASUCA) members, and the utility custome rs they represent, are included in the state-level implementation process and resource dec isions resulting from the Clean Power Plan. Commenters suggested that the EPA should require an y state-level environmental agency charged with implementation of any final version of the Clean Power Plan to seek input from the state NASUCA member concerning the components of a state-level compliance plan prior to finalizing its terms

. Commenters provided the following rationale for th eir request:

• Commenters noted, according to the EPA, meeting the emission reductions proposed in the Clean Power Plan will require elect ric utilities and electric generators to, in some mixture, increase generation efficiency, change generation fuel mix, which may include building new natural ga s fired generators and/or closing existing coal fired generators, increase th e use of renewable energy generating sources and increase the use and availab ility of energy efficiency and/or conservation measures.

• Commenters noted that state-level implementation of any final version of the proposed Clean Power Plan will generally reside at a state-level environmental130 agency. Commenters noted that in most cases, the st ate-level environmental agency in charge of implementing the Clean Power Pl an will have different objectives, obligations and expertise than the stat e-level agency that regulates electric utility resource planning and rates (i.e., Public Utilities Commission).

• Commenters noted that state-level environmental age ncies are not primarily focused on identifying and promoting lowest reasona ble cost solutions to ratepayers.

Commenters stated that the number of NASUCA member offices that have clear jurisdiction to participate before a state-level environmental agen cy is less than the number of NASUCA members that have jurisdiction to participate befor e the state-level agency that regulates electric utility resource planning and rates. As such, comme nters stated that many NASUCA member offices, and the utility customers they represent, may be specifically excluded from participating in important decisions affecting changes to electri c utility resource planning, the resources used to meet customer energy needs, the cost of these re sources and impacts on customer rates that result from these resources changes.

Comment 10: Comments regarding interim, final budgets, and sta te plans.

Response 10: The EPA has made many significant changes to the s tate interim and final budget goals. There is a wide range of flexibility availab le in the type and design of a state plan so it can meet the needs of individual utilities, such as the ones in the City of Tallahassee. The EPA in the final rule is providing states with maximum flexibi lity to achieve their emission standards or CO 2 state goals in the emission guidelines. For example , states can enter into Multi-state plans, multistate coordination while retaining their individual state goals, and emission budget trading programs. Certain rate based state plans can use or purchase ERCs generated from eligible resources and do not need to replace resources with in their state. These flexibilities provide enough latitude for all states to comply with this rule. See section VIII.C of the final rule preamble of the CPP for details on the different st ate plan approaches.

For adjustments made to states’ the interim and fin al budgets, see the changes from proposal to final and the GHG Mitigation Measures TSD which des cribes the technical aspects of setting the interim and final goals in the Final CPP Guidelines . The Final CPP also addresses commenters concerns that state plans must include credible and appropriate calculation methods. We describe the accounting approaches in VIII.K of the final ru le preamble of the CPP and are requiring all demand-side EE and RE measures used to adjust the r ate to have an Evaluation Measurement and Verification Plan (see the Evaluation, Measurem ent and Verification Guidance for DemandSide Energy Efficiency TSD for more information) to ensure the measures meet EPA’s quantifiable and verifiable requirements.

The following are summaries of the specific public comments under this comment:

Commenters stated that "the interim and final budge t is unachievable for the City of Tallahassee utilities" and is a key part of Florida's goal. Com menters also stated that " EPA's interim and final budget goals need to be adjusted to reflect the cor rections in the technical data to reflect the131

achievable CO 2 emission goals while still having a reliable elect ric network. These adjustments also need to take into account the timing required to implement the significant changes that would be required by the electric industry. Comment ers also stated that the state plans must be credible and use appropriate calculation methods."

Comment 11: Comments regarding IPM assumptions about transmiss ion, dispatch and reliability.

Response 11: The EPA disagrees. IPM is an interregional dispatch and planning model (See model documentation at http://epa.gov/powersectormo deling). IPM imposes interregional transmission limits on the dispatch solution, and h as increased the number of regions in recent versions to better capture transmission flows. For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. Contrary to the comments , EPA believes the model is sufficiently granular for this purpose.

With respect to the use of IPM for reviewing resour ce adequacy and reserves, the model is a planning model and enforces the planning reserve re quirements. It is used in the context to provide a broad view of generation and transmission energy and capacity flows to assess potential concerns about reliability. EPA believes it is an appropriate tool for this purpose (see Resource Adequacy and Reliability Analysis TSD).

The following are summaries of the specific public comments under this comment:

Commenters stated that "EPA's IPM erroneously assum es that transmission is adequate within all the IPM regions" and that "prior to the implementat ion of the final rule, this assumption should be corrected, and transmission constraints within, as well as between, the IPM regions should be taken into account." Commenters noted that new tran smission investment will probably be needed especially for coal generation replacement a nd to maintain reliability.

Commenters noted that "IPM is categorically not a d ispatch model" and had concerns about "the ability of the IPM to accurately predict and demons trate grid reliability under the proposed rule." Commenters urged "EPA to engage in outreach with th e various RTOs, FERC, NERC, and other entities capable of adequately modeling dispatch sc enarios under the proposed rule" to demonstrate grid reliability.

Commenters stated that "EPA's use of the Integrated Planning Model does not assess the impact of the proposed rule on system reliability because the model is not capable of incorporating operating reserve requirements, actual transmission system constraints, or variable resources with sufficient granularity." Commenters noted that"EPA should incorporate utility planning principles into its proposed rule is to support uti lity reliability assessments rather than exclusively relying on the Integrated Planning Mode l (IPM) to determine reliability impacts." Commenters also stated that "IPM does not ensure th at generation plants are dispatched to maintain sufficient operating reserves among all ho urs in the year." Furthermore, commenters said that "IPM assumes significant coal unit retire ments by 2020 but does not adequately model132

transmission constraints that may be associated wit h retiring and adding generation resources." Commenters also stated that " IPM is similarly insufficient to address reliabilit y issues associated with increased wind and other variable resources. G eneration may only be added if it does not compromise the stability or reliability of the tran smission system."

Comment 12: Comment about coal usage in Florida.

Response 12: For this rule, IPM is not used for state level pro jections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. See the RIA chapter 3. IPM is a multi-regional, dynamic, determ inistic linear programming model of the U.S. electric power sector that the has been successfull y used by EPA and private companies for over two decades to evaluate the economic and emission i mpacts of prospective environmental policies. Projections reflect the most recent and a ccurate information available. EPA has reviewed comments on IPM and has updated the model for use in the final rule. Although opinions of future coal production and use in indiv idual areas will differ, IPM projections will reflect general industry trends, but future project ions can differ considerably depending on the case and the scenario. EPA believes the model resul ts as used in the final rule are reasonable.

The following are summaries of the specific public comments under this comment:

Commenters stated that in 2012 Florida generated 22 1,096 GWh from coal and EPA's model has this decreasing by 99% in 8 years to 2,898 GWh in 2 020. Commenters stated that load dispatching, reserve margins, transmission loading will all be impacted by this and need to be evaluated.

Comment 13: Comment regarding IPM assumptions.

Response 13: The IPM assumptions are available at http://epa.go v/powersectormodeling. IPM imposes interregional transmission limits on the di spatch solution, and has increased the number of regions in recent versions to better capture tra nsmission flows; in particular, the number of regions covering Louisiana has been increased. For this rule, IPM is not used for state level projections or for setting state goals, but rather is used for broad, national assessments of program costs and impacts. EPA believes the model i s sufficiently granular for this purpose.

The following are summaries of the specific public comments under this comment:

Commenters stated that states should be able to rev iew IPM assumptions because IPM failed to "capture the reality of a number of significant tra nsmission constraints throughout Louisiana, but especially in South Louisiana; recognize the need t o utilize older, less efficient EGUs located within transmission-constrained "load pockets" to m eet the electricity demands of both industrial and residential ratepayers; and consider power gene rators in the state (i.e., qualifying facilities) that, by federal mandate, have the right to sell po wer into the grid and the corresponding requirement on host utilities to purchase such powe r."133

Comment 14: Comment regarding an explanation of seven key vari ables and appropriate sources in determining EGU CO 2 projections.

Response 14: States can obtain the necessary information from th e following organizations. U.S. Department of Energy, Energy Information Admin istration, Annual Energy Outlook (AEO), North American Electric Reliability Corporat ion (NERC), Regional transmission organizations (RTOs)/independent system operators ( ISOs) (e.g., PJM Interconnection, ISO-New England, NYISO), Vertically integrated utilities (e .g., a large power company that operates the electricity system for a specific region), State en ergy agencies (e.g., State Energy Office or Public Utility Commission (PUC)), and Regional coun cils that coordinate energy planning (e.g., Northwest Power and Conservation Council) or any ot her publically available data source. If a state wants to use another data source, they need t o justify why it is more appropriate. The EPA clarifies what assumptions will be required as partof the CO 2 emissions projections in Section VIII.D.2.(a)(3) of the final rule preamble of the C PP. The agency has added additional assumptions that are needed for projections and des cribes which state plans require a projection and which state plans do not require one.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA mentioned seven key vari ables that may determine EGU CO 2 projections on page 17 of EPA's TSD titled "Project ing EGU CO 2 Emission Performance in State Plans" (June 2014) but did not explain "where the d ata for each of the variables will or should come from." Commenters requested that the following sources be considered: - Electricity load growth projections (energy peak and demand) - State PUCs, EIA's AEO) - Fuel supply, delivery, and pricing assumptions - RTO/ISO, EIA - Cost and p erformance of electric generating technologies - EIA - EGU firm builds and retirement s (e.g., those scheduled with a RTO/ISO) - RTO/ISO - Transmission capability and RTO/ISO trans mission expansion plans - RTO/ISO - Applicable federal regulations (other than the EPA emission guidelines) - RTO/ISO, NERC, FERC - Applicable state regulations and programs (o ther than those that are included in the state plan) - State where generation occurs or state wher e demand occurs."

Comment 15: Comments regarding energy market trend projections

. Response 15: The EPA in the final rule is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the emission guidelines. For exampl e, states can enter into Multi-state plans, multi-state coordinat ion while retaining their individual state goals and emission budget trading programs. Certain rate based state plans can use or purchase ERCs generated from eligible resources and do not need t o replace resources within their state. These flexibility provide enough latitude for all states to comply with this rule. See Section VIII. C of the final rule preamble of the CPP for details on d ifferent state plan approaches states can use to comply with the emission guidelines.

The EPA will allow states to use a reliability safe ty valve for when emergency situations arise, with certain restrictions. Section VIII.G.2 of the final rule preamble of the CPP provides134

examples to illustrate several key attributes of th e kinds of circumstances in which the reliability safety valve would apply.

The following are summaries of the specific public comments under this comment:

Commenters stated that it is a challenge to projectenergy market trends for the next 15 years and therefore proposed "that EPA include a framework fo r providing appropriate flexibility to head off potential unforeseen impacts to electricity aff ordability and reliability." Commenters added that the flexibility should be limited to minimize exploitation of a " safety valve ."

Comment 16 : Comments concerning the use of AVERT and EGRID an d consider AVERT results questionable until EPA conducts a more thor ough quality review of the tool.

Response 16: In the final rule, the EPA allows for the adjustme nt of a CO 2 emission rate based on avoided MWhs, not avoided CO 2 so avoided CO 2 calculations using emission rates are not necessary. For more information about specific meth ods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand-side EE and h ow the methods ensures consistency with the goal setting calculations in the final rule, se e Section VIII.K.1 of the final rule preamble of the CPP.

In the final rule, EPA does not require a projectio n of CO 2 emission performance for all state plan approaches. For those that do require a projec tion, EPA does not require that states use specific models, like AVERT, but gives states flexi bility provided they use technically sound methods that are reliable and replicable. EPA addre sses what types of state plan approaches require a projection and requirements related to me thods and tools in Section VIII.D.2.a.(3) of the final rule preamble of the CPP

. The EPA disagrees with the commenters claims that A VERT has not gone through the proper quality control procedures. The EPA conducted an of ficial peer review process as required by EPA for all tools that could be used for regulatory purpose. It also was benchmarked against an industry standard dispatch model and includes the a ppropriate caveats in its user manual. Although AVERT is most appropriate as a screening t ool for the final CPP, it is available for states to use for NAAQS compliance.

The following are summaries of the specific public comments under this c omment:

Commenters noted concerns with the Avoided Emission s and Generation Tool (AVERT), including 1) it does not provide forecasting beyond five years which limits a state's ability to make long term assessments and agreements with stat es required for multi-state plan development; 2) it assumes that dispatching in the future will be similar to the recent past so does not support planning beyond a few years and does no t reflect that the rule will probably result in substantial changes to electricity dispatching and/ or allow for the use of projected economic behavior; 3) approximates historical dispatch behav ior using a statistical algorithm that does not represent transmission constraints or significant c hanges in grid structures or future economic conditions; 4) does not capture inter-regional tran smissions and requires coordinating with all the135

other states in the electric grid region to estimat e the expected reduction in MWhs and the hourly load profile for those MWhs in the reporting/planni ng period; and 5) commenters identified errors in the AVERT tool, notes that it produces un usual results, and does not believe that EPA followed a quality assurance and quality control pl an in the development of AVERT and therefore considers the results generated to be que stionable.

Commenters noted that EPA's AVERT is relatively sim ple and does not require a great deal of resources to use but noted that both the AVERT and EGRID models are not appropriate due to their limited short term forecasting capability and that EGRID factors are usually 2 years older than the most current year.

Commenters felt that the model limitations will notallow for educated projections for EE/RE quantification for state plans.

5.8.1a National-scale capacity expansion and dispat ch planning models

[No comments were received on this topic.]

5.8.1b Utility-Scale Capacity Expansion and Dispatc h Planning Models

[No comments were received on this topic.]

5.8.1c Electricity System Dispatch Simulation Model

Comment 1: Comment regarding IPM assumptions and results

. Response 1: For this rule, IPM is not used for state level proj ections or for setting state goals, but rather is used for broad, national review and f or assessments of program costs and impacts. See the RIA chapter 3. IPM is a multi-regional, dyn amic, deterministic linear programming model of the U.S. electric power sector that the ha s been successfully used by EPA and private companies for over two decades to evaluate the econ omic and emission impacts of prospective environmental policies. Projections reflect the mos t recent and accurate information available. EPA has reviewed comments on IPM and has updated th e model for use in the final rule; EPA believes the model results used in the final rule a re reasonable.

The following are summaries of the specific public comments under this comment:

Commenters stated "that the assumptions used in EPA 's Reliability and Cost Modeling Analysis are unrealistic, particularly with respect to elect ricity imports, power plant ownership, and energy efficiency." Commenters mentioned that it un derstand "that states can determine the136

ultimate path forward" which can be different from the IPM results but believe that it is inappropriate for EPA to rely on IPM results based on unrealistic assumptions to show "that the Agency's proposal is feasible and cost effective." Commenters stated that "EPA's Reliability and Cost Modeling Analysis predicts that Arizona would adopt a significantly different approach to meet the state's CO 2 goals than EPA assumed in setting those goals." Co mmenters mentioned that "the goal setting approach assumes that all co al-fired generation would be displaced with existing, in-state NGCC generation, and that renewa ble energy and energy efficiency measures would increase according to the assumptions EPA mad e in establishing Building Blocks 3 and 4" but that "EPA's Reliability and Cost Modeling Analy sis predicts that Arizona would import more than 5,800 MW of electricity from outside of the st ate, achieve even greater energy efficiency savings than assumed in setting the state goals, an d keep 1,500 MW of coal generation online."

Commenters also stated that "IPM predicts that Ariz ona will transition from a net exporter of energy to a significant net importer by 2020 only 2 .5 years after EPA takes action on the state's compliance plan. Even more problematic, the IPM ass umes that the imported electricity would come from California and the Pacific Northwest duri ng the peak hours," and commenters asserted that EPA has not conducted a transmission infrastructure study to determine if this is possible. Furthermore, commenters stated that due t o Arizona Corporation Commission's (ACC) IRP rules, utilities would not be able to rely on p ower from the Pacific Northwest for peak demand and that utilities might "construct new in-s tate generation and potentially new transmission to ensure adequate reliability at peak load conditions and minimize risk to customers that might be introduced by heavier relia nce on energy markets or power that is generated several states away." Commenters mentione d that IPM does not properly account for power plants that are jointly owned and gave exampl es of how some of Arizona's generation goes out of state.

Commenters also mentioned that "The model assumes t hat all power generated by a plant located within Arizona is available to meet Arizona's peak demand, regardless of whether a portion of that plant is owned by an out-of-state entity and t heir portion of electricity is exported out of state to serve that entity's load obligations. For example, the IPM assumes that the entire capacity of PVNGS (3,937 MW) is available to meet Arizona's peak demand. However, less than 50% of PVNGS is owned by Arizona utilities. In addition, s ome of Arizona's largest coal-fired power plants are jointly owned. For these resources, the portion of capacity that is not owned by Arizona utilities likely does not serve Arizona loa d. The IPM inaccurately assumes that the entire generation capacity from these plants is available to serve Arizona load, whereas in reality, a large fraction of this energy is owned by out-of-st ate entities and therefore leaves the state. Additionally, many of Arizona's existing NGCC plant s are owned or partially owned by merchant providers. It is inaccurate to assume that generation from merchant-owned NGCC plants serves Arizona load unless a long-term purch ased power contract is in place with an Arizona utility serving Arizona load."

Commenters said that a problem with Building Block 2 analysis is that it does not take into account needs to run generators on peak demand but focuses on annual data. For Building Block 3, commenters pointed out that the Building Block a nalysis RE target is 3.7 million MWh in contrast to the IPM Model projection of 2.7 million MWh due to the differences in implementation of the state RPS targets in IPM vers us the Building Block analysis. For Building Block 4, commenters said that some EE should be par t of the IPM Base case analysis and that137

IPM overstates EE related peak load reductions. Com menters also stated that since no EE is part of the Base case the Clean Power Plan appears to be less expensive in the RIA since there is a lower electricity demand. Commenters stated that us ing the Building Block 4 Case as the baseline provides "a better estimate of the actual cost of the Policy." Commenters also stated that IPM ignores existing transmission reservations to t ransfer power among utilities and states, ignores the lack of centralized reserve sharing and dispatch among utilities and ignores the cost of contractual arrangements for imported capacity.

5.8.1d Multi-Sector Models

This section addresses comments on Multi-Sector Mod els specifically with regards to transportation electrification.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding transportation electrification.

Response 1: The commenters asked EPA to consider transportatio n electrification in their methodology for rate to mass conversion and be able to recognize its impacts on electricity demand. In section VIII.K of the final rule preambl e of the CPP, the EPA describes whether transportation electrification can be used as a mea sure that impacts CO 2 emissions performance given that it is a measure that reduces CO 2 outside of the electric power sector.

The following are summaries of the specific public comments under this comment:

Commenters stated that, "The final guidelines shoul d ensure that states are not penalized for reducing emissions from the transportation sector." Commenters argued that due to electrification of transportation vehicles affected units may emit more than the capped level of emissions but that overall emissions would be reduc ed. Commenters stated that EPA guidelines need to be adaptable depending on state circumstanc es and gave California as an example where electrification of vehicles is already being used t o meet air quality goals. Commenters stated that they want EPA's final guideline to "recognize that states may adjust annual reports to reflect emissions increases related to transportation secto r electrification, if necessary." Commenters recommended that if there is a mass-based program o ption that includes both existing and new generation then EPA should "allow states that choos e a mass-based equivalent target to adjust the target consistent with the actual transportatio n electrification load if appropriate." Commenters recommended if there is a mass-based pro gram option that includes both existing and new generation then EPA should allow the states to use the following formula to account for the actual transportation electrification load. "MB EGA = MBEGF+TE*ERBG Where: MBEGA is the adjusted final Mass-based Equivalent Goal, ( Acronym changed for simplicity. It has "adjusted final" instead of A.) MBEGF is the final Mass-based Equivalent Goal adopted by EPA in its final rule, (Acronym changed. It has "final" instead of F) TE is the actual transportation138

electrification load in excess of the transportatio n electrification load already included in the load forecast used to determine the Mass Equivalent Gene ration Level, and (Acronym changed, it had "additional" as subtext.) ERBG is the Emission Rate -Based Goal." Commenters suggested using this formula because projections of new transportat ion electrification load vary. Commenters noted that EPA used AEO 2013 projections of 2.03 mi llion electric vehicles in 2025 and thought this was conservative given CARB's estimate for 10 states with ZEV programs is 3.1 million electric vehicles in 2017-2025 and Navigant Researc h's projection of 2.75 million electric vehicles by 2023.

Commenters urged "EPA to take into consideration Ca lifornia's efforts to reduce criteria pollutant and greenhouse gas (GHG) emissions throug h transportation electrification if California sets a mass-based goal." Commenters note d that "increased transportation electrification will, however, lead to increased el ectricity demand and increased CO 2 and criteria pollutant emissions at fossil-fueled EGUs within th e South Coast Air Basin, although overall emissions will significantly decrease." Therefore, commenters stated that EPA should take transportation electrification into account when ap proving state emissions projections.

Commenters asked that EPA "ensure that 111(d) stand ards do not create disincentives to transportation electrification. Commenters further stated, "Transportation electrification is wellrecognized by experts, air regulators and others as a key strategy to reduce GHGs and other criteria pollutants. (For the purposes of this sect ion, transportation electrification includes both on-road vehicles (including light-, medium-, and he avy-duty vehicles) as well as off-road equipment (such as forklifts, commuter and transit rail, ship shore power, airport ground support equipment, truck stop electrification, and transpor tation refrigeration units). Recognizing its importance, EPA and state air pollution regulators have programs to promote transportation electrification, such as EPA's light-duty vehicle G HG rules and state NAAQS attainment SIPs that include Zero-Emission Vehicle programs. EPA sh ould ensure that the final rule is consistent with the goal of electrifying the transportation se ctor to reduce GHGs and other criteria pollutants."

Commenters further stated that "transportation elec trification is a key strategy to reduce carbon pollution and criteria pollutants."

Commenters wrote, "Since the electricity sector has the potential for greater GHG emissions reductions through the transition of generation to renewable energy, electrifying vehicles is a key long-term strategy for deep GHG, as well as criteri a pollutant emission, reductions in the transportation sector."

Commenters noted, "According to the International E nergy Agency (IEA), achieving the climate stabilization goal of 450 ppm by the end of this ce ntury requires half of the global light-duty vehicles sold in 2050, about 100 million vehicles, to be battery electric or plug-in electric vehicles. The IEA's 2020 sales target for North Ame rica is about 1.5 million vehicles. IEA calls this decade a "make or break" period for plug-in el ectric vehicles ("PEVs") and that "EV/PHEV sales must reach substantial levels by 2015 and ris e rapidly thereafter."

Commenters stated, "EPA has recognized the "game ch anging" nature of PEVs in reducing GHGs by providing two temporary incentives in its m odel year 2017 to 2025 light-duty vehicle139

("LDV") GHG emission standard program. First, it al lows auto manufacturers to treat a certain number of electric vehicles, plug-in hybrid electri c vehicles, and fuel cell vehicles as "zero emissions" by ignoring power plant and other upstre am emissions. Second, it provides temporary sales multipliers for all battery electric vehicles , plug-in hybrid electric vehicles, and fuel cell vehicles sold in model years 2017 through 2021."

Commenters concluded that "Ten states have included PEVs in their state ozone SIPs, in the form of zero-emission vehicle ("ZEV") programs as p art of their adoption of California's LowEmission Vehicle Program ("CA LEV III")" and "Clear ly, ZEVs are an integral component of Clean Air Act emissions compliance generally."

5.8.2 Growth Tools for Projecting EGU Utilization a nd CO 2 Emissions

This section addresses comments on growth rates.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding growth rates.

Response 1: In the Final CPP rule the EPA is not requiring sta tes to use EIA growth rates. The EPA lists the eligible sources states can use to in form their growth rates, ISOs and RTO’s are valuable resources and their growth rates can be us ed in state’s projected performance so long as they are properly representing the growth rates and demand assumptions. See the Incorporating RE and Demand-Side EE Impacts into State Plan Demon strations TSD for further information about acceptable sources for growth rates, includin g ISO and RTOs.

The following are summaries of the specific public comments under this comment:

Commenters said States should determine growth rate s and not have to use EIA growth rates. Commenters asserted that states should be able to d etermine the growth rate to apply to EGUs in their state based on forecasted future growth by th e ISOs and RTOs. Commenters also stated that EPA "should not require states to use EIA growth ra te estimates."

5.8.3 Translating from a rate-based emission perfor mance goal to a mass-based emission performance goal

This section addresses comments on translating rate -based performance goals to mass-based performance goals. We have organized the comments in this section unde r three subsections,140

5.8.3a to 5.8.3c. Responses to the comment topics o f these subsections are discussed below along with summaries the specific public comments.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding factoring demand in rate-based and mass-based standards and conversions and allowing enough time for comments.

Response 1: The EPA is providing both rate-based and mass-base d statewide goals in this final rule in place of having states determine the mass v alues themselves, in order to assure that the mass goals are an equivalent expression of the BSER . The mass goals provided enable growth in generation from affected EGUs. The new source comp lements to the mass-based goals are derived based on the expected future demand levels projected by the EIA’s AEO2015. See the CO2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for details on the calculations of these goals.

This final rule allows states to alternatively esta blish emission standards that meet rate-based or mass-based state goals. The EPA supports having the flexibility to use rate-based goals or massbased goals as part of state plans.

The EPA will consider allowing states, via State Pl an submittal or revision, to adjust their statewide rate or mass goal if such a change is nec essary. See section VII of the final rule preamble of the CPP for further details on allowable adjustments to st ate wide mass-based CO 2 goals.

In the June proposal, EPA took comment on a number of ways that States could convert rate based targets to mass based targets. Following th e proposal, EPA received significant input from a wide variety of commenters that more detail on a methodology for calculating mass based equivalent targets based on historical data would b e helpful. Many stakeholders also developed methodologies. Based on this large response, EPA s upplemented the record on this limited portion of the rule. In particular, EPA proposed a methodology (similar to methodologies a range of commenters had developed independently) to convert the rate based targets to mass based targets. EPA believes the amount of time th at commenters had to provide additional comment on the November TSD was sufficient because: 1) the methodologies provided were consistent with the proposed methodological constru ct for converting rate based targets to mass based targets; 2) no new data was introduced in the TSD describing this conversion; 3) the fact that a range of commenters independently developed similar approaches to the approach that EPA requested additional comment on demonstrates ho w much EPA's methodology built off of the original proposal and the fact that even absent the supplemental proposal, many stakeholders were already actively considering this issue as par t of their comments; 4) the fact that the methodology that EPA was requesting comment on, was merely a calculation methodology and did not change any of the underlying control assump tions.

The following are summaries of the specific public comments under this comment:141

Commenters stated that "the Mass-Based Equivalents TSD describes an approach for translating the rate-based goals that does not assume any incre ase in generation at existing units." Commenters stated they think states like California may have an increase in generation due to electrification of vehicles and that to support ren ewable integration they suggest that EPA "assign some of the increased generation associated with expected load growth to existing units."

Commenters suggested that EPA switch from a rate-ba sed standard to a mass-based standard or a rate-based standard with some baseline year's gener ation, say 2012, in the denominator. Commenters said this will eliminate three big probl ems with the proposed rate-based standard which are that energy conservation usually overesti mates savings, states can subsidize solar or wind to meet their rate-based target, and during re cessions electricity demand goes down making it harder to meet a rate-based target.

If EPA decided to follow one of the approaches in t he Rate-to-Mass TSD, then commenters suggested two adjustments to account for future loa d growth and to ensure equivalency between rate-based and mass-based goals. Commenters suggest ed that EPA should allow states to incorporate reasonable assumptions for future load growth in option one in the Rate-to-Mass TSD. For option two in the Rate-to-Mass TSD, commen ters suggested EPA provide a mechanism for the states to revise load growth if t he EIA demand forecasts turn out to be incorrect. Commenters thought this might happen in California where transportation electrification could increase demand. Commenters a lso stated that for both approaches in the Rate-to-Mass TSD Building Blocks three and four do not match the proposed rate-base approach presented by EPA in June 2014.

Commenters asserted that EPA did not provide enough time to analyze the rate-to-mass conversion in the Rate-to-Mass TSD and that any reg ulatory requirements and guidance of such an important aspect of the rule cannot be finalized without public comment and due process. Commenters also noted that RGGI, which was cited by EPA as an example program, needed flexibility to adapt and change its program, theref ore, they stressed the need for "true flexibility to adjust state goals and plans when warranted."

Commenters stated that the Rate-to-Mass TSD was rel eased late in the notice-and-comment process and that if the stringency of the goals inc rease there should be an additional opportunity

to comment.

Commenters stated that they believe that the assump tion "that electricity demand will hold steady or grow from now until 2030 is false" and EP A should modify the CPP, in order for the states to modify their plans if actual demand or a newly released electricity demand forecast deviates by more than 10% from the forecast used in a state's rate or mass based Implementation Plan. Commenters also stated that "conversion to ma ss-based goal via use of 2012 E-Grid emissions should not be permitted." Commenters also stated that, "EPA should condition ratebased to mass-based compliance upon inclusion of al l sources, both new and existing, within the mass-based compliance framework. A state would then be free to elect rate-based compliance for existing sources only, or to opt for mass-based com pliance for both new and existing sources."

"Can EPA provide clarity in regards to a state usin g a mass-based rate (cap on tonnage for CO 2 emissions) in its plan and the flexibility in this approach to support an increased generation142

demand (if it should occur during the interim phase )? Page 17 of the "Projecting EGU CO 2 Emission Performance in State Plans" TSD suggests t hat mass-based goals may account for increases in generation at existing affected units projected to occur as a result of load growth. Is this correct?"

Comment 2: Comments regarding Rate to Mass conversion questio ns.
Response 2: The EPA is providing both rate-based and mass-base d statewide goals in this final rule in place of having states determine the mass v alues themselves, in order to assure that the mass goals are an equivalent expression of the BSER . See the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for det ails on the calculations of these goals.

This final rule allows states to alternatively esta blish emission standards that meet rate-based or mass-based state goals. The EPA supports having the flexibility to use rate-based goals or massbased goals as part of state plans. The EPA notes t hat it is the emission performance rates in section VI of the final rule preamble of the CPP that constitute the application of the BSER to the affected EGUs and serve as the chief regulatory req uirement of this rulemaking. The statewide CO 2 rate-based and mass-based emission performance goa ls provided in the final preamble as metrics that states may choose to adopt when demons trating compliance at the state level, and states may consider these goals when determining ho w to set unit-level compliance requirements. See Section VII of the final rule preamble of the CPP for the statewide CO 2 goals.

Since the EPA is providing these state-wide CO 2 goals the individual comments related to how to translate from rate to mass based targets are no longer relevant to the final CPP rule.

The EPA will consider allowing states, via State Pl an submittal or revision, to adjust their statewide rate or mass goal if such a change is nec essary. See Section VII of the final rule preamble of the CPP for further details on allowable adjustments to st ate wide mass-based CO 2 goals.

The following are summaries of the specific public comments under this comment:

Commenters co-sponsored a 111(d) webinar on Septemb er 24, 2014 and generated the following questions on rate to mass conversion.

Question 1: "EPA did not use modeling to calculate rate-based goals, but EPA's "Projecting EGU Emission Performance in State Plans" TSD discusses modeling in the context of mass-based goals. Why? Should states use EPA's IPM base case for the power sector through 2030 in order to develop business-as-usual baseline for mass goal conversion?"

Question 7: "If a state were to multiply the interi m goal by the total generation of affected sources and "affected entities" in a specific year to calculate the mass-based emission cap, is this method acceptable? (For example, Pennsylvania's int erim goal is 1,179 lb/MWh net. If our net generation in 2020 is equal to our 2012 net generat ion of 150,858,087 MWh, our cap will be 88,930,842 tons. If our net generation in 2020 is e qual to EPA's projected net generation in 2020 of 162,699,881 MWh, our cap will be 95,911,580 tons .)"143

Question 8: "Can a state use their year-to-year goa ls used in determining their interim goal (columns AQ to AZ in the 20140602tsd-state-goal-dat a-computation spreadsheet) to calculate the mass based cap? a. For example, in the attached spreadsheet, 2020-2029 rate based goals are converted by taking the numerator from columns AQ-A Z and setting that equal to the mass based goal. When you do that, the numerator is a co nstant value for 2020-2029, so the mass based goal is a constant value for 2020-2029 (colum n BC). Does EPA agree with this approach? If not, how should the calculation be changed?"

Question 9c: "How do we address new renewable gener ation or new incremental hydro generation that is both scheduled to be completed a nd on-line after 2020 and all of the generation will serve out-of-state load?"

Question15: " If a state elects to convert their ra te-based goal to a mass-based goal and the effected entities consist only of those that own or operate affected EGUs, how much qualitative and quantitative detail on the various CO 2 emission reduction and avoidance mechanisms (e.g., heat rate improvement, re-dispatch to natural gas, renewable energy, energy efficiency) that would be used by the affected entities to meet the mass-based goals needs to be included in the state plan?"

Commenters co-sponsored a 111(d) webinar on Novembe r 20, 2014 and had the following question related to rate to mass conversion.

Question 6: "By using Table 1 of the rate-to-mass g oal translation TSD, GA EPD calculates that Georgia fossil generation in 2030 would shrink to 5 1 % of fossil generation in 2012. By comparison, data from the Annual Energy Outlook 201 4 for the SERC-SE region project that 2030 fossil generation will be 123 % of 2012 genera tion. See Table GA-2. How does EPA account for this very large disparity and is the fo ssil generation projected by the TSD realistic?"

Commenters stated that while the rule allows use of either a mass-based or rate-based goal, many states will likely use mass-based approach because it is more simple, however mass-based targets do not account for load growth, which creates incen tive to rate-based because the rate remains the same regardless of fluctuations. Commenters sug gested that to equalize the 2 options, EPA should consider population changes and load growth when setting target emission standards.

Commenters requested that the following option be i mplemented to improve the workability of the proposed guideline rule and to provide addition al compliance flexibility to meet the emission targets established in the proposal: states should be provided the opportunity to seek future adjustments to their state targets based on changin g circumstances.

Comment 3: Comment regarding CO 2 reductions after 2030.

Response 3: In the Final CPP Rule, the EPA is requiring states to submit projected CO 2 performance demonstrations through 2031. We are als o requiring that the measures in place in 2031 should not sunset. In addition, the state plan must identify requirements that continue to apply after 2030 and are likely to maintain affecte d EGU emission performance meeting the final144

goal. This provision will continue to protect publi c health and the environment after 2030 and beyond.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should require CO 2 reductions after 2030 to reflect BSER and mitigate climate change.

Comment 4: Comments regarding EM&V protocols.

Response 4: The preamble to the proposed Federal Plan describe s the use of EM&V protocols for Energy Efficiency. Refer to section IV.D.8 of t he preamble to the Federal Plan for more details. In addition the EPA will release a draft g uidance on EM&V protocols and the public will have the opportunity to comment on this guidance do cument. The EPA welcomes stakeholder input on the guidance document.

The following are summaries of the specific public comments under this comment:

Commenters said that "states that choose to use ene rgy efficiency for compliance need to develop and provide EPA with a plan for evaluating energy savings" and that a challenge to impose an emissions rate target is that "state appr oaches to EM&V differ". Commenters encouraged EPA to impose strong guidance on EM&V pr actices since differences "in EM&V practices may provide an incentive to convert to a mass-based approach."

Comment 5: Comments regarding use of renewable energy credits

. Response 5: The EPA addresses this concern in the final rule. See section VIII.C.(1) of the final rule preamble of the CPP for details on the rationa le for our true-up period for emission budget trading programs. See section VIII.K of the final r ule preamble of the CPP for EM&V protocol discussion and the EPA’s criteria for preventing do uble counting of RECs.

The following are summaries of the specific public comments under this comment:

Commenters mentioned that each state's mass target limit should be based "on the actual regulated generation in that state during the compl iance interval" with a "true-up" period similar to the Acid Rain Program. Commenters also stated th at like RGGI there should be an annual readjustment to the mass-based program. Commenters also stated that in order for a state to receive credit for their EE measures under either a rate or mass based system the states would need to do EM&V. Commenters also proposed a rate to mass based conversion that prevents double counting renewable energy credits because a state can either sell the REC or use it during "true-up".145

Comment 6: Comment regarding Rate to Mass interstate issues.

Response 6: The Final CPP Rule does address Rate to Mass inter state issues. See Section VIII.L of the final rule preamble of the CPP for the EPA’s rationale for the treatment of interstate effects and the interaction between rate and mass b ased state plan approaches.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should address potential interstate issues caused by having some states using a rate-based approach and other states using a mass-based approach for compliance.

5.8.3a Reference Case Scenario

This section addresses comments on EIA reference ca se scenarios.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding EIA’s electric demand growth pr ojections.

Response 1: The commenters are concerned about the uncertainty of using EIA demand growth projections and the inability to revise their plan if the future turns out different than expected given projections and demand growth uncertainty. Th e EPA is finalizing that states may revise their plan under certain situations. See Section VI II.E.7 of the final rule preamble of the CPP for further details. States do not need to use EIA for their demand growth projections, the EPA lists a number of sources states can use, including the R egional Planning Organizations among others. See section VIII. D of the final rule preamble of t he CPP for details on the available data sources states can use for their demand projections.

The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA should "use the US EIA Low Electric Demand Case for forecasting future electric demand." Commenters sta ted The Low Electric Demand Case assumed that electric demand will be flat through 2 040 just like it was from 2008-2012 and it "results in faster coal fired power plant shutdowns , and lower total electric generation." Commenters mentioned that the reference case used b y EPA assumed 1% growth in electric demand. Commenters stated that there is a likelihoo d that EIA will use a no growth reference case in the 2015 Annual Energy Outlook.

Commenters stated that the "EPA made the assumption that there will be no electricity demand growth in the future in contrast to EIA's Annual En ergy Outlook 2014 with projections to 2040 released April 2014" and commenters also stated tha t they have concerns about the EPA's "expertise in the area of energy forecasting." Furt hermore, commenters stated that they have concerns about the accuracy of the tools EPA is pro posing the states use to project CO 2146

emissions, electric demand, and the growth of RE an d EE for the next ten years. Commenters pointed out that 5 out of 9 ten-year AEO projection s have a greater than 10% margin of error. Commenters stated that "despite the EIA's substanti al expertise, the accuracy of their projections is in many cases limited. Commenters stated that in the proposed rule, states, whom have far less, or in some cases no expertise in the projection of CO 2 emissions or electricity demand or sales, would be tasked with developing a similar projectio n. Commenters stated this projection would then become federally enforceable, and the states h eld accountable for any errors or misprojections. Furthermore, commenters stated that on ce federally enforceable, the projections and required measures taken in the state to meet them b ecome relatively inflexible, which raises great concerns should such measures impact grid reliabili ty or introduce unforeseen or substantial costs to the states." Commenters also stated that " EPA does not have the expertise or authority to require states to develop plans that essentially mi cromanage the electric grid."

Comment 2: Comment regarding unit retirements.

Response 2: The baseline inventory the EPA uses relies on hist orical data and does not incorporate anticipated future retirements. The EPA and most commenters supported this treatment as they viewed those scheduled retirement s (and corresponding emission reductions) as an alternative compliance flexibility based on alre ady scheduled reductions.

The following are summaries of the specific public comments under this comment:

Commenters stated that "EPA should expressly allow states to rely on unit retirements occurring after the baseline year(s) to meet Section 111(d) g oals. Commenters stated that retirements should be given equal credit under a rate-based or a mass-based program."

Commenters said that " even if the retirement was planned before the Propo sed Rule ," the EPA should not include it in the reference case because this penalizes the state.

Commenters wanted EPA to clarify that "retirement o f coal-fired power plants after 2012 would count toward compliance under a mass-based cap." Co mmenters stated that EPA should allow full credits for retirements occurring after the ba seline year and that the "retirements should be given equal credit under a rate-based or a mass-bas ed program." Commenters asserted that under the current proposed rule states that use a rate-ba sed goal will not fully benefit from a unit's retirement if the replacement generation comes from out of state. Commenters also stated that the state's "reference case" should include all EGU s that a company or state has agreed to retire and then this reference case should be used to dete rmine the mass based goal.

Commenters asked how states could account for retir ements and other changes as the states are developing their plans and projecting emissions per formance over the compliance period (keeping in mind that not all states have modeling tools available).147

5.8.3b Mass-Based CO 2 Emission Goal Policy Scenario

This section addresses comments on mass-based CO 2 emissions goals.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comment regarding mass-based plans with administra tive adjustments.

Response 1: The EPA is allowing mass based plans to be an opti on for state plan compliance. See section VIII.E.7 of the final rule preamble of the CPP that describes when and how states can submit plan revisions to the EPA under certain circumstances.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should allow mass-based plans for state plan compliance as long as the states are allowed to make administrative adjus tments if there are increases or decreases in electricity demand from fossil fuel-fired generator s due to EE and RE efforts.

Comment 2: Comment regarding mass-based approach and controls

. Response 2: The commenter has expressed his support for certai n types of BSER approaches. States have the flexibility to choose a rate based or mass based goal to comply with the EPA emission guidelines in this final CPP.

The following are summaries of the specific public comments under this comment:

Commenters do not "support the levels of control pr oposed in either the rate-based or massbased approach" but do "support the use of a mass-b ased approach that is reflective of the level of emission control achievable through the applicat ion of BSER at all existing power plants."

5.8.3c State Plan Policy Scenario

[No comments were received on this topic.]

5.8.4 Projecting CO 2 emission performance under a state plan

This section addresses types of projections that wi ll be required in a state plan.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.148

Comment 1: Comments regarding the types of projections that w ill be required in a state plan.

Response 1: The EPA has further clarified the types of project ions that will be required in state plan submittals. The performance projection will di ffer depending on the type of state plan a state chooses to submit. The way energy efficiency and renewable energy (EE/RE) will be accounted for in a state plan also is dependent on the type of state plan a state chooses to use to comply with EPA’s emission guidelines. See section VIII.D.2(a)(3) State Plan Performance Demonstration and Section VIII.K. of the final rule preamble of the CPP for details on requirement related to performance projections and how to account for EE/RE in a rate based plan.

The following are summaries of the specific public comments under this comment:

Commenters stated that the Missouri Department of N atural Resources supported only projecting "the statewide average emission performance levels of affected entities, which can include credit for renewable generation and avoided generation fro m energy efficiency under a rate-based approach" in the state plans.

5.8.5 Applied Considerations for Different Types of State Plans

This section addresses considerations for differenttypes of state plans.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding enforceability requirements.

Response 1: The EPA has clarified the key components related t o state based allowance trading and how the enforceability requirements differ depe nding on if the state plan is an emissions standards plan, which is federally enforceable and a state measures state plan that may have both federally enforceable and state enforceable element s. Please refer to Section VIII. C. for an overview of state plan approaches and Section VIII. J. of the final rule preamble of the CPP for details on the additional considerations for mass b ased plans.

The following are summaries of the specific public comments under this comment:

Commenters asserted that EPA should consider making some specific key components of statebased allowance systems federally enforceable such as total allowances in the system and requiring sources to hold allowances. Commenters al so stated that implementation details should be subject to state law and be enforceable by the s tate.149

5.8.5a Approaches for Estimating the Future Effects of State Energy Efficiency Requirements, Programs, and Measures

[No comments were received on this topic.]

5.8.5b Potential Uses of Energy Efficiency Projecti ons for State Plan Emission Projections

This section addresses energy efficiency projection s uses in state plans.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding energy efficiency and BSER.

Response 1: The EPA has determined not to include demand-side energy efficiency (building block four) in the BSER of this final rule. Althoug h we do not need to determine the overall scope of the phrase “system of emission reduction,” we recognize that commenters have raised extensive legal concerns about building block 4. We recognize that building block 4 is different from building blocks 1, 2, and 3 and the pollution control measures that we have considered under CAA section 111. Accordingly, in light of our past practice and current policy in implementing section 111, as well as the legal conc erns raised in public comment, today’s final action excludes building block 4 from the BSER. Sin ce we are not including BB4 in BSER and we do not need to address this concern. This determ ination is discussed in section V.B of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that they believe that "EPA's BSE R determination should not include reductions attributable to energy efficiency progra ms because these programs are not under the direct control of the utility and cannot be traced to solely offsetting CO 2 emissions from existing affected EGUs." Furthermore, commenters stated thatif EPA wanted to use energy efficiency then EPA should do a generating unit-by-generating unit analysis that would demonstrate a direct correlation to a specific affected EGU. Comm enters also stated that if EPA includes energy efficiency as a component of BSER then EPA s hould take into consideration Floridaspecific technical and achievable energy efficiency according to Florida Statues and the CAA. Commenters also stated that "EPA's proposed ten per cent reduction in net retail electric sales as a result of Building Block 4 is unreasonable, in term s of both proposed cost and achievability, based on Florida's actual historic data."150

5.8.5c Data Issues and Considerations for Using and Developing Energy Efficiency Projections

This section addresses data issues to use and devel op energy efficiency projections.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding energy efficiency projections in state plans.

Response 1: The EPA has included requirements in the final rule that describes the assumptions, methods and emission quantification methodologies s tates could use in their projected performance demonstration. The elements of the proj ection and whether EE would need to be explicitly accounted for will depend on the type of state plan a state chooses to submit to EPA. Refer to section VIII. D.2(a) of the final rule pre amble of the CPP and the Incorporating RE and Demand-Side EE Impacts into State Plan Demonstratio ns TSD that describes the type of data sources and evidence a state would need to provide.

The following are summaries of the specific public comments under this comment:

Commenters asked the following questions regarding BB4:

• What evidence would EPA want in order for a state t o demonstrate that the proposed EE trajectory is unreasonable for their circumstances?

• What evidence should be submitted if a party wanted to demonstrate that a higher or lower annual EE reduction is feasible?

Comment 2 : Comments regarding Reported/Projected EE vs. Actu al Savings

Response 2: The final CPP allows broad flexibility in how to c omply with the emission standards or state goals in the final guidelines. S ources have the ability to purchase ERCs as a way to adjust the CO 2 emissions rate and mass based states can join emis sion budget trading programs or coordinate through multi-state plans. E ven if the projected energy savings doesn’t happen exactly as expected these additional flexibi lities will allow states and sources the latitude to still meet their future goals.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA needs to account for dif ferences in reported and projected energy efficiency savings versus actual savings, as well a s acknowledge the potential consequences if projected savings are not met.151

Commenters urged EPA to acknowledge that projected savings from a demand-side program or measure cannot be forecasted with exact precision. Commenters stated that EPA should provide leniency in the case that energy efficiency measure s do not meet the projected savings. Commenters noted that the inconsistency between pro jected and actual savings is usually a result of many factors effecting EE programs that are outs ide the control of those implementing the technologies. Commenters stated that in the event t hat a state does not meet its goal due to the difference between projected and actualized savings from an EE measure, where the cause of the difference is not a result of an error on the state s' part, EPA should have an alternative means of compliance. Commenters cited a paper, which include s almost half of the programs included in the analysis, that shows utility reported savings a s being substantively higher than the evaluated savings and that predicted savings were also signif icantly different than evaluated savings (Resources of the Future, "Energy-Efficiency Progra m Evaluations) (see Figure 21 of their comment letter, Total Resource Cost (TRC) Test (Pro gram Benefits/ Program Costs)) (see http://www.rff.org/documents/rff-dp-10-16.pdf). Com menters cited a table showing the realization rates, which is the ex-post estimated s avings divided by ex-ante projected savings (see Energy-Efficiency Program Evaluations. http://www.r ff.org/documents/rff-dp-10-16.pdf); the realization rates show the significant difference i n actual or real savings and the forecasts. Commenters stated that by basing the majority of th e proposed plan analysis on reported data, EPA did not provide a cushion for situations in whi ch the reported savings from energy efficiency measures do not accurately reflect the a ctual savings. Commenters stated the difference can be a result of the many factors on w hich effective programs are dependent, many of which are outside the control of those implement ing the technologies.

5.8.5d Approaches for Estimating the Future Effect s of State Renewable Energy Requirements, Programs, and Measures

This section addresses the effects of state renewab le energy requirements.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding biomass.

Response 1: Biomass is not considered part of the best system of emission reduction in this rule and therefore it is not included in goal-setting or compliance evaluations. However, similar to other technologies outside of BSER, biomass may be considered as a part of a state’s plan to meet the emission guidelines.

For more information regarding Building Block 3, re fer to Section V.E of the final rule preamble of the CPP

. A discussion regarding the use of some biomass feed stocks for compliance purposes can be found in Section VIII.I.2.c and Section VIII.K.1 of the final rule preamble of the CPP.152

The following are summaries of the specific public comments under this comment:

Commenters quoted studies showing that forest-deriv ed biomass can increase net atmospheric CO 2 compared to fossil fuels. Commenters said that "EP A included biomass in RE and erroneously assumed that burning biomass does not l ead to CO 2 emissions." Commenters urged EPA to establish a framework that distinguishes bet ween biomass feedstocks that will increase atmospheric CO 2 and those that will decrease CO 2 over a 10-20 year timeframe.

5.8.5e Renewable Portfolio Standards

This section addresses renewable portfolio standard s.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding a renewable portfolio standard scenario.

Response 1: The final guidelines say that a state can use rene wable energy as a part of their state plan compliance. The EPA agrees there is more oppor tunity to adopt RE. The global market for RE is projected to grow to $460 billion per year by 2030. RE growth is further encouraged by the significant amount of existing natural resources th at can support RE production in the United States. In the Energy Information Administration’s Annual Energy Outlook 2015, RE generation grows substantially from 2013 to 2040 in the refere nce case and all alternative cases. In the reference case, RE generation increases by more tha n 70 percent from 2013 to 2040 and accounts for over one-third of new generation capacity. See the final CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for further details on EPA’s renewable energy goal calculations.

The following are summaries of the specific public comments under this comment:

Commenters conducted a comparison analysis of a bus iness-as-usual (BAU) scenario against a 30% Renewable Portfolio Standard (RPS) scenario, an d a natural gas fuel switching scenario, using a spreadsheet model and the MyPower modeling software developed by researchers at the Wisconsin Energy Institute (WEI). Commenters stated that "Both models show that the 30% RPS can reduce Wisconsin's CO 2 emissions below EPA's targets, at a lower cost tha n the fuel switching scenario." Commenters said that these run s were done with the assumptions that fossil fuel prices rise steadily at 2% annually, and where natural gas prices reflect historical volatility observed from 1998-2013. Commenters stated that thi s illustrated "the value of renewables as a hedge against price volatility."

Comment 2: Comments regarding renewable energy potential and RPS obligations.153

Response 2: The final guidelines state that a state can use re newable energy as a part of their state plan compliance. See the final CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for further details on EPA’s renewable energy goal calculations.

The following are summaries of the specific public comments under this comment:

Commenters said that "EPA Fails to Adequately Ackno wledge State RE Potential" and take into account states' RPS obligations. Commenters present ed examples for several states such as Illinois, Hawaii and Iowa where commenters said "ev en though Iowa produced 14.2 million MWh of renewable electricity in 2012, its 2030 RE t arget is just 8.6 million MWh." Commenters recommended that at a minimum, "EPA's approach assu me that states reach their own independently-set RPS targets." Commenters had the following comment of how EPA should credit renewable energy, "If EPA chooses to retain its preferred methodology of crediting each state with the renewable energy that it has "implem ented," then the baseline RE should be recalculated to reflect that compliance criteria. O n the other hand, if EPA credits a state with all of the renewable energy generation within its borde rs, then no state should be assumed to lose RE generation as part of its state target calculati on."

5.8.5f RPS as an Input to Electricity Sector Modeli ng

This section addresses RPS and modeling.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding RPS design.

Response 1: The EPA agrees that states with different electric ity market structures would design their RPS requirements in a way to meet their uniqu e needs. In the final CPP rule the EPA also makes it clear that RE from RPS should be non-dupli cative. In Section VIII.D.2.b (3) of the final rule preamble of the CPP, the EPA describes an exam ple of when a duplicative emission standard would occur, which is prohibited under thi s final CPP rule. For example, it is prohibited to apply a quantified and verified MWh from a wind turbine to more than one state’s CAA section 111(d) plan to adjust the CO 2 emission rate of an affected EGU, except in the ca se of a multi-state plan where CO 2 emission performance is demonstrated jointly for a ll affected EGUs subject to the multi-state plan. For further detail s see Section VIII.D.2.b. of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters suggested that "infrastructure developme nt under these state-level RPS programs is essential." Commenters said that "states with a der egulated wholesale power markets have the ability to engage in integrated resource planning, while also benefitting from a competitive154

generation market, allowing a wide amount of latitu de for RPS design." Commenters also said that "many states allow the procurement of renewabl e energy to count toward RPS requirements if it is delivered into the RTO, ISO, or other orga nized market" and that "a renewable energy developer in a large wholesale market can then theo retically sell into multiple states with RPS requirements."

5.8.5g Data Needs for Estimating Generation Resulti ng from State RPS

This section addresses data needs for RPS developme nt.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding data needs from EGUs.

Response 1: Not all state plans require a projection of CO 2 emissions performance, section VIII. D.2.(a)(3) of the final rule preamble of the CPP de scribes which state plan designs require a projection. The Final rule also provides a list of all affected EGUs that are subject to the emission guidelines and EPA is not requiring a spec ific methodology that states must use to project their future emissions. See Section IV. D o f the final rule preamble of the CPP for the definition of an affected EGU. The EPA provides a l ist of key assumptions and data requirements for projections in Section VIII. D.2.( a)(3) of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

In order to answer the question, "What kind of data do states need to gather regarding emissions from their power plants," commenters stated that st ates should "first identify and categorize the existing electric generating units covered by the r ule, "gather historical CO 2 emissions data from 40 CFR Part 75 reports, and "identify the methodolo gy used to measure future GHG emissions."

5.8.5h Feed-In Tariff

[No comments were received on this topic.]

5.8.5i Data Needs for Estimating Generation Resulti ng from Feed-In Tariff and Performance-Based Tax Incentives

[No comments were received on this topic.]155

5.8.5j Emission Budget Trading Programs

This section addresses cap and trade program design

.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding cap and trade system design.

Response 1: The final guidelines describe different state plan approaches states can choose to implement to achieve the interim and final goals ou tlined in EPA’s guidelines. There is flexibility within the state plan approach options that would allow a state to use the type of program Commenters suggested above. Refer to Sectio n VIII.C of the final rule preamble of the CPP for details on the design features of these typ es of programs.

The following are summaries of the specific public comments under this comment:

Commenters stated that they support the Clean Power Plan Proposed Rule. Commenters also stated that any cap and trade system designed shoul d have the following characteristics: permits auctioned to upstream companies (not given away for free); an escalating price floor on permit prices; revenues returned to consumers as a dividen d; and limited offsets and loopholes.

5.8.5.k Addressing the Sectoral Scope of Emission B udget Trading Programs

[No comments were received on this topic.]

5.8.5l Addressing Multi-Sector Emission Trading

[No comments were received on this topic.]

5.8.5m Addressing Emission Offsets

This section discusses emission performance and the use of offsets as emission reduction strategies.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.156

Comment 1: Comments regarding emission offset issues.

Response 1: The EPA disagrees with the commenters that out-of- sector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1 of the final rule preamble of the CPP. However, state plans may accommodate emission budget trading programs that may include out-of-sector GHG offsets , which we are finalizing as an option under the state measures plan type. See Section VIII.J.2. d of the final rule preamble of the CPP. For these reasons and other reasons discussed in sectio n 1.2 of this document, as well as in section VIII of the Legal Memorandum, this rule provides st ates more flexibility than the “real choice” the D.C. Circuit has required in the context of CAA section 110. Accordingly, we disagree with some commenters that the final emission guidelines impermissibly restrict states’ flexibility in plan design, and we further disagree with the comme nters’ characterization of this rule as encroaching upon the federal-state balance of the C AA. The EPA will not be providing out of scope carbon offset methodology given that they may not be counted toward CPP compliance, therefore these comments are out of scope to the fi nal CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should consider recogniz ing "each state's existing initiatives and programs that can count toward their offsets, such as electric vehicle incentives and energy efficiency requirements."

Commenters recommended that EPA allow "offset progr ams as a potential compliance strategy in the final rules."

Commenters stated that "Out-of-sector carbon offset s have proven to be a simple and verifiable means to reduce greenhouse gases and should be incl uded in EPA's compliance calculations."

Commenters recommended that "Statements suggesting that out-of-sector offsets cannot be included in a State's compliance calculation should be removed from the Rule." Furthermore, commenters said that "a state should be able to cou nt ANY GHG emission reductions from projects that meet sufficiently stringent standards of environmental integrity. The Agency could avoid further ambiguity by providing guidelines to states on the establishment of state administered programs or utilizing pre-existing vol untary offset programs."

Commenters wanted clarification from EPA as to why carbon offsets could not be used to achieve for the Clean Power Plan.

Commenters recommended that EPA "clarify that state s may use GHG offsets to achieve any emission reductions their state plan."

Commenters stated that in refusing to "count" out-o f-sector offsets, EPA is limiting the states' legal ability to craft their own preferred plans. C ommenters said section 111(d) of the CAA directs EPA to "prescribe regulations which shall e stablish a procedure similar to that provided by Section 110." Commenters said courts have interp reted Section 110 to impose a "federalism bar" which underscores state discretion to choose a SIP that best suits its needs. Commenters157

said that under Section 110, states must have "real choice" with regard to the control measure options available to them to meet their SIP require ments. Commenters said the court in Michigan went on to say it would disfavor a rule that left t he states with alternatives that the states "would consider unreasonable or impracticable."

Commenters stated that failing to include out-of-se ctor offsets as a compliance method unreasonably restricts a state's ability to design its own plan. Commenters said the exclusion is especially limiting where offset programs currently exist and capture very real and very positive GHG reductions. Commenters said that allowing out-o f-sector offsets to be used only for noncompliance purposes will essentially render them mo ot in practice, serving to undermine the goal of both the CPP and existing cap-and-trade programs . Commenters said existing programs now must alter the way these important projects are tre ated. Commenters said they must make up for any reductions from out-of-sector offsets currently recognized through other policies or set a stricter emissions standard than the one set forth in the CPP that would then allow out-of-sector offsets to be used only in the headroom above the E PA-required goal. Commenters said these are both "unreasonable and impracticable" alternatives that will force a state's hand in how to treat these offsets - they will simply not include them.

Comment 2: Comments regarding offsets and additionality.

Response 2: The EPA agrees with commenters who asserted that o ut-of-sector offsets may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets are not connect ed to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the final rule preamble of the CPP. However, state plan s may accommodate emission budget trading programs that may include out-of-sector GHG offsets , which we are finalizing as an option under the state measures plan type. See Section VIII.J.2. d of the final rule preamble of the CPP.

Regarding the use of allowances or Emission Rate Cr edits from other states or countries, see Section VIII.K.1 of the final rule preamble of the CPP.

A discussion regarding the use of some biomass feed stocks, including waste-derived feedstocks, for compliance purposes can be found in VIII.I.2.c and Section VIII.K.1 of the preamble.

The following are summaries of the specific public comments under this comment:

Commenters asserted that "EPA's Criteria For Accept able Offsets In A State Plan To Be "Additional" Is Arbitrary And Unnecessary And Will Penalize Affected Sources For Making Investment Decisions That Reduce GHGs Prior To The Establishment Of The State Plans." Commenters agreed with EPA "that out-of-sector offs ets can provide flexibility to States." However, commenters stated that "EPA appears to app ly this concept in an arbitrary manner by incorporating a so-called "additionality" requireme nt: A key criterion that must be met for the award of offset allowances or credits is a demonstr ation that the offset project is "additional" (i.e., that it would not have occurred absent the i ncentive provided through the award of the offset allowance or credit)." Commenters said that one of their members made a decision to158

convert a unit to natural gas combustion in anticip ation of EPA's rule and now would be penalized by not getting offsets since they were an early mover. Furthermore, commenters stated that in order to "allow companies to reduce GHG emi ssions in a cost-effective manner" EPA should "allow multi-state companies that generate o ffsets to use them in any State where they have affected EGUs that are regulated under Section 111(d)" and "EPA should explicitly permit the use of international offsets under the same con ditions that it permits domestic offsets."

Commenters also asserted that "EPA's criteria for a cceptable offsets in a state plan to be "additional" is arbitrary and unnecessary and will penalize affected sources for making investment decisions that reduce GHGs prior to the establishment of the state plans." Commenters stated that the "additionality" requirem ent was "unfair to those entities that have made investment decisions since the baseline year ( 2012) that, in part, were made in anticipation of regulatory programs such as this one to reduce G HG emissions." Commenters also said that states should be able to incorporate out of sector offsets into a trading program as long as the offset credits were generated after 2012. Commenter s also said that EPA should allow multi-state companies that generate offsets to use them in any other state.

Commenters stated that they believe that EPA has pr oposed the wrong definition of "additionality." Commenters urged EPA to fix the de finition of "additionality" so that "beneficial carbon savings projects" reflecting best practices even if they pre-date the proposal could be counted.

Commenters noted "that EPA has allowed inclusion of "offsets" from renewables and other sources in meeting the targets." Commenters recomme nded that EPA allow EPA "streamlined bilateral trading arrangements between states" and not require formal regional coalitions in order to trade offsets.

Commenters stated that the rule should "not allow s tates to let polluters buy pollution offsets to meet emissions requirements." Commenters asserted t hat offsets caused the families living near power plants to "continue to breathe toxic emission s" and that "given the 50-year lifespan of carbon in the atmosphere after is it released, offs etting also poses a real risk to long-term climate stability."

Commenters stated that carbon offsets from outside the power sector must not count towards compliance with the emission reduction requirements of the Clean Air Act.

Commenters stated that "out-of-sector offsets shou ld be permitted to be used for compliance." Commenters also stated that the proposed rule appea rs to present "conflicting guidance regarding the use of offsets for compliance" and requested cl arification. Commenters asserted that "if unrelated out-of-sector offsets are not allowed, EP A should allow the use of offsets that are directly related to generating units, such as metha ne destruction credit for generators utilizing landfill gas or biogas from anaerobic digesters."

Commenters stated that all different kinds of offse ts should be offered as options in the final rule as "alternatives to direct reductions from our EGUs ." Commenters recommended that the "beneficial reuse of coal ash," terrestrial carbon sequestration, improving nitrogen application efficiency by farmers, landfill gas generating and use of low or zero emitting vehicles be159

considered as offsets and ways to achieve carbon re duction goals. Commenters also stated that renewable power including wind and solar power will be needed to achieve "meaningful GHG reductions."

Commenters recommended "including a clear and expli cit recommendation that gives states the power to use both in and out-of-sector offsets in e stablishing state targets for the Clean Power Plan and in meeting emission performance compliance goals." Commenters recommended that EPA allow for "offsets from the land use and agricu ltural sectors" because these "Offsets are a cost effective way for states to meet their goals, while working towards more long term solutions focused solely on EGU reductions." Commenters also encouraged "EPA to complete the Biogenic Emissions Accounting Framework in a way th at accounts for the lifecycle GHG reduction potential of biomass" to "further support the development of offset projects and markets."

Commenters stated that forest carbon offsets would provide flexibility to meet emissions reduction targets and an added incentive to keep wo rking forests intact.

Commenters stated that "The Final Rule should state explicitly that offsets from outside the electricity generation industry, while allowable fo r crediting in state plans, must be justified in relation to the Clean Power Plan." Commenters said that "States should have the flexibility to use emissions reductions of methane in the oil and gas industry to the extent that natural gas use is increased in that state to offset some of the carbo n dioxide emissions reductions required in the CPP. Similarly, states that begin to work toward el ectric transportation options could also be allowed offsets to the extent that overall emission s will be reduced. Generic offsets, however, such as tree planting, should not be allowable with in the CPP, regardless of the benefits, because they are not related to the CPP. The language in 79 Federal Register 34910 should be made clearer and should specifically allow certain offse ts as an option."

Commenters urged EPA to clarify that forestry based offsets would be allowed as a means of compliance and noted that RGGI allows forestry base d offsets. Commenters recommended that "EPA should clarify that out-of-sector offsets, inc luding those from forestry projects, should be eligible for inclusion in 111(d) state implementati on plans for the purpose of complying with EPA's proposed emission reduction goals."

Comment 3: Comments regarding industrial energy efficiency an d offsets.

Response 3: Demand-side EE measures including industrial effic iency programs and demand response may be used to adjust a CO 2 emission rate, provided they meet the general elig ibility requirements outlined in Section VIII.K of the fina l rule preamble of the CPP and the MWh electricity generation or electricity savings are p roperly quantified and verified. Eligible Demand Side Measure actions are those that are non-emittin g and avoid, rather than shift, the use of electricity by an electricity end-user. The quantif ied and verified MWh that may be used for such an adjustment are determined based on the MW of dem and reduction multiplied by the hours during which such a demand reduction is achieved. D SM measures must be appropriately160

quantified and verified, in accordance with require ments in the emission guidelines, as discussed in section VIII.K.3 of the final rule preamble of t he CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that guidelines should allow for flexibility in implementation. Commenters expressed that in order "to achieve the best overal l result, state implementation plans should let all forms of energy efficiency and demand response activities from industrial sources ('outsidethe-fence line') compete with other emission reduct ion technologies." Along these lines, commenters encouraged "existing state and regional GHG programs to include industrial energy efficiency and demand response as offsets with comp ensation adequate to support expansion of those programs."

Comment 4: Comment regarding offsets.

Response 4: The final CPP is publishing uniform emission guide lines in the sense that the ratebased goals and mass-based goals are equivalent to each other, and therefore the emission guidelines are uniform while still allowing states flexibility to comply with these uniform targets in the emission guidelines. The EPA disagrees with this commenter’s point of view that the final rule should promulgate uniform state plans for comp liance. Rather, we have determined that maximum flexibility in choosing a state plan pathwa y allows states to meet their CO 2 emission performance rates or state CO 2 emission goals while reducing costs, maintaining r eliability and achieving reasonable emission reductions in a reaso nable time frame.

As for GHG offsets, out-of-sector offsets may not b e counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal because out-of-sector offsets are not connected to the electrical grid and so cannot reli ably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the fi nal rule preamble of the CPP. However, the state plans may accommodate emission budget trading programs that may include out-of-sector GHG offsets, which we are finalizing as an option u nder the state measures plan type. See Section VIII.J.2.d of the final rule preamble of th e CPP. For these reasons and other reasons discussed in section 1.2 of this document, as well as in section VIII of the Legal Memorandum, this rule provides states more flexibility than the “real choice” the D.C. Circuit has required in the context of CAA section 110. Accordingly, we dis agree with some commenters that the final emission guidelines impermissibly restrict states’ flexibility in plan design, and we further disagree with the commenters’ characterization of t his rule as encroaching upon the federal-state balance of the CAA.

The EPA disagrees with the commenters that the EPA made conflicting statements with respect to offsets in the proposed rule. For clarification, the proposed rule did not propose to allow outof-sector offsets to demonstrate CO 2 emission performance by affected EGUs but did prop ose to allow both in-sector offsets that would achieve the required level of emission performance for affected EGUs and emission budget trading programs including out-of-sector GHG offsets.

The following are summaries of the specific public comments under this comment:161

Commenters wanted uniform guidelines in the regulat ions especially for offsets so the law would be "fair and effective."

Commenters said another stark example of regulatory ambiguity is EPA's incomprehensible offset policy. Commenters stated, in some places wi thin EPA's preamble and TSDs, EPA specifically notes that 'out of sector' offsets wou ld not be approvable. Commenters stated, in other places, EPA seems to indicate the offsets can be used in existing trading plans at the state level for compliance. Commenters said, in still oth ers, EPA seems to indicate that offset programs can be used in mass-based programs but not in rate-based programs. Commenters asserted that this ambiguity must be eliminated fro m the final rule and states should be afforded the flexibility of fully utilizing both sector and out-of-sector offsets provided that appropriate quantification methodology is employed. Commenters noted that these ambiguities become more acute because state plans are to be approved by reg ional staff personnel. Commenters questioned, while the approval process follows head quarters direction, how will that process work in this case? Commenters said states are expec ted to propose unique and creative compliance options. Commenters said some may repres ent cutting edge technologies, programs or new types of incentives. Commenters noted that i nclusion in state plans of innovative compliance mechanisms could face disapproval by reg ional staff that are operating without clear and consistent regulatory guidance, defeating the v ery purpose of the creative "state laboratories of invention." Commenters said such a result again would upset the political and policy choices made at the state government level. Commenters asse rted that EPA must include sufficient guidance in the definition of affected entities to ensure that states are allowed to experiment and that companies acting to implement the CPP are allo wed to invest capital in new units and technologies with the certainty that such measures are consistent with the CPP. Commenters noted, absent this additional specificity in the ru le itself, EPA exposes states and sources alike to the actions or opinions of federal regional personn el. Commenters said, worse, lawsuits from members of the public who disagree about the value of a project would create even more uncertainty in the development of a compliance plan that is already full of uncertainty. Commenters stated that this infirmity in the propos al stems from the "square peg, round hole" that underpins the whole CPP. The commenters said t hat EPA is using an existing source performance standard to jump start a change to a lo wer carbon economy. Commenters said the CAA may not be stretched this far.

Commenters stated that in not counting out-of-secto r offsets, EPA is limiting the states' legal ability to craft their own preferred plans. Comment ers explained that Section 111(d) of the CAA directs EPA to "prescribe regulations which shall e stablish a procedure similar to that provided by Section 110." 42 U.S.C. Section 7411(d), and the cases which have interpreted Section 110 have imposed a "federalism bar" which underscores s tate discretion to choose a SIP that best suits its needs. EME Homer City Generation, L.P. v. EPA, 696 F.3d 7, 29 (D.C. Cir. 2012). Specifically, under Section 110, commenters noted, states must have "real choice" with regard to the control measure options available to them" to m eet their SIP requirements. Michigan , 213 F.3d at 687 (D.C. Cir. 2000), and the court in Michigan went on to say it would disfavor a rule that left the states with alternatives that the sta tes "would consider unreasonable or impracticable." Michigan , 213 F.3d at 688. Commenters continued, stating th at by not including out-of-sector offsets as a compliance method a stat e's ability to design its own plan is unreasonably restricted, and the exclusion is espec ially limiting where offset programs currently exist and capture very real and very positive green house gas reductions. Commenters remarked162

that allowing out-of-sector offsets to be used only for non-compliance purposes will essentially render them moot in practice, serving to undermine the goal of both the CPP and existing capand trade program. Commenters stated that existing programs now must alter the way these important projects are treated, and they must make up for any reductions from out-of-sector offsets currently recognized through other policies or set a stricter emissions standard than the one set forth in the CPP that would then allow out- of-sector offsets to be used only in the headroom above the EPA-required goal. Commenters ag reed with the court in believing that offsets are a dynamic and important way to control greenhouse gas emissions. Commenters said, at the same time, in understanding the unique natur e of offsets, state and regional approaches appropriately limit and control them. Commenters ex plained (verbatim) State and regional programs which have adopted cap and trade programs have made concerted efforts to tightly regulate and control out of sector offsets in order to alleviate any uncertainty. Commenters said one way in which they have done this is by only all owing very specific types of offsets to be included. Commenters noted the Regional Greenhouse Gas Initiative ("RGGI"), comprised of states and provinces in the Northeastern United Sta tes and Eastern Canada, allows for offsets in only five categories: (1) landfill methane capture and destruction; (2) reduction in emissions of sulfur hexafluoride; (3) sequestration of carbon du e to U.S. forest projects (reforestation, improved forest management, avoided conversion) or afforestation (for CT and NY only); (4) reduction or avoidance of CO 2 emissions from natural gas, oil, or propane end us e combustion due to end use energy efficiency in the building se ctor; and (5) avoided methane emissions from agricultural manure management operations. Commente rs noted, similarly, California's cap and trade program, promulgated by the California Air Re sources Board ("CARB") pursuant to the Global Warming Solutions Act of 2006, includes offs ets in one of only five categories: (1) livestock projects; (2) urban forest projects; (3) U.S. forest projects, (4) ozone depleting substances projects; and (5) mine methane capture p rojects. By limiting the scope of projects that can be considered, commenters stated that these pro grams are able to include only those offsets that are viable and verifiable. Commenters said ano ther way to ensure the reliability of out of sector offsets is through the concept of "additiona lly." Commenters stated, in California, CARB included offsets and provided credit only for those reductions that are "additional, quantifiable, permanent, verifiable and enforceable." Commenters stated the Global Warming Solutions Act defined "additionally" as reductions that are "in a ddition to . . . . any other [GHG] emission reduction that would otherwise occur." Global Warmi ng Solutions Act, S.35862(d)(2) (2006). Commenters noted that CARB refined this definition to mean reductions are additional if they "exceed any [GHG] reductions or removals that would otherwise occur in a conservative business as usual scenario." Cal. Code Regs. tit. 1 7, S.9582(a)(4). In Citizens Climate Lobby and Our Children's Earth Foundation v. California Air R esources Board, commenters said the environmental advocacy organizations challenged the program on the grounds that CARB's additionally standard was insufficient. Citizens Cl imate Lobby and Our Children's Earth Foundation v. California Air Resources Board, No. C GC 12 519554 (San Francisco Sup. Ct., filed March 27, 2012). Commenters stated, in reject ing their claim and upholding the program, the Superior Court of California stated that "addit ionally is essential to the environmental integrity of an offset program because if reduction s are not additional, then the cap and trade program will not reduce GHG emissions beyond what w ould have occurred anyway." Citizens Climate Lobby at 6. Commenters stated that the cour t also acknowledged the fundamental importance of offsets to any cap and trade program, claiming "offsets reduce the cost of emission reductions because uncapped sources can reduce thei r GHG emissions at a lower cost than the163

covered source making the same reduction," and that"offsets incentivize innovation and bring about GHG emission reductions in sectors of the eco nomy that are difficult or impossible to directly regulate." Id. Commenters stated the compa ny agrees with the court in believing that offsets are a dynamic and important way to control greenhouse gas emissions, and at the same time, in understanding the unique nature of offsets , state and regional approaches appropriately limit and control them.

Comment 5: Opposition to allowing offsets as an emission reduc tion strategy.

Response 5: We agree with the commenters that (out-of-sector) o ffsets should not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, but for a different reason: measures that reduce CO 2 emissions outside the electric power sector may no t be counted because out-of-sector offsets are not co nnected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the final rule preamble of the CPP. We note, how ever, that the final emission guidelines allow state measures like emission budget trading program s to include out-of-sector GHG offsets. Regarding the commenters’ concerns about offsets po tentially increasing emissions, the final emission guidelines require that state plans that i nclude state measures also include a backstop of federally enforceable standards on affected EGUs th at fully meet the emission guidelines and that would be triggered if the plan failed to achie ve on schedule the required emission reductions. Regarding the commenters’ concern about permanence, the final guidelines require states using the state measures plan type to demonstrate that st ate measures are permanent. See Section VIII.D.2 of the final rule preamble of the CPP. Reg arding the commenters’ concerns about verification, the final emission guidelines require states with state measures plans to report annually on their progress toward milestones. See S ection VIII.C.3 and VIII.D.2 of the final rule preamble of the CPP. The final guidelines also requ ire verification measures for EE and RE. See Section VIII.K.3 of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters argued that offsets do not offer a relia ble solution to emissions reductions, and are in fact a significant liability and loophole to ach ieving real, additional, and permanent reductions. The commenters stated that the primary interest in offsets is their potential to make it easier and cheaper for polluters to meet emissions reduction r equirements because offsets cost less per credit than emissions credits. The commenters argue d that, even though offsets cost less than an emissions credit, the non-monetary costs are not re flected in the price. The commenters stated that offsets create pollution hot spots that cause significant public health and environmental costs for nearby communities. The commenters stated that offsets are not comparable to direct emissions reductions because they allow companies t o pay to continue polluting at the source, while an emissions reduction supposedly occurs else where.

The commenters argued that allowing companies to pa y to pollute does very little to discourage or decrease emissions in the present and in future generations. According to the commenters, the U.S. Government Accountability Office points out th at, "[i]n theory, offsets allow regulated164

entities to emit more while maintaining the emissio ns levels set by a cap and trade program or other program to limit emissions."

The commenters noted that offsets also risk causing increased emissions. The commenters noted that several verification requirements must be met for an offset to be valid, but indicated that it is very hard to meet all of the requirements. In parti cular, the commenters stated that the requirement to ensure offset permanence is highly p roblematic--forest offsets easily risk impermanence due to destruction from wildfires and other natural disasters. The commenters indicated this creates opportunities for fraud, corruption and minimal emissions reductions--if not increased emissions--because of illegitimate of fsets that are still released into the market. According to the commenters, a company in Californi a could purchase an offset elsewhere that might not create an emissions reduction, leading to a net increase in emissions because the company continues to pollute at the source.

The commenters also noted that offsets can take a l ong time to create, but the credits for offsets are in demand now. According to the commenters, the remedy to this has been to create systems of forward crediting and forward selling. The comme nters stated that forward crediting requires allocating an offset before it can have produced th e expected emissions reduction. The commenters argued that this form of "I-owe-you" off set is another liability and leaves the door open to the possibility of no emissions reduction a nd even increased emissions.

Comment 6: Support for allowing out-of-sector offsets.

Response 6: The EPA disagrees with the commenters that out-of-s ector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. We disagree that out -of-sector offsets should be counted as “coming from” EGUs because EGUs imple ment out-of-sector offset programs; the question is not whether EGUs fund or incentivize em ission reductions in other sectors but whether measures result in a reduction of CO 2 emissions produced by affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the final rule p reamble of the CPP. We also disagree that by excluding out-of-sector offsets as a compliance opt ion, EPA is specifically limiting compliance to BSER. See Section VIII.K.1.a of the final rule p reamble of the CPP. However, the EPA agrees with the commenters that state plans may accommodat e emission budget trading programs that may include out-of-sector GHG offsets, which we are finalizing as an option under the state measures plan type. See Section VIII.J.2.d of the f inal rule preamble of the CPP.

The EPA disagrees with Commenters that the proposed rule seemed to give conflicting guidance regarding the use of offsets. For clarification, th e proposed rule did not propose to allow out-ofsector offsets to demonstrate CO 2 emission performance by affected EGUs but did prop ose to allow both in-sector offsets that would achieve the required level of emission performance for affected EGUs and emission budget trading programs including out-of-sector GHG offsets.

In response to commenters’ recommendations that the EPA let states incorporate carbon offset options in their CPP compliance plans if "outside t he fence" alternatives are mandated and the165

commenter’s statement that the EPA would be specifi cally limiting compliance to its proposed BSER by excluding out-of-sector offsets as a compli ance option, we note that the final guidelines allow but do not require states to use t he state measures plan type, a state plan approach that includes state-enforceable measures t hat apply to entities besides affected EGUs. See Section VIII.C.3 of the final rule preamble of the CPP. Under the state measures plan type, emission budget trading programs may include out-of -sector GHG offsets. See Section VIII.J.2.d of the final rule preamble of the CPP.

We disagree with commenters that EPA should allow s tates to use a 'Weight of Evidence' approach for out-of-sector offsets because, as note d above, out-of-sector offsets are not connected to the electrical grid and so cannot reli ably address stack CO 2 emissions from affected EGUs.

The following are summaries of the specific public comments under this comment:

Commenters stated that the proposed rule seems to g ive conflicting guidance regarding the use of offsets for compliance, initially stating (at 79 FR 34910) that "the EPA is not proposing that outof-sector GHG offsets could be applied to demonstra te CO 2 emission performance by affected EGUs in a state plan," then stating in the next sen tence that "emission limits for affected EGUs that are included in state plans could still includ e provisions that provide the ability to use GHG offsets for compliance with the emission limits, pr ovided those emission limits would achieve the required level of emission performance for affected EGUs."The commenters stated that out-ofsector GHG offsets represent one of the most powerf ul mechanisms for flexibility and cost containment available in existing cap-and-trade pro grams, and can deliver significant economic and environmental (wildlife habitat, water quality, air quality, etc.) co-benefits. The commenters recommended that the EPA should clarify that out-of -sector offsets may be used for compliance.

Commenters stated that the CPP does not allow any o ffsets to carbon emissions such as foresting or green space accounting. The commenters stated th at power cooperatives cover vast amounts of territory and the ability to engage in offsets w ould give us a very viable option to reduce our carbon footprint. The commenters recommended that t he EPA let states incorporate carbon offset options in their CPP compliance plans if "outside t he fence" alternatives are mandated.

The commenters stated that the EPA errs in not incl uding "out-of-sector" offsets. The commenters stated that the EPA fails to allow out-o f-sector offsets, foreclosing a compliance option of unquestionable environmental benefit. The commenters noted that the Agency concedes, however, that every existing cap-and-trad e program allows for offsets to be used for compliance purposes. The commenters stated that the EPA reconciles this discrepancy by allowing out-of-sector offsets to be retained under those plans and included under new plans - but not for compliance with the CPP. The commenters noted that the EPA justifies this unusual and contradictory policy on the basis that "all of the emission reduction measures included in the agency's BSER reduce CO 2 emissions from affected EGUs," whereas out-of-sector offsets apparently do not. The commenters stated that by ex cluding out-of-sector offsets as a compliance option, EPA is specifically limiting compliance to its proposed BSER.

Commenters stated that the EPA's failure to conside r out-of-sector offsets belies the rule's purported flexibility.166

Commenters stated that while the Agency has dramati cally expanded the scope of its BSER and state goal calculation, it has severely constricted a state's ability to comply with it. The commenters stated that by excluding out-of-sector o ffsets for compliance in an effort to stay between the very loose "source category" lines it h as drawn for itself, EPA has abandoned its "all hands on deck" approach to regulating GHG emissions from power plants. The commenters stated that the EPA treats energy efficiency and de mand response programs, which are really "offset" programs, differently than "out of sector" offset programs. Even though not directly in the power sector, the commenters stated that the EP A's newly-created expansive source category, out-of-sector offsets are a proven and accepted mea ns to reduce and manage GHG emissions and should logically be included as a compliance measur e. The commenters stated that the EPA draws the distinction that its BSER building blocks "reduce CO 2 emissions from affected EGUs." Specifically, commenters stated that the EPA says t hat for emission budget trading programs that regulate EGUs and include offsets, which it defines as "emissions reductions from sources not regulated by the trading program," emissions reduct ions from offsets would not be counted when evaluating CO 2 emission performance because "those reductions wou ld not come from affected EGUs." The commenters stated that interestingly, th ese statements are not in the proposed rule, while the "additionality" criteria discussed above is in the proposed rule.

Commenters stated that but for EGUs taking the init iative to implement carbon-offset programs, these offset programs - which reduce carbon emissio ns - would not exist. Logically, the commenters stated that these EGUs are reducing the overall emission of this global pollutant into the atmosphere. The commenters stated that it is di fficult to understand how EPA can determine that reductions from offsets owned and operated by EGUs do not "come from" EGUs, yet theoretical reductions resulting from convoluted ma rket string-pulling from demand-side energy efficiency and renewable energy - much of which is not in any way controlled by EGUs - do "come from" EGUs. Meanwhile, the commenters stated that out-of-sector carbon offsets have proven to be a simple and verifiable means to reduc e carbon emissions. The commenters stated that while EPA abandoned its traditional technology -based standard in this expansive proposal, EPA falls back on this traditional line of thinking in refusing to consider out-of-sector offsets for compliance with the CPP.

Commenters stated that EPA should allow states to u se a 'Weight of Evidence' approach for outof-sector offsets.

Comment 7: Comments supporting out-of-sector offsets from the agricultural sector.

Response 7: The EPA disagrees with the commenters that out-of-s ector offsets from agricultural practices may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets are not connec ted to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the final rule preamble of the CPP.

However, the EPA agrees with commenters that states should be allowed to emulate existing programs like the California Air Resources Board's Compliance Offset Program and RGGI in developing their state plans and that state plans m ay accommodate emission budget trading167

programs that may include out-of-sector GHG offsets . We are finalizing this as an option under the state measures plan type. See Section VIII.J.2 of the final rule preamble of the CPP.

The EPA disagrees that the regulation is likely to increase prices for rural ratepayers, while we agree that states should be able to join multistate plans. States will be able to address the economic interests of their utilities and ratepayer s by using the flexibilities in this final action t o reduce costs to consumers, minimize stranded assets , and spur private investments in renewable energy and energy efficiency technologies and busin esses. They may also, if they choose, work with other states on multi-state approaches that re flect the regional structure of electricity operating systems that exists in most parts of the country and is critical to ensuring a reliable supply of affordable energy.

The following are summaries of the specific public comments under this comment:

Commenters stated that the preamble to the proposed rule argues that the proposed rule provides states with the flexibility to structure their prog rams as they see fit and indicates the EPA's intent to allow states to comply with their specific emiss ion goals without relying entirely on emitting EGUs. However, the commenters stated that the propo sed rule does not allow states to consider emission offsets occurring anywhere other than EGUs in building state compliance plans. The commenters stated that the EPA has implemented emis sion reduction trading systems under different sections of the CAA before, and there is no language in 111(d) preventing EPA from implementing such a system for GHGs. The commenters stated that the final rule should create, or at least verify states' authority to create, off set trading programs for agricultural conservation practices. The commenters stated that otherwise, EP A is missing an opportunity to increase flexibility and ensure GHG emissions are mitigated by those in the best position to do so. The commenters stated that the EPA could attain even mo re flexibility, nationwide, by establishing a federal offsets program in the final rule.

In particular, the commenters stated that farmers c an provide significant flexibility in reducing greenhouse gasses in the atmosphere, mitigating the harmful effects of climate change. The commenters stated that the option to sell offsets t o EGUs will also provide another source of income for rural communities, which is important si nce the regulation is likely to increase prices for rural ratepayers.

Commenters encouraged EPA to include clear language in the rules allowing the use of out-ofsector offsets by states to meet their emission per formance targets, and to ensure that carbon offsets are included as reduction mechanisms.

Commenters stated that EPA should consider carbon o ffsets from agriculture. According to the commenters, to ensure equitable treatment of states , the EPA should allow states that currently do not have carbon offset programs to develop indiv idual plans that are functionally equivalent to acceptable state plans. The commenters stated th at such plans would emulate existing programs that include agricultural offsets (i.e., C alifornia Air Resources Board's Compliance Offset Program, RGGI and the Western Climate Initia tive, Inc.). In addition, the commenters stated that the possibility of merging state progra ms should be considered in acknowledgement of the administration's interests in promoting ener gy and carbon exchanges to meet regulatory compliance.168

Comment 8: Support for use of out-of-sector offsets from the f orest sector as a compliance

measure.

Response 8: The EPA disagrees with the commenters that out-of-s ector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the final rule preamble of the CPP. However, the EPA ag rees with the commenters that state plans may accommodate emission budget trading programs th at may include out-of-sector GHG offsets, which we are finalizing as an option under the state measures plan type. See Section VIII.J.2.D of the final rule preamble of the CPP.

The EPA disagrees with commenters that EPA failed t o provide a clear position with respect to offsets in the proposed rule. For clarification, th e proposed rule did not propose to allow out-ofsector offsets to demonstrate CO 2 emission performance by affected EGUs but did prop ose to allow both in-sector offsets that would achieve the required level of emission performance for affected EGUs and emission budget trading programs including out-of-sector GHG offsets.

The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA allow states to con sider out-of-sector offsets as a compliance measure. Commenters pointed to EPA's rec ognition in the proposed rule that America's forests provide a wide range of environme ntal benefits beyond the production of biomass feedstocks that can be combusted for energy in place of fossil fuels. In particular, the commenters pointed to EPA's statements that growing forests act as a carbon "sink" and that "America's forests currently play a critical role i n addressing carbon pollution, removing nearly 12 percent of total U.S. greenhouse gas emissions e ach year." 79 FR 34,924. If used appropriately, the commenters indicated the increas ed carbon benefits associated with working forests could provide states with additional flexib ility to achieve EPA's emission reduction in a low-cost manner. The commenters pointed to EPA's ac knowledgement that market-based emission trading programs (and potentially other co mpliance mechanisms) can incorporate outof-sector, project-based emissions offsets as addit ional flexibility mechanisms to comply with GHG emission reduction goals. The commenters stated that forestry-based offsets and other innovative out-of-sector emissions reducing mechani sms that recognize forest carbon benefits from forests and wood products (collectively, "offs ets") could provide a degree of flexibility in state implementation plans, and recommended that EP A adopt an expansive view of the types of compliance options that states can include in their implementation plans.

However, according to commenters, EPA failed to pro vide a clear position with respect to offsets in the proposed rule, and the commenters urged EPA to clarify in the final rule the role that offsets can play in implementing the state emission reduction targets. For example, the commenters noted that EPA asserted in the proposed rule that " the EPA is not proposing that out-of-sector GHG offsets could be applied to demon strate CO 2 emission performance by affected EGUs. " But the commenters further noted that EPA immedia tely followed by asserting that " emission limits for affected EGUs that are included in state plans could still include169

provisions that provide the ability to use GHG offs ets for compliance with emission limits .... "). According to the commenter, EPA made similar confli cting statements in the technical support documents, stating " Under this approach, state plans would ignore the CO 2 -equivalent emissions reductions projected to be achieved through offsets , when projecting the CO 2 emissions performance that will be achieved by the affected E GU source category through implementation of the state plan. This does not mean that an emiss ion budget training program included in a state plan could not include an offset component. "). Based on these statements, the commenters argued that it is difficult to determine the role, if any, that offsets can play in state implementations, particularly since EPA is proposin g to set emission reduction goals on an aggregate basis for each state and not for individu al affected EGUs.

To resolve this uncertainty, commenters suggested t hat EPA clarify that out-of-sector offsets, including those from forestry projects, should be e ligible for inclusion in state implementation plans for the purpose of complying with EPA's propo sed emission reduction goals. The commenters argued that to do so would be consistentwith EPA's stated objective of providing states with flexibility in achieving GHG emission r eductions. The commenters also noted that, by looking beyond fossil fuel-fired EGUs and consid ering emissions reductions from other parts of the electricity sector (including reduced demand by consumers), EPA is already incorporating emissions reductions from sources outside of the re gulated source category, and the commenters argued that there is no principled reason for drawi ng the line in a manner that excludes forestrybased offsets. The commenters further noted that, s ince GHGs are well-mixed in the atmosphere, there are no geographic concerns with any differenc e in the location between the forests that sequester carbon and the fossil fuel-fired EGUs tha t comprise the regulated source category. Thus, to the extent that forest sequestration offer s a lower-cost option for reducing net GHG emissions than the options included in EPA's Buildi ng Block approach, the commenters suggested that states should be free to incorporate forestry offsets and other innovative out-ofsector emissions reducing mechanisms that recognize forest carbon benefits from forests and wood products into their implementation plans.

Commenters made a similar argument. The commenters noted that EPA proposed to limit how the states can credit the use of out-of-sector CO 2 offsets. The commenters noted that the proposal allowed states to use offsets for meeting EGU-speci fic emission limits but did not allow states to use out-of-sector CO 2 offsets to project how states would meet their emi ssion reduction targets. If the proposal is finalized as proposed, the comme nters recommended that EPA allow states to consider voluntary offset projects as a compliance measure that can reduce CO 2 emissions. According to the commenters, growing and expanding forests sequester carbon from the atmosphere, resulting in a reduction in GHGs. The c ommenters recommended that EPA clarify that voluntary offset projects such as product and permanent wood structure sequestration, active forest management, afforestation, reforestation, an d recycling are cost-effective and viable options to reduce CO 2 emissions. The commenters also recommended that st ates be allowed to count emission reductions from measured and verifie d sequestration of additional carbon stock from sustainably managed forests relative to a stat e's baseline in meeting their emission reduction targets.170

Comment 9: Request that out-of-sector offsets involving clean electrification not be eliminated or disincentivised in state plans.

Response 9: The EPA disagrees with the commenters that out-of-s ector offsets like electrification that displaces petroleum fuels for transportation may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets are not connected to the electrical grid an d so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the final rule preamble of the CPP. However, the EPA agrees with t he commenters that state plans may include out-of-sector GHG offsets, but only as partof emission budget trading programs, which we are finalizing as an option under the state meas ures plan type. We also agree that certain opportunities supported by the commenters would be appropriate under the state measures plan type, such as improved efficiency in the use of ele ctricity and substitution of low-GHG emitting electricity production processes. See Sections VIII .C.3 and VIII.J.2.d of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Referring to state plans, commenter stated that as the electric sector decarbonizes and generates electricity with a lower carbon emissions intensity , electrification of more carbon-intensive sectors has the potential to cost-effectively reduc e GHGs across the U.S. economy. The commenter stated that electrification has been long recognized in the energy-economics literature, technology studies, and the climate pol icy area as a cost-effective approach to mitigate GHGs. For example, the commenter noted that while t he implementation of an electrification strategy could cost-effectively reduce GHG across m ultiple sectors, the CO 2 emissions from the power sector could remain flat or even slightly inc rease. The commenter stated that while it is understood that compliance for out-of-sector reduct ions is challenging, the commenter stated such reductions should not be excluded if appropria te rigor and durability can be demonstrated. The commenter recommended that care should be exerc ised so that state plans do not to eliminate or disincentivize clean electrification.

The commenters concluded that the most substantial opportunities for near-term GHG reductions, using technology that is deployable now or is likely to be deployable soon, include the following:

• Improved efficiency in the use of electricity and f uels, especially in the buildings sector, but also in industry and transport vehicles

.

• Substitution of low-GHG emitting electricity produc tion processes, which may include renewable energy sources, fuel switching to natural gas, nuclear power, and electric power plants equipped to capture and s equester CO 2

.

• Displacement of petroleum fuels for transportation with fuels with low- or zero- (net) GHG emissions.171

Comment 10: Commenters suggested that states should be allowed to count towards compliance goals all activity that captures carbon, including verifiable offsets.

Response 10: The EPA disagrees with the commenters that out-of-s ector offsets may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets are not connected to the electrical grid and so cannot reliably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the final rule preamble of the CPP. However, the EPA ag rees with the commenters that state plans may include out-of-sector GHG offsets, but only as part of emission budget trading programs, which we are finalizing as an option under the stat e measures plan type. See Section VIII.J.2.d of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters suggested that states should be allowed to count towards compliance goals all activity that captures carbon, including verifiable offset, which at a minimum must include CO 2 emissions captured and sequestered from industrial facilities.

Commenters stated opposition that as a matter of po licy that RE generating resources must be located in a state to offset CO 2 emissions for that state's 111(d) plan.

Comment 11: Comments suggesting that the EPA should ensure that states have maximum flexibility to incorporate offset programs into the ir SIPs that allow use of direct air capture (DAC) technologies.

Response 11: The EPA disagrees with the commenters that out-of-s ector offsets such as DAC technology may be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, because out-of-sector offsets like DAC techn ologies are not connected to the electrical grid and so cannot reliably addre ss stack CO 2 emissions from affected EGUs. Given the reason that we are not permitting out-of- sector offsets to be counted toward meeting a CO 2 emission performance level or state CO 2 goal, strict standards on out-of-sector offsets co uld not ameliorate the issue. See Sections V.B.3.c and VIII.K.1.b of the final rule preamble of the CPP. However, the EPA agrees with the commenters th at states may continue to operate capand-trade and offset programs that use out-of-secto r and non-source-based GHG offsets. We are finalizing that state plans may accommodate emissio n budget trading programs (which may include out-of-sector GHG offsets) as an option und er the state measures plan type. See Section VIII.J.2.d of the final rule preamble of the CPP. W e are not finalizing the proposed portfolio approach. See Section VIII.C.4 of the final rule pr eamble of the CPP.

The EPA disagrees with the commenters that EPA made conflicting statements with respect to offsets in the proposed rule. For clarification, th e proposed rule did not propose to allow out-ofsector offsets to demonstrate CO 2 emission performance by affected EGUs but did prop ose to allow both in-sector offsets that would achieve the required level of emission performance for affected EGUs and emission budget trading programs including out-of-sector GHG offsets.

The following are summaries of the specific public comments under this comment:172

Commenters stated that, because they are not necess arily implemented at EGUs, DAC technologies may be incorporated into state and reg ional cap-and-trade and/or offset programs that allow EGUs and other regulated entities to tak e advantage of the environmental benefits of the technologies as part of a broader regulatory pr ogram. The commenters stated that EPA needs to be clearer, therefore, about the degree to which it will give states the flexibility to continue to develop and implement innovative GHG capture techno logies such as DAC technology and incorporate them into existing and future cap-and- trade and offsets programs as part of their SIPs.

On the one hand, the commenters noted that the EPA claims that the proposed rule gives states wide leeway to construct a broad variety of GHG red uction programs in their SIPs. For example, the commenters noted that the EPA states that "this proposal would ... provid[e] states with ample opportunity to design plans that use innovati ve, cost-effective strategies that take advantage of investments already being made in prog rams and measures that lower the carbon intensity of the power sector and reduce GHG emissi ons." On the other hand, the commenters noted that the EPA has also stated that it "is not proposing that out-of-sector GHG offsets co uld be applied to demonstrate CO 2 emission performance by affected EGUs in a state p lan." The commenters noted that the EPA also states, however, that "emission limits for affected EGUs that are included in state plans could still include pro visions that provide the ability to use GHG offsets for compliance with the emission limits, pr ovided those emission limits would achieve the required level of emission performance for affected EGUs." Given these seemingly conflicting statements, the commenters pointed out that it is n ot clear how and to what extent existing regional and state plans, such as those in the Regi onal Greenhouse Gas Initiative in the northeastern United States, and the Compliance Offs et Program in California, will retain the ability to allow out-of-sector and non-source based GHG offset programs under this rule, and the degree to which innovative technologies such as DAC technology could be incorporated into the states' plans.

The commenters suggested that the EPA clarify its i ntent in the final rule. According to the commenters, without the flexibility to include emis sions trading or out-of-sector offsets, states incorporating such programs in their GHG regulation s would be required to set more stringent state-only standards to ensure some regulatory "nud ge" toward use of DAC and similar technologies. The commenters stated that this shoul d not be necessary. The commenters stated that the EPA has already laid the groundwork for al lowing states to allow excess GHG emissions reductions generated by DAC and similar technologie s to be credited in an emissions trading or offset program. For example, the commenters noted t hat in its 2005 Clean Air Mercury Rule, the EPA determined that a "standard of performance" for mercury under Section 111(d) may include a mercury emissions trading program as part of a "b est system of emissions reduction." The commenters suggested that EPA should allow the same flexibility for GHGs.

The commenters explained that states have already p rovided a workable model to incorporate offsets into a GHG SIP that ensures that GHG reduct ions generated from offsets can be tracked. According to the commenters, the California Complia nce Offset Program, for example, includes rigorous standards for ensuring that any reductions in GHG in the atmosphere are "real, permanent, quantifiable, verifiable, enforceable, a nd additional." The commenters noted that requiring that states incorporate similar standards with respect to the use of offsets generated by173

out-of-sector or "beyond the fence line" DAC techno logies should ameliorate EPA's concerns that such offsets and related strategies are not "s elf-correcting."

At a minimum, the commenters stated that the EPA sh ould give full weight to Section 116 of the Act and continue to allow states to operate cap-and -trade and offset programs and create the regulatory opportunity for innovative technologies such as DAC technology to be developed to meet state GHG reduction goals that may be more str ingent than the emissions limitations in the proposed rule. The commenters stated that the EPA s hould make explicit in the final rule that the "portfolio approach" available to states would not penalize states or regions from implementing GHG reduction strategies that are not determined by EPA to be BSER or are not specifically included in the building blocks for compliance that EPA has identified.

Comment 12: Comments suggesting that the EPA should include an allowance for states to regulate other pollutants that have global warming potentials.

Response 12: The EPA disagrees with the commenters that out-of- sector offsets that reduce pollution that is not emitted by affected EGUs, suc h as replacing oil-fired hot water heaters with time-controlled electric heaters, may be counted to ward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal. This is because out-of-sector offsets are no t connected to the electrical grid and so cannot reli ably address stack CO 2 emissions from affected EGUs. See Sections V.B.3.c and VIII.K.1.b of the fi nal rule preamble of the CPP. However, the EPA is finalizing that state plans may accommodate emission budget trading programs (which may include out-of-sector GHG offsets) as an option under the state measures plan type. See Section VIII.J.2.d of the final rule preamble of th e CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that because the EPA is proposing the states can include measures that decrease power demand, and therefore dispatch, of c oal-fired power plants and regulated NGCC affected units, it should also include an allowance for the state to establish new regulations for other pollutants that have an established global wa rming potential not now regulated by sections 110 or 112 in the power plant sector as an offset t o continuing carbon emissions. The commenters provided as an example the replacement o f older, inefficient oil-fired hot water heaters with time-controlled electric heaters, whic h would increase electric power demand but decrease global warming gases. The commenters noted that this type of a project should be allowed as an offset.

5.8.5n Multi-State Emission Trading Programs

This section addresses multi-state emissions tradin g programs.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.174

Comment 1: Comments regarding interstate trading of RE and EE credits.

Response 1: The EPA has taken all of these comments into consi deration and the EPA has incorporated many of the comments from this comment er below in the final CPP rule. The EPA is allowing for streamlined multi-state trading app roach, states can develop their own programs and trade eligible RE or demand side EE with other states through a trade-ready system. EPA is providing presumptively approvable EM&V protocols. The EPA is providing maximum flexibility in the types of state plans states can use to implement the emission guidelines. States can also see an extension in their initial plan as long as have proper justification. See section, VIII. C of the final rule preamble of the CPP for s tate plan approaches including multi-state plans. See Section VIII.E of the final rule preambl e of the CPP for plan submittal and approval process and timing. See Section VIII. K of the fina l rule preamble of the CPP on EM&V information and eligible RE and demand side EE meas ures for further details.

The following are summaries of the specific public comments under this comment:

Commenters stated that "a streamlined multi-state t rading approach should be allowed" and that formal interstate agreements should not be required . Commenters also said that states should be able to develop their own programs to trade RE or E E credits with other states and thought a federal tracking system for credits could be develo ped. Commenters further thought that "federally-approved evaluation, monitoring and veri fication protocols" would give plausibility to the credits. Commenters also stated that they would like the EPA final guideline to provide a lot of flexibility and not exclude credit or trading pr ograms like the EPA proposal does. Commenters would also like a two year extension for submittal and approval of section 111(d) plans for states that are working to develop altern ative approaches to trading RE and EE credits.

Comment 2: Comments regarding multi-state trading, interim go als and more time for compliance.

Response 2: The EPA is finalizing that state plan submittals a re due on September 6, 2016, which is 13 months after finalization of the emissi on guidelines, with the option of an extension to submit final state plans by September 6, 2018, w hich is three years after finalization of this rule. The first interim goal has been moved to 2022 , two years later than what EPA proposed. The compelling nature of the climate change challen ge, and the need to begin promptly what will be a lengthy effort to implement the requirements o f these guidelines, warrant this schedule. The EPA believes this will give states ample time to de velop multi-state emission plans.

The following are summaries of the specific public comments under this comment:

Commenters supported the development of multi-state emissions trading programs to trade carbon emission allowances but stated that the prop osed rule does not allow for enough time to develop multi-state emissions trading programs and suggested that "the CPP should delay interim goals until these programs can be establish ed."175

Comment 3: Comments regarding EPA administering a trading pro gram for EE credits, renewable energy credits, and emission credits.

Response 3: The EPA received a number of comments from states and stakeholders about the value of the EPA’s support in developing and/or adm inistering tracking systems to support state administration of rate-based emission trading progr ams. The EPA is exploring options for providing such support and is conducting an initial scoping assessment of tracking system support needs and functionality. See Section VIII.C of the final rule preamble of the CPP for further details.

The following are summaries of the specific public comments under this comment:

Commenters suggested that EPA could "administer pro grams that track emission or generation credits or instruments to support and facilitate tr ading between states such as an emission reduction tracking system, renewable energy certifi cates (RECs) and Evaluation, Measurement and Verification (EM&V) for trading EE credits."

Comment 4: Comments regarding multistate agreements.

Response 4: The EPA recognizes that there are multiple incenti ves for states to collaborate by implementing a multi-state plan. That is why EPA ha s promulgated a final rule that allows states to meet an aggregated joint goal, regardless of the specific level of their individual goals, because states share grid regions and impacts from plan implementation will be regional in nature. Further, multiple analyses, including those by ISOs and RTOs, indicate that regional approaches could achieve state goals at lesser costthan individual state plan approaches. However, the EPA also recognizes the value in allow ing for collaboration where states retain individual goals. These approaches could provide so me of the benefits of a joint goal while reducing the negotiations among states necessary to develop a multi-state plan with a joint goal. As a result, the EPA has finalized the additional m ulti-state approaches described above in section VIII.C.5 of the final rule preamble of the CPP to provide for coordination while maintaining individual goals. These approaches woul d allow for interstate transfer of energy rate credits (ERCs) or emission allowances while retaini ng individual state goals.

The following are summaries of the specific public comments under this comment:

Commenters stated that "states should also be allow ed to enter into multistate agreements that allow for emissions budgeting so long as the emissi on reductions are real, verifiable, and are not being claimed by another entity or state" because i t may make more sense for a state to use a regional budgeting approach instead of Renewable En ergy Credits (RECs).

Commenters stated that "EPA should be open to appro ving multi-state compliance arrangements so long as the collective outcome, for the states i nvolved, results in emissions reductions equal to or greater than the sum of those required of each s tate complying independently within its176

boundaries." Commenters also stated that EPA should be flexible and allow multi-state arrangements that are different from the "RGGI" des ign, "encompass all the covered emissions of two or more states," allow states to do a single exchange with one state or multiple exchanges with multiple states.

5.8.6 Process Considerations for conducting EGU CO 2 emission projections

This section addresses EGU CO 2 emission projections.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1 : Comments regarding controlled performance testing.

Response 1: The EPA has analyzed the technical feasibility, co sts, and magnitude of CO 2 emission reductions achievable through heat rate im provements at coal-fired steam EGUs based on engineering studies and on these EGUs’ reported operating and emissions data. We conclude that taking action to improve heat rates is a commo n and well-established practice within the industry that is capable of achieving meaningful re ductions in CO 2 emissions at reasonable cost, although, as discussed earlier, we also conclude th at the quantity of emission reductions achievable through heat rate improvement measures i s insufficient for these measures alone to constitute the BSER. The EPA’s quantification of the CO 2 emission reductions achievable through heat rate improvements as a component of th e BSER (building block 1) is discussed in Section V.C. of the final rule preamble of the CPP and in the GHG Mitigation Measures TSD for the CPP Final Rule.

Many actions will reduce the reported CO 2 emissions or CO 2 emission rate of an affected EGU, without the need for additional accounting or monit oring and reporting requirements beyond the required CEMS tracking of actual stack CO 2 emissions and tracking of actual energy output. Th e effect of these actions will result in changes in r eported CO 2 emissions and/or energy output by an affected EGU.

As one of many examples of a fossil-fuel fired EGU taking restrictions on hours of operation for the purpose of avoiding CAA obligations, Manitowoc Public Utilities in Wisconsin obtained a title V renewal permit that limited the operating h ours of the single simple-cycle combustion turbine to not more than 194 hours per month, avera ged over any consecutive 12 month period, as part of limiting its potential to emit for volat ile organic compounds below the title V threshold of 100 tpy, and carbon monoxide, nitrogen oxides an d sulfur dioxide below the PSD threshold of 250 tpy. As another example, Sunbury Generation LP in Pennsylvania obtained a minor new source preconstruction permit, called a plan approv al, for a repowering project from the Pennsylvania Department of Environmental Protection in 2013 that limited the hours of operation of three combined cycle combustion turbin es that were planned for construction in order to remain below the significance threshold fo r GHGs. The Legal Memorandum includes177

numerous other examples of power plants accepting p ermit limits that reduce generation to meet, or avoid the need to meet, emission limits.

The following are summaries of the specific public comments under this comment:

Commenters stated that plants require testing to un derstand current performance and to establish the degree of available heat rate improvement oppor tunities. Commenters were concerned plants may lack good instrumentation and measurements, or they may have run for a significant period since their most recent controlled performance testwas conducted. Commenters stated that major changes to the configuration and operation of the p lant, major equipment changes, and/or changes in the type of fuel burned can also change the opportunity for improvements. Commenters noted that performance testing plays a s ignificant role in establishing an accurate baseline to enable plant owners to make good decisi ons to improve heat rate through O&M improvements and/or upgrades. Commenters stated tha t periodic testing can also be effective in verifying that improvements are sustained, or aidin g the owner/operator in determining when corrective actions are needed to sustain performanc e. Commenters stated that there is currently a wide variation in types of testing performed at coa l plants and no common guidelines exist for evaluating unit performance across the fleet. Comme nters stated that the most rigorous test is typically applied during commercial acceptance of n ew plants or during major rebuilds, upgrades, or retrofits. Commenters stated that whil e it may not be necessary, practical, or costeffective to require that level of testing on a per iodic basis, they suggested some reasonable means of testing and monitoring could be very helpf ul in determining and sustaining heat rate improvements at individual plants. Commenters recom mended the EPA consider developing guidance on testing, with participation and input f rom industry stakeholders

Commenters stated that it is unclear how EPA's ass umptions within building block 1 could be implemented and enforced and that it is infeasible to identify or develop a set of heat rate or CO 2 emission rate limitations that could be applied to all designated facilities within the regulated source categories, given the diversity of existing sources and the large number of known and unknown, controllable and uncontrollable variables that impact heat rate performance. Commenters noted they had evaluated recent permits issued for both coal-fired and NGCC units across the nation, and found no examples of a permi t where a heat rate standard has been imposed as an operating limit.

Improvements made through BB1 cannot be reliably p rojected or enforced

5.8.6a Provision of the EPA Guidance

[No comments were received on this topic.]

5.8.6b Party that Translates the Rate-Based Goal to a Mass-Based Goal178

This section addresses translating rate-based goals to mass-based goals.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1 : Comments regarding EPA providing a mass-based CO 2 goal for each state and clarifying whether these goals can be adjusted.

Response 1: The EPA is providing both rate-based and mass-base d statewide goals in this final rule in place of having states determine the mass v alues themselves, in order to assure that the mass goals are an equivalent expression of the BSER . See the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for det ails on the calculations of these goals.

This final rule allows states to alternatively esta blish emission standards that meet rate-based or mass-based state goals. The EPA supports having the flexibility to use rate-based goals or massbased goals as part of state plans. The EPA notes t hat it is the emission performance rates in section VI of the final rule preamble of the CPP th at constitute the application of the BSER to the affected EGUs and serve as the chief regulatory req uirement of this rulemaking. The statewide CO 2 rate-based and mass-based emission performance goa ls provided in the final preamble as metrics that states may choose to adopt when demons trating compliance at the state level, and states may consider these goals when determining ho w to set unit-level compliance requirements. See Section VII of the final rule pre amble of the CPP for the statewide CO 2 goals.

The EPA does acknowledge that state-level rate-base d goals or mass-based goals may be sensitive to inventory changes within a state’s fle et. That is, the EPA used a representative baseline that aggregated data for “likely affected” units. However, if subsequent applicability review or formal applicability determinations chang e the status of these units as of 2012 in regards to their inclusion or exclusion in the stat e’s inventory of affected EGUs, the EPA will consider allowing states, via State Plan submittal or revision, to adjust their statewide rate or mass goal if such a change is necessary. See Sectio n VII of the final rule preamble of the CPP for further details on allowable adjustments to state w ide mass-based CO 2 goals.

The following are summaries of the specific public comments under this comment:

Commenters argued that including only rate-based li mits in the rule may discourage a state from a mass-based system. Commenters argued that a state will know the precise rate-based goal it must meet in advance of submitting its implementati on plan, but cannot know the precise massbased goal since the translation from the rate-base d goal to a mass-based goal must first be approved by EPA. For these reasons, commenters reco mmended the EPA provide a presumptive mass-based CO 2 annual emission goal in the final, but permit the state to adjust it or translate it into a rate-based goal.

Commenters suggested the EPA provide "presumptive" translations of rate-based goals to massbased goals for each state, but allow states to eit her adopt EPA's mass-based limit or propose an alternative mass-based limit as part of the state p lan.179

Commenters recommended the EPA establish mass-based standards in the rule to prevent states from setting high mass-based limits by overe stimating their business as usual growth in electric demand or by exaggerating transmission con straints that might overestimate business as usual capacity factors in high emitting units.

Commenters urged "EPA to continue working with stat es on appropriate approaches to converting EPA's rate-based goals to reasonably equ ivalent mass-based goals." Commenters stated that EPA should allow "states to propose the ir own methodology" and the final rule should let states "calculate interim and final mass-based goals that match the emission performance that would be expected under EPA's rate-based approach."

Commenters stated that "EPA should make it as easy for a state to convert to a mass-based target by including a set of mass-based targets for existi ng sources within each state. These mass-based targets would be those regarded as equivalent to th e rate-base standard currently in the proposed Plan."

Commenters asked EPA to provide more clarity for st ates in translating emission rate to massbased goals. Commenters stated that EPA should prov ide more "clarity for states to translate the emission rate goals to mass-based caps. Commenters also would like EPA to state that EPA "would approve a state cap based on 2012 generation multiplied by the 2030 target emission rate goal."

Commenters urged EPA to calculate mass-based target s for the states so that they can compare the "rate-based and mass-based carbon targets for t he states and how a state's regulators and electric utilities could implement carbon reduction s under each approach."

Commenters asked EPA to provide more guidance to t ranslate emission rate to mass-based goals. Commenters declared that EPA needs to contin ue to work with states to provide clear guidance on how to translate rate-based goals into mass-based goals.

Commenters requested that "EPA provide all states w ith the mass-based calculation of the state goal." Commenters further stated that "state-by-sta te calculation of a rate-based approach to a mass-based approach presents unnecessary complicati on and inconsistency state goal-setting, and results in regulatory uncertainty on the part o f states and affected utilities, who must await EPA approval to determine whether their goal calcul ation is sufficient. The EPA could avoid such difficulties by providing each state with the mass-based emissions goal, providing the states with the substantive opportunity to provide comment s and corrections on the mass-based goals, as they have with the rate-based goals."

Commenters stated that EPA's "final guidelines shou ld allow states to convert the rate-based goals to mass emissions budgets that are comparable in stringency to the rate-based state goals" and that mass budgets are needed to implement tradi ng programs like RGGI.

Commenters recommended that EPA "allow states to ch oose a methodology for translating the rate-based goal to a mass-based goal, as long as th e rate-based stringency is maintained." Commenters also stated that the methodology should be transparent.180

Commenters stated that "EPA must ensure in its fina l rule that any mass-based translation is truly equivalent to a corresponding rate-based goal." Com menters stated that a mass-based protocol encourages states to replace retiring fossil units with new fossil (gas) units and therefore, believe that a rate-based rule is environmentally preferabl e since retiring fossil units would be replaced with RE and EE.

Commenters recommended that EPA allow states to cal culate mass based goals that are equivalent to EPA's rate-based goals.

Commenters supported that the states should have th e flexibility to use state specific data and assumptions to convert to rate-based goals to mass- based goals.

Commenters asked EPA to be clear in the final rule about what the states "must provide to ensure their formula for translating the rate-based goals to mass-based goals is approvable."

Commenters also stated that "EPA's guidance should specify acceptable analytical methods" and "default input assumptions" but that "states should be allowed to deviate from these default methods and assumptions with justification."

Commenters stated that EPA should be clear on "the distinctions between rate- and mass-based targets for developing EPA-approvable compliance pl ans. Commenters stated that this would have "implications for how states determine their E E and other compliance strategies and policies."

Comment 2: Comments regarding mass-based and rate-based goals

. Response 2: The EPA is providing states the ability to choose to comply with the final emission standards by implementing a rate based or mass base d state plan. States can decide the best approach that meets each state’s individual need, w hile maintaining the goals in the final CPP rule. See Section VIII.C of the final rule preamble of the CPP for different state plan approaches.

The EPA is providing both rate-based and mass-based statewide goals in this final rule in place of having states determine the mass values themselv es, in order to assure that the mass goals are an equivalent expression of the BSER.

The fact that mass goals for existing sources are t hemselves quantified in a way that is an equivalent expression of the BSER, the form of mass goals is only equivalent if leakage from new sources is addressed. The EPA is therefore requ iring that states adopting a mass-based implementation include a strategy that addresses le akage, or the state may otherwise provide justification that leakage would not occur under th e state’s implementation. The required demonstration and options to minimize leakage are d iscussed in detail in Section VIII.J of the final rule preamble of the CPP.

To address the potential for emission leakage to ne w sources under a mass-based plan approach, the EPA is requiring that a state submitting a plan that is designed to meet a state mass-based CO 2 goal for affected EGUs must demonstrate that the p lan addresses and mitigates the risk of181

potential emission leakage to new sources. Section VIII.J of the final rule preamble of the CPP describes the options that would provide sufficient demonstration that potential emission leakage has been addressed in a mass-based state plan.

The EPA is also providing an EPA-provided mass budg et that includes the state mass-based CO 2 goal for affected EGUs plus a new source CO 2 emission complement, this option could be presumptively approvable. The EPA will evaluate the approvability of this aspect of an individual state plan using the model rule through independent notice and comment rulemaking.

A state could establish federally enforceable, mass -based emission standards for affected EGUs, complemented by state-enforceable mass-based emissi on standards for new fossil fuel-fired EGUs. This approach could involve an emission budge t trading program that includes affected EGUs as well as new fossil fuel-fired EGUs.

The following are summaries of the specific public comments under this comment:

Commenters stated they believe the EPA should encou rage states to adopt the mass-based limits and believe that including mass-based limits in the rule will make it easier for states to do so. Commenters also noted that even though a state may prefer a mass-based goal, it nevertheless may be led by administrative convenience combined w ith resource constraints to settle for a ratebased approach.

Commenters stated they believe the EPA should allow states to propose mass caps that are comparable to their rate-based goals. Commenters be lieved states should have the flexibility to determine how to make the conversion from rate-base d to mass-based limits, including how to handle different measures under the mass-based goal s (e.g., how to treat new natural gas combined cycle (NGCC) units).

Commenters believed the EPA should not reject any s tate plan that proposes a mass-based limit that does not achieve the same emissions levels as achieved under the rate-based goal. The two methods of achieving emissions goals, commenters ar gued are entirely different and states should be allowed to determine their mass-based goa l in any way they see fit since significant discretion is afforded to states under Section 111( d). Commenters recommended the EPA make a determination that mass-based goals codified in a s tate plan or plans will be approved with no further need for review.

Commenters recommended that EPA "take active steps to lower the barriers to regional cooperation on mass-based compliance for both new a nd existing sources." Commenters stated that "EPA should also provide an alternative mass-b ased target that incorporates emissions from new sources." Commenters said this will help states because "providing states with these targets rather than asking them to develop them will signif icantly lower the burden and perceived legal risk of states opting for a mass-based approach."

Commenters proposed that "EPA reject any call to ad opt new gas for goal-setting and compliance purposes."182

5.8.7 Other

This section addresses a variety of comments with r egards to state plans and projecting EGU CO 2 emission performance.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are also provide d for these topics.

Comment 1: Comments regarding more time for modeling, whether specific tools can be used and reliability of CO 2 data projections.

Response 1: The EPA is not requiring specific tools or emissio n quantification methodologies states and/or affected EGUs must use when demonstra ting the emission guidelines will be met as long as the method is technically sound and meet th e criteria in the preamble. For these details refer to Section VIII.D.(2) in the final rule pream ble of the CPP under the State Plan Components Approvability Criteria where we answer t hese comments. For state plan submittal timing see Section VIII.E of the final preamble of the CPP.

The EPA is not requiring specific tools or emission quantification methodologies states and/or affected EGUs must use when demonstrating the emiss ion guidelines will be met as long as the method is technically sound and meet the criteria i n the preamble. For these details refer to Section VIII.D.(2) of the final rule preamble of th e CPP under the State Plan Components Approvability Criteria where we answer these commen ts.

The following are summaries of the specific public comments under this comment:

Commenters stated that if EPA requires states to pr ovide detailed modeling with the state plans then the state must be provided more time. Commente rs stated that they thought EPA "is seeking to impose unnecessary burdens on states that the Ag ency is not authorized under section 111(d) to require. States should determine the manner in w hich they will evaluate the performance of their plans. At the very least, EPA must provide mo re time to states if it wants to encourage states to undertake the sort of detailed modeling a nd related work EPA appears to prefer." Commenters recommended "that EPA develop guidance t hat describes acceptable projection approaches, tools, and methods for use in an approv able plan" and also recommended "that EPA accept collective state CO 2 projection tools such as Eastern Regional Technica l Advisory Committee (ERTAC) EGU."

Commenters asserted that with regard to projections of future CO 2 emissions the states should be able to use data that is "most reasonably available " or EPA should provide guidance. Commenters recommended that EPA should "not require IPM modeling for state-level emissions projections."

Commenters stated that Carnegie Mellon is developin g a tool that can be used by States in developing their state-specific plan. Commenters st ated the tool will evaluate emissions and costs associated with different carbon mitigation m ethods.183

Can states use a non-IPM model to project generatio n by affected EGUs?

Comment 2: Comment regarding developing a model rule.

Response 2: The EPA is proposing model rules for both mass-bas ed and rate-based emission trading programs. State plans that include the fina lized model rule for a rate-based emission trading program could be presumptively approvable a s meeting the requirements of CAA section 111(d) and these emission guidelines. The EPA would evaluate the approvability of such plans through independent notice and comment rulemaking. States would be able to choose whether they are implementing a single or multi-state plan.

The following are summaries of the specific public comments under this comment:

Commenters recommended EPA develop a model trading rule and "clarify whether states incorporating by reference would be considered subj ect to single or multi-state plan requirements."

Comment 3: Comment regarding using established regional frame works and multi-state arrangements.

Response 3: The EPA agrees with this comment, and notes that i t encouraged such approaches in the proposal. While the EPA is not requiring sta tes to join and/or form regional market-based programs, we note that such programs can be helpful for many reasons, including features that support reliability. Market-based programs allow gr eater flexibility for affected EGUs both in the short-term and long-term. Under a market-based prog ram, affected EGUs have the ability to obtain sufficient allowances or credits to cover th eir emissions in order to comply with their emission standards. Additionally, we continue to en courage states to cooperate regionally. Regional cooperation in planning and reliability as sessments is an important tool to meeting system needs in the most cost-effective, efficient, and reliable way. See Section VIII.C.5 where the EPA describes multi-state plan options in the f inal rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters also supported the option "to use establ ished regional renewable energy credit tracking systems and processes in multi-state arran gements." Commenters strongly supported "allowing states to use the Western Renewable Energ y Generation Tracking System (WREGIS) for compliance with renewable energy programs, and further note that it is already well suited to use in multi-state arrangements." Commenters also s aid, "States should work cooperatively to avoid double counting of emissions reductions from renewable energy and energy efficiency, and should address double counting in their EM&V pl ans."184

Comment 4: Comment regarding credit for prior CO 2 reductions.

Response 4: The EPA received many comments requesting that the agency recognize early actions for the emission reductions they provide pr ior to the performance period. The EPA recognizes the validity and importance of this comm ent, and as a result has determined to provide a program – called the Clean Energy Incenti ve Program – in which states may choose to participate. The Clean Energy Incentive Program is designed to reward investment in certain RE and demand-side EE projects that commence construct ion after the effective date of this rule and that generate MWh or reduce end-use energy demand d uring 2020 and 2021. State participation in the program is optional.

Under the Clean Energy Incentive Program, states ma y set aside allowances from their interim targets or generate early action emission rate cred its (ERCs, as defined in section VIII.K.2 of the final rule preamble of the CPP), and allocate to el igible projects allowances or ERCs equivalent to each MWh generated or avoided. For further detai ls, see section VIII.B.2 for details in the in the final preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that the Clean Power Plan "should provide states with credit for prior CO 2 reductions as option towards meeting a reasonable n ational target for reducing CO 2 emissions."

Commenters stated that the proposed rule's "ambigui ty and lack of incentives to offset carbon pollution with non-emitting generation in the short term is counter to the purposes of regulatory policy to reduce carbon emissions as soon as possib le." Commenters further stated that the proposed rule does "not provide clear incentives to states to continue the expansion of the existing renewable energy standards and energy effi ciency standards, especially between now and 2020" and that this could cause state legislatu res " to postpone legislation to increase renewable energy and energy efficiency standards."

Comment 5: Comment regarding modeling and analysis data avail ability for renewable energy and energy efficiency.

Response 5: The EPA agrees with the commenter for renewable en ergy. In the final rule the EPA increased the amount of RE in building block fo r for BSER. The basis for quantifying building block 3 generation has been modified to in corporate historical deployment patterns for RE technologies as well as the economic potential i dentified through modeling projections. The introduction of historical capacity additions to th e final methodology further grounds building block 3 generation in demonstrated levels of RE dep loyment that have been successfully incorporated into the power system. The EPA revised its data for onshore wind and solar technologies to reflect the mid-case estimates from the National Renewable Energy Laboratory’s (NREL’s) 2015 Annual Technology Baseline. The EPA s elected the NREL 2015 Annual Technology Baseline (ATB) estimates based on the qu ality of its data as well as NREL’s demonstrated success in both reflecting and anticip ating RE cost and performance trends. All modeling and analysis are provided in the GHG Mitig ation Measures TSD for the CPP Final Rule and RIA for the final CPP.185

As for energy efficiency. The EPA determined to notinclude EE as a part of BSER. See Section V.A. of the final rule preamble of the CPP for deta ils on EPA’s rationale for why we did not include EE in the final CPP. However, Demand Side E E is still generally available for compliance purposes. Section VIII. K of the final r ule preamble of the CPP addresses demand side EE and eligible measures that can be used in s tate plan compliance.

The following are summaries of the specific public comments under this comment:

Commenters stated that "EPA's model significantly u nderrates the potential growth of renewable energy and energy efficiency" and that all of the m odeling and analysis should be made available.

Comment 6: Comment regarding expanding mass-based system to i nclude new natural gas plants.

Response 6: The final CPP emission guidelines provide states w ith a number of potential plan pathways for meeting the emission guidelines. A pla n pathway represents a specific plan design approach used to meet the emission guidelines. Thes e plan pathways are discussed in section VIII.C.2 through C.5 of the final rule preamble of the CPP, and further elaborated in sections VIII.J of the final rule preamble of the CPP (for m ass-based emission standards) and VIII.K of the final rule preamble of the CPP (for rate-based emission standards). For example, a state could establish federally enforceable, mass-based emissio n standards for affected EGUs, complemented by state-enforceable mass-based emissi on standards for new fossil fuel-fired EGUs. This approach could involve an emission budge t trading program that includes affected EGUs as well as new fossil fuel-fired EGUs. This ap proach facilitates interstate emission trading, through either a “trading-ready” single-st ate plan approach or through a multi-state plan. Under a “trading-ready” plan, interstate emission t rading may occur without the need for a multistate plan.

The following are summaries of the specific public comments under this comment:

Commenters encouraged EPA to allow "states that cho ose mass-based systems to expand their budgets to cover new natural gas plants and to regu late them, entirely under state authority, within the same mass-based system the state uses to regulate existing power plants under Section 111(d)."

Commenters stated that the mass-based limit should be the only federally enforceable provision in a mass-based state plan. Commenters stated that if a state or states propose a mass-based plan, "the mass-based limit should be the only federally enforceable provision." Commenters further stated that if the state's mass-based plan addresse s emissions from EGUs that may become affected units then, "these units should not be sub ject to additional regulation as they pass the 111 (d) affected unit threshold."186

Comment 7: Comments regarding energy efficiency data, eligibil ity of energy storage, transmission and distribution and granting credit f or energy efficiency for state plans.

Response 7: In Section VIII.K.1(a) of the final rule preamble of the CPP, the EPA discusses the broad categories of measures that are available to reduce CO 2 emissions from affected EGUs under a rate-based state plan. All state plans mustdemonstrate that measures included in the plan are quantifiable and verifiable. Solar power is an eligible RE measures for state plans.

Energy storage may not be directly recognized as an eligible measure that can be used to adjust a CO 2 emission rate, because storage does not directly s ubstitute for electric generation from the grid or avoid electricity use from the grid. The el ectric generation that is input to an energy storage unit may be used to adjust a CO 2 emission rate, but the output from the energy stor age unit may not. However, energy storage can be used a s an enabling measure that facilitates greater use of RE, which can be used to adjust a CO 2 emission rate.

The EPA determined that for RE and demand-side EE m easures in state plans the state will also need to include quantification, monitoring, and ver ification provisions in its plan for these measures. The EPA will release a draft Evaluation M easure and Verification EM&V Guidance Document for comment along with this final CPP rule

. See section VIII.K.3 of the final rule preamble of the CPP for discussion of EM&V requirements for use of RE and demand-side EE in a state plan. F or additional details for incorporating demand side EE and RE in state plan projections see the Incorporating RE and Demand-Side EE Impacts into State Plan Demonstrations TSD.

EPA agrees with the commenter that states should no t be required to submit time differentiated savings from their EE programs and EPA is not prohi biting states to include more detailed hourly data MWh data in their state plans.

Not all state plans are required to conduct a proje ction. If a state decides to implement certain plans that doesn’t require a projection then modeli ng is not required. States using demand Side EE and RE for rate based plans do not need to estim ate the emission impacts of these measures.

The EPA understands that it can be analytically cha llenging to estimate the quantity of GHG emissions that may be reduced or avoided by impleme nting demand-side energy efficiency projects. In the final CPP rule, states can get cre dit for eligible zero or low emitting by adjusting the reported CO 2 emissions rate of affected EGU as described in Sec tion VIII.K.1.a (2)-(10) of the final rule preamble of the CPP. For rate based plans, these MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. Therefore, adding MWh from these res ources to the denominator of an affected EGU CO 2 emission rate allows mass CO 2 emission reductions from these measures to be full y reflected in an adjusted CO 2 emission rate.

The EPA’s draft guidance on EM&V for measures and q uantifying EE will be going through a notice and comment period. Commenters can comment o n this draft EM&V guidance, which will be released at the same time as this final CPP rule.

The following are summaries of the specific public comments under this comment:187

Commenters stated that Concentrating Solar Power an d "other energy supply, storage, transmission and management measures, are making itincreasingly possible to reduce greenhouse gas and other emissions from the power s ector while maintaining reliability and reasonable cost." Commenters recommended that EPA, DOE, NERC, ERCOT and ISO/RTOs, and other governmental entities, "should provide as much guidance as possible for planning, implementing, monitoring and measuring the effectiv eness of measures to be incorporated in State Plans."

Commenters stated "that states should not be requir ed to submit time differentiated savings from their EE programs." However, since "the impact of E E programs on CO 2 emissions can vary greatly according to the time of day and by season" commenters recommended "that states that can demonstrate that they have high quality load sh ape data be given the option to include time differentiated energy savings in their implementati on plans."

Commenters stated it is analytically challenging to estimate the quantity of GHG emissions that may be reduced or avoided by implementing demand-si de energy efficiency projects. Commenters stated that to estimate reduced GHG emis sions in this context requires complex modeling designed to calculate (i) the change in el ectricity load for each hour of the day an EE project is expected to operate, and (ii) the "margi nal" emissions reductions associated with the marginal electric generation unit in a region that can be expected to reduce its output in response to the change in electric load. Commenters stated a ccomplishing this requires the use of regional electric generation dispatch modeling tools and oth er sophisticated analysis methods that not all entities have at their disposal. Commenters stated instead of requiring these burdensome methods, to the extent that states can credibly sho w that these emission reductions have occurred, EPA should grant credit for these actions under a s tate plan.

Commenters noted that if the EPA restricts the type s of efficiency measures that are eligible for credit towards compliance with a rate-based target, this may cause a discrepancy in how energy efficiency is treated under the two approaches. Com menters further recommended that the EPA can address this by 1) promulgating detailed guidan ce for incorporating energy efficiency measures that would not qualify for credit under a rate-based approach into baseline emissions projections in the determination of a mass-based ta rget, 2) allowing for the revision of projections and mass-based targets to reflect new i nformation during the implementation period, and/or 3) allowing states to receive credit for the broadest possible range of energy efficiency measures reducing the sorts of measures that would receive passive credit in a mass-based state but no credit in a rate-based state.

Commenters said the EPA must adopt approaches that ensure that final regulations, should they be issued, rely on those guidelines that treat ener gy efficiency and DSM programs as complementary means of achieving emission reduction s and are not included as federally enforceable mandatory components of state plans. Co mmenters said that given the differences between the proposed rule under section 111(d) and the existing section 110 programs, any existing EPA guidance and explanatory texts on the possible inclusion of energy efficiency in a state implementation plan under section 110 must no t be used as a proxy for the treatment of energy efficiency under this proposal. Commenters s aid that not only are these documents irrelevant, they are not regulations and have not b een subject to notice and comment.188

Comment 8: Comment regarding GHG leakage with other countries

. Response 8: This final CPP rule demonstrates to other countrie s that the United States is taking action to limit GHG emissions from its largest emis sion sources, in line with our international commitments. The impact of GHGs is global, and U.S. action to reduce GHG emissions complements and encourages ongoing programs and eff orts in other countries.

The State Department Special Envoy for Climate Chan ge Todd Stern, the lead U.S. climate change negotiator, noted the connection between dom estic and international action to address climate change in his speech in New Haven, CT on Oc tober 14, 2014:

“ This mobilization of American effort matters. Enorm ously. It matters because the United States is the biggest economy and largest historic emitter of greenhouse gases. Because, here, as in so many areas, we feel a responsibility to lead. And because here, as in so many areas, we find that American commitment is ind ispensable to effective international
action.

And make no mistake – other countries see what we a re doing and are taking note. As I travel the world and meet with my counterparts, the palpable engagement of President Obama and his team has put us in a stronger, more c redible position than ever before.”

The EPA senior agency officials met with a number o f labor union representatives about reducing carbon pollution using CAA section 111(d). Those unions included: the United Mine Workers of America; the Sheet Metal, Air, Rail and Transportation Union (SMART); the International Brotherhood of Boilermakers, Iron Shi p Builders, Blacksmiths, Forgers and Helpers (IBB); United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada; t he International Brotherhood of Electrical Workers (IBEW): and the Utility Workers Union of Am erica. In addition, agency leaders met with the Presidents of several unions and the Presi dent of the American Federation of LaborCongress of Industrial Organizations (AFL-CIO) at t he AFL-CIO headquarters.

The following are summaries of the specific public comments under this comment:

Commenters stated that the Clean Power Plan should contain provisions to avoid industrial GHG leakage with other countries since there is "an abs olute direct relationship between U.S. energy costs and manufacturing employment, and the manufac turing trade deficit."

Comment 9: State energy mix changes.

Response 9: The EPA has determined that a state interim and fi nal CO 2 emission goals for affected EGUs in a state may be adjusted to address inventory changes within a state’s fleet of affected EGUs. If these changes occur before a stat e submits its initial or final plan, the state should indicate in its submittal the circumstance t hat necessitates the goal adjustment and the revised interim or final CO 2 emission goal. If the circumstances occur after a state has an189

approved plan, a state must submit a modification t o its approved plan. The plan revision submittal must indicate the circumstance that neces sitates the goal adjustment, the revised interim and/or final CO 2 emission goal, and the adjustments to the enforcea ble measures in the plan. See section VII of the final rule preamble of the CPP for details.

The following are summaries of the specific public comments under this comment:

Commenters stated that "EPA's long-term emissions t argets do not seem well-equipped to deal with changes to the current energy mix in each stat e." Commenters asked implementation questions about whether EPA would recalculate emiss ions targets and states would submit new SIPs if the energy mix in a state changed. Commente rs 2asked the following questions,"1. EPA's long-term emissions targets do not seem well-equipp ed to deal with changes to the current energy mix in each state. a. What happens if nuclea r facilities are retired at a rate that exceeds the "at risk" capacity that EPA uses to establish the s tate's emission rate target? b. What happens if an existing coal or NGCC facility is modified or re constructed? c. What happens if a fossil fuelfired facility is retired? d. What happens if EPA's Accounting Framework changes the status of biomass energy that is currently counted as "zero-e mission" renewable energy? Will the Framework be binding on the States? Interested part ies are not able to fully comment on the 111(d) proposal without reviewing the Framework. 2. Does EPA need to recalculate the emissions target if these types of changes occur? D o States need to submit new implementation plans? Could individual facilities be subject to ch anging emissions reduction obligations based on the actions of unrelated facilities?"

Comment 10: Comment regarding addressing all greenhouse gases and total lifecycle emissions.

Response 10: The EPA has determined that measures that reduce C O 2 emissions outside the electric power sector may not be counted toward mee ting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate-based or mass-based appr oach, because all of the emission reduction measures included in the EPA’s determination of the BSER reduce CO 2 emissions from affected EGUs.

The EPA’s analysis found that the net upstream meth ane emissions from natural gas systems and coal mines and CO 2 emissions from flaring of methane will likely decr ease under the Clean Power Plan. Furthermore, the changes in upstream me thane emissions are small relative to the changes in direct emissions from power plants. The technical details supporting this analysis can be found in the Regulatory Impact Analysis (RIA) of this final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated that the rule should address all greenhouse gases and total lifecycle emissions, and added that "for gas-fired power plan ts, this includes methane leakage during production, processing, and transmission, emissions from flaring at gas wells, and energy consumed in the production and transport of liquefi ed natural gas ("LNG")."

Commenters urged EPA to consider whether the carbon rules are aggressive enough to offset increases in natural gas usage and methane burning over the next ten plus years.190

Comment 11: Comment regarding combined annual performance goal for a utility company.

Response 11: The EPA agrees, the final CPP provides many flexib ilities to comply with the final emission guidelines. The EPA in the final rule is p roviding states with maximum flexibility to achieve their emission standards or CO 2 state goals in the emission guidelines. This inclu des having combined annual performance goals or state-w ide goals for all affected EGUS that are equal to the EPA’s final emission guidelines. For e xample, states can enter into Multi-state plans, multi-state coordination while retaining their indi vidual state goals and emission budget trading programs. Rate based programs can use or purchase E RCs generated from eligible resources (e.g., demand side energy efficiency and renewable energy).

The following are summaries of the specific public comments under this comment:

Commenters stated the way the rule is proposed the states must ensure that every affected entity has a permanent emission standard and believe that this limits flexibility in achieving CO 2 reductions. Commenters proposed that a utility comp any should be able to have a combined annual performance goal for its affected EGUs.

Comment 12: Comment regarding Wood Mackenzie analysis.

Response 12: This comment is unclear. Coal is still being mined profitably in the IPM runs. The coal outlook used in IPM is regularly updated; info rmation from Wood MacKenzie is only one component of that analysis and updating

. The following are summaries of the specific public comments under this comment:

Commenters stated that the Wood Mackenzie analysis is wrong because it assumes "that there are abundant US coal deposits that can still be min ed profitably." Furthermore, commenters said that the U.S. needs to repower since the U.S. doesn 't have much "economically recoverable coal" left.

Comment 13: Comment regarding compliance approach during inter im period.

Response 13: For each state, the EPA has finalized that project ions must demonstrate the state plan will meet the interim goal for the interim per iod of 2022-2029 and a final goal by 2030. For the interim period, the EPA has also finalized thre e interim step goals: interim step 1 goal for 2022-2024, interim step 2 goal for 2025-2027 and in terim step 3 goal for 2028-2029. States are free to establish different interim step goals than those the EPA has specified in this final rule. If states choose to determine their own interim step g oals, the state must demonstrate that it will still meet the interim goal for 2022-2029 finalized in this final rule and the plan submittal must include in its supporting documentation a descripti on of the analytic process, tools, methods, and assumptions used to make this demonstration.191

The EPA recognizes the importance of ensuring that, during the 8-year interim period (2022- 2029) for the interim performance rates or interim state goal, a state is making steady progress toward achieving the required level of emission per formance. For both emission standards plans and state measures plans, the final rule requires p eriodic checks on overall emission performance leading to corrective measures or implementation of the backstop, if necessary, as described in section VIII.F.3 of the final preamble of the CPP. States must demonstrate that the interim steps were achieved at the end of the first two interim s tep periods. In 2032 and every 2 years thereafter, states must demonstrate that affected E GUs achieved the final performance rates or state goal on average during each 2-year reporting period (i.e., 2030-31, 2032-33, 2034-2035 etc.). The multi-year performance periods for measu ring actual plan performance against the performance rates or state goals allow states some flexibility that accounts for seasonal operation of affected EGUs, and inclusion of RE and demand-si de EE efforts.

EPA is also allowing flexibility in rate based stat e plans to help meet each interium period. As discussed in section VIII.C.2.a of the final rule p reamble of the CPP, a MWh of generation or savings that occurs in 2022 or a subsequent year ma y be carried forward (or “banked”) and applied in a future year. For example, a MWh of RE generation that occurs in 2022 may be applied to adjust a CO 2 emission rate in 2023 or future years, without lim itation. These MWh may be banked from the interim to final periods.

The final CPP allows broad flexibility in how to co mply with the emission standards or state goals in the final guidelines. Sources have the abi lity to purchase ERCs as a way to adjust the CO 2 emissions rate and massed based states can join em ission budget trading program or coordinate through multi-state plans. Even if the p rojected energy savings doesn’t happen exactly as expected these additional flexibilities will allow states and sources the latitude to still meet their future goals.

The following are summaries of the specific public comments under this comment:

Commenters noted that the preamble indicates that s tates must demonstrate compliance over a 10-year average period for the interim goal (2020-2 029), and then starting in 2030, states are required to meet the final goal based on a 3-year r olling average period. Commenters noted that these flexible compliance periods allow the state t o determine the transition rate necessary to meet the interim and final goals. However, commente rs noted that the proposal also requires states to project emission performance for each yea r from 2020-2029 in their plans, which could preclude a state from offering this transition flex ibility to affected sources.

Commenters noted the proposed section 60.5740 [79 F R 34952]:

(a)(3)(iii) For the interim plan performance period you must identify the emission performance levels anticipated under the plan durin g each year 2020 through 2029.

Commenters stated that one potential would be to de termine a conservative amount of emissions comprising the difference between: 1) the amount of emissions allowed over 10 years if the state were to transition directly to the final goal in 20 20, and 2) the amount of emissions that would occur over 10 years if the state used the interim g oal from 2020-2029. Commenters noted that states could award affected EGUs emission allowance s equivalent to this difference in 2020 and192

allow them to be used at any time over the 10-year interim period. Commenters stated that this would help to ease the transition to existing unit CO 2 requirements while ensuring the interim goal is achieved. Commenters stated if a state elec ted to go with such an approach, it would be difficult to project how quickly the state's adjust ed rate would begin to fall. Because the interim goal is based on the average emission rate over a 1 0 year period, commenters suggested that the EPA allow states the option of projecting the avera ge emission performance level for the cumulative portion of interim period that has passe d in each respective year. Commenters provided a table (Table 2) showing how a state's pl an could project emission performance for every individual year in the interim performance pe riod, and alternatively project emission performance for each year. Commenters stated that t his approach would offer transition flexibility to the affected EGUs, while enabling a state to project worst-case scenarios that will still meet its interim goal over the 10-year period

.193

5.9 TREATMENT OF EXISTING STATE REGULATIONS AND PRO GRAMS

This section addresses crediting existing state reg ulations and programs toward compliance with the CPP. The majority of the comments in this secti on deal with the date from which existing programs were undertaken may be credited. Other com ments discuss banking credits for future use, what type of programs should be credited, and suggestions for how to credit emissions reductions. Responses to the comment topics are dis cussed below, along with summaries of the specific public comments.

Comment 1: Comments stating that the EPA allow states to take credit for existing state

programs
Response 1: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide pr ior to the performance period. The EPA recognizes the validity and importance of these per spectives, and as a result, the final rule contains two provisions that enable states to incen tivize early investments in zero-emitting generation and demand-side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward. For more details on this treatment of early actions, see section VIII.K of the preamble to the final rule.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2 of the final rule preamble), and allocate to eligible projects allowa nces or ERCs equivalent to each MWh generated or avoided. For more details on this prog ram, see section VIII.B.2 of the preamble to the final rule.

The EPA has clarified which actions count and when such actions count generally in section VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate-based emission trading progr ams and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between E RCs and RECs, are addressed in section VIII.K.2.

The following are summaries of the specific public comments under this comment:194

Many commenters thought EPA should provide credit f or states that make GHG emissions reductions prior to 2020. These commenters contende d that EPA should allow states to bank emission reductions that result from state requirem ents, measures and programs instituted before 2020 and use them for compliance after 2020. Commen ters suggested that if a state or entity can show verifiably that it has reduced its emissions v ia some measure, it should receive credit under the building block computation of the state’s emiss ion reduction goal. Several commenters supported limited banking of credits.

Commenters recommended the guidelines allow states to earn credit for CO 2 emission reductions achieved through existing GHG cap-and-trade program s and RPSs after the start of the program in 2020. Commenters supported EPA allowing states t o develop their section 111(d) plans based on various programs and strategies for reducing CO 2 and other greenhouse gas emissions from the electric power sector.

Commenters stated that EPA should provide states fu ll credit for early actions to protect citizens’ energy needs and reduce carbon emissions, while oth er commenters recommended the EPA provide states with “ the flexibility to maximize credit for early action s .” Commenters suggested EPA consider how to “ better reflect the progress that states have made i n achieving emission reductions. ” Commenters recommended the EPA expand the scope o f the existing programs provisions of its Proposed Guidelines to give the b roadest favorable treatment possible to EE actions taken to reduce CO 2 emissions, regardless of whether those actions were taken prior to the proposal of the Proposed Guidelines.

Several commenters provided examples of early reduc tion activities they believe should be credited.

Commenters noted measures that utilities in the sta te of Minnesota have already undertaken (e.g., CHP and district heating/cooling) that have proven to be cost-effective emission reduction measures, and demonstrate the state is keeping pace with the overall emission reduction targets being proposed. Therefore, commenters stated, the E PA should accept these early actions and ongoing measures for improvements as satisfying the CPP requirements for Minnesota. Commenters from Arkansas stated that the EPA should give credit for use of existing clean renewable resources, noting SWPA Hydro specifically . Commenters noted several existing and soon to be on-line run-of-the-river hydropower proj ects (approximately 300 MW capacity) that were developed with recognition of the contribution that they could make to the City of Cleveland's carbon-free energy portfolio and, as su ch, they should not be denied credit under any state plans simply because they are pre-existing pr ojects. Commenters encouraged EPA to design its regulations to maximize energy efficiency to al low emissions already reduced to count for compliance (citing recent RGGI comments).

Commenters noted that the effective date for EE MW h to be counted for compliance with the CPP should be the date the CPP is finalized, assumi ng EPA's objective for including EE in the CPP rule is to ensure that states and utilities agg ressively promote EE and reduce CO 2 emissions by reducing the demand for electricity. Commenters stated that the EPA has touted the flexibility of the CPP many times. Commenters stated that it is difficult to see why EE achieved before the rule is final should not be captured for compliance with the rule. Commenters stated that the EPA's position on EE should be that earlier is bett er. Commenters stated that the CPP should not195

impose perverse incentives that would delay the imp lementation of EE programs so that they may be counted for compliance. Commenters noted tha t states and utilities will pursue EE more aggressively and more quickly if such actions resul t in credit towards compliance. Commenters stated that EPA should accept and give a facility c redit for the EE savings it is currently achieving or will achieve in the near future.

Commenters stated that one year after the 2012 base line year, they achieved 614 GWh of savings through energy efficiency programs, and had a compa ny-owned and contracted portfolio that generated 2,158 GWh of renewable energy. Commenters argued that these savings from existing programs will continue every year until the interim compliance period begins and should be bankable for use during the interim compliance peri od.

Commenters urged EPA to allow credit for existing R E projects, and noted that Maine had developed significant amount of RE in the form of w ind power before EPA proposed the rule. Commenters stated that Maine has geographical limit ations to how much additional wind power or other RE that can be developed in the state. Com menters noted that the timing of these projects coming on-line does not negate the effecti veness of these units in reducing carbon emissions.

Commenters stated that Pennsylvania has implemented the Act 129 program, under which electric distribution companies (EDCs) regulated by the Pennsylvania Public Utility Commission (PUC) must achieve specific emissions reductions ta rgets. Commenters asserted that reductions made under this program should be eligible for cred it, but are concerned that structural aspects of the program could prevent appropriate credit being taken. Commenters stated Pennsylvania’s Act 129 targets have been set in three-year phases with the specific targets based on a cost effectiveness evaluation by an independent evaluato r. Commenters stated the PUC is currently developing targets for Phase III of the program and is concerned the duration of Phase III may not overlap with the compliance period. Commenters stated that while PUC has the statutory authority to establish longer phases that align the phase with the compliance period, that could result in the loss of any advantage from improved c ost-effectiveness over the term. Commenters asked that the EPA further analyze the structure of existing state programs and determine the best way to harmonize state and federal requirement s.

Commenters agreed that the EPA should allow states and utilities to count the energy savings from energy efficiency measures installed starting in 2020, even if they result from efficiency policies that were adopted and took effect prior to 2020, as long as these activities are incremental and are an element of the state's 111d compliance plan.

Commenters stated that there has been significant c onfusion regarding which existing renewable energy measures can be counted towards compliance a nd when credit will be given. Commenters requested EPA to clarify which actions count and wh en such actions count.

Commenters interpreted the rule as only permitting states to count emission reductions beginning in 2020 from programs/measures that were implemente d on or after June 18, 2014. Commenters also requested clarification regarding the treatmen t of natural gas combined cycle plants built between 2013 and 2019.196

Commenters supported EPA's proposal allowing state solar measures which exist after the date of proposal can be used to drive emissions reductio ns during the compliance period. Commenters also interpreted the proposal to allow existing ren ewable energy measures and actions to count if implemented prior to June 18, 2014 because building block 3 was factored into determination of the state goals. Commenters concluded that MWh from renewable energy capacity installed pursuant to an existing measure or program any time prior to 2020 can be counted towards compliance during the compliance period if the exis ting measure is included in a SIP.

Comment 2: Comments suggesting that the EPA would be penalizi ng states for taking early action if they do not allow credit for early reduct ions

Response 2: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide pr ior to the performance period. The EPA recognizes the validity and importance of these per spectives, and as a result, the final rule contains two provisions that enable states to incen tivize early investments in zero-emitting generation and demand-side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of th e preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters contended that by not allowing s tates to take credit for reductions made prior to 2020, the EPA is penalizing States who wer e early adopters of programs and other measures to reduce GHG emissions. For example, comm enters noted several energy efficiency and renewable energy actions (including solar and g eothermal energy projects) undertaken by the town of Wyandotte, MI between 2009 to 2012. Comment ers requested clarifications in the final rule that ensure reduction activities such as the o ngoing coal plant retirements happening under the Clean Air Clean Jobs Act that the rule cites ar e unequivocally recognized toward compliance with the rule.

Commenters argued that forward looking states shoul d get credit for their leadership.197

Commenters argued the proposal punishes forward thi nking states because they are not allowed to repeal/discontinue programs/rules that reduce CO 2 until 111d plans are approved. Commenters noted that states would have to go forward with the se programs while getting no credit.

Commenters contended that because states and utilit ies that have undertaken RE and EE programs are potentially forced to spend more than other entities, it is appropriate for EPA to designate some mechanism to provide credit for earl y action in establishing state emission reduction goals. Commenters stated that their state s early action justifies EPA revising its Clean Power Plan targets so consumers are not punished fo r forward-looking policy. Commenters suggested that EPA can eliminate these penalties by either utilizing an earlier baseline period, or by giving states credit for early actions to reduce GHG emissions when they demonstrate compliance with their interim and final goals.

Commenters noted that New Jersey has been directly implementing EE and RE programs since 2003 under the banner of NJCEP. Commenters noted th at the average EE and RE program expenditures averaged $142 million over the last 13 years, and that the cost is increasing annually. Commenters added that the RPS compliance cost from 2004 through 2014 adds another $1.157 billion to the cost of clean energy in New Jersey, with the bulk of this cost being in the solar REC (SREC) program, which funds solar RE projects. Commenters noted that currently, solar makes up 2% of the electricity use d in New Jersey, and through the recently enacted solar RPS, that value will increase to 4% b y 2026. Commenters concluded that the proposed rule fails to properly recognize the impor tance of emissions reductions from existing state RE and EE programs. Commenters believed that, by embedding the existing renewable generation and energy efficiency in the goal settin g calculation, EPA has created an inequity between states that have invested in renewables and energy efficiency and those that have not.

Comment 3: Comments suggesting that states should be given cr edit for emissions reductions from existing programs beginning on the date the ex isting program was implemented

Response 3: The final rule contains two provisions that enable states to incentivize early investments in zero-emitting generation and demand- side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2 of the final rule preamble), and allocate to eligible projects allowa nces or ERCs equivalent to each MWh198

generated or avoided. For more details on this prog ram, see section VIII.B.2 of the preamble to the final rule.

EPA also notes that demand-side EE is no longer par t of the calculation of the emission performance standards that are applied to affected sources, but demand-side EE is still eligible for ERC issuance. Therefore no level of demand-side EE is assumed in the CO 2 emission performance rates, and affected sources can still u se ERCs that originate from eligible demandside EE, including from eligible early action, for compliance with their assigned emission standards. States adopting rate-based plans can als o award ERCs for generation in 2022 and subsequent years from incremental nuclear and hydro power capacity installed from 2013 onward. Finally, the EPA appreciates the importance of early actions by states and utilities to reduce fossil electricity use and CO2 emissions at affected sources. EPA’s approach to determining the CO2 emission performance rates and state goals that are achievable considering cost is a forward-looking approach that starts from the state of the electricity system in 2012.

The following are summaries of the specific public comments under this comment:

Commenters noted that the EPA's " best practices for energy efficiency " are partially based on the energy efficiency targets and savings demonstrated by Arizona, but noted that EPA did not give Arizona credit for its work as an early adopter of these measures. Commenters believed states such as Arizona should be able to count some portio n of verified savings/production since inception of their standards.

Commenters stated that permanent hardware replaceme nt programs should be given credit for savings realized during the period of performance r egardless of when they were installed.

Commenters supported allowing existing state progr ams and measures to be included in state plans regardless of implementation date. Commenters stated that any HRI that a facility has implemented, regardless of when, that was assumed i n the S&L study used to develop Building Block 1, should be included as reductions meeting t he plan requirements. Commenters contended that EPA must allow states to demonstrate compliance with all zero-emitting generation, including nuclear and hydroelectric pow er generation, in operation during the period of the state plan, regardless of when the zero-emit ting generation was placed in service.

Commenters suggested that the rule should provide i ncentives for at least 70% existing and under-construction nuclear generation, and recogniz e these as compliance strategies for reaching state goals. The commenters also suggested to give credit to early action and investment in low to no carbon sources.

Comment 4: Comments suggesting that states should be able to take credit for early reduction emissions in order for them to recapture some of th eir early investment costs and cushion the costs of implementing the CPP

Response 4: The EPA agrees that early action should be recogni zed, and had provided a way that some early reductions can be counted toward me eting the requirements of the rule. In order199

to provide an incentive for early investments to pr oceed as planned, the EPA is establishing the Clean Energy Incentive Program (CEIP) described in section VIII.B.2. State participation in this program is optional. If a state chooses to particip ate in the CEIP, it may award early action ERCs and allowances to certain RE and demand-side EE pro jects that achieve MWh of generation (for RE) or end use savings (for EE) in 2020 and 2021, p rior to the start of the interim compliance period.

Early investments will also lower costs of complian ce for the reductions that they will provide during the performance period 2022 and going forwar d. They will reduce emissions at affected EGUs and in a rate-based context ERCs based upon th e MWhs they produce 2022 onward can be used to adjust affected source emission rates.

The following are summaries of the specific public comments under this comment:

Commenters expressed concern that for utilities to be able to perform under a cap-and-trade system within their state or states perform under a regional cap-and-trade system, they should be able to take credit for the early efforts they have already made, giving them the opportunity to recapture some the early investment costs.

Commenters noted that early reduction credits would reduce the incremental costs of reductions achieved in the future by securing investment and i nfrastructure from implementation now.

Commenters provided an analysis of the savings thatwould be made if states were allowed to take credit for early actions.

Commenters stated that allowing states to use renew able energy megawatts that displace fossil megawatts between 2012 and 2020 toward compliance w ould cushion the harsh effects of the early onset of emission reduction requirements in O klahoma. Commenters further believed that this would reward environmental stewardship and cre ate an economic and compliance incentive for companies to bring renewable resources online a s quickly as possible.

Commenters urged EPA to reduce the significant econ omic burden of the CPP by providing credit to states that have already reduced their CO 2 emissions due to market-driven forces such as increased natural gas use, the retirement of old er coal plants, and/or the construction of new nuclear generation.

Comment 5: Comments suggesting that the EPA give states credi t for emission reductions made after 2012

Response 5: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide pr ior to the performance period. The EPA recognizes the validity and importance of these per spectives, and as a result, the final rule contains two provisions that enable states to incen tivize early investments in zero-emitting generation and demand-side EE.200

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward. ERCs issued in 2022 or a subsequent year may be carried forward and use d for demonstrating compliance in a future year. For example, an ERC issued for a MWh of RE ge neration that occurs in 2022 may be applied to adjust a CO 2 emission rate in 2023 or future years without limi tation. ERCs may be banked from the interim plan performance period to the final plan performance period. See section VIII.K.2.e. of the preamble to the proposed rule for more details on ERC banking.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of th e preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters contended that EPA should allow credit for emission reduction measures taken after 2012. Commenters thought that because E PA used total 2012 CO 2 emission levels as the baseline for setting the state goals, it is rea sonable to count CO 2 emission reductions resulting from all actions taken after 2012 when assessing CO 2 reductions achieved.

Commenters noted that the approach of banking is no t foreign to states, as many states already permit the carryover of renewable energy produced i n one year to satisfy RPS requirements in a subsequent year, as well as banking programs that E PA has created in the past, noting the NOx SIP Call specifically. Commenters noted these early actions could include increasing or extending the RPS, reducing the RGGI cap, financial incentives for solar and other distributed technologies, or new investments in energy efficien cy. Commenters suggested that EPA could signal to states that it will approve plans that in clude banking provisions by describing in detail the type and quantity of banking acceptable to EPA

. Commenters noted that allowing credit banking would allow a state to begin demonstrating emission performance earlier and develop a more gra dual emission reduction trajectory.

Commenters suggested that EPA develop mechanisms fo r the following actions taken after 2012 to be credited to the interim compliance period: Ne w renewable energy production, energy efficiency program savings, heat rate (efficiency) improvements on affected sources, retirements of coal-fired plants, pumped storage facilities and nuclear plant uprates.

Commenters requested EPA provide credit for pre-201 4 energy efficiency programs toward the 2030 targets. Commenters added that efficiency prog rams put in place prior to June 2014 should not be treated differently than those adopted after June 2014.201

Commenters recommended that measures installed prio r to the proposal date and savings achieved prior to the performance period (2014-2020 ) should be credited.

Commenters contended that a January 1, 2013 start d ate is consistent with how most existing efficiency programs are measured and verified, i.e. , on a calendar year basis. Commenters stated that it would overly complicated to have two separa te measurements of EE activities - one starting in January 2013 for existing state purpose s and one starting in June 2014 for EE accounting in a state plan.

Commenters recommended extending the interim period to be 15 years, beginning in 2015 and extending through 2030. Commenters added that if co uld not be applied to all states, the recommendations should be provided as an option for early adopters. Commenters concluded that there was no reason to treat actions conducted before 2020 differently than similar actions taken during the 2020-2030 time period.

Commenters stated that if states generate more rene wable energy and achieve energy savings above 1.5 percent in 2012-2020 EPA should allow sta tes to bank this generation to avoid noncompliance in future years. Commenters added tha t these banked credits could be necessary to prepare for unknown future circumstances, such a s extreme weather, as well as compliance beyond the 2030 date of the final goal. Commenters provided an example with regards to their nuclear units. Commenters stated that three Minneso ta nuclear units with licenses are scheduled to expire in 2030, 2033, and 2034 (Monticello Unit 1, Prairie Island Unit 1, and Prairie Island Unit 2, respectively). Commenters stated that the i mpending expiration of these nuclear licenses raises reliability and compliance issues that could be mitigated if early action earns compliance credits that may be used after 2030.

Commenters supported the ability to bank RECs witho ut expiration. Commenters also requested EPA to clarify that RECs generated beginning Januar y 1, 2013 and not yet sold may be banked and utilized for compliance beginning in 2020.

Commenters added that verifiable energy efficiency savings that exceed a state's 2012 baseline energy efficiency savings or EPA's 2017-2019 buildi ng block #4 energy efficiency percentages should be eligible to be banked and used for compli ance with EPA's interim target.

Several commenters contended that emission reducti on measures prior to 2012 should be allowed. Commenters specified dates for which credi ts for early emission reductions should begin. For example, commenters supported crediting actions since 2008 through the beginning of the compliance period. Commenters supported crediti ng actions since 2001. Commenters supported states being able to credit actions back to 2004. Commenters supported states being able to credit actions back to 2000. Commenters sug gested a date of 2005 as the cut-off date for states to take credit for early emissions reduction s. Commenters noted that 2005 was the initial year of the Presidents Climate Action Plan. Comment ers added that a date of 2005 provides a defensible period that goes back far enough to capt ure most, if not all, RE, EE, and CO 2 emission reduction measures that should be credited. Comment ers added that using 2005 as the start is also justified because measures may have been taken pursuant to the Energy Policy Act of 2005, which contained several renewable energy goals, suc h as carbon capture, subsidies for wind and other renewable energy producers. Commenters also r ecommended that if the starting point is202

changed to 2005, EPA should not increase any state specific CO 2 targets as result of this change because it would eliminate the benefits of taking e arly actions and penalize states that have done

so.

Commenters contended that EPA should give credit to action taken at the state level by at least 2011.

Comment 6: Comments suggesting that the EPA should give state s credit for all emissions reductions made between the date of the CPP proposa l and 2020

Response 6: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide pr ior to the performance period. The EPA recognizes the validity and importance of these per spectives, and as a result, the final rule contains two provisions that enable states to incen tivize early investments in zero-emitting generation and demand-side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward. ERCs issued in 2022 or a subsequent year may be carried forward and use d for demonstrating compliance in a future year. For example, an ERC issued for a MWh of RE ge neration that occurs in 2022 may be applied to adjust a CO 2 emission rate in 2023 or future years without limi tation. ERCs may be banked from the interim plan performance period to the final plan performance period. See section VIII.K of the preamble to the proposed rule for more details on ERC banking.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs, and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. F or more details on this program, see section VIII.B.2 of the preamble to the final rule.

The EPA also notes that plant retirements that occu r after 2012 will reduce total emissions from affected EGUs, and will reduce both total emissions from affected EGUs in a state and lower the emission rate of affected EGUs in a state, assuming that generation will increase at loweremitting affected EGUs and possibly at new sources.

The following are summaries of the specific public comments under this comment:

Several commenters suggested that EPA recognize car bon reduction measures that take place between proposal of the Clean Power Plan (June 18, 2014) and 2020. Commenters argued that to allow states to use energy efficiency and renewable energy actions achieved from the date of the203

proposal until 2020 to comply with the interim goal s, would appropriately benefit states that have already begun reducing the carbon intensity of the power sector and are well-positioned to continue doing so.

Commenters supported allowing incremental emission reductions resulting from existing and new state requirements, programs, and measurements instituted after June 18, 2014 and prior to 2020 to be credited toward compliance with both the interim and final state emission targets.

Commenters added that early action credits should b e provided for emission reductions resulting from the implementation of EE, RE, or any other act ion or measure that is undertaken post 2014 interim period and prior to the start of the progra m because such actions will reduce emissions, would incentivize states to reduce emissions earlie r, and would allow states to gradually implement RE, EE, and other emission reduction stra tegies which will allow for better planning and adjusting to changes in dispatch and consumptio n.

Commenters suggested that EPA allow states to bank emission reduction credits for new actions stemming from programs included in the state compli ance plan and achieved between 2014 and 2019. Commenters agreed that the earliest recognize d date should coincide with the date of the proposed rule (June 18, 2014), while other commente rs suggested January 2014 as the earliest recognized date.

Commenters supported allowing all cumulative energy efficiency savings realized as of the date of proposal be credited to meeting the interim and final goals.

Commenters supported crediting actions made after t he rule is final but before 2020.

Commenters supported crediting actions before the C PP was proposed.

Commenters recommended that EPA provide states with the flexibility to take credit for actions taken after the NOPR was issued and before 2020, an d count the credit toward achievement of the states compliance obligation. Commenters added that this would ensure states have an incentive to reduce GHG prior to 2020 and would als o prevent a dip in market activity in the renewable energy sector. Commenters recommended tha t EPA allow states that have achieved significant avoided emissions during 2014 to 2019 d ue to existing EE programs, receive credit under both a rate-based and mass-based for their ac hievements.

Commenters suggested that EPA should allow credit f or new carbon reduction actions, including increasing existing policies, adopting new policies and deploying new facilities, taken after that date and before the plan performance period (2020) to count toward achievement of the state's carbon emission targets. Commenters suggested that measures such as new legislation, new regulations, executive orders, or municipal governm ent or public utility commission approvals of integrated resource plan (IRP) elements undertaken between 2014 and 2020 would be eligible for early action credit. Commenters further supported t he proposed distinction for existing renewable energy requirements to ensure that all existing renewable projects can generate electricity that can be used for compliance when th e program starts in 2020.204

Comment 7: Comments stating that the EPA should allow states to take credit for past energy efficiency achievements published in the EIA-861

Response 7: The EPA disagrees with the commenter that all pastEE achievements in the EIA861 should be credited. EPA’s approach to determini ng the CO2 emission performance rates and state goals that are achievable considering cost is a forward-looking approach that starts from the state of the electricity system in 2012. Some of those achievements after 2012 can be recognized to the extent they are still lowering em ission in 2022 going forward, and to the extent their impacts can be recognized under the Clean Ene rgy Incentive Program. The EPA recognizes the validity and importance of established programs , and the final rule contains two provisions that enable states to incentivize early investments in zero-emitting generation and demand-side EE. For more details on these programs, see section VIII.B and VIII.K of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters contended that EPA should recognize resu lts of past EE achievements as published in EIA-861.

Comment 8: Comments suggesting that EPA should give states cr edit for all emissions reductions made between the date the state plan is approved and 2020

Response 8: The final rule contains two provisions that enable states to incentivize early investments in zero-emitting generation and demand- side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2 of the final rule preamble), and allocate to eligible projects allowa nces or ERCs equivalent to each MWh generated or avoided. For more details on this prog ram, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters suggested that EPA should allow states t o achieve compliance with interim goals beginning when the state's compliance plan is appro ved by EPA. Commenters stated that in205

addition to benefitting early-acting states, these approaches would eliminate the proposal's incentive to delay investments in renewable energy and energy efficiency until 2020.

Commenters stated that EPA should allow new renewab le energy and energy efficiency actions taken after filing a state plan to be counted towar d interim target compliance in 2020. Commenters added that credit should not be continge nt on some future state plan.

Commenters supported counting energy savings measur es beginning in 2017 from policies and programs included in state plans, whether the polic ies and programs began prior to 2017 or after 2017. Commenters explained that counting energy sav ings from measures installed starting in 2017 towards each state's emissions rate goals is c onsistent with the Building Block 4 calculation used in establishing the emissions rate goals. Comm enters added that counting measures would start after publication of the final rule, when EM& V requirements are defined and state plans are prepared at least on a preliminary basis. Commenter s stated that eligible measures should be those that are adopted as part of policies or progr ams included in state plans. Commenters stated that by starting the counting of measures in 2017, states and utilities will have an incentive to ramp up energy efficiency policies and programs in the 2017-2019 time period, not just starting in 2020. Commenters added that States and utilities have already planned energy efficiency programs for 2015 and 2016 as a result of other sta te policies or goals and it is highly unlikely that these programs will be eliminated or cut back if the Clean Power Plan does not allow counting efficiency measures installed prior to 201 7. Commenters concluded that if measures from eligible state and utility policies and progra ms are tracked and counted starting in 2017, energy savings credit from these measures should be gin in 2020 as the EPA has proposed. Commenters stated that most efficiency measures ins talled during 2017-19 are long-lived and will provide substantial energy savings in 2020 and thereafter, and thus will contribute energy savings credits during the compliance period (e.g., if a measure with a 12 year lifetime is installed through a utility program in 2018, the ut ility would be able to count the savings over 10 of the 12 years for purposes of Clean Power Plan co mpliance). Commenters also stated that States and utilities that want to realize substanti al energy savings starting in 2020 will need to begin programs prior to 2020 given the time require d to ramp up to high levels of program participation and energy savings. Commenters added that starting energy savings credits sooner than 2020 would have the undesirable effect of redu cing the overall CO 2 emissions reductions achieved by the Clean Power Plan, unless the CO 2 emissions rate reduction targets are strengthened; i.e., the emissions rate targets are lowered.

Commenters believed that states that already implem ented very aggressive RE and EE programs may have difficulties meeting interim goals even wi th credit for early actions under either crediting approach. Commenters stated that the firs t approach proposed by EPA would give credit for emissions reductions occurring during th e plan period (2020-2029) " as a result of actions taken after a specified date " but before the plan June 18, 2014. Commenters wer e concerned that EE savings for actions implemented a fter the June 2014 could be counted in the cumulative savings for 2020 and later, but those oc curring before 2020 would not count towards compliance with interim goals. Even if June 2014 is selected for the start date of emissions savings actions, commenters stated that Arizona wil l have an inconsistency between their interim and final goals. Regarding the second approach, whe re credit is given for emission reductions occurring before 2020, commenters stated that this alternative is too amorphous for them to assess its potential impact on compliance with the interim goal with any degree of precision.206

Commenters noted that Arizona utilities were subjec t to and in compliance with ambitions RE and EE programs before EPA proposed the CPP, so the refore it is unlikely that Arizona could adopt new programs and achieve significant reductio ns under the new programs prior to 2020.

Commenters suggested the action start date be eithe r after a final state plan is submitted to EPA, or after a specified date such as January 1, 2017. Commenters recommended allowing banking for early actions taken between the 2012 baseline p eriod and 2020 to alleviate the emission reduction pressure of the interim compliance period . Commenters suggested allowing credit for actions taken back to 2013, immediately following t he baseline year. Commenters requested that demand-side or other carbon savings beginning in 20 11 (the mid-point of 2010-2012) be credited under the CPP.

Several commenters supported allowing existing sola r measures to receive credit for a limited time prior to the 2020 compliance period. Commenter s explained that states should be allowed to bank MWh generated from the date their SIP is submi tted, and that those credits be eligible for compliance purposes for 36 months from the date of the start of the compliance period. Commenters added that limited banking after SIP app roval ensures that only measures included in approved SIPs are used for compliance and incent ivizes states to submit SIPs for approval in a timely manner. Commenters stated that limiting bank ing to 2-3 years is aligned with best practices of most RPSs and regional markets which a llow banking for 2-3 years without significantly reducing overall state goals.

Commenters suggested that EPA consider allowing sta tes to demonstrate compliance in 2017, so states can take credit for efficiency savings in th e years 2017-2019. Commenters added that energy savings in 2014 and 2015 are already occurri ng and activities for 2016 are already underway based on current standards and various sta te and utility programs.

Comment 9: Comments suggesting that states may delay or suspe nd their own emission reduction programs if EPA does not allow credit for existing GHG emission reduction programs

Response 9: The EPA appreciates the commenters’ concerns, but do not believe states will delay or suspend their emission reduction programs, parti cularly to the extent these programs meet multiple goals and priorities of states, such as in creasing the affordability of electricity and reductions in other air pollutants. Still, the EPA recognizes the validity and importance of established programs, and the final rule contains t wo provisions that enable states to incentivize early investments in zero-emitting generation and d emand-side EE. For more details on these programs, see section VIII.B and VIII.K of the prea mble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters stated that failure to obtain cr edit for early actions would create an incentive for states to delay or suspend emission reduction m easures so they will count for the compliance plan.207

Commenters were concerned that if EPA does not prov ide credit for early action then any new state legislation or regulation to address CO 2 emissions would be negatively impacted. Commenters believed that “failure to provide adequa te recognition for these actions will upset those expectations and will undoubtedly discourage future forward looking actions from being taken as a result.” Commenters stated that in state s where existing energy efficiency programs are set to expire ahead of the compliance period, d ecision makers may seek to postpone actions to renew these programs to ensure any resulting emi ssion reductions are captured for the purpose of compliance with the state performance standard. Commenters added that emissions avoided in 2015 are at least as valuable as those made in 2020 and added that allowing banking of credit would remove the incentive for delaying efficiency programs.

Commenters stated that counting emission reductions from 2020 through 2029 to meet the final targets work against the goal for reducing carbon i ntensity as it is less likely that reduction measures will be made prior to that time.

Commenters contended that EPA should not develop a system that discourages early reductions, no matter how few they may be, and EPA must conside r the timing of states needing to adopt programs and bring them online in order to start re alizing reductions in 2020.

Commenters stated that EPA's proposed approach of n ot allowing state plans to take into account emissions reductions generated prior to 2020 discou rages state and utility initiation of new policies and programs, as well as property owners a nd utilities from installing new projects,that are required beyond existing policy. Commenters con tinued that these entities have a perverse incentive to delay projects until the compliance pe riod begins, which in turn threatens to reduce the overall environmental effectiveness of the rule . Commenters stated this disincentive is particularly pronounced for energy efficiency measu res, which may have a limited credit life. Commenters further noted that they have long suppor ted recognition and encouragement of early emissions reductions.

Commenters noted that the state of Michigan will me et its renewable portfolio standard and energy efficiency mandates by the end of 2015 and i s considering new energy legislation for programs beyond 2015. Commenters stated the structu re of the proposed 111(d) rule creates perverse incentives to delay implementation of new or existing RE or EE programs until 2017 or later since no credit under the EPA Building Block method would be given for reductions achieved from existing renewable and energy efficie ncy programs.

Comment 10: Comments supporting allowing electric power suppli ers that over-comply in any given year to bank the resulting RECs for complianc e in subsequent years or be allowed to transfer the credit to other affected electric powe r generators for their compliance use under the

program.
Response 10: In the final emission guidelines, states may award ERCs to qualified providers that implement any eligible projects from 2013 onward fo r the quantified and verified MWh of generation or savings those projects provide in 202 2 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission208

standards or bank the ERCs for use in any complianc e period. In a mass-based context, similar efforts will be inherently reflected in the affecte d EGUs stack emissions in 2022 forward. For more details on the treatment of early actions, see section VIII.K of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters supported allowing electric power suppli ers that over-comply in any given year to bank the resulting RECs for compliance in subsequen t years. Commenters stated that this would allow power suppliers to vary their compliance acti vities to achieve the least-cost method of compliance.

Commenters contended that EPA should allow bankable credits for retired power plants that meet compliance obligations under section 111(d) pr ogram or be allowed to transfer the credit to other affected electric power generators for their compliance use under the program. Commenters contended that credit should be provided for all fossil-fuel power plants that shutdown on or after June 18, 2014.

Comment 11: Comments suggesting that all carbon reductions und er existing state programs should be counted toward compliance

Response 11: The final rule contains two provisions that enable states to incentivize early investments in zero-emitting generation and demand- side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2 of the final rule preamble), and allocate to eligible projects allowa nces or ERCs equivalent to each MWh generated or avoided. For more details on this prog ram, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters supported any type of carbon reductions under state programs be counted toward compliance. Commenters contended that it was essent ial that early action crediting be uniformly available irrespective of the type or types of meas ures for which a state may seek credit. Commenters added that in particular, emission reduc tion measures based on utilization of natural209

gas must be eligible for any early action crediting on equal terms with other potential emission reduction measures. Commenters stated that dictatin g how early emission reductions must be achieved would unnecessarily limit the incentive to take advantage of those measures that may carry the greatest immediate benefits. Commenters c oncluded that excluding certain types of early action measures would create arbitrary dispar ities on the basis of what sorts of early action are feasible or most prudent in each state, renderi ng the proposed emission targets more difficult or costly to achieve in some states than others. Co mmenters encouraged EPA to allow compliance strategies to expand beyond the utility sector where appropriate if they can be properly evaluated and credited, such as vehicle el ectrification.

Comment 12: Comments regarding the approach to crediting emiss ion reductions for states with existing programs

Response 12: In order to ensure consistency with the calculatio n of CO 2 performance rates and state rate-based CO 2 goals in the final emission guidelines, and to avo id double-counting or inconsistent adjustment approaches across states, t he final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero-emitting and low-emitting resou rce. Quantified and verified MWh impacts in 2022 going forward from qualifying zero-emitting and low-emitting resources implemented after 2012 may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand-side EE savings occur inside or outside the state or territory.

Consistent with the EPA’s calculation of the CO 2 emission performance rates and state ratebased CO 2 goals in the final emission guidelines, the MWhs i mpacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions f rom the deployment of qualifying non-emitting and low-emitt ing resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emis sions from the numerator, such as those estimated by applying an e missions factor to the MWhs, would double count CO 2 emissions impacts across the grid and is, therefor e, not permitted under the general accounting approach.

These requirements align eligibility with certain f actors and assumptions used in establishing the BSER, and by extension, application of the BSER to the performance levels established for affected EGUs in the guidelines. The strategies sug gested by commenters are generally incompatible with these accounting requirements. Fo r more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand-side EE, see section VIII.K of the final rule preamble to the CP P. The rule describes the provisions related to proper quantification and verification of MWhs from renewable electricity generation or demand-side EE savings in section VIII.K of the fin al rule preamble.

The following are summaries of the specific public comments under this comment:210

Commenters stated that utilities with an emission r ate program should be allowed to earn credit in the form of MWh of increased generation over the baseline from non-emitting resources and MWh savings from energy efficiency programs. Commen ters stated that the resulting MWh would be available to be added to the denominator i n calculating a state's emission rate during one or more compliance periods.

Commenters suggested that credit could be provided by subtracting MWh from the denominator of the state rate calculation or total mass reducti on requirement incrementally starting in 2017 and depreciated at a rate of 10 percent over the fo llowing 10 years. Commenters provided an example of a state that has entities that have veri fiably reduced CO 2 emissions relative to business as usual by 10 MWh via a solar power syste m and energy efficiency measures since 2005. Commenters suggested that the state should be allowed to calculate these measures into its state goals by adding the 10 MWh to its goal/targetdenominator starting in 2017 and decreasing that 10 MWh amount by 10 percent each year.

Comment 13: Comments suggesting that the EPA may unintentional ly exclude some state

programs
Response 13: The EPA appreciates the commenters’ concerns. The EPA recognizes the validity and importance of established programs, and the fin al rule contains two provisions that enable states to incentivize early investments in zero-emi tting generation and demand-side EE. For more details on these programs, see section VIII.B and VIII.K of the preamble to the final rule.

Consistent with other types of RE, new hydroelectri c power generating capacity installed after 2012 is eligible for use in adjusting a CO 2 emission rate. Relicensed facilities are considere d existing capacity and, therefore, are not eligible for use in adjusting a CO 2 emission rate, unless there is a capacity uprate as part of the relicense d permit. In such a case, only the incremental capacity is eligible for use in adjusting a CO 2 emission rate. See section VIII.K of the preamble to the final rule for more information.

With respect to nuclear generation, the EPA has fin alized that generation from new nuclear units and capacity uprates at existing nuclear units will be eligible for use in adjusting a CO 2 emission rate, just like new and uprated capacity RE. Howeve r, consistent with the reasons discussed in the preamble for not including the preservation of existing nuclear capacity in the BSER – namely, that such preservation does not actually re duce existing levels of CO 2 emissions from affected EGUs – preserving generation from existing nuclear capacity is not eligible for use in adjusting a CO 2 emission rate. See section VIII.K of the preamble to the final rule for more information.

The following are summaries of the specific public comments under this comment:

Commenters expressed concern that EPA may be uninte ntionally excluding some programs, requirements or measures that should not be exclude d. Commenters stated that the definition of existing should be relative to 2020 but not necessa rily relative to today. Commenters stated that EPA should clarify that it does not intend to exclu de programs, requirements, or measures that do not exist today. Commenters added that it should be clear that just like for hydropower, any211

RE source in existence before 2020 would be conside red eligible for inclusion in the plan regardless of when it became "on the books", was es tablished, or was anticipated. Commenters added that EPA acknowledges, with the exception of hydropower, the RE levels represent total RE, rather than incremental amounts above a baselin e, so the RE generation can be supplied by any RE capacity regardless of its date of installat ion. Commenters assumed this to mean that provided Ohio EPA reaches its interim goal of 6% of total generation from RE and a final goal of 11%, whether that RE was in existence prior to 2020 , 2017 or even 2012, its generation can apply to the goal, including hydropower that was no t even included in the goal setting, and requests EPA to clarify this requirement. Commenter s added that EPA should clarify that existing nuclear beyond the 6% of at-risk generatio n should also be able to be applied as an existing measure. Commenters stated that because EP A is proposing states can take credit for "any additional new nuclear generating units or upr ating of existing nuclear units, relative to a baseline of capacity. Commenters stated EPA must al low states to take credit for preserving greater than 6% of these zero-emitting sources.

Comment 14: Comments regarding existing mass-based emission bu dget programs

Response 14: The mass-based plan approaches in the final rule provide pathways that can accommodate existing mass-based emission budget pro grams such as RGGI and California's carbon reduction program.

First, the final rule provides a pathway for a mass -based emission standard plan with a marketbased emission budget trading program to meet the m ass-based state goal for affected existing EGUs. Within this pathway, there is an option for a state to adopt an emission budget program that includes sources beyond the existing EGUs thatare regulated under CAA section 111(d), as long as it assures that the affected existing sourc es meet their mass-based state goals. Further, the EPA has calculated emission budgets for states thatinclude the state’s mass-based goal along with a new source complement that can cover project ed emissions from new sources. If the state adopts an emission budget under state law as that i s equal to or more stringent than EPA’s calculated budget, this could be part of a presumpt ively approvable state plan in which the state could meet its obligation by showing its affected e xisting EGUs and new sources have met the total emission budget specified in the state plan.

If these emission standard plan approaches do not f it the structure of the existing state program that includes a mass-based emission budget, the sta te can adopt a state measures plan, in which the state can use a variety of measure to assure th at they meet their mass-based state goal.

The plan approaches are discussed in section VIII.C of the final rule preamble of the CPP and additional considerations and requirements for mass -based state plans are provided in section VIII.J of the final rule preamble.

The following are summaries of the specific public comments under this comment:

Commenters requested EPA clarify the applicability of existing cap-and-trade programs, like California's or RGGIs, to EPAs Clean Power Plan. Co mmenters requested EPA consider and avoid the implementation of regulations that may pe nalize or otherwise unduly harm participants212

of existing carbon programs that have acquired emis sion rights either through allowances or offsets. Commenters added that California's carbon reduction program incorporates a multisector cap-and-trade approach to reduce carbon emis sions. Commenters requested EPA clarify whether the emissions targets, as laid out under th e California program which incorporate reductions from other sectors in addition to electr ic generation, will be sufficient to qualify as reductions under the EPAs goals for the state, or a lternatively provide some guidance on the conversion of a mass based target to the rate based targets under EPAs proposal including more specific guidance as to how a multi-sector accounti ng, such as in the case of California, could be bifurcated to show compliance under EPAs electricit y sector proposal. Commenters supported using existing cap-and-trade programs under RGGI an d California AB32 programs to be part of state plans and define an emission reduction trajec tory for affected existing EGU's in those states. Commenters contended that EPA must ensure t hat compliance with the federal program complements compliance efforts now required for Cal ifornia State program, and that entities participating in state programs that meet federal r equirements should be able to comply with federal programs with minimal additional procedural hurdles, focusing energy on emissions reductions rather than process.

Commenters stated that a major component of Califor nia's carbon reduction program is the acceptability of California Carbon Offsets (CCO). C ommenters stated that under California's current program, an offset is a credit that represe nts a reduction or removal of greenhouse gases by an activity that can be measured, quantified, an d verified. Commenters stated that individual offset projects can be implemented to generate offs et credits, which can then be sold and used by a covered entity as a compliance instrument in the Cap-and-Trade Regulation to satisfy up to 8% of its compliance obligation. Commenters stated tha t CCOs must be greenhouse gas reductions or removals that are real, additional, quantifiable , verifiable, permanent and enforceable and must go through a stringent set of standards. Comme nters stated that each offset credit is equal to one MTCO 2 e. Commenters requested EPA clarify the applicabili ty or acceptability of CCOs for compliance under the EPAs proposed rule. Commenters requested an official statement from the EPA as to whether carbon emissions offsets included in California, RGGI or any other state programs will be eligible as a mechanism of complia nce under the proposed EPA rule. Commenters also requested EPA to explain what stand ards will be required for an offset program, submitted as part of a state’s SIP, to be an eligible method of compliance under the proposed EPA rule. Commenters contended that EPA sh ould be clear that states (including California) that operate or may choose to operate a n allowance system that extends beyond covered EGUs may still use that system as part of t heir compliance plans, provided that they can demonstrate that the system, operating in tandem wi th any other relevant state programs, will assure that the federal targets are met. Commenters stated that section 111 (d) sector-specific compliance ought not to disrupt the functioning of more complete economy-wide carbon control systems, provided those systems also demonstrate th at section 111 (d) targets for the covered sector will be satisfied as part of their operation s. Commenters expressed concern that uncritically adding federally enforceable obligatio ns for covered entities, and requiring U.S. EPA review for all program amendments, would have signi ficant implications for California's Section 111 (d) compliance strategy and its Cap-and-Trade P rogram. Commenters stated that these implications include potentially limiting ARB's abi lity to efficiently amend the underlying regulations without potentially lengthy U.S. EPA ap proval processes and extending Clean Air Act citizen suit and permitting challenges for prog ram participants. Commenters believed that ARB's Cap-and-Trade Program can play an integral ro le in our compliance strategy, and may be213

the nucleus that furthers a market-based emissions trading program in the West within the context of the proposed rule. However, commenters c ontended that not every aspect of their Capand-Trade Program need be federally enforceable in order to show compliance with the targets proposed in the rule. Commenters suggested that EPA have a federally enforceable requirement that covered EGUs participate in the California mar ket program would ensure Section 111(d) compliance. Commenters requested EPA confirm that s uch an approach, with sufficient analytical support, would be acceptable.

Comment 15: Comments suggesting that the EPA should not exclud e existing non-renewable state energy programs

Response 15: The EPA appreciates the commenters’ concerns. The EPA recognizes the validity and importance of established programs, and the fin al rule contains two provisions that enable states to incentivize early investments in zero-emi tting generation and demand-side EE. For more details on these programs, see section VIII.B and VIII.K of the preamble to the final rule.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward. This applies to RE, demand-side EE, incremental nuclear capacity, and a ny other measure eligible under the requirement specified in section VIII.K of the prea mble.

The EPA notes that changes to affected EGUs since 2 012 that have reduced their emission will be helping to reduce the affected EGU’s emissions b e lower than they would have otherwise been.

The following are summaries of the specific public comments under this comment:

Commenters disagreed with excluding other non-renew able energy State programs that are equally capable of reducing CO 2 emissions from the electricity sector. Commenters contended that EPA relied on EERS in the same manner as exist ing RPS when calculating State specific goals, and it was arbitrary and capricious to fail to give them the same status it has proposed for existing RPS programs. Commenters added that there was no reason to limit the applicability of existing State programs to those EPA relied in sett ing the State emission reduction targets. Commenters contended that EPA cannot rely on existi ng state programs and measures to bolster the assertion that the proposed goals are achievabl e, but deny states the right to use the reductions that are achieved by these measures to d emonstrate compliance. Commenters added that EPA should make clear that the " existing measures " limitation in the proposal, if applicable to any measure in a state's compliance plan, is notapplicable to actions that reduce affected unit emission before 2020, including unit closures, HRI projects, and changes in dispatch between existing coal-based units and natural-gas based uni ts. Commenters agreed that existing measures should be allowed to count during the compliance pe riod, and can help states meet interim214

compliance goals set forth in the original proposal . However, commenters stated that during the comment period there has been significant confusion regarding exactly which existing renewable energy measures can be counted towards compliance a nd when credit will be given, and this confusion is already threatening potential emission reductions by slowing project development because states and EGUs are uncertain which actions will count towards compliance, and when these actions can count. Commenters requested that in the final rule the EPA more clearly state which actions can count towards compliance and when such actions count.

Comment 16: Comments that the EPA should work with states to d evelop compliance pathways, equivalency determinations, and consisten t evaluation and quantification methods for existing programs

Response 16: Throughout the comment period prior to this final rule, the states had several opportunities to provide EPA with their feedback on the rule, include through an extended comment period and many meetings with one or multip le states, as are reflected in records in the docket. In the development of the final emission gu idelines’ state plan approaches, EM&V requirements and accounting approaches, the EPA has considered the needs of states and sought to ensure that existing programs were recognized an d had a role in state plans. We will continue to work with states throughout the development, sub mittal and approval of state plans.

The following are summaries of the specific public comments under this comment:

Commenters suggested that EPA collaborate with stat es to develop compliance pathways and model rules for existing programs. As part of this recommendation, commenters suggested that EPA develop a procedure for allowing states to demo nstrate equivalency with the emission guidelines that ensures reductions are achieved usi ng consistent evaluation and quantification methods.

Comment 17: Comments suggesting that renewable energy programs should count toward compliance even when not part of an existing state requirement, program or measure.

Response 17: As part of the changes from proposal and final, ge neration from renewable energy capacity no longer needs to be specifically associa ted with an existing state requirement, program or measure under the rate-based emission st andard plan approach. States implementing a rate-based emission standard plan can recognize a nd issue ERCs for any generation that meets eligibility requirements that is located in any rat e-based state. These states can even recognize RE located in a mass-based state if it meets certai n conditions (see the geographic eligibility discussion in section VIII.K and the interstate eff ects discussion in section VIII.L). If renewable energy is to be recognized under a rate-based state measures plan approach, it must be associated with a specified measures and the plan has to show that the specified measures will achieve the goal. Additional complementary measures not specifi ed in the plan can be implemented that will reduce EGU CO2 emission and help the state achieve the mass CO2 goal, these need not be specified in the plan.215

The following are summaries of the specific public comments under this comment:

Commenters contended that EPA must not make the eli gibility for existing renewable energy programs count toward compliance contingent on whet her they are an existing "state requirement, program, or measure". Commenters conte nded that EPA has failed to account for the significant investments in renewable energy mad e by electric generating companies through their rate payers. Commenters believed that EPA’s f ailure to recognize these efforts affirmatively discourages company-driven environmental programs.

Comment 18: Comments suggesting that the EPA allow new state p rograms to count toward compliance not just state programs that were in eff ect when guidelines were proposed

Response 18: The EPA confirms that measure implemented after the date of proposal can contribute to meeting requirements under this final rule. States adopting rate-based plans may award ERCs to qualified providers that implement an y eligible projects from 2013 onward for the quantified and verified MWh of generation or sa vings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards o r bank the ERCs for use in any compliance period. In a mass-based context, similar efforts wi ll be inherently reflected in the affected EGUs stack emissions in 2022 forward.

The following are summaries of the specific public comments under this comment:

Commenters recommended the EPA affirm that states c an include in compliance plans emission reductions that occur during the compliance period without reference to whether these reductions were achieved by measures " on the books " at the time the guidelines were proposed.

Comment 19: Comments recommending that the EPA allow states wi th existing EE and RE programs be allowed to determine the method used to quantify emission reductions from these

programs
Response 19: The EPA is providing states with flexibility regard ing how they meet EM&V requirements. The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the pr eamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements f or RE are specifically addressed in section VIII.K.3. This section of EPA’s final emiss ion guidelines require that all EE providers demonstrate that they will quantify and verify MWh savings using best-practice EM&V approaches. One way to make this demonstration is t o use the presumptively approvable EM&V approaches specified in the proposed Model Rule in section IV.D.8. States may also submit other means of meeting the EM&V requirements so long as t he state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as stringent as the presumptively approvable approach.216

The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA allow those states with existing efficiency and renewable energy programs to continue to determine the method s used to measure, evaluate, and quantify current and future kilowatt-hours of energy savings and renewable energy production. Commenters expressed concern that if EPA indicates that it will define or specify energy efficiency savings or renewable energy generation d ifferently from the state's current approach, it could require changes to their programs, which coul d cause the activity to be stalled resulting in no carbon reductions due to uncertainty. Commenters concluded that if national approaches or standards are developed, states should be able to o pt into such standards to the extent they are preferable, mature, and have been vetted. Commenter s stated that measures to force uniformity by EPA may be counter-productive for states (such a s Hawaii) that have unique constraints, requirements, or climates.

Comment 20 : Comments suggesting that the EPA should compare s tate early emission reduction programs to the emissions standards for new natural gas plants or state’s interim emission rate if that is lower.

Response 20: The EPA appreciates the commenters’ suggestion. Due to the importance of early action, the EPA is recognizing eligible early actio ns in the same way as it is recognizing actions implemented during the performance period, with a z ero MWh ERC for each MWh of zeroemitting generation and demand-side EE the early ac tion produces in 2022 forward. Additionally, the EPA has developed the Clean Energ y Incentive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. For more details on th ese programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters suggested that EPA may wish to consider comparing early action in states employing rate or mass based programs against the e missions standard for new natural gas plants under section 111(b), or the states GHG emissions r ate for the interim control period, whichever is lower. Commenters also suggested crediting state s adopting mass-based programs based on how much they reduce emissions below their approved cap for the interim compliance period in conjunction with or in place of the first approach.

Comment 21 : Comments requesting clarification on how existing state demand-side EE programs will be treated under the CPP

Response 21: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they prov ide prior to the performance period, including demand-side EE. The EPA recognizes the validity and importance of these perspectives, and as a217

result, the final rule contains two provisions thatenable states to incentivize early investments in zero-emitting generation and demand-side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects, including demand-side EE, fr om 2013 onward for the quantified and verified MWh of generation or savings those project s provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of the se provisions for compliance with their assigned emission standards or bank the ERCs for us e in any compliance period. In a mass-based context, similar efforts will be inherently reflect ed in the affected EGUs stack emissions in 2022 forward.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of th e preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated it is unclear how EPA will treat existing demand-side efficiency programs that yield efficiency improvements during the compl iance window.

Commenters stated that some state renewable power s tandards award utilities credits for energy efficiency kWh in excess of the allowable energy ef ficiency and noted that utilities are allowed to use the credits in a future year to meet require ments. Commenters asked if EPA addressed this type of system in the rule.

Comment 22 : Comments proposing strategy for encouraging state s to take early action

Response 22: The EPA acknowledges the comment, but is not creat ing a disincentive for states to delay action. The EPA recognizes the validity an d importance of established programs, and the final rule contains two provisions that enable states to incentivize early investments in zeroemitting generation and demand-side EE. For more de tails on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the fina l rule.

The following are summaries of the specific public comments under this comment:

Commenters thought that rather than allowing credit s for early action, the EPA should encourage states to begin implementing emission reduction pro grams by including measures that create a disincentive for states to delay action. To accompl ish this, commenters recommended an increased ramp-up rate assignment to states that ha d not met or exceeded the average U.S. total incremental or cumulative savings rates by year-end 2012. For these states, commenters supported a targeted 0.38 percent rate of improveme nt in incremental annual savings per year, as opposed to the 0.2 percent rate proposed by EPA. Co mmenters noted that, in a mass-based218

approach, a set-aside for energy efficiency could b e used where the set-aside is larger in the first year(s) to accommodate several years of early credi ting.

Comment 23 : Comments suggesting that credit given for existin g state programs must not reduce effectiveness of CPP

Response 23: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they prov ide prior to the performance period. The EPA recognizes the validity and importance of these per spectives, and as a result, the final rule contains two provisions that enable states to incen tivize early investments in zero-emitting generation and demand-side EE. Both of these strate gies maintain the effectiveness of the program while recognizing early action.

First, states may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emiss ion standards or bank the ERCs for use in any compliance period. In a mass-based context, sim ilar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of early actions, see section VIII.K of the preamble to the final rule.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of th e preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Several commenters (were concerned that credit for early actions should not impact the effectiveness of the CPP. Commenters urged EPA to e nsure that any credit given for early actions does not “ erode the environmental integrity of the Clean Powe r Plan by crediting

" business-as-usual " actions .” Commenters recommended EPA strengthen the emissi on targets if early action credits are allowed. Commenters believ ed that the years between 2012 and 2020 present a challenge for compliance crediting, since providing credit for emission reductions during this time encourages earlier actions by movi ng emission reductions earlier in time. However, commenters were concerned " business-as-usual " emission reductions that occur during this time would have happened regardless of the Clean Power Plan.

Commenters encouraged EPA to balance credit for ear ly action and credit or incentives to act between 2015 and 2020 with the overall stringency o f the Clean Power Plan. Commenters cautioned that if too much credit is provided for a ctions before 2020, the Clean Power Plan will result in too few activities to reduce carbon pollu tion after 2020. Commenters did not support recognition of additional early action without an i ncrease in stringency. Commenters added that219

stringency could be increased without recognizing a dditional early action. Commenters added that if stringency is significantly increased, they supported finding ways to recognize additional early action and provide incentives to act between 2015 and 2020. Commenters supported providing credit for early action, but contended th at credit for prior actions should be left to the states to settle, but requested that any credit giv en for actions prior to 2012 do not result in an emission limit less stringent than what EPA require s.

Commenters believed states should not receive extra credit for energy savings occurring prior to 2020 or from measures installed prior to 2020 becau se this would weaken the standards and result in lower emission reductions during the 2020 -2030 time period. Commenters added that they would support EPA allowing for some emissions reduction credits for new or incremental actions that occur in the 2017-2019 time period aft er a state's carbon emission reduction plan is approved (e.g., for the expansion of energy efficie ncy programs in the 2017-19 period and the incremental energy savings for those years, relativ e to energy savings levels occurring in say the 2014-16 period). Commenters also recommended emissi on reductions below the state goal level could be banked for use in the first compliance per iod.

Commenters urged that if early action credit is pro vided in the final rule EPA must ensure that such crediting does not erode the environmental int egrity of the Clean Power Plan by crediting business-as-usual actions. Commenters added that cr editing for early action should take place in the context of strengthened state targets that bett er reflect the full potential for emission reductions under the best system of emission reduct ion, as discussed above with respect to each of the building blocks and the formula change. Comm enters recommended that EPA credit such actions in a manner that does not over-reward such actions and undermine the benefits of the Clean Power Plan.

Commenters stated that any adjustments to credit ea rly actions should not increase the actual national carbon dioxide intensity of power generati on in the later years of the period covered by the rule, beginning in 2025. Commenters recommended that any adjustments to credits for early action be tailored to the cumulative carbon dioxide emissions from 2016 through 2024 are no larger than would have been allowed absent the cons ideration of credit for early action. Commenters added that in order to provide maximum f lexibility to states while meeting this objective, the enforceable standard for the period prior to 20125 should be formulated as a limit for each state on the average carbon dioxide emissi ons intensity during the entire period from 2016 through 2024, leaving it to the state implemen tation plans to determine each stats specific glide path.

Commenters contended that unlimited banking or exte nded banking of emission reductions beyond a 3 year timeframe should not be permitted f or states because it damages the ability of the Clean Power Plan to lock-in long-term emissions reductions and systematic long-term change by allowing states to increase actual emissions in compliance years. Commenters added that unlimited banking would let states accumulate credi ts before the first compliance period resulting in states lagging behind on actually cutt ing carbon emissions. Commenters added that the emission reduction targets would be weakened an d the targets would no longer accurately reflect BSER.220

Commenters recommended allowing banking of avoided generation from energy efficiency that could be used during the present year or future yea rs to comply with the rule but Commenters urged EPA to develop limits on the type of EE measu res that are given credit, the life of the measure, and the vintage of the credit to ensure on ly real savings are credited.

Commenters noted that allowing states to take credi t for early action programs that would occur anyway would impact the overall emission reductions achieved by the Clean Power Plan. Commenters noted that giving compliance credi t to actions taken between 2012-2020, which would have happened regardless of the Clean P ower Plan creates a bank of compliance credits that will be used by that state during the compliance period in the place of other, beyond business

‐ as

‐ usual emission reducing actions. Commenters stated that the overall emission reductions achieved by the Clean Power Plan will be reduced the same amount as the credit. Commenters also stated that there are several highl y compelling reasons to begin taking action now, including reductions in co-pollutants and job creation resulting from energy efficiency and clean energy investments. Commenters argued that St ates and companies can take advantage of the 5 years between the finalization of the standar ds and the beginning of the compliance period to gradually build out renewable generation and bui ld up energy efficiency programs so that these resources are ready to deliver carbon reducti ons. If EPA does decide to provide early action credit, commenters urged the Agency to ensure that such crediting does not provide credit for business

‐ as

‐ usual actions. If crediting of early actions is all owed, commenters recommended the state goals should be strengthened in anticipation of that credit.

Comment 24 : Comments suggesting that credit for early actions should be limited to private sector investments outside of state EE programs

Response 24: The EPA disagrees that credit for early actions sh ould be limited to private sector investments outside of state EE programs, states ar e recognized in this final rule for their early actions to implement energy efficiency, as is suppo rted by a significant number of comments. The EPA recognizes the validity and importance of e stablished programs, and the final rule contains two provisions that enable states to incen tivize early investments in zero-emitting generation and demand-side EE. For more details on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters suggested that any credits for early ene rgy efficiency investments should limited to private sector investments outside of state energy efficiency resource standards and that comply with approved MRV methodologies.

Comment 25 : Comments suggesting that the EPA give states cred it for early actions that reduce emissions below their state targets

Response 25: The EPA appreciates the commenters’ suggestion. Du e to the importance of early action, the EPA is recognizing eligible early actio ns in the same way as it is recognizing actions221

implemented during the performance period, with a z ero MWh ERC for each MWh of zeroemitting generation and demand-side EE the early ac tion produces in 2022 forward. Additionally, the EPA has developed the Clean Energ y Incentive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. For more details on th ese programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated that early action in addressing p ollution is something that should be recognized and supported, and that they have long s upported recognition of early action in context of the Clean Power Plan. However, commenter s stated that there are complex questions to resolve on how to properly accomplish this recog nition. Commenters stated that the proposed framework does not provide for assessment of past e mission reduction performance, and that states and companies that have already transitioned to lower carbon and energy efficiency are closer to full deployment of BSER than others. Th erefore, commenters suggested that EPA should also consider clarifying that states that go beyond their targets would receive credit for those actions under future updates of the carbon po llution standards for power plants.

Commenters added that credits for renewable generat ion and energy efficiency programs that exceed what is required to meet a states goal durin g a compliance period should be allowed to be banked for use in a subsequent compliance period.

Comment 26 : Comments suggesting that early actions should be credited above 100 percent

Response 26: The EPA disagrees that early actions should be cre dited above 100 percent. Due to the importance of early action, the EPA is recogniz ing eligible early actions in the same way as it is recognizing actions implemented during the perfo rmance period, with a zero MWh ERC for each MWh of zero-emitting generation and demand-sid e EE the early action produces in 2022 forward. Additionally, the EPA has developed the Cl ean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand-side EE projects that commence construction after the effective date of t his rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. For mor e details on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the fina l rule.

The following are summaries of the specific public comments under this comment:

Commenters suggested the value of early energy effi ciency investments be credited at a rate above 100 percent due to the higher value of near-t erm CO 2 reductions. Commenters noted than the Synthesis Report of the Fifth Assessment Report , the Intergovernmental Panel on Climate Change (IPCC) noted that: "Inertia in the economic and climate systems and the possibility of irreversible impacts from climate change increase t he benefits of near-term mitigation efforts (high confidence). Delays in additional mitigation or constraints on technological options limit the mitigation options and increase the long-term m itigation costs as well as other risks that222

would be incurred in the medium to long term to hol d climate change impacts at a given level." (http://www.ipcc.ch/pdf/assessment-report/ar5/syr/S YR_AR5_LONGERREPORT.pdf (p.87)). Commenters believed that by giving a higher credit to early actions, the EPA will encourage states to accomplish their CO 2 -reduction goals even faster while simultaneously d iscouraging utilities from putting existing and planned energy efficiency policies and programs on hold.

Comment 27 : Comments suggesting alternatives credit banking f or states that take early action

Response 27: The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they prov ide prior to the performance period. The EPA recognizes the validity and importance of these per spectives, and as a result, the final rule contains two provisions that enable states to incen tivize early investments in zero-emitting generation and demand-side EE.

First, states may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emiss ion standards or bank the ERCs for use in any compliance period. In a mass-based context, sim ilar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of early actions, see section VIII.K of the preamble to the final rule.

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2 of the final rule preamble), and allocate to eligible projects allowa nces or ERCs equivalent to each MWh generated or avoided. For more details on this prog ram, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters noted their preference for credit bankin g approach, but suggested some alternative approaches EPA could use, including starting the co mpliance period for states in 2017 or 2018, while maintaining the business-as usual emission ra te for states until 2020. Commenters stated that this approach would allow states to recognize actions implemented before 2020, but would not penalize states that do not have opportunities for such pre-2020 abatement. Commenters further suggested that this approach could be appli ed to all states, or offered on an "opt-in" basis.

Comment 28 : Comments suggesting early action credits cannot c ompletely ease concerns over NGCC ramp rate, and the EPA should either phase in or eliminate interim goals.223

Response 28: The EPA respectfully disagrees. We are providing states with substantial flexibility as to how they structure those plans to achieve the 111(d) requirements. The flexibility includes, for example, the choice of approaches, tr ading, time to develop plans, additional time before the start of the interim performance period (postponed from 2020 until 2022), and the ability to shift emission rate achievement between performance periods. In response to additional analysis and many comments, we have modified the pr oposal and RIA – the establishment of CO 2 emission reduction standards is regionally based. The Building Blocks are not prescriptive, and states may consider local circumstances as they develop their plans, including system reliability, the need for ancillary services other regulatory requirements and infrastructure. See sections V.A, V.D, VIII.A, VIII.C and VIII.G of the final rule preamble of the CPP and Chapter 3 of the GHG Mitigation Measures TSD for the CPP Fi nal Rule supporting the final CPP.

Additionally, the EPA recognizes the validity and i mportance of established programs, and the final rule contains two provisions that enable stat es to incentivize early investments in zeroemitting generation and demand-side EE. For more de tails on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the fina l rule.

The following are summaries of the specific public comments under this comment:

Commenters noted that while crediting early action could provide some relief to the concerns they expressed about the ramp rate of NGCC, they di d not see early action and changes to Building Block 2 as necessarily interchangeable. Co mmenters suggested that crediting early actions is only a partial solution to easing the ef fect of the "emissions cliff" for late-acting state s, and suggested that EPA, either eliminate interim go als, or at a minimum, phase in both building blocks 1 and 2 when calculating goals for the inter im period. Commenters stated that EPA should not be concerned that using both approaches will make early acting states' interim goals too lax, because all states will still be required to meet the same final goals and will thus have to install emission reduction measures during the inte rim period.

Comment 29 : Comments stating that allowing credit for early r eductions would incentivize states and utilities to accelerate implementation o f RE and EE programs

Response 29: The EPA recognizes the validity and importance of early reductions, and as a result, the final rule contains two provisions thatenable states to incentivize early investments in zero-emitting generation and demand-side EE.

First, states may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emiss ion standards or bank the ERCs for use in any compliance period. In a mass-based context, sim ilar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. For more details on this treatment of early actions, see section VIII.K of the preamble to the final rule.224

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of th e preamble to the final rule.

The following are summaries of the specific public comments under this comment:
Commenters stated that providing credit for early r eductions will incentivize states, utilities and generators to accelerate the timetable for developi ng renewable resources, leading to even more climate change benefits before the interim requirem ents take effect and would provide a tangible reward to industry leaders who have promoted the us e of renewable energy, while maintaining the stringency of the final requirements.

Commenters stated that providing a few years of cre dit would incentivize additional new RE deployment that might otherwise not get built or bu ilt as quickly.

Commenters contended that EPA should provide limite d banking for carbon reduction actions taken after January 1, 2017, and before the plan pe rformance period begins. Commenters stated that this would help ensure that states have an inc entive to engage in carbon reduction measures prior to that period and get a jump on being better positioned to achieve their final compliance goals.

Commenters stated that allowing pre-2020 reductions would incentivize utilities and states to reduce their emissions earlier resulting in earlier benefits to the environment. Commenters added that in the case of mass-based programs, states sho uld also be able to quantify easily the tonnage reductions achieved by qualifying early actions und ertaken prior to the start of the program in 2020.

Comment 30: Comments suggesting that regulators can use the exp erience gained from existing state GHG emission reduction programs to develop an d implement their state plans

Response 30: The EPA agrees with the commenters. When developin g the framework for state plans, the EPA took into account the programs that states have already implemented that reduce GHG emissions, and the EPA has provided specifics r egarding how many existing state programs can fit under state plan requirements. For more information on state plans, see sec. VIII of the preamble.

The following are summaries of the specific public comments under this comment:

Commenters stated that regulators would gain valuab le insight and experience on how to run GHG emission reduction programs as well as evaluate , monitor, and verify resulting reductions.225

Commenters concluded that with this experience, pro grams can be modified and made more effective during the actual compliance period.

Comment 31: Comments suggesting that the EPA should allow limit ed banking of credits for early actions for a period of 36 months

Response 31: The EPA has developed the Clean Energy Incentive P rogram, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. This program allows for a limited number of ERCs or allo wances to be awarded for early action with unlimited banking, while maintaining stringency and ensuring early development of RE and demand-side EE. For more details on this program, s ee section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters suggested allowing for limited banking, recommended that states should be allowed to bank MWh generated from the date their SIP is su bmitted, and that those credits be eligible for compliance purposes for 36 months from the date of the start of the compliance period. Commenters further stated that limiting banking to 3 years is aligned with best practices of most RPSs and regional markets which allow banking for 3 years without significantly reducing overall state goals. While commenters supported lim ited banking, they believed that unlimited banking or extended banking of emission reductions beyond a 3 year timeframe should not be permitted for states, as extended or unlimited bank ing would undermine the effectiveness of the CPP. Additionally, commenters noted, extended or un limited banking creates distortions in the market by allowing states and EGUs to choose not to create new renewables until late in the compliance period or only create new renewables ear ly on.

Comment 32: Comments suggesting that the EPA should work with N ACAA and states to develop a system of crediting early actions taken b y states to reduce GHG emissions

Response 32: The EPA recognizes the validity and importance of established programs, and the final rule contains two provisions that enable stat es to incentivize early investments in zeroemitting generation and demand-side EE. For more de tails on these programs, see section VIII.B.2 and VIII.K.2.e of the preamble to the fina l rule. The EPA also notes that comments from NACAA and the states informed the development of this final rule.

The following are summaries of the specific public comments under this comment:226

Commenters suggested EPA work with NACAA and the in dividual states to address the issue of crediting early actions.

Comment 33: Comments suggesting the EPA should allow RGGI to k eep its current 3-year block compliance period.

Response 33 : The state plan approaches offered in this final r ule offer sufficient flexibility that to accommodate specific program elements of RGGI. W hile the interim and final plan performance periods do not align with RGGI’s curren t three-year control periods, if the RGGI participating states choose, they could include the RGGI program as a state measure under a state measures plan type. This plan type would not requir e alignment of RGGI control periods with the interim and final plan performance periods unde r the emission guidelines. The state plan types are discussed in section VIII.C. of the pream ble to the final rule. Mass-based state plan approaches using emission budget trading programs a re discussed in section VIII.J.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated EPA should permit RGGI to keep it s current 3-year block compliance period rather than a 3-year rolling compliance period, as long as the RGGI states can demonstrate that the program will achieve the required levels of str ingency on the timeframe required in the final emission guideline.

Comment 34: Comments suggesting that EPA should work with stat es to approve inclusion of a CCR.

Response 34 : The state plan approaches offered in this final r ule offer sufficient flexibility that they can accommodate the specific program component s included in RGGI, such as a costcontainment reserve (CCR). If the RGGI participatin g states choose to retain elements that could functionally expand the CO 2 emission budget of the program, such as a CCR or u se of GHG offsets, the RGGI program could be submitted as a s tate measure under a state measures plan type. The state plan types are discussed in section VIII.C. of the preamble to the final rule. Massbased state plan approaches using emission budget t rading programs are discussed in section VIII.J.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated RGGI uses a cost-containment rese rve to mitigate increases in allowance prices. Commenters said if the states choose to inc lude a Cost Containment Reserve (CCR) going forward in their 111(d) plans, EPA should wor k with states to approve inclusion of a CCR so long as the plans meet the required stringency l evels in the final 111(d) guideline irrespective of the deployment of the CCR.227

Comment 35: Comments suggesting that the EPA should allow RGGI states to address the issue of banked allowances.

Response 35 : The final emission guidelines provide for the ban king of CO 2 allowances, both within the interim and final plan performance perio ds, and from the interim plan performance period to the final plan performance period. The st ate plan types are discussed in section VIII.C. of the preamble to the final rule. Mass-based state plan approaches using emission budget trading programs are discussed in section VIII.J.2 of the p reamble to the final rule. Section VIII.J.2 discusses the treatment of banking of allowances un der the emission guidelines.

The following are summaries of the specific public comments under this comment:

Commenters stated EPA should allow the RGGI states to address the issue of banked allowances as they prepare for compliance with the Clean Power Plan. Commenters said during the 2012 RGGI program review process, the RGGI states devise d a system of interim allowance adjustments 3 that deals with the private bank of a llowances in such a way that it preserves the environmental integrity of the RGGI cap while ensur ing that the value of privately held allowances is not diminished. Commenters said they recommend that EPA allow the RGGI states to replicate this approach in order to account for the private bank of allowances that exists as the region begins compliance with the Clean Power Plan in 2020. Commenters said in order to ensure that privately held allowances from years pr ior to 2020 do not inflate the RGGI cap, the RGGI "base budget" for years 2020-2029 will require a reduction equivalent to the private bank of allowances. Commenters said if, for example, the private bank consists of 50 million allowances at the end of 2019, each year's base bud get during the ten year period from 2020- 2029 would be reduced by five million tons. Comment ers said following the 2020-2029 interim compliance period, the RGGI states should be allowe d to reassess the private bank of allowances and adjust the RGGI base budget accordingly for yea rs 2030-2034 in order to preserve the value of privately held allowances.228

5.10 TREATMENT OF NEW FOSSIL FUEL-FIRED EGUS

This section addresses comments on the Treatment of New Fossil Fuel-fired EGUs that are not affected units under section 111(d); in particular, comments on whether and under what circumstances emissions from new units are factored into compliance determinations and emission projections for mass-based and rate-based plans.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments suggesting states that employ the rate-ba sed plan should be allowed to include megawatts from new NGCC capacity in calcula ting compliance.

Response 1: New NGCC units are not allowed to be used to adjus t CO 2 emission rates at affected EGUs in state plans under a rate-based emi ssion standard approach. Permitting new NGCC generation to qualify for ERCs would provide a n incentive to shift generation from affected to non-affected sources (i.e., leakage). S ee section VII.C and VIII.K of the final rule preamble.

The following are summaries of the specific public comments under this comment:

Commenters stated that states should be free to inc lude any measures they deem appropriate, consistent with the CAA, as part of their section 1 11(d) plan, and should be given wide latitude to decide how to address new NGCC capacity for purp oses of calculating compliance under 111(d) plans. Commenters noted that states that emp loy the rate-based approach should be allowed to include megawatts generated from newly c onstructed units in the denominator for the state's rate. Commenters also noted that states tha t employ the mass-based approach should not include emissions from newly constructed units in t he program at all.

Commenters stated that states should be allowed the option of including new natural gas power plants as part of meeting rate-based requirements.

Commenters agreed with EPA that, under a mass-based plan, emissions from new NGCC would not and should not be accounted for when demonstrat ing compliance and that new NGCC units would not be affected units under Section 111(d). C ommenters argued that under a rate-based plan, any emission rate reductions at affected EGUs , resulting from substitution of new NGCC generation for higher-emitting generation by existi ng EGUs, would also automatically be reflected in emission rate changes from affected EG Us and a state would not need to include enforceable provisions for new NGCC in its plan. Th erefore emissions and generation from new NGCC capacity, commenters noted would not need to b e accounted for when demonstrating compliance. Commenters argued that states should ho wever have the discretion to allow an entity that must demonstrate compliance to include the emissions and generation from any new NGCC capacity in its demonstration without subjecti ng the new NGCC capacity to any Section 111(d) requirements. Commenters suggested the accou nting would be done by adding the emissions from any new NGCC capacity to the emissio ns of the affected units for which a229

compliance demonstration is being made or by adding the MWh generated by any new NGCC capacity to the denominator of the equation that ac counts for all other generation (or avoided generation) being used to calculate the entity's em ission rate.

Comment 2: Comments suggesting states should be allowed to us e beyond-compliance emission reductions from new units.

Response 2: New NGCC units are not allowed to be used to adjustCO 2 emission rates at affected EGUs in state plans under a rate-based emi ssion standard approach. Permitting new NGCC generation to qualify for ERCs would provide a n incentive to shift generation from affected to non-affected sources (i.e., leakage). S ee section VII.C and VIII.K. of the final rule preamble of the CPP.

In mass-based states, there is a requirement for st ate plans to demonstrate how the state is going to address concerns regarding potential increased e missions from new NGCC units as a result of shifting generation from affected to non-affected s ources (i.e., Leakage). The EPA is giving mass-based states several pathways to address new s ources and potential leakage. See section VII.C and VIII.J of the final rule preamble of the CPP.

New NGCC units are not covered by section 111(d) re quirements.

The following are summaries of the specific public comments under this comment:

Commenters suggested that EPA provide credit for an y amount that a new EGU exceeds the performance levels established through CAA section 111(b), regardless of whether CCS is involved or what type of unit is involved. Commente rs noted that, under a rate based limit, the credit would be obtained by including the new EGU a s an affected EGU in the compliance calculation. Commenters stated that under a mass ba sed limit, the new EGU would not be included as an affected EGU in the compliance calcu lation. However, commenters added, the tons emitted by affected EGUs would be reduced by a n amount equal to the product of the amount the new EGU emission rate fell below its sec tion 111(b) based performance standard and the generation of the new EGU during the compliance period.

Several commenters recommended the EPA allow states to use emission reductions achieved by new units under section 111(b) towards compliance w ith the section 111(d). Commenters noted that EPA should make clear that states are free to find and use other similar incremental emission reductions, in addition to the example provided by EPA regarding the installation of CCS on page 34,924 of the proposal.

Commenters stated that they agree with the proposed compliance measure of using NGCC generators to comply with existing source standards

. Commenters stated that GHG reductions from new plan ts covered under 111(b) that are reduced below emissions limits would be creditable towards reductions required for 111(d) plants.230

Comment 3: Comments suggesting lack of coordinated implementa tion on whether to include new generating units could distort electricity mark ets.

Response 3: In mass-based states, there is a requirement for s tate plans to demonstrate how the state is going to address concerns regarding potent ial increased emissions from new NGCC units as a result of shifting generation from affected to non-affected sources (i.e., Leakage). States with mass-based emission standards have several opt ions or pathways to address new sources and the potential for emission leakage. See section VII.C and VIII.J of the final rule preamble of the CPP. However, new NGCC units are not covered by section 111(d) requirements.

New NGCC units are not allowed to be used to adjustCO 2 emission rates at affected EGUs in state plans under a rate-based emission standard ap proach. Permitting new NGCC generation to qualify for ERCs would provide an incentive to shif t generation from affected to non-affected sources (i.e., leakage). See section VII.C and VIII .K of the final rule preamble of the CPP.

Because the EPA is taking steps to address the pote ntial for leakage in mass- and rate-based states, we do not believe new generating capacity w ill result in a distortion of the markets.

The following is a summary of this specific public comment:

Commenters said that the states' discretion as to w hether to include new generating units in their implementation plans could exacerbate market distor tions, including between new and existing natural gas combined cycle (NGCC) units. Commenters indicated that states will have an incentive to either include or exclude new sources in their target depending on their rate goal relative to EPA's GHG standard for new generating u nits.

Comment 4: Comments suggesting states should count only net e mission reductions from new sources towards 111(d) compliance.

Response 4: New NGCC units are not allowed to be used to adjus t CO 2 emission rates at affected EGUs in state plans under a rate-based emi ssion standard approach. Permitting new NGCC generation to qualify for ERCs would provide a n incentive to shift generation from affected to non-affected sources (i.e., leakage). S ee section VII.C and VIII.K of the final rule preamble of the CPP.

In mass-based states, there is a requirement for st ate plans to demonstrate how the state is going to address concerns regarding potential increased e missions from new NGCC units as a result of shifting generation from affected to non-affected s ources (i.e., Leakage). The EPA is giving mass-based states several pathways to address new s ources and potential leakage. See section VII.C and VIII.J of the final rule preamble.

The following is a summary of this specific public comment:

Commenters stated EPA should only permit states to count net carbon emission reductions from new carbon-emitting generation toward Section 111(d ) compliance in order to prevent overcounting of emission reductions. Commenters indicat ed that states may choose to build new231

natural gas plants, convert existing coal plants to natural gas facilities, or increase the capacity utilization of existing natural gas facilities to c omply with state targets, and that while this new generation may displace power from higher carbon-in tensive sources, new carbon emissions will also be created. Commenters indicated that emission s from new sources must be factored in, otherwise net emission reductions may not be accura te. Commenters also said failing to account for emissions from new sources could create a perve rse incentive to replace existing generation with equally carbon-intensive new generation, resul ting in significant costs, but no actual reduction in carbon emissions, and potentially caus ing an increase in net emissions over time.

Comment 5: Comments suggesting that the EPA should credit tot al emission reductions not incremental reductions from new low- or zero-carbon sources.

Response 5: Only measures installed after 2012 are eligible em ission reduction measures in ratebased emission standard state plans. See sections V.A. and V.E. on the BSER and Building Block 3, and section VIII.K of the final rule pream ble of the CPP on general eligibility requirements for resources used to adjust a CO 2 emission rate.

New fossil fuel-fired units (i.e., NGCC and IGCC wi th CCS) are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans und er a rate-based emission standard approach. Permitting new fossil generation to quali fy for ERCs would provide an incentive to shift generation from affected to non-affected sour ces (i.e., leakage). See section VII.C and VIII.K of the final rule preamble of the CPP. Exist ing EGUs that retrofit CCS capacity are allowable measures, assuming they do not become mod ified or reconstructed units under section 111(b). See section VIII.I of the final rule preamb le of the CPP.

The following is a summary of this specific public comment:

Commenters supported being able to use new generati on sources as a compliance option, however commenters were concerned that the treatmen t of CCS as a compliance option is treated less favorably than other types of new generation. Commenters said that it appears that new renewable energy generators would be allowed to ful ly count their emission reductions towards compliance with the existing source rule, but that not all other new zero- or low-emitting generation technologies are granted similar treatme nt. Commenters indicated that allowing only the incremental emission reductions that are below the new source limits from new fossil fuelfired generating units that incorporate CCS to coun t towards compliance is confusing and could discount the substantial emissions reductions that CCS project could deliver relative to uncontrolled coal or gas-fired EGUs. Commenters sta ted that reductions in CO 2 should be treated equivalently across all compliance options and that EPA should promote all forms of new, clean generation.

Comment 6: Comments requesting clarification regarding if mas s from new units is added to the mass-limit232

Response 6: In mass-based states, there is a requirement for s tate plans to demonstrate how the state is going to address concerns regarding potent ial increased emissions from new fossil fuelfired units as a result of shifting generation from affected to non-affected sources (i.e., leakage). The EPA is giving mass-based states several pathway s to address new sources and potential leakage, one of which is to take an adjusted emissi on performance standard that takes emissions from new units into account. See section VII.C and VIII.J of the final rule preamble of the CPP.

The following is a summary of this specific public comment:

Commenters asked if in the event that EPA chooses t o include new units in the section 111(d) program whether the mass the state is allowed to em it will be increased by the amount the new unit would be allowed to emit under the NSPS.

Comment 7: Comments requesting clarification on how new units built after the effective date are treated for compliance purposes

Response 7: It depends on the type of state plan approach. New NGCC units are not allowed to be used to adjust CO 2 emission rates at affected EGUs in state plans und er a rate-based emission standard approach. Permitting new NGCC generation t o qualify for ERCs would provide an incentive to shift generation from affected to non- affected sources (i.e., leakage). See section VII.C and VIII.K of the final rule preamble of the CPP.

In mass-based states, there is a requirement for st ate plans to demonstrate how the state is going to address concerns regarding potential increased e missions from new NGCC units as a result of shifting generation from affected to non-affected s ources (i.e., Leakage). The EPA is giving mass-based states several pathways to address new s ources and potential leakage. See section VII.C and VIII.J of the final rule preamble of the CPP.

The following is a summary of this specific public comment:

Commenters asked for clarification on when, if ever , NGCC units built after the effective date of the 111(d) rule would be subject to 111(d) instead of 111(b), and how emissions from those units would be treated for compliance purposes.

Comment 8: Comments requesting clarification on how new fossi l-fuel plants, new NGCC plants and nuclear generation are factored into com pliance

Response 8: New NGCC units are not allowed to be used to adju st CO 2 emission rates at affected EGUs in state plans under a rate-based emi ssion standard approach. Permitting new NGCC generation to qualify for ERCs would provide a n incentive to shift generation from affected to non-affected sources (i.e., leakage). S ee section VII.C and VIII.K of the final rule preamble of the CPP.233

In mass-based states, there is a requirement for st ate plans to demonstrate how the state is going to address concerns regarding potential increased e missions from new NGCC units as a result of shifting generation from affected to non-affected s ources (i.e., Leakage). The EPA is giving mass-based states several pathways to address new s ources and potential leakage. See section VII.C and VIII.J of the final rule preamble of the CPP.

Nuclear capacity installed after 2012 (i.e., new, u prated, and under construction capacity) is considered an eligible measure. See section VIII.K of the final rule preamble of the CPP for how incremental generation from new and uprated nuclear power is addressed in relation to other sources and as approvable measure to include in rat e-based state plans.

The following is a summary of this specific public comment:

Commenters asked if actions at new fossil-fuel plan ts could be credited towards compliance. Commenters asked specifically if new NGCC or nuclea r generation could be added to average down the emission from coal-fired plants.

Comment 9: Comments requesting clarification on if new EGU ge neration is included in 2030 generation estimates.

Response 9: The modeling of 2030 electricity generation does in clude new EGUs needed to meet increasing demand. Generation and CO 2 emissions from new EGUs that are not covered under CAA section 111(d) are not included in the st ate goal calculations. For more details on state goal calculations see section VI and VII of t he final rule preamble of the CPP.

The following is a summary of this specific public comment:

Commenters asked if in estimating the 2030 generati on whether states may subtract generation from new fossil fuel EGUs that are planned to go on -line after 2020.

Comment 10: Comments requesting clarification on how to set th e mass goal if new sources are included in compliance plans.

Response 10: In mass-based states, there is a requirement for s tate plans to demonstrate how the state is going to address concerns regarding potent ial increased emissions from new NGCC units as a result of shifting generation from affected to non-affected sources (i.e., Leakage). The EPA is giving mass-based states several pathways to add ress new sources and potential leakage, one of which is to take an adjusted emission performanc e standard that takes emissions from new units into account. See section VII.C and VIII.J of the final rule preamble of the CPP.

The following is a summary of this specific public comment:234

Commenters stated that if EPA allows new generators to be included in compliance plans, EPA would add projected generation from those sources i nto generation from affected EGUs, which is multiplied by the rate goal to get the mass goal. C ommenters indicated that total emissions and cost consequences of including new generators are n ot known ex-ante, since they depend upon whether states adopt rate or mass goals. Commenters also indicated that new natural gas combined-cycle and nuclear generators are particula rly important.

Comment 11: Comments suggesting that new units subject to 111( d) that outperform NSPS targets should be allowed to use the margin over co mpliance to satisfy emission rate targets.

Response 11: The EPA disagrees with the commenter that emission reductions from new (or modified or reconstructed) EGUs may be used as meas ures under the emission guidelines. New units are covered under the CAA section 111(b) fina l Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units rule, which we are finalizing concurrently with this rulemaking. A key concern under the final emission guidelines for existing sources is leakage to new u nits that are not covered by the emission guidelines. Emissions leakage, or increased CO 2 emissions due to increased utilization of unaffected sources, is contradictory to objectives of this rule and should, therefore, be minimized. Allowing affected EGUs to adjust their e mission rates as a result of lower-emitting new NGCC units not covered under this section 111(d ) rule would not mitigate leakage concerns, and could even exacerbate the situation. Consequently, new EGUs covered under the CAA section 111(b) rule are not allowable measures in state plans because the EPA believes it would result in increased emission leakage. See Sec tion VIII.K.1.b of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters argued that new units subject to 111(d) that outperform NSPS targets should be allowed to use the margin over compliance to satisf y existing unit emission rate compliance targets.

Comment 12: The commenters stated that EPA needs to provide a clear timeline for when new gas plants will become part of the existing fleet f or purposes of 111(d) compliance.

The following are summaries of the specific public comments under this comment:
The commenters stated that providing a clear timeli ne for when new gas plants will become part of the existing fleet for purposes of 111(d) compli ance (assuming not accounted for in the target and compliance initially) is critical to utility re source decisions in the near term. The commenters stated that utilities and stakeholders need to have as much clarity as possible about the potential carbon regulatory implications of adding new gas ge neration. The commenters noted that certainty that new gas will become subject to carbo n constraints in the future will help utilities235

and stakeholders work together to use diverse suppl y and demand--side resources to produce a clean and reliable electric system.

Response 12 : New fossil fuel-fired units are covered under the CAA section 111(b) final Standards of Performance for Greenhouse Gas Emissio ns from New Stationary Sources: Electric Utility Generating Units rule, which we are finaliz ing concurrently with this rulemaking. New NGCC units are not affected EGUs under this CAA sec tion 111(d) final rule. For the EPA's response to this comment see section V.A and V.D of the final rule preamble of the CPP. For more on standards for new fossil fuel-fired EGUs se e the final section 111(b) rule for New Sources.236

5.11 CONSIDERATION OF A FACILITY'S " REMAINING USEFUL LIFE " IN APPLYING STANDARDS OF PERFORMANCE

This section discusses comments on the way in which the emission guidelines address the CAA section 111(d)(1) provision to consider a facility' s Remaining Useful Life and " other factors " in promulgating section 111(d) regulations.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments requesting that states be required to ana lyze the remaining useful life of each existing source, and that the EPA consider rec ent pollution investments in analyzing remaining useful life.

Response 1: The EPA has structured the guidelines to enable states to consider remaining useful life and other factors in designing their state pla ns and EGU emission standards.

Regarding the suggestion that the EPA require the state to demonstrate that it ha s analyzed the remaining useful life of each EGU, the EPA does not believe that section 111(d) authorizes EPA to issue such a mandate. The statute merely require s EPA’s guidelines to allow for state consideration of remaining useful life in regulatin g under section 111(d) In this respect, compare the language of 111(d)(1) (“permit the State” to co nsider remaining useful life) with 111(d)(2) (“Administrator shall” consider remaining useful li fe). In addition, section 116 of the Act allows states to impose more stringent requirements on aff ected EGUs than the minimum requirements of these guidelines, even after considering remaini ng useful life. However, the EPA anticipates that sources and states will discuss such issues in the context of plan development.

See section VIII.G.1 of the final rule preamble of the CPP for additional EPA response to this

comment.

In regard to comments that the EPA itself should fa ctor into the remaining useful life analysis recent investments in pollution controls that EGUs have made to comply with EPA rules, the EPA observes that section 111(d) calls for the EPA’ s guidelines to permit states to consider remaining useful life. The law would require the EP A to consider remaining useful life of sources in promulgating a federal plan to achieve t he required emission reductions in the event that a state failed to submit an approvable plan; h owever, a federal plan is not part of this regulatory action.

The following are summaries of the specific public comments under this comment:

Commenters indicated that recent regulations with n ear-time deadlines, such as the Regional Haze and MATS Rules, have spurred electricity gener ators to make difficult decisions on whether to install controls or retire units, and th at EPA should respect those decisions and factor the underlying agreements and significant expenditu res triggered by other regulations into the237

remaining useful life analysis. Several commenters suggested that the following regulatory language be added as a fifth provision to 40 CFR se ction 60.5740(11), " supporting material " to include " materials demonstrating the state's analysis of the remaining useful life of the existing source to which such standard applies." Commenters indicated that this language would addr ess situations where affected EGUs have made recent emi ssion control retrofits or have significant remaining book life to minimize costs to customers while continuing to structure plans that meet EPA's 2030 emission targets.

Comment 2: Comments suggesting the EPA must uphold the authori ty and flexibility to consider remaining useful life, and the proposal do es not properly provide for consideration of remaining useful life.

Response 2: The EPA agrees that the law requires the EPA’s guid elines to permit state in applying a standard of performance to any particula r source under a section 111(d) plan to take into consideration, among other factors, the remain ing useful life of the source to which the standard applies. The final guidelines meet this re quirement as explained in preamble section VIII.G.1. and the legal memorandum

The following are summaries of the specific public comments under this comment:

Commenters indicated that EPA must uphold the autho rity and flexibility of CAA section 111(d) that allows state plans to consider the remaining u seful life of the existing source, that the proposal did not do so, and/or that the rule is str uctured in a way that prevents consideration of remaining useful life.

Comment 3: Comments suggesting that the proposal does not all ow states to adjust performance standards to account for source-specific circumstan ces consistent with section 111(d).

Response 3: The EPA disagrees with the thrust of this comment, which was to argue that the statute does not permit the EPA to require states t o achieve the goals. In fact, the statute merely says that EPA’s regulations shall permit states to take into consideration, among other factors, remaining useful life when applying standards of pe rformance to any particular existing source. These emission guidelines satisfy that requirement, as detailed in the final rule preamble section VIII.G.1.

The following are summaries of the specific public comments under this comment:

Commenters noted that the inherent flexibility in s ection 111(d) allows states to evaluate the viability of control technologies on a case-by-case basis and consider other factors such that states could strike an appropriate balance between emission reductions and the economic interests of regulated facilities, their investors, and their customers by adjusting the generally applicable standards of performance to account for source-specific circumstances.238

Comment 4: Comments suggesting that states should be allowed to consider remaining useful life in setting performance standards and provide r elief for EGUs from the state goals.

Response 4: These comments are addressed in final rule preambl e section VIII.G.1 and the legal memorandum.

The EPA adds that, contrary to commenters’ assertio ns, the EPA did not propose to bar states from considering remaining useful life on grounds t hat BSER already allows for its consideration. The EPA has revised the goals since proposal and believes that they are achievable.

The following are summaries of the specific public comments under this comment:

Commenters said that a meaningful consideration of remaining useful life requires that EPA provide relief for EGUs from the state performance goals, that states are authorized by the CAA to make these types of decisions, and that EPA is i gnoring the requirement that states be allowed to consider remaining useful life. Commenters said that the approach of imposing very strict state goals negates meaningful consideration of rem aining useful life. Commenters said the approach of not allowing states to consider rem aining useful life in setting standards of performance, because the BSER already allows for co nsideration of remaining useful life, contradicts the plain language of the CAA and is un supportable both on a legal and policy basis.

Comment 5: Comments suggesting that state authority to evalua te remaining useful life allows deviation from the emission guidelines.

Response 5: The EPA understands that the law requires the EPA’s guidelines to permit a state, in applying a standard of performance to any partic ular source under a section 111(d) plan, to take into consideration, among other factors, the r emaining useful life of the source to which the standard applies. The final guidelines meet this re quirement as explained in final rule preamble section VIII.G.1. Subsection (d) of that preamble s ection explains why remaining useful life and other facility-specific factors do not warrant adju stments in the guidelines’ performance rates and state goals. Commenters misstate the language and s tructure of section 111(d)(1) and the Act. First, section 111(d)(1) (unlike section 111(d)(2)) does not state that remaining useful life must be taken into account. Second, section 111(d)(1) do es not provide direct authority to states to taken into consideration remaining useful life in a ny way that states wish. Third, EPA is not usurping state authority; instead EPA is promulgati ng emission guidelines under which states submit state plans, and these guidelines permit sta tes to take into consideration remaining useful life. Finally, the notion that EPA cannot disapprov e a state plan that fails to meet the requirements of these guidelines because of some su pposed reservation of state authority is inconsistent with the structure of the Act and (for example) recent case law regarding EPA action on regional haze SIPs, as detailed in the legal mem orandum.

The following are summaries of the specific public comments under this comment:239

Commenters stated that the law is clear that the re maining useful life of EGUs must be taken into account. Commenters indicated that state authority to evaluate the remaining useful life cannot be usurped. Commenters stated that EPA cannot manda te that it will reject a state plan that deviates from the emission guidelines when it exerc ises its statutory authority to account for remaining useful life

Comment 6 : Comments suggesting that states may set a less st ringent standard through consideration of remaining useful life - proposal i s inconsistent with the statute.

Response 6 : The EPA understands that the law requires the EPA ’s guidelines to permit a state, in applying a standard of performance to any partic ular source under a section 111(d) plan, to take into consideration, among other factors, the r emaining useful life of the source to which the standard applies. The final guidelines meet this re quirement as explained in final rule preamble section VIII.G.1. and the Legal Memorandum. The EPA agrees that a state may choose to provide a less stringent emission standard, otherwi se modify, or postpone emissions standards for an individual facility so long as the state’s p lan meets the requirements of this guideline. EPA’s guideline does not dictate that a state requi re any particular plant to reduce operations.

The following are summaries of the specific public comments under this comment:
Commenters argued that the CAA gives states specifi c authority to take into account the remaining useful life of existing units, and quoted the following sentence from the CAA: "when applying a standard of performance to any particula r source under a plan submitted... to take into consideration, among other factors, the remaining u seful life of the existing source to which such standard applies." Commenters argued that the CAA d oes not limit states to providing less stringent standards to plants that only have a few years left to operate but also allows states to modify or postpone regulation of CO 2 for plants that have long operating lives remainin g or where applying the standards would result in an exp ensive, unwarranted plant closure that could compromise electric reliability and result in far h igher consumer costs. Commenters stated that forcing plants with useful remaining operating live s to reduce operations, even to the point of becoming uneconomical or closing, is completely con trary to the statutory requirement that directs the EPA to take into account "the remaining useful lives of the sources in the category of sources to which such standard applies." Commenters stated that section 111(d)(2) also directs that the EPA procedural regulations "shall permit t he state" to take "other factors" into account in addition to remaining useful life. Commenters state d that the EPA has inappropriately eliminated the statutory authority allowing states to take imp ortant factors into account concerning specific plant conditions in developing the state plan.

Comment 7: Comments suggesting that states could consider "re maining useful life" consistent with the statute if allowed to establish their own emission standards.240

Response 7: The guidelines provide states the flexibility to e stablish their own emissions standards for EGUs and to alter the requirements an d timing among different EGUs.

The following is a summary of this specific public comment:

Commenters indicated that states could exercise the ir statutory obligation to consider " remaining useful life " if they are allowed to establish their own perfor mance standards and compliance schedules.

Comment 8: Comments suggesting that the EPA does not have the statutory authority to deem the consideration of remaining useful life unnecess ary.

Response 8: Commenters misconstrued the intended meaning of th e statement in the proposal preamble. Section VIII.G.1 of the final rule preamb le, especially subsection (c), explains how the guidelines permit states to consider remaining usef ul life and other factors in applying standards of performance to individual facilities in their st ate plans.

The following is a summary of this specific public comment:

With regard to the preamble language at 79 FR 34,92 5 that indicates that "the flexibility provided in the state plan development process adeq uately allows for consideration of the remaining useful life. . . and, therefore. . .separ ate application of the . . . provision by states in the course of developing and implementing their CAA sec tion 111(d) plans is unnecessary" commenters stated that EPA does not have the statut ory authority to deem this consideration

" unnecessary ."

Comment 9: Comments suggesting the different approach of thes e guidelines does not allow the EPA to alter state authority to account for remaini ng useful life.

Response 9: The EPA believes that these commenters’ statements do not accurately reflect the final guideline. The final guideline permits states to consider remaining useful life in applying emissions standards to individual EGUs as they desi gn their state plans, as explained in final rule preamble section VIII.G.1. The EPA believes that th e flexible approach taken in this guideline enables states to consider remaining useful life in ways that are not available when the EPA guideline establishes presumptive emissions standar ds for individual sources, and that therefore the EPA is finalizing its proposal that the provisi ons in 60.24(f) should not apply to the class of facilities covered by these guidelines, as explaine d in final rule preamble section VIII.G.1 and the legal memorandum.

The following are summaries of the specific public comments under this comment:

Commenters disagreed with EPA that the different na ture of these emission guidelines from the usual presumptive standards allows EPA to alter sta te authority to account for remaining useful241

life. Commenters stated that the CAA provides EPA w ith no discretion to limit or prohibit states from taking remaining useful life and other factors into account in applying a standard of performance to individual sources.

Comment 10: Comments suggesting source-specific remaining usef ul life determinations from governing boards should be considered.

Response 10: NO RESPONSE HAS BEEN DEVELOPED AT THIS TIME

The following are summaries of the specific public comments under this comment:

Several commenters indicated that state and board u tility regulatory commission determinations on remaining useful life should be discussed in the regulatory text and included as supporting information in the final rule. Commenters indicated that while the 1975 rule language could apply to older units, the remaining useful life of the newer units (such as those that incorporated BACT) should be analyzed individually by state plan s. Commenters indicated that without recognition and discussion of unit-specific analysi s in the EPA rule, prior determinations of remaining useful life and prior economic decision o n electricity rates could be ignored, which could lead to unintended consequences, including st randed assets. Commenters said that state utility regulatory commission or FERC hearings on s tranded assets may result.

Comment 11: Comments suggesting the proposal satisfies the rem aining useful life provision.

Response 11: We agree with the commenter. Please see final rule preamble section VIII.G.1 for a detailed discussion of how the flexibilities in t his rule permit states to take into consideration remaining useful life without relaxing state emissi on goals.

The following are summaries of the specific public comments under this comment:
Commenters indicated that the proposal satisfies th e " remaining useful life " provision, and that it is appropriate for the " remaining useful life " to be considered as states design their plans and their demonstration of performance standard achieva bility. Commenters stated that the statute does not require that states have discretion to rel ax state emission goals. Commenters explained that the average state emission targets and flexibl e compliance options enable states to adjust for source-specific circumstances and fulfill the " remaining useful life " provision in a manner consistent with their " best system of emission reduction " analysis.

Comment 12: Examples of regulatory options to address remainin g useful life, including market-based systems and averaging programs.242

Response 12: The EPA agrees that averaging and trading programs , and legally enforceable retirement dates at the end of a plant’s useful lif e, are examples of regulatory mechanisms that can help avoid unreasonable costs for EGUs with a l imited remaining useful life.

The following are summaries of the specific public comments under this comment:

Several regulatory options that address " remaining useful life " were suggested by commenters. Commenters stated that market-based or averaging pr ograms were recommended since these programs allow older, inefficient facilities to cho ose to operate for several years and comply through the purchase of allowances or through avera ging with more efficient facilities. Commenters stated that a declining system-wide cap on emissions to the level of a new plant was suggested for states that use a system-wide mass-ba sed approach, whereby market signals would determine whether aging systems actually retire or whether the required emission reductions are achieved from other plants that reduce their genera tion.

The use of legally enforceable retirement dates tha t precede the end of the compliance period was suggested by several commenters. Commenters pro vided examples of coal plant retirement commitments in Regional Haze plans for Washington, Oregon, and Wyoming. Commenters indicated that these types of commitments should be allowed to achieve section 111(d) 2030 goals. Commenters also noted that EPA has allowed r egulated units to use retirement as a compliance tool in NPDES.

Comment 13 : Comments suggesting that requiring compensating e mission reductions is improper.

Response 13: The EPA disagrees with commenters’ characterizatio n of the guidelines. These comments are addressed by section VIII.G.1 of the f inal rule preamble, particularly subsection (e) titled “ Response to key comments on remaining useful life .”

The following are summaries of the specific public comments under this comment:
Commenters indicated that extracting further emissi on reductions from other sources to make up for the less stringent standards applied as a resul t of " remaining useful life " considerations is inconsistent with section 111(d). Commenters indica ted that transferring a facility's emission reduction burden to another facility or requiring t he reductions through external measures is impermissible. Commenters indicated that EPA has no authority to hold other sources to a standard that is " better than BSER " because of EPA's interpretation of how to accountfor remaining useful life.

Several commenters indicated that addressing any a djustments to a particular facility's requirements with "compensating emission reductions " is unprecedented, an improper restraint under section 111(d), and commenters said that EPA cited no legal authority to allow for this deviation from its established framework. Commenter s stated that Congress intended the consideration of remaining useful life to be undert aken with respect to the specific circumstances of individual sources, not a balancing exercise rel ating to the overall emissions reductions from a243

source category. Commenters noted that EPA allows s tates to utilize variances for individual sources, but not to "compensate" for such adjustmen ts through tighter restrictions on other sources. Both commenters quoted language that focus es on individual units from 60.24(f) and preamble language in support of their position.

Commenters indicated that requiring a state to iden tify and impose additional obligations on another source beyond those required by the best sy stem of emission reduction is unlawful. Commenters indicated that the consideration of rema ining useful life and other relevant factors is a one-way ratchet that provides relief to sources t hat cannot achieve BSER, and that EPA turns that approach on its head by prohibiting a state fr om providing such relief to a specific facility unless it can identify another facility to "punish" by requiring additional emission reductions to offset that relief.

Comment 14: Comments expressed concerns that proposed state go als did not provide states with sufficient flexibility to allow for compensati ng emission reductions.

Response 14: In response to public comments, the EPA revised it s approach to BSER and goalsetting in the final rule, as explained in final ru le preamble sections V through VII. These changes will ensure that EGU performance rates and state goals are achievable considering cost. A more detailed response to concerns that states wo uld not have adequate flexibility in practice to consider remaining useful life, and stranded ass ets, is included in final rule preamble section VIII.G.1, the legal memorandum, and the July 2015 d ocket memo titled “ Stranded assets analysis .”

The following are summaries of the specific public comments under this comment:
Commenters indicated that extracting emission redu ctions from or over-controlling other EGUs or other entities assumes there is enough room with in each state's goal to make such accommodations. Commenters provided more specific e xamples:

• Commenters stated that the emission rates for Virgi nia are set so low that compliance options are extremely limited, and that Virginia is unable to take advantage of the 10-year averaging flexibility for the Interim Mandatory Goal.

• Commenters stated that even if all the building bl ocks were successfully implemented to the fullest extent in the commenter' s service territory, the commenter's CO 2 emission rate could not meet the proposed limit. C ommenters indicated the entire state of Florida could not mee t the limit utilizing the currently existing affected sources.

• Commenters said that because the state of Arizona m ust re-dispatch all of its coalfired generation under building block 2 to comply w ith the state's interim goal, the state actually has no flexibility to consider the r emaining useful lives of Arizona's coal-fired fleet. Commenters stated that EPA's appl ication of its building blocks and BSER to Arizona leaves insufficient room for th e state to make any accommodations to consider the remaining useful lif e factor.244 • Commenters said that as a consequence of EPA's flaw ed assumption that all emission reductions from Building Blocks 1 and 2 co uld be achieved at the start of the 10-year interim compliance period, almost al l of the emission reductions that the rule ultimately requires must be achieved in the first year, which leaves Pennsylvania with little or no flexibility other th an to rely on coal unit closures.

• Commenters said that the severity and early onset o f emission reductions leave Oklahoma with no flexibility for implementing a por tfolio of compliance options, and that Oklahoma will be forced to prematurely clo se coal-fired generating

assets.

Commenters stated that even if the emission reducti on targets in individual building blocks can be achieved in the abstract, there is no guarantee that they can be met in the aggregate, particularly with any significant margin for error.

Several commenters stated that the flexibility EPA grants the states to take into remaining useful life is illusory. Commenters noted that only a smal l fraction of the reductions presume that coal units continue to operate at present levels through their useful lives, and that the reductions from Building Blocks 2-4 come from substituting gas, ren ewable energy, nuclear energy, and energy efficiency for the output from the shutdown coal EG Us. Commenters stated that in practice, any meaningful consideration of remaining useful life w ould cause a state to miss its EPA-mandated emission reduction target. Commenters stated that t he four building blocks are so stringent that they leave states with very little leeway to departfrom the basic design set out be EPA.

Commenters also indicated that the flexibility EPA claims to give the states is nonexistent, and commenters noted that as a result, EPA's position t hat states need not deviate from the standards based on remaining useful life is unfounded. Commen ters stated that the proposal does not provide states with a "range of options," that ther e is no flexibility in EPA's BSER, that there are no other options, and that each building block is s o strict and burdensome that it does not provide states the ability to trade between requirements. C ommenters stated that by using the building block system the CPP has restricted the flexibility of the states to address remaining useful life.

Commenters stated that some states will not be able to cut enough emissions to reach EPA's mandates, and that they should be allowed to maximi ze existing resources without fear of stranding any investments.

Comment 15: Comments stating the proposal was unclear how rema ining useful life was taken into account in setting emission rates.

Response 15: The EPA’s definition of BSER and method for establ ishing EGU performance rates and state goals are described in preamble sec tions V through VII. The EPA structured the guidelines to enable states, in designing their sta te plans, to consider remaining useful life of individual units in applying standards of performan ce to individual EGUs, as explained in final rule preamble section VIII.G.1. and the legal memor andum.The EPA affirms states’ ability to245

include non-BSER measures in final rule preamble se ctions V.A.1 and V.A.6, as well as in the preamble discussion of remaining useful life in sec tion VIII.G.1.

Commenters recommended that in establishing measure s that will result in the closure or displacement of existing coal-fired EGUs, EPA must consider the remaining useful lives of those sources in compliance with section 111(d).

The following are summaries of the specific public comments under this comment:

Commenters indicated that the proposed rule did not provide adequate detail on how state emission rates were set taking into account the rem aining useful life of a generating unit, and requested that the final rule include a clear optio n for states to take the remaining useful life of a unit into consideration when establishing state pla ns. Commenters requested that EPA affirm states' ability to include non-BSER measures in com pliance plans.

Comment 16: Comments suggesting coal plant retirements will fo rce rate payers to pay for the remaining life of a retiring plant and a replacemen t plant.

Response 16: In response to public comments, the EPA revised it s approach to BSER and goalsetting in the final rule, as explained in preamble sections V through VII. These changes will ensure that the EGU performance rates and state goa ls are achievable considering cost. See also final rule preamble section VIII.G.1 and the legal memorandum, which reference a July 2015 docket memo titled “Stranded assets analysis.” The analysis shows that the national EGU performance rates in the final guidelines can be me t without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of capital-intensive pollution contro l retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state wi th sufficient flexibility to address stranded asset concerns.

The following are summaries of the specific public comments under this comment:

Commenters estimated that at least 90% of their Sta tes coal-based electric generating capacity will retire and rate payers will be forced to pay f or the life that was remaining and for the replacement plant.

Comment 17: Comments suggesting states may establish a standar d that is different than BSER based on remaining useful life - proposal inconsist ent with statute.

Response 17 : The EPA disagrees with the commenter. As explain ed in section VIII.G.1 of the final rule preamble, these guidelines differ from p revious ones that set individual source emission limits and allowed those limits to be rela xed on a case-by-case basis. However, the statute does not—contrary to commenter’s suggestion —explicitly require that states be permitted to relax limits as the means for taking into accoun t remaining useful life. Instead, it says that the246

guidelines must permit states, in applying standard s of performance, to take into consideration remaining useful life. We note that, even under the uniform rates, the possibility of trading does give relief to sources based on their remaining use ful life. For additional detail, see final rule preamble section VIII.G.1 and the legal memorandum.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA has failed to consider t he CAA requirement that states are charged with developing a standard of performance, taking i nto account remaining useful life, for their individual units based on EPA's BSER determination. Commenters stated that when establishing a technology requirement through BSER, EPA must ass ure it is technically and economically achievable, and in turn states are afforded the abi lity to consider factors associated with remaining useful life, and when necessary establish a standard of performance that is achievable but different than the BSER. Several commenters ind icated that states should be allowed to adjust the standard for an individual unit, rather than an average across all units, to account for remaining useful life.

Commenters said that EPA's proposed approach in add ressing remaining useful life clearly violates the statute and indicated that EPA has ove rstepped its authority under section 111(d) since building blocks 2-4 do not constitute a syste m of emission reduction that can be applied to, implemented at, or undertaken by EGUs. Commenters s aid that the CAA explicitly requires a different kind of flexibility for remaining useful life that the proposed rule does not incorporated. Commenters said that the problem with EPA's propose d rule is that section 111(d) requires states to apply standards of performance for affected sources to affected sources on a source-by-source basis, with the possibility of relief based on sour ce-specific factors.

Comment 18: Comments suggesting the EPA's reasoning that state s can rely on the proposed rules' general flexibility is flawed and results in stranded investments.

Response 18 : The EPA is not relying on the inherent flexibilit y of the guidelines as a substitute for the requirement that states fully consider rema ining useful life; the EPA is stating that the flexibility of the guidelines enables states to con sider remaining useful life in designing their plans. Section VIII.G.1 of the final rule preamble of the CPP and the legal memorandum explain how the guidelines permit states to consider remain ing useful life. These documents also demonstrate that the CO 2 performance rates and state goals in the final emi ssion guidelines leave states the flexibility in practice to consider rema ining useful life, as well as the potential for stranded assets. See EPA’s July 15 memorandum title d “Stranded Assets Analysis,” which shows that the national EGU performance rates in th e final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of ca pital-intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state wi th sufficient flexibility to address stranded asset co ncerns.

The following are summaries of the specific public comments under this comment:247

Several commenters stated that EPA cannot rely on t he " inherent flexibility " in the proposal as a substitute for the requirement that states fully co nsider remaining useful life.

Commenters stated that EPA's assertion that failure of the rule to develop a remaining useful life provision can be addressed by states through t he proposed rule's general flexibility is flawed because it does not allow any variation of performa nce standards when a state's emission standards would force the retirement of a resource 10 or 20 years before the end of its remaining useful life, thus stranding huge investments.

Comment 19: General comments regarding forced retirements and lost investments that would result, and inconsistency with the 20 year cost eff ectiveness timeframe used in other CAA

programs.

Response 19: In response to public comments, the EPA significan tly revised its approach to BSER and goal-setting in the final rule, as explain ed in preamble sections V through VII. These changes will ensure that EGU performance rates and state goals are achievable considering cost. A more detailed response to the concern that states would not have adequate flexibility in practice to consider remaining useful life, or stra nded assets, is included in final rule preamble section VIII.G.1 and the legal memorandum. See also the July 2015 docket memorandum titled “Stranded assets analysis.” The analysis shows thatthe national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs b efore the end of the book life of capitalintensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state with sufficientflexibility to address stranded asset concerns.

The following are summaries of the specific public comments under this comment:
Commenters expressed concern that recent investment s in control equipment for CAA requirements will not be recovered before the units are shut down. Commenters indicated that EPA did not address the "remaining useful life" ass ociated with early retirements of coal resources that will result from interim goals, and stated that interim goals need to allow a state to ensure the useful life of those investments. Commen ters stated that in order to meet building block 2 emission reductions, numerous coal-fired EG Us will have to be retired at a high cost and before the completion of their remaining useful lif e.

Commenters stated that stranded assets or stranded investments are precisely the types of factors that Congress expected states to be able to conside r in determining what standard of performance to apply to each specific facility, but that the pr oposed rule deprives states of that ability.

Commenters stated that the inability to adjust perf ormance standards to account for remaining useful life will impose hardships and result in pre mature closures of coal-fired EGUs. Commenters indicated that for facilities that would otherwise retire during the interim compliance period or shortly after the final standa rds of performance take effect, it may not be economical to impose significant heat rate improvem ents.248

Commenters noted their investment of approximately $3.5 billion to upgrade existing units and stated that EPA did not account for the loss of the se assets nor their potential impact on customer rates. Commenters stated that EPA must address thes e costs and allow states the latitude to design programs that do not result in the confiscat ion of assets or prematurely force retirements. Commenters said that EPA did not explain how it can override the discretion Congress vested in the states to avoid such adverse economic impact s. Commenters also stated that EPA has not discretion to deviate from the clear statutory term s.

Commenters noted that cost effectiveness of control s in EPA programs such as MATS and best available retrofit technology (BART) are based on o peration of emission units at a high capacity factor over twenty-year, or longer, useful life est imates, yet in many instances compliance with the proposed emission guidelines will require shutd own of coal-fired units in much shorter timeframes.

Several commenters stated that EPA has failed to ad equately consider the impacts of forced closures well before the end of their remaining use ful life, and the associated impacts on consumers, and the economy of stranded asset costs and electric reliability issues. Commenters stated that EPA's presumption that the issue of rem aining useful life will arise infrequently is inaccurate primarily because EPA focuses on capital investments late in the useful life and fails to consider stranded assets. Commenters indicated t hat most coal-fired retirements will need to take place at the beginning of 2020 and will have m ore than 10 years of useful life remaining. Commenters stated that stranded costs from early re tirement must be included as costs of control that states can consider, and that limiting the sta tes in this manner is arbitrary and capricious.

Commenters stated that EPA's discussion of remainin g useful life is limited to upgrades associated with Block 1 compliance. Commenters stat ed that the issue is much broader than that, and that the CPP will require premature retirement of coal-fired generation regardless of whether a company plans to make upgrades to improve heat ra tes. Commenters indicated that they had spent significant sums to comply with regional haze and MATS rules in reliance on the ability to recover costs, and that the CPP may result in stran ded capital investments.

Commenters stated that the forced closures and dras tic curtailment of operation is in direct contravention of Congress' intent in drafting Secti on 111(d). Commenters indicated that the costs that would have been recorded during the EGU's run life must still be absorbed by the utility's customers. Commenters stated that without revision, the proposed rule will result in stranded costs of approximately $3.8 billion (2020 dollars). Commenters asked that EPA consider the diminished capital value for merchant generators wh o have acquired coal-fired EGUs they lack the right to a constitutionally adequate rate of re turn.

Comment 20: Comments providing specific examples of sources wh ere stranded assets are of

concern.

Response 20: In response to public comments, the EPA significan tly revised its approach to BSER and goal-setting in the final rule, as explain ed in final rule preamble sections V through VII. These changes will ensure that EGU performance rates and state goals are achievable249

considering cost. A more detailed response to the c oncern that states would not have adequate flexibility to consider remaining useful life, in p ractice, is included in final rule preamble section VIII.G.1. and the legal memorandum See also EPA’s S tranded Assets Analysis Memorandum that shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of ca pital-intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state wi th sufficient flexibility to address stranded asset co ncerns.

The following are summaries of the specific public comments under this comment:

Commenters provided an example of the Coronado Gene rating Station in Arizona whose selective catalytic reduction (SCR) emission contro ls required by BART would operate only about two years before the 2020 shutdown of all coa l-fired generation in Arizona. Commenters provided further details on the Coronado Generating Station and stated that the recently completed (between 2009 and 2014) air pollution con trol equipment upgrades on Units 1 and 2 cost approximately $470 million, and that the bond financings for this project were approximately 30 years with final bond maturity occ urring in 2041. Commenters stated that the net book value, as of October 31, 2014 for Coronado Generating Station Units 1 and 2 is $630 million. Commenters indicated that the performance standards described in the proposed rule will likely require Coronado to cease operations in 2020.

Commenters also expressed concern about Arizona, an d stated that EPA's IPM outputs demonstrate that the integrated operation of the fo ur building blocks would result in retirement of many additional sources, none of which have reached the end of their remaining useful life. Commenters stated that they own one of the four currently operating units at the Springerville Generating Station in Arizona, and that net book va lue, as of October 31, 2014 for the unit is $900 million. Commenters stated that the bond finan cing for construction of Springerville Unit 4, which came on line only five years ago in Decemb er 2009 at a cost of $1 billion, was approximately 30 years with final bond maturity occ urring in 2038. Commenters stated that EPA acknowledges that the useful life of a coal-fired u nit operating to meet base load demand is 40 years, and accordingly, EPA should expect that Spri ngerville Unit 4 would remain operating as a baseload facility until at least 2049. Commenters a lso indicated that Springerville Unit 3 came on line in 2006 at a cost of $939 million, and that co mmenters have a 30-year power purchase agreement to purchase power from Unit 3 with antici pation that this unit would have a useful life of 40 years. Commenters cited Markal Scenario Analyses of Technology Options for the Electric Sector: The Impact on Air Quality , U.S. EPA, EPA/600/R-06/114 (Sept. 2006) and Documentation for EPA Base Case v.5.13 Using the In tegrated Planning Model , U.S. EPA, # 450R13002 (Nov. 2013) in support. Commenters stated that this is a significant and unreasonable burden for them.

Commenters said that Arizona has the sixth youngestcoal fleet in the U.S., including two units at the Springerville Generating Station that are less than ten years old. Commenters stated that Arizona's energy infrastructure was developed aroun d base-load coal plants in the northeastern portion of the state and neighboring states, which took decades to develop and will take a similar amount of time to change.250

Commenters noted that after shutdown of load-follow ing units in West Virginia in 2013 and 2015, the remaining base-load EGUs in West Virginia will have considerable remaining useful life.

Commenters said that South Dakota has only one affe cted EGU as of January 8, 2014, and that North Dakota and Wyoming, where BART was required, cannot make reasonable adjustments under the proposal. Commenters noted that the Big S tone EGU in South Dakota is installing a $400 million scrubber (for the Regional Haze Progra m) and is the only coal-based EGU in the state, so there are no alternative ways to make the reductions required under the proposed rule, forcing a shutdown of the source and resulting in a stranded asset. Commenters said that Big Stone is expected to operate for at least another 3 0 years, and cited South Dakota's Regional Haze SIP (August 18, 2011). Commenters also noted t hat their ownership share of Big Stone is nearly 28% of its capacity resources, and that the majority of their customers are in North Dakota and rely on Big Stone.

Commenters identified the Laramie River Station wit h three EGUs in Wyoming with FIP requirements that would require a total investment of $750 million, or $250 million per unit. Commenters stated that the carbon dioxide reduction s for Wyoming may require steep reductions in production that would make the units uneconomica l to run. Commenters noted that the costeffectives calculations for all these controls were based on at least 20 years of operation.

Commenters noted that the state of Kansas has spentover three billion dollars on environmental compliance projects for their coal-fired generators , and the reduction or elimination of their use will result in significant stranded costs to Kansas ratepayers. Commenters stated the EPA should exclude all of the Kansas coal-fired generation res ources that have undergone environmental retrofits from the CPP to recognize the remaining u seful life and eliminate stranded costs. Commenters indicated that utilities in Kansas and M issouri have recently made significant investments in control equipment that could result in stranded cost for customers. Commenters also indicated that additions of transmission asset s in Kansas and Missouri to relieve congestion would be similarly impacted by reduced or eliminate d generation.

Commenters indicated that billions of dollars of us eful plant life in Virginia and West Virginia are likely to be stranded at a cost to residents an d business that is not accounted for by the proposed regulation. The following coal-fired power plants were identified as being at risk for stranded assets:

• Virginia City Hybrid Energy Center (" VCHEC "), placed in-service in 2012 at an initial capital cost of $1.8 billion;

• Chesterfield Power Station, scrubbers placed in-ser vice in 2011 and 2008 at an initial capital cost of $275 million;

• Clover Power Station, constructed and placed in-ser vice in 1995 and 1996 at an initial capital cost of $1.2 billion, and with a pl anned service life of over 50 years;251 • Appalachian Power Company's Amos and Mountaineer Po wer Stations with more than $2 billion in environmental controls from a 20 07 Consent Decree including FGD systems for all four units, placed into service between 2007 and 2011;

• Dominion's Mount Storm generating facility with scr ubbers and FGD systems.

Commenters noted the premature retirement of two fa cilities in Nevada would be required: the 522 MW coal-fired North Valmy Generating Station wi th units not scheduled for retirement until 2031 and 2025; and the 242 MW pulverized coal-fired TS Power Plant (TSPP) which is not scheduled for retirement until 2025. Commenters sta ted that TSPP commenced operations in 2008 and as such is efficient and well controlled.

Commenters stated that retiring Tampa Electric Comp any's coal units would result in substantial stranded assets and costs to customers, that TEC ha s already achieved substantial CO 2 reductions in a consent agreement with EPA under the NSR enfor cement program, and that EPA's proposed rule does not account for this bold and early actio n. Commenters indicated that the projects are part of the billion dollar reduction recently compl eted and depreciated over the remaining useful life of the coal plant (beyond 2030) to minimize th e impact to customers' bills. Commenters stated the proposal, if finalized in its current fo rm, would require acceleration of the cost recovery and significant additional expense.

Commenters stated that life appraisal reports for t he Seminole Generating Station units 1 and 2 in Florida indicated that the units had a remaining useful life of 40 years, through 2045. Commenters indicated that this date corresponds to the end of the Seminole's wholesale power contracts with its members, and also covers the las t loan related to emission control equipment at the station which matures in 2042. Commenters indic ated that the stranded asset resulting from retirement of the units before the end of their use ful life would cause the electric cooperative system's members to have to pay for both the strand ed asset and the replacement capacity at the same time.

Commenters indicated that Colorado's Regional Haze State Implementation Plan, approved in 2012, requires capital investments that for Colorad o Springs Utilities increase the book value of the four affected units by hundreds of millions of dollars.

Commenters stated that EPA has ignored the problem that every aging plant eventually reaches the point at which costly environmental compliance upgrades or equipment investments cannot be recovered during the remaining useful life of th e plant. Commenters stated that not every plant is ready for immediate retirement, although E PA notes that, of its study population of 884 plants, TSD, p. 2-16, 233 EGUs " have announced they will retire before 2016 ." TSD, p. 2-35. Commenters previously advised EPA that premature cl osures would have significant financial consequences for Wyoming ratepayers. (Letter to Jan et McCabe, December 16, 2013, posted at psc.state.wy.us, under " Hot Topics "). Commenters stated that EPA has also recognized the problem of remaining useful life in the regional ha ze context. Commenters stated that in a final determination dated January 10, 2014, EPA provided the option of either closing Dave Johnston Unit 3 in 2027, when scheduled to be fully deprecia ted, or installing SCRs within five years. Commenters provided a list of the Wyoming plants su bject to Section 111(d), with their252

December 2013 full depreciation dates and their ope rators, and also included a table that presents the retirement date and operator for 10 coal plants

.

Comment 21: Comments regarding the sufficiency of the " toolbox of emission reduction methods " in the context of remaining useful life.

Response 21: In response to the comment that the toolbox is not“ flexible enough ,” the EPA observes that the " toolbox " of emission reduction methods goes beyond those i ncluded in BSER and beyond the list mentioned above by commenter. T he EPA believes that section 111(d) does not allow for compliance through offsetting emissio ns reductions from sources in source categories other than the EGU category.

The EPA shares the goal of minimizing stranded asse ts. Although nothing in section 111(d) explicitly bars a guideline that results in some fa cilities becoming uneconomic before the end of their useful lives, the EPA nonetheless has striven to design the guidelines so as to give states flexibility to develop plans that allow power compa nies to recover their investments in generation units.

In response to public comments, the EPA significant ly revised its approach to BSER and goalsetting in the final rule, as explained in preamble sections V through VII. These changes, including moving the start date of the program from 2020 to 2022 and other important changes, ensure that CO 2 performance rates and state goals in the final gui delines are achievable considering cost, and leave room for states to cons ider remaining useful life and stranded assets. A more detailed response to the concern that states would not have adequate flexibility to consider remaining useful life, in practice, is inc luded in preamble section VIII.G.1. and the legal memorandum. See also the July 2015 docket memo titl ed “ Stranded assets analysis ,” which shows that the national EGU performance rates in th e final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the book life of ca pital-intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state wi th sufficient flexibility to address stranded asset co ncerns.

The following are summaries of the specific public comments under this comment:

Commenters stated that the " toolbox " of emission reduction methods (gas, nuclear, rene wable energy, and energy efficiency) is not flexible enou gh to prevent stranded investments, and indicated that it results in CO 2 emissions reductions by displacing generation from EGUs with remaining useful lives. Commenters noted that true offsets should have a place in the states' toolboxes, and that EPA should allow states to cons ider sources' remaining useful lives and other factors via a more relaxed standard or a longer com pliance period.

Commenters stated they were troubled by EPA's nebul ous reference to a " toolbox of emission reduction methods " because it brushes off empirical real-world cost concerns about stranded assets, and disregards the relevance of state emission performance goals to the remaining useful life of affected EGUs.253

Several commenters said that the emission reduction methods referred to by EPA are not sufficiently available to states impacted by accele rated coal-fired unit closures on a timeline that would allow for them to compensate for closures by 2020. Commenters said that the problem is exacerbated by utilities having assets in multiple states that cannot be applied across state lines to achieve the reductions needed to meet individual st ate goals. Commenters stated that the need for compensating emission reductions will effectively e liminate many states' ability to consider remaining useful life for individual coal-fired EGU S, the outcome of which is arbitrary and capricious.

Comment 22: Comments suggesting heat rate targets should be re calculated to reflect remaining useful life.

Response 22: The EPA disagrees that the remaining useful life o f particular facilities should be reflected in the CO 2 emission rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines perm it the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facilityspecific remaining useful life considerations to be taken into account in determining the levels of emission performance that reflect the BSER.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA must explain how the fix ed heat rate target values are designed to reflect remaining useful life, instead of only stat ing how the concept of a heat rate target accommodates compliance for units of various ages. Commenters stated that a source-specific formula that considers the potential for actual, su stainable, and cost-effective heat rate improvement over the remaining useful life of each affected EGU should be developed to recalculate the heat rate targets, and that ultimat ely, heat rate improvements must be determined on a unit-specific basis.

Comment 23: Comments suggesting that remaining useful life need s to be taken into account in setting interim goals and in Building Block 2.

Response 23: The EPA disagrees that the remaining useful life o f particular facilities should be reflected in the CO 2 emission rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines perm it the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facilityspecific remaining useful life considerations to be taken into account in determining the levels of emission performance that reflect the BSER.

Regarding achievability of interim goals, the EPA d isagrees with this comment. See final rule preamble section V. Regarding the BB2 comments, the EPA disagrees. See final rule preamble section V and the GHG Mitigation Measures TSD.254

The following are summaries of the specific public comments under this comment:

Commenters indicated that the interim goals are lar gely unachievable for many jurisdictions and that the remaining useful life of affected EGUs mus t be taken into account in making improvements to Building Block 2.

Commenters also stated that if interim goals are ad opted they should take into account the remaining useful life of existing facilities, recen t environmental retrofits, and established early retirement dates, and that EPA should allow states to tailor their interim goals for their unique circumstances, or, at a minimum allow the phase-in of compliance tools over the entire compliance period.

Commenters requested that EPA allow states to speci fically account for the remaining useful life of the original generation asset as well as any maj or upgrades in BB2.

Commenters stated that EPA must defer to state auth ority to determine the feasibility and timing of redispatch and integration of new generation con sidering the remaining useful life of existing EGUs.

Commenters stated that the emission reductions from BB2 are premised on the outright shut down or drastic reduction of production from coal-b ased plants, and that the possibility that there may be an unidentified strategy that could be used in lieu of coal plant retirements or reductions is not an adequate substitute for the statutory man date that states be allowed to consider remaining useful life.

Commenters stated that because EPA assumes that all emission reductions associated with Blocks 1 and 2 can be implemented by 2020, states m ay need to identify other emission reductions that will ultimately prove unnecessary t o achieve the final emission reduction targets, and that this approach strips the states of their r ight to account for the remaining useful life of existing sources.

Comment 24: Comments regarding considerations for units at the far end or beginning of their remaining useful lives.

Response 24: The EPA disagrees that the remaining useful life o f particular facilities should be reflected in the CO 2 emission rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines perm it the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facilityspecific remaining useful life considerations to be taken into account in determining the levels of emission performance that reflect the BSER.

The EPA shares the goal of minimizing stranded asse ts. Although nothing in section 111(d) explicitly bars a guideline that results in some fa cilities becoming uneconomic before the end of their useful lives, the EPA nonetheless has striven to design the guidelines so as to give states flexibility to develop plans that allow power compa nies to recover their investments in generation units.255

In response to public comments, the EPA significant ly revised its approach to BSER and goalsetting in the final rule, as explained in final ru le preamble sections V through VII. These changes, including moving the start date of the pro gram from 2020 to 2022 and other important changes, ensure that CO 2 performance rates and state goals in the final gui delines are achievable considering cost, and leave room for states to cons ider remaining useful life and stranded assets. A more detailed response to the concern that states would not have adequate flexibility to consider remaining useful life, in practice, is inc luded in final rule preamble section VIII.G.1 and the legal memorandum. See also the July 2015 docketmemo titled “ Stranded assets analysis ,” which shows that the national EGU performance rates in the final guidelines can be met without the retirement of affected EGUs before the end of t heir book life, and without the retirement of affected EGUs before the end of the book life of ca pital-intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and state goals provide state wi th sufficient flexibility to address stranded asset co ncerns.

The following are summaries of the specific public comments under this comment:

Commenters noted that EPA should allow coal units w ith long, undepreciated remaining useful lives to be exempt from interim emission performanc e requirement, and relax the 2030 requirement if the units are in compliance with the state implementation plan at the end of their useful lives.

Commenters suggested that EPA should include a proc ess for considering waivers of environmental upgrade requirements on plants late i n their useful life to avoid significant shortterm costs on customers. Commenters referred to a s ituation at the Presque Isle Power Plant in Marquette Michigan.

Comment 25: Comments regarding delaying the effective date of e mission requirements to mitigate impacts on coal EGUs.

Response 25: Under Section 111(d), standards of performance are to reflect the level of reductions achievable considering certain specified factors including cost. The EPA has determined that CO 2 reductions from the EGU source category are achiev able well before 2030, so starting the program as late as 2030 would not b e justified. Also, the EPA disagrees that the remaining useful life of particular facilities shou ld be reflected in the CO 2 emission rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines permit the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does n ot call for facility-specific remaining useful life considerations to be taken into account in det ermining the levels of emission performance that reflect the BSER.

The following are summaries of the specific public comments under this comment:256

Commenters indicated that delaying the effective da te of the emission rate requirements until 2030, while not eliminating the inequities, would m itigate some of the most serious impacts on coal-based power plants.

Comment 26: Comments suggesting that economic useful life coul d be extended.

Response 26: The EPA appreciates receiving this comment. The EP A is not making a regulatory determination of the length of the useful life of a n EGU in this rulemaking. The emission guidelines permit states to consider remaining usef ul life in applying a standard of performance to an individual affected EGU. The EPA will conside r the reasonableness of the way in which a state considers remaining useful life and other fac tors in applying a standard of performance to a particular EGU in the context of evaluating state p lans to determine whether they are satisfactory, i.e., whether they meet the requireme nts of the guidelines.

The following are summaries of the specific public comments under this comment:

Commenters stated, according to a recent Southwest Power Pool market study, the national average retirement age of coal-fired generation is 48 years. Commenters stated that in the Regional Greenhouse Gas Initiative (RGGI) region, a lmost 40 percent of the affected EGU coal fleet has been in-service for between 41 and 50 yea rs; and an additional 36 percent of the RGGI region's affected coal summer capacity is already o perating well in excess of the national average retirement age. Commenters stated that by the begin ning of the 2020 compliance timeframe, an even greater percentage of the RGGI region's coal f leet will be approaching the natural end of its industry-recognized useful life. Commenters indicat ed that these coal generation units could be retrofitted with emission controls, including effic iency investments that could significantly extend the economic useful life of the plants well beyond the normal retirement point.

Comment 27: Comments requesting the EPA to consider state lega l restrictions on financial commitments for power plants that extend their oper ating life.

Response 27: We disagree with the comment to the extent that it argues that the specific state laws below require the EPA to make changes to these emission guidelines. While the EPA has attempted to accommodate existing state law, the EP A is not required to.

The emission guidelines do not require a particular affected EGU to make heat rate improvements. Affected EGUs can comply through ERCs or allowances, and in addition to the building blocks (of which heat rate improvement is just one) there are other measures states can take (such as energy efficiency) aside from the bui lding blocks to reduce CO 2 emissions from affected EGUs. If a state determines that its prefe rred approach to implementing the emission guidelines is to not take advantage of reductions f rom heat rate improvements, that is the state’s prerogative, so long as the measures the state does choose to implement satisfactorily meet the requirements of these guidelines.257

In determining BSER, feasibility is not assessed ba sed on existing state law. To think otherwise is to misunderstand the basic cooperative federalis m structure of section 111(d). To take an extreme example, consider a hypothetical state law that prohibits the state from submitting and EGUs from complying with an emission guideline. Und er the commenters’ theory, EPA could not determine BSER to require any emission reductio ns whatsoever. For details of EPA’s authority to determine BSER, please see section V o f the preamble and the Legal Memorandum.

The following are summaries of the specific public comments under this comment:

Commenters stated state law may affect compliance w ith CPP. Commenters stated that under California's Emission Performance Standard law (SB 1368), utilities are prohibited from making financial commitments that extend the useful operat ing life of power plants with an emission intensity of 1,100 lbs. CO 2 -eq/MWh or More and SB 1368 applies to investments anywhere in the country-not just in California. Commenters stat ed that even if additional equipment upgrades were available at power plants in which commenters or its members have an ownership interest, they would likely be prohibited from investing in t hose upgrades under California law; as a result, an additional 6 percent heat rate improveme nt at our coal-fired facilities in the western U.S. is not feasible. Commenters stated that EPA sh ould include an analysis of the impacts of these regulations and adjust the interim and final emissions goals for states accordingly.

Comment 28: Comments suggesting the CAA and its legislative hi story do not imply that emission reductions not achieved through considerat ion of remaining useful life must be made up by other sources.

Response 28: Final rule preamble section VIII.G.1 is relevant to this comment, discussing the statutory framework and how the final emission guid elines permit states to consider remaining useful life. With respect to the second point, it i s also nowhere implied in the Act that states are granted absolute discretion to take into considerat ion remaining useful life in any way the states see fit. The focus in the remaining useful life pro vision of section 111(d)(1) is on EPA’s regulations, which must permit states to take into consideration remaining useful life, as this guideline does. For a discussion of the legislative history and other relevant legal points, please see the legal memorandum.

The following are summaries of the specific public comments under this comment:

Commenters quoted the 1977 House Committee Report's clarification of section 111(d): " The Administrator would establish guidelines as to what the best system for each such category of existing sources is. However, the State would be re sponsible for determining the applicability of such guidelines to any particular source or sources " and stated that nowhere in the CAA or its legislative history is it implied that if a state w ere to exercise such case-by-case flexibility when implementing section 111(d) Emission Guidelines, itmust make up the shortfall in emission reductions from other sources.258

Comment 29: Comments suggesting legislative history shows inten t that states be allowed to consider remaining useful life in setting individua l performance standards.

Response 29: The EPA disagrees with these comments. While secti on 111(d)(1) is clear that the EPA’s guidelines must permit states to take into co nsideration remaining useful life, it is silent on how the guidelines can do so. Section 111(d)(1) does not say that states must be given plenary authority to decide how to consider remaining usefu l life, nor does it say that the EPA cannot set reasonable boundaries for consideration of remainin g useful life. There is therefore a gap in the statute that the EPA can reasonably fill. Please se e the Legal Memorandum for details of the EPA’s analysis of this provision and the legislativ e history.

The following are summaries of the specific public comments under this comment:

Several commenters examined the 1977 amendments to CAA sections 111(a) and (d), and quoted from the House Report of the Legislative His tory to the 1977 amendments and/or the House Conference Report on the 1977 amendments. Com menters noted that both sections 111(a)(1) and 111(d)(1) were incorporated into the CAA in the 1977 amendments, and that Congress clarified through the definition of "stand ard of performance" that states must establish those standards for individual existing sources, an d in section 111(d)(1) made clear its intent that states be allowed to consider remaining useful life in setting individual performance standards. Commenters referenced language in the 1977 House an d House Conference Reports noting that the intent was for section 111(d) existing source s tandards to be based on the best available means of emission control (not necessarily technolo gical) and must, unless the state decides to be more stringent, take into account the remaining use ful life of the existing sources. (H.R. Rep. No. 95-294, at 11, 187, 195 (1977); House Conf. Rep. 95 -294, 1977 WL 16035 at 129.)

Commenters concluded that the authority of the stat e to consider " remaining useful life " was considered to be an essential power that states wer e to have in determining standards of performance for existing sources. Commenters noted that this concept was similarly embedded in the PSD and regional haze programs at the same t ime. Commenters also concluded that EPA has no statutory authority to prohibit states, dire ctly or indirectly, from regulating existing sources with due regard to their remaining useful l ife, their individual role in meeting local energy demands, and their importance in their commu nities. Commenters stated that section 111(d) does not provide EPA with independent author ity to restrict states' ability to incorporate remaining useful life and other factors into perfor mance standards.

Commenters indicated that EPA has no discretion to deviate from the clear statutory terms and cited Chevron in support (when Congress "has directly spoken to the precise question at issue," the court interprets and applies the statute withou t deferring to an agency interpretation.) Chevron, USA, Inc. v. Natural Res. Def. Council, In c , 467 U.S. 837, 842 (1984). Commenters also referenced Medtronic, Inc. v. Lohr , 518 U.S. 470, 512 (1996) ("[W]here the language o f the statute is clear, resort to the agency's interpreta tion is improper."), and Train v. NRDC , 421 U.S. 60, 79 (1975) (EPA has "no authority to question th e wisdom of a state's choice of emission limitations" when regulating existing sources). Com menters said EPA does not, as it claims, have the "discretion to alter the extent to which s tates may authorize relaxations to standards of performance that would otherwise apply." (79 Fed. R eg. at 34925.)259

Commenters has claimed that EPA's justification for the technology forcing concepts in section 111(d) BSER are found only in the new source arena. Commenters cited the District of Columbia Circuit decision Sierra Club v. Costle ; arguing that it was only right that the costs of applying best practicable control technology be considered b y the owner of a large new source of pollution.

Commenters noted that section 111(d) contains speci fic language requiring the Administrator and states to analyze the remaining useful life of each existing source.

Comment 30 : Comments suggesting that the EPA's rationale for implementation of the emissions guidelines is faulty -- sections 111(d) a nd 111(b) analysis is in error.

Response 30: The EPA disagrees with this comment, which does no t address the general approach taken in this rulemaking. First, we note t hat the performance rates do provide a 111(b)- like standard of performance that is based on EPA’s determination of BSER. Furthermore, as explained in final rule preamble section VIII.G.1, states can take into consideration remaining useful life through trading, even if states adopt t he performance rates as the standards of performance. We have provided additional flexibilit ies for states to consider remaining useful life through the other plan types. EPA is not bound to provide the same options for consideration of remaining useful life as are provided under the 1975 implementing regulations, as we are by rulemaking 40 CFR 60.24(f) inapplicable.

The following are summaries of the specific public comments under this comment:

Commenters commented on the discussion in section V III.F.9.b of the final rule preamble of the CPP that stated that " remaining useful life and other facility-specific f actors are [only] relevant for emission guidelines in which the EPA specifies a presumptive standard of performance that must be fully and directly implemented by each indi vidual existing source within a specified source category ," (the preamble goes on to indicate that such guid elines are more like 111(b) in their form). Commenters said that EPA's attempt to contrast section 111(b) standards of performance for new sources with section 111(d) sta ndards of performance for existing sources fails because both provisions are based on the same definition of " standard of performance " at CAA Section 111(a)(1). Commenters compared section 111(b) (EPA shall establish "Federal standards of performance for new sources within [a] category ") with section 111(d) (states shall submit plans establishing " standards of performance for any existing source .. . to which a standard of performance under [section 111 (b)] wou ld apply if such existing source were a new source").

Comment 31: Comments suggesting section 111(h) demonstrates Co ngressional intent not to close existing units.

Response 31: We disagree. Section 111(h) nowhere indicates thatit is intended to address remaining useful life or is a means to avoid shutte ring existing facilities. In fact, 111(h) is260

applicable to NSPS promulgated under 111(b), which undercuts the commenter’s theory, and 111(h) does not mention remaining useful life as a consideration to be taken into account in promulgating a design, equipment, work practice, or operational standard. To the contrary, the limited scope of the phrase “ not feasible to prescribe or enforce a standard of performance ” shows it is inapplicable here. The phrase only appl ies to two situations: 1) a pollutant or pollutants cannot be emitted through a conveyance d esigned and constructed to emit or capture such pollutant; or 2) the application of measuremen t methodology to a particular class of sources is not practicable due to technological or economic limitations. Neither of those situations is present here.

The following are summaries of the specific public comments under this comment:

Several commenters indicated that section 111(h) in combination with the remaining useful life provision in section 111(d) demonstrates that the C lean Air Act did not intend to shutter existing facilities with remaining useful lives. Commenters stated that the Act anticipates that where improvements can be made to reduce emissions from a specific facility, such improvements shall be made; but where improvements are infeasible, rel axation of the standard is appropriate. Commenters said that to demand otherwise impermissi bly treats existing sources like new sources, violating congressional intent to create t wo distinct classes of units, with a separate, more lenient standard governing existing sources.

Commenters stated that EPA's alternative interpreta tion is fundamentally inconsistent with the main purposes of the CAA and section 111. Commenter s said the objective of the CAA was not to shut down or reduce utilization of existing powe r plants. Commenters said that it was to ensure that industry could continue to expand and p rovide economic value as it gradually reduced the amount of pollution per unit of economi c output. Commenters said that this purpose can be seen in section 111's mandate that EPA consi der costs and energy requirements in prescribing standards of performance. Commenters sa id that it is also evident in section 111(d)'s requirement that EPA permit states to take into con sideration the " remaining useful life " of existing sources. Commenters said that if Congress had intended that EPA could simply order polluting sources to shut down or reduce production levels in order to reduce emissions, it would have had no need to require EPA to consider costs, energy, and the remaining useful life of sources in the regulation of those sources. Comment ers said that the existence of these requirements is a clear indication that Congress in tended that section 111 would not be used to require facilities to shut down or reduce productio n levels in order to achieve specific levels of air pollution.

Commenters stated that traditional " systems of emission reduction " at an affected source include complementary equipment modifications, operational changes, and add-on control technology. Commenters said that crucially, Section 111(d) make s clear that in determining BSER, one size does not fit all. Commenters said Section 111(d) sp ecifically mandates that EPA " shall permit " states to consider source-specific factors such as "the remaining useful life of the existing

source " " in applying a standard of performance to any partic ular source ." Commenters said that EPA's emission guidelines and determination as to w hat constitutes the BSER must be consistent with this statutory framework.261

Comment 32: Comments suggesting Part 60 Subpart B Regulations do not allow the EPA to set state-specific standards of performance :

Response 32: We disagree with these comments. First, we are not relying on the 1975 implementing regulations as authority for our posit ion on remaining useful life. In fact, as explained in final rule preamble section VIII.G.1, we are making 60.24(f) inapplicable to this guideline. As a result, the provisions in 60.24(f) are irrelevant to the issue raised by these commenters: whether this guideline permits states t o consider remaining useful life.

We agree that the statute says “ shall.” However, commenters are mistaken in claiming that the language after “shall” is unambiguous. In fact, it is silent as to how states should be permitted to take into consideration remaining useful life. Plea se see the discussion in preamble section VIII.G.1 and the legal memorandum.

Commenters misunderstand the nature of the implemen ting regulations. The preamble to those 1975 regulations explained that we chose the term “ emission guidelines ” to emphasize that the guidelines are not directly enforceable against des ignated facilities. 40 FR 53340, 53341. Instead, the emission guidelines are binding on states that develop and submit plans under section 111(d)(1).

We disagree with some commenters. The regulations e xplicitly provide for EPA to make 60.24(f) inapplicable to particular emission guidel ines. The statute is silent as to whether states must be given unfettered discretion to vary from th e emission guidelines, but the language structure of the Act suggests that states are not. Please see the Legal Memorandum for additional discussion.

The following are summaries of the specific public comments under this comment:

Several commenters stated that the source of state authority to consider remaining useful life is the CAA, not EPA Part 60, Subpart B regulations.

Commenters indicated that EPA improperly relies on 40 CFR sections 60.24(f) and 60.24 (c) as providing the " default structure " for implementing the remaining useful life provis ion of the CAA. Commenters said that EPA is twisting the words of these implementing regulations to override the plain words of the CAA, and is conflat ing the statutory requirement that it allow state consideration of remaining useful life with t he regulations' allowance that states may apply less stringent emission standards provided the thre e conditions in the regulations are demonstrated.

Commenters said that consistent with Step 1 in Chevron USA Inc. v. Natural Resources Defense Council , 467 U.S. at 842-843, the Agency's interpretation should not be given deference since Congress has clearly spoken. Commenters stated thatsection 111(d), unlike other sections of the CAA, provides virtually no specific guidance to EPA except that it " shall permit the State in applying a standard of performance to any particula r source to take into consideration, among other factors, the remaining useful life of the exi sting source " (CAA section 111(d)(1)). Several commenters indicated that Congress' intent is made even more evident by the use of the term

" shall " in section 111(d)(1). Commenters further stated t hat the term "shall" does not create any262

room for agency discretion, and cited two cases in support of the obligation created by the use of the term " shall ."

Commenters stated EPA cannot finalize the Proposed Rule because it arrogates to the Agency a function of setting state-specific standards of per formance, that the statute and existing regulations make the exclusive province of the Stat es. Commenters listed the contents of section 60.22(b) paragraphs one through six as demonstratin g the purely informational purpose and nonbinding nature of these guidance documents. Comm enters stated that EPA's conspicuous use of the words " guidance " and " information " throughout the regulation demonstrates that

" information " is all that EPA is authorized to provide the stat es. Commenters stated that the regulation does not authorize EPA to issue " guidelines " that contain binding state-wide emission reduction goals and that are thus " guidelines " in name only. Commenters indicated that EPA must revise the underlying rules through proper not ice-and-comment rulemaking if EPA wishes to depart from its past rules and regulations by fi nalizing a rule that contains binding statewide emission reduction targets.

Commenters listed provisions within section 60.24(f ) and indicated that the regulations (and statute) are clear that states must be provided fle xibility to establish deviations from proposed emission guidelines, not within proposed emission g uidelines.

Comment 33: Comments suggesting section 60.24(f) preceded CAA provision on remaining useful life and cannot authorize the EPA's position on remaining useful life.

Response 33: We agree that 40 CFR 60.24(f) was originally promul gated in 1975, before the 1977 Amendments added the remaining useful life pro vision. However, we disagree with the remainder of the comments. First, we are not relyin g on the 1975 implementing regulations as authority for our position on remaining useful life . In fact, we are making 60.24(f) inapplicable to this guideline. Regardless of whether 60.24(f) ( which we referred to but are not relying on as a

“ default structure ”) adequately permits states to consider remaining useful life under other guidelines, what matters for this rulemaking is whe ther this guideline meets the statutory requirement, which it does for the reasons stated i n preamble section VIII.G.1 and the legal memorandum. Thus, the argument that somehow EPA is relying on the 1975 implementing regulations to sidestep the statutory requirement i s simply mistaken, and arguments about the appropriateness of 60.24(f) as a means of implement ing the remaining useful life provision are

moot.

The following are summaries of the specific public comments under this comment:

Commenters stated that there are several flaws in t he claim that the section 60.24(f) regulatory provision governs states' consideration of " remaining useful life " in establishing standards for existing sources. Several commenters noted that sec tion 60.25(f) was established in 1975, before the 1977 CAA Amendments added the "remaining useful life" language. Commenters said that EPA's assertion that the regulation specifically ad dresses a later added requirement is nonsensical. Commenters stated that the 1975 regula tions do not discuss consideration of remaining useful life other than a discussion of " economic hardship " and how " States will be free263

to vary from the levels of control represented by e mission guidelines " (40 FR 53343). Commenters concluded that section 60.24(f) was prom ulgated as a means of allowing states to establish case-by-case less stringent emissions sta ndards or longer compliance schedules, and was not and has never been a means for states to co nsider "remaining useful life" as set forth in section 111(d) and its legislative history.

Several commenters indicated that the 1975 regulati ons cannot be read to authorize EPA's position with respect to remaining useful life, and quoted from the preamble to the 1975 regulations in support of their position. Commenter s stated that section 60.24(f) which EPA relied on as the "default structure" for implementi ng remaining useful life requirements does not even contain the phrase "remaining useful life," an d that EPA did not revise its regulations after the 1977 amendments to incorporate language that sp ecifically implemented the remaining useful life requirement. Commenters said that EPA c annot rely today on its prior failure to enact required regulations as grounds to constrain the pr otections granted to states under the 1977 amendments.

Comment 34 : Comments suggesting the EPA's reading of section 60.24(f) ignores state primacy.

Response 34: The EPA disagrees with the commenters that the EPA' s reading of section 60.24(f) ignores Congress' commitment to state primacy in th e regulation of existing sources. First, the notion that states have plenary authority over the substance of state plans has been rejected repeatedly in the SIP context, as detailed in the l egal memorandum. There is no basis in the structure or language of section 111(d)(1) to indic ate that Congress expected anything other than the usual cooperative federalism scheme of the Act, and certainly Congress did not abrogate the EPA’s authority to supervise state plans. The refer ence to “ primary responsibility ” is simply a statement of how cooperative federalism works – sta tes have the initial responsibility to develop and submit state plans, and the EPA will only step in if such plans are unsatisfactory or states fail to implement them. With respect to the language abo ut variances, we are not making the provisions in 60.24(f) applicable to this guideline

.
The following are summaries of the specific public comments under this comment:
Commenters stated that EPA's reading of section 60. 24(f) ignores Congress' commitment to state primacy in the regulation of existing sources. Comm enters stated that EPA recognized state primacy in the initial promulgation of the 40 C.F.R . 60 Subpart B regulations which stated,

" States will have primary responsibility for develop ing and enforcing control plans under section 111(d)" and that " States will also have authority to grant variances in case of economic hardship. " 40 Fed. Reg. at 53343.

Comment 35: Comments suggesting revisions to section 60.24(f) post 1990 CAA Amendments are misinterpreted by the EPA and inappropriately r elied upon.264

Response 35: We disagree. We are not basing our action on or cla iming authority to address remaining useful life through the prefatory languag e “unless otherwise specified in the applicable subpart.” We are basing our action on the statute. As explained in final rule preamble section VIII.G.1, this guideline permits states to consider remaining useful life in numerous ways. The only import of the prefatory language is that it ma kes it unnecessary in this action to promulgate language in 60.24(f) making clear that those provis ions are inapplicable to this guideline. This is already provided for in 60.24(f) – we are not reint erpreting those provisions and we are not reopening them for comment and judicial review.

Thus, commenters’ reference to the reasons the EPA originally added the language is beside the point. We are making the provisions in 60.24(f) ina pplicable not because of anything in section 129, but because this guideline already permits sta tes to consider remaining useful life.

We have not construed the statute in such a way as to nullify the remaining useful life provision. That is an exaggeration. That this guideline does n ot permit states to take into account remaining useful life in the particular way that the commente rs would prefer does not mean that the guideline does not permit it at all.

The following are summaries of the specific public comments under this comment:
Several commenters noted that in the development of limitations for solid waste incineration units, EPA revised the 1975 section 60.24 regulatio ns to allow for an exception to states' ability to consider remaining useful life. Commenters indic ated that the regulation was amended because the MACT process as required by section 129 does not reserve a right for states to consider remaining useful life or other factors. Co mmenters noted that in 1995, EPA added the words " Unless otherwise specified in the applicable subpar t " to section 60.24(f). Commenters indicated that EPA bases its legal argument in the CPP proposal for restricting states' consideration of remaining useful life on those sev en words. Commenters stated that the narrow history of that clause does not now give EPA discre tion to ignore that section 111(d) requirement that EPA's regulations " shall " permit the state to consider remaining useful lif e. Commenters said since the proposed rule now at issue does not involve municipal waste combustors, the operative flexibility granted states to consider re maining useful life and "other factors" for existing sources is not limited as in CAA Section 1 29(b)(1), EPA's effort to impose limitations arising from that statute on guidelines for EGUs is erroneous.

Commenters quoted a 2008 DC Circuit court case ( American Trucking Association ) in support of its position that EPA may not construe a statute in a way that completely nullifies provisions meant to limit its discretion.

Commenters said that if section 60.24(f) were inter preted to provide the level of discretion EPA proposes, then EPA's implementing regulations from 1975 and 1995 should be considered reopened and subject to judicial review. Commenters s aid, given the history and limited application of the revisions to section 60.24(f), E PA's drastic expansion of its purported discretion to deny States consideration of remainin g useful life constitutes a new interpretation that could not have been anticipated when the langu age was originally promulgated in 1996.265

Comment 36: Comments suggesting court decision in support of t he EPA approach on remaining useful life.

Response 36: We agree that the EPA’s interpretation of the “rem aining useful life” provision in the visibility program, both in the BART guidelines and in the SO 2 backstop trading program, lend support to our position that this guideline ap propriately permits states to take into consideration remaining useful life. For a brief co mparison of the visibility provisions with section 111(d)(1), please see section VIII.G.1 of t he final rule preamble of the CPP, and for a detailed discussion please see the Legal Memorandum

. The following are summaries of the specific public comments under this comment:

Commenters agreed that the state plan development p rocess adequately allows for consideration of the remaining useful life and provided an exampl e of how the proposed rule provides that flexibility. Commenters also discussed how a 2005 D .C. Circuit Court decision in the Center for Energy and Econ. Dev. v. EPA case supports EPA's position that providing states with the flexibility to consider " remaining useful life " for specific sources by participating in emission s trading or other ways of shifting emissions reducti on obligation is permissible under the statute and is a reasonable interpretation. Commenters expl ained that the court rejected petitioners' argument that EPA lacked authority to permit states to comply with reasonable progress and BART through a regional emissions trading program. Commenters noted that CAA section 169A(g)(1) directs EPA to consider the " remaining useful life " of affected source in determining reasonable progress and in applying BART, and that when EPA issued its Regional Haze Rule it included an emissions trading program or alternativ e measure option for states provided that such alternative would achieve better results than source-specific application of BART. Further details and references for the court decision were provided in the comment.

Commenters did not agree with statements provided b y other commenters that the North Valmy coal plant in Nevada must continue to operate until at least 2025, and stated that there is no compelling economic or reliability reason for the p lant to continue polluting beyond 2025, and that nearby geothermal or solar resources could hel p provide the necessary voltage.

Comment 37: Comments stating that the EPA cannot reject state p lans that deviate from the emission guidelines as the result of accounting for achievability and remaining useful life.

Response 37: The EPA disagrees with this comment, which misunde rstands the structure of section 111(d)(1) and the Act generally. The remain ing useful life provision is not a direct grant of authority to a state to consider remaining usefu l life in any way the state sees fit. It is instead a requirement that EPA’s regulations must meet, as th ese emission guidelines do for the reasons explained in final rule preamble section VIII.G.1 a nd the Legal Memorandum.

The following are summaries of the specific public comments under this comment:

Commenters stated that EPA cannot declare ex ante t hat it will reject as unsatisfactory the plan of any state that seeks to exercise its statutory a uthority to account for remaining useful life and266

other factors that may require a deviation from EPA 's emissions guidelines. Commenters also stated that EPA effectively forecloses any possibil ity of altering a state's proposed emission reduction target to account for remaining useful li fe or any other relevant factors, even if a State can establish that EPA erred in its assessment of t he states' ability to achieve one or more of the Building Blocks.

Comment 38: Comments suggesting the CAA gives states flexibili ty to address remaining useful life and EPA is violating states' statutory right.

Response 38: The EPA disagrees with comments that section 111(d) (1) is a grant of authority to states or creates a “state right” to consider remai ning useful life in any way a state deems appropriate. Instead, the remaining useful life pro vision in 111(d)(1) is a requirement that the EPA’s guidelines must meet. Please see the legal me morandum for a detailed analysis of the requirement.

We disagree that this guideline violates basic prin ciples of cooperative federalism. The guideline provides states with flexibility to meet the guidel ine requirements in any number of ways. That the guideline does not permit states to take into c onsideration remaining useful life in any way a state wants does not violate cooperative federalism . The EPA has the authority to set basic requirements for consideration of remaining useful life in this guideline. To hold otherwise would violate basic principles of cooperative feder alism by eviscerating the EPA’s role in the 111(d) program.

With respect to the comment about 111(d)(2) requiri ng the EPA to take into consideration remaining useful life when promulgating a federal p lan, we discuss that issue in our proposed federal plan rulemaking. This guideline permits sta tes to take into consideration remaining useful life and therefore the EPA will be able to, in prom ulgating a federal plan, take into account remaining useful life as required under 111(d)(2).

With respect to the comment about the “broken windo w fallacy,” the comment is purely rhetorical and contains no substantive issue. The E PA’s intent is to implement the CAA, not to require replacement of existing goods.

The following are summaries of the specific public comments under this comment:

Several Commenters (also emphasized that CAA sectio n 111(d)(1) grants states the authority, in applying a standard to particular sources, to take into account the source's remaining useful life or other factors. Commenters stated that the flexib ility to consider remaining useful life was unequivocally reserved to the states by Congress wh en it enacted Section 111(d), and this flexibility is reinforced by EPA's own implementing regulations. Commenters said that by setting overly stringent mandatory targets and no r easonable alternatives to comply with those targets, EPA has violated the states' statutory rig ht to consider these factors in the design of the rule and deviate from the BSER requirements and res ulting emissions limits.

Several commenters said Congress intended section 1 11(d) to be a state-driven process, rather than be the subject of federal command-and-control dictate, and that the proposal is unlawful267

because it abrogates states' right under Section 11 1(d) to state-driven emission standards. Commenters cited section 111(d)(1)(A) in support, a nd said that it grants states the prerogative of " submit[ting] to the Administrator a plan which ... establishes standards of performance for ... existing source[s] .... " and that in so doing, Congress unquestionably in tended for states to be the regulators exercising discretion in establishin g emission standards, specifically authorizing states to consider such factors as the remaining us eful life of a given source in the standardsetting process. Commenters stated that in contrast , Congress limited EPA's role to a subsidiary procedural role prescribing regulations which shall establish a procedure for plan submission and determining whether a state's submitted plan is sat isfactory, and cited section 111(d)(2).

Commenters said, section 111(d) explicitly grants s tates the authority to act independently of EPA in developing their compliance plans. Commenter s said that first, section 111(d) gives states, not EPA, the first opportunity to develop i mplementation and enforcement plans that are projected to achieve EPA's national emissions guide line, and that EPA can only reject state plans if it finds them unsatisfactory (i.e., the plans fa il to satisfy section 111(d) requirements or sectio n 111(d) regulations). Commenters said that second, s ection 111(d) gives states the opportunity to address local conditions, including economic factor s like the remaining useful life of regulated sources, and that this sensitivity to local conditi ons is central to regulating existing sources under section 111(d). Commenters said even if EPA finds a state plan unsatisfactory and acts to implement federal standards of performance in lieu of the state plan, EPA must still consider local state conditions (Commenters cited the sectio n 111(d)(2) provision that requires EPA to consider the remaining useful life of regulated sou rces, in support of this statement.)

Several commenters indicated that EPA did not and c annot identify any statutory provision (other commenters said, any canon of statutory cons truction) that authorizes it to displace states' legal authority and would allow it to eliminate the statutory flexibility that Congress intended for the States to exercise. Commenters said that rewrit ing section 111(d) in such a fashion is flatly inconsistent with the principles of cooperative fed eralism on which the CAA is based. Commenters also stated that in dismissing its requi rement to allow states to consider remaining useful life under the CAA, EPA is violating basic p rinciples of cooperative federalism, and impinging on the states' rights to craft their own plans.

Commenters noted that the CAA requires that EPA tak e remaining useful life (and other factors) into consideration in promulgating a standard of pe rformance under a section 111(d) plan, and stated that accordingly, EPA does not have the lega l authority to ignore the remaining useful lives of affected sources when setting a state's go als or to replace consideration of this factor with a concept the Agency might prefer.

Commenters argued that CAA includes facility-preser ving concepts intended to prevent EPA from falling prey to the broken window fallacy wide ly recognized in economics: the fallacy that destroying existing wealth somehow creates a positi ve gain through the mere replacement of existing goods.

Comment 39: Comments suggesting the federalism bar prohibits t he EPA from using the SIP to force states to adopt specific control measures.268

Response 39: The EPA disagrees with this comment. We have not di smissed the requirement that this guideline permit states to take into cons ideration remaining useful life, as explained in section VIII.G.1 of the final rule preamble of the CPP. This guideline does not require any specific control measures and gives states vast fle xibility in meeting its requirements; please see the legal memorandum for a discussion of state flex ibility. Thus, the cases cited by the commenters are inapposite. Commenters also do not p oint to any particular reason that states are effectively required to adopt specific control meas ures, nor do commenters identify any such

measures.
The following are summaries of the specific public comments under this comment:

Commenters noted that section 111(d)(1) directs EPA to prescribe regulations which shall establish a procedure similar to that provided by s ection 110, and that cases interpreting section 110 emphasize a "

federalism bar ," which "

prohibits EPA from using the SIP process to force states to adopt specific control measures ." EME Homer City Generation, L.P. v. EPA , 696 F.3d at 29 (D.C. Circuit 2000). Commenters stated that u nder section 110, states must have " real choice with regard to the control measure options a vailable to them " to meet their SIP requirements" ( Michigan v. EPA , 213 F.3d at 687 (D.C. Circuit 2001)) and that the se cases underscore the primacy of state discretion under th e CAA to tailor an SIP to the state's particular circumstances. Commenters indicated that EPA's dism issal of the statutory requirement to allow states to consider remaining useful life because st ates can employ building blocks 2, 3 and 4 rather than building block 1, is a decision that ef fectively forces states to adopt specific control measures in violation of the " federalism bar."

Comment 40: Comments regarding the effect of not allowing stat es to account for the remaining useful life of affected EGUs on source owners is a takings under the Fifth Amendment.

Response 40: We explain our interpretation of remaining useful life in section VIII of the Preamble and Section IX of the Legal Memo. We expla in there that the guidelines do permit states to consider remaining useful life and other facility specific factors. The guidelines are designed to permit trading and the creation of inte rstate emission markets. We view the remaining useful life consideration as primarily re garding a concern for facilities with relatively short remaining useful lives and the potential that they may be required to install prohibitively costly pollution control devices (these guidelines to not impose such a requirement). Nonetheless, the agency also conducted a “stranded assets” analysis to determine if commenters’ concerns were correct that the rule would force wid espread retirements of units with relatively long book lives. As explained in Section VIII.B.1 o f the Preamble, we found that this need not be the case. This of course may depend on how states c hoose to design their state plans, but it cannot be said that this rule requires the result. Insofar as this comment asserts that this rule will necessarily effectuate a regulatory taking, see the discussion of the Just Compensation Clause in the Legal Memorandum accompanying the final rule.

The following are summaries of the specific public comments under this comment:269

Commenters raised an issue under the Takings Clause of the Fifth Amendment associated with issuing regulations that would necessitate the clos ure of coal-fired EGUs and produce significant stranded assets. Commenters stated that under the Penn Centraltest, a court evaluates a regulatory takings claim by considering the regulat ion's economic effect on the landowner, the extent to which the regulation interferes with reas onable investment-backed expectations, and the character of the government action. Commenters cite d Palazzolo v. Rhode Island , 533 U.S. 606, 617 (2001) (citing Penn Central Transp. Co. v. New York City , 438 U.S. 104, 124 (1978)). Commenters stated the economic effect on the owner would be substantial: the owner would likely be deprived of all economic benefits if it w ere forced to shut down a coal-fired EGU prematurely, and, such a premature retirement would interfere with the reasonable investmentbacked expectations of the facility owner. Commente rs stated that when a coal-fired EGU is approved for construction, the owner has a reasonab le investment-backed expectation that it can operate the facility for its entire useful life to recoup the substantial costs of construction, and that leaving an owner with stranded assets it canno t recover would interfere with those expectations. Commenters further stated that expend itures necessary to comply with federal environmental regulations such as MATS create furth er investment-backed expectations. Commenters said that while EPA may be able to pointto environmental benefits associated with prematurely shutting down coal-fired EGUs, it is do ubtful that such benefits could offset the other factors in the Penn Centraltest. Commenters concluded that at a minimum, Sect ion 111(d) must be read to authorize States to adjust their em ission reduction targets to take into account the remaining useful life of affected EGUs. Commenters stated that without relief for their remaining useful life, many older EGUs will be forced to sign ificantly reduce operations or retire and by forcing significant reductions in operation and ret irements, the CPP is a regulatory taking of these units requiring government compensation.

Comment 41: Comments on October 30, 2014 Notice of Data Availa bility (NODA) in disagreement with use of book life to determine rem aining useful life.

Response 41: Contrary to statements of some commenters, the Oct ober 30 Notice of Data Availability did not discuss remaining useful life. Rather, the notice discussed stranded asset concerns and requested comments on book life in the context of seeking comments on the BSER determination.

The emission guidelines permit states to consider r emaining useful life of individual affected EGUs in designing their plans. In response to comme nter concerns about the book life metric, the agency observes that the guidelines do not dict ate that states use a particular definition of

“ remaining useful life .” The EPA interprets the provision as primarily co ncerned with facilities that have short remaining useful lives, and with re trofit costs. States also are free to consider stranded assets concerns in designing their plans. The EPA will consider the reasonableness of the way in which a state considers remaining useful life and other factors in applying a standard of performance to a particular EGU in the context o f evaluating state plans to determine whether they are satisfactory, i.e., whether they meet the requirements of the guidelines.

For purposes of the EPA’s stranded assets analysis, described in a July 2015 memorandum to the docket, the agency used book life as an estimate of the time period in which coal-fired generation270

units are fully depreciated. Book life is the perio d over which long-lived assets are depreciated for financial reporting purposes. The agency estima ted typical book life by researching financial statements of utility and merchant generation compa nies in filings to the Securities and Exchange Commission. The agency estimated the book life of coal-fired EGUs to be 40 years, and assumed a 20-year book life for pollution contr ol retrofits. The book life of coal-fired EGUs (coal steam and IGCC) is twice as long as the debt life and the depreciation schedule used for federal tax purposes. Although the book life for en vironmental retrofits is often 15 years, the agency conservatively assumed 20 years in this anal ysis. While the analysis’ estimate of book life may not correlate with actual depreciation per iods of every individual coal-fired EGU, it does reflect the expected depreciation periods for those facilities as a class, and thus the agency believes it is a highly reasonable means of assessi ng the degree of likelihood of “stranded assets” across the whole sector.

The analysis shows that the emission performance le vels in the final guidelines can be met without the retirement of affected EGUs before the end of their book life, and without the retirement of affected EGUs before the end of the b ook life of capital-intensive pollution control retrofits installed on those EGUs. Thus, the final CO 2 performance rates and equivalent state goals provide state with sufficient flexibility to address stranded asset concerns. For additional detail, see the July 15 docket memo titled “ Stranded assets analysis .”

The following are summaries of the specific public comments under this comment:

Several commenters stated that book life is not an appropriate means of considering the

" remaining useful life."

Commenters indicated that it would be inappropria te for EPA to adopt a uniform (e.g., 40-year) remaining useful life for a ll existing coal-fired EGUs given the diversity among the sources. Commenters also said it would be inappropriate for EPA to adopt a uniform (e.g., 20-year) remaining useful life for major pol lution control retrofit projects. Multiple commenters stated that each existing coal-fired EGU must be evaluated on a case-by-case basis to determine its remaining useful life.

Commenters indicated that book life is an accountin g concept that does not measure the remaining useful life of an EGU. Commenters also st ated that book life is a ratemaking concept that concerns asset depreciation and does not descr ibe the useful life of an asset. Commenters stated that the useful life of an EGU asset extends well beyond the asset's book life.

Commenters stated that adjustments in compliance ma y be necessary to account for the remaining useful life of coal-fired EGUs, and that the NODA does not sufficiently address this issue. Commenters stated that the brief comment per iod EPA has allocated for the NODA prevents commenters from providing any substantive comments on how remaining useful life could be incorporated into a final Section 111(d) r ule.

Commenters stated that generating units subject to prudent ongoing maintenance and investment can achieve several decades of useful and economica l service beyond an accounting book life.

Commenters said in reference to the 40-year book li fe referred to in footnote 6 of the NODA, that a 40-year remaining useful life directly confl icts with the commenter's state regulatory determines, which are referenced and outlined in th e comment letter. Commenters presented that271

the remaining useful life numbers for their BACT co ntrolled and new generation fleet range from 32 to 50 years.

Comment 42: Comments on October 30, 2014 NODA providing sugges tions on how to use or revise book life.

Response 42: The EPA disagrees that the remaining useful life o f particular facilities should be reflected in the CO 2 emission rates and state goals established in the emission guidelines. Section 111(d) requires that EPA’s emission guidelines perm it the states to consider remaining useful life in applying standards of performance to particular affected EGUs, and does not call for facilityspecific remaining useful life considerations to be taken into account in determining the levels of emission performance that reflect the BSER.

The response to comments on why remaining useful li fe is not a basis for adjusting state goals is earlier in this section (5.11) of the RTC document.

Regarding the suggestion that states adjust goals b ased on stranded assets considerations, the EPA disagrees. The EPA has determined that the CO 2 performance levels and state goals are achievable considering cost. The basis for that con clusion is provided in chapters VI and VII of the final CPP preamble. Section VIII.G.1 of the fin al rule preamble of the CPP explains that the emission guidelines provide states with flexibility to consider facility-specific factors, and the July 15 memo to the docket titled “ Stranded assets analysis ,” also summarized in the preamble, shows that states have sufficient flexibility to ad dress stranded asset concerns .

Regarding, the comment on a potential error in book life used for modeling, EPA disagrees. The book life is one of many financial assumptions incl uded in the model for new investments, and is one of many variables impacting the model projectio ns.

The following are summaries of the specific public comments under this comment:

Commenters noted that it appears that EPA considere d the remaining book life of certain coalbased units when calculating the available re-dispa tch potential for a state. Commenters indicated EPA should recognize remaining unit and p ollution control book life when setting state goals. Commenters also stated that it may be more a ppropriate to consider the depreciation schedule and capital improvements than book life al one.

Commenters suggested two approaches:

• States could adjust goals to consider remaining use ful life of the pollution control investment. For example, Regional Haze controls cou ld be accounted for with a twenty year life at a baseline capacity factor.

• States could adjust goals to avoid stranded investm ent. States could evaluate investments in pollution control considering baseline capacity factors, the capital cost and the cost advantage of fuels.272

Commenters said that they identified a potential er ror in the book life used for modeling a new coal-fired unit. Commenters stated that the data in EPA's integrated planning model for Texas has the Sandy Creek coal plant at only a 38% capaci ty factor in 2025 despite being about 13 years into its useful life. Commenters indicated th at in contrast EPA stated that a 40 year book life was used for modeling a new coal-fired unit.

Comment 43: Comments in support of October 30, 2014 NODA.

Response 43: Thank you for your comments. As described in secti ons V-VII of the preamble, there are significant changes since proposal in the way that the agency is determining the BSER and calculating emission performance requirements t o ensure that the final CO 2 emission rates and equivalent state goals are achievable consideri ng cost. The final rates and goals leave flexibility in practice for states to consider rema ining useful life and other facility-specific considerations. The agency concluded that it was no t appropriate or necessary to adopt approaches that involve considering remaining usefu l life or other facility-specific considerations in the approach for calculating CO 2 emission performance rates. Facility-specific fact ors can be considered in the state plan design process. Addit ionally, see the July 2015 docket memo titled

“ Stranded assets analysis ” for a discussion of EPA’s analysis of the final r ule, which finds that the final performance rates represent a level of ge neration and emissions across each interconnection that is consistent with the ability to operate affected EGUs through the end of their book life, considering both the age of each f acility and recently installed capital-intensive pollution control retrofits.

The following are summaries of the specific public comments under this comment:

Several commenters stated that they are encouraged by EPA's acknowledgment in the NODA of utility concerns that the Proposed Rule fails to gi ve owners the opportunity to fully take advantage of the remaining asset value of existing coal-fired generation.

Commenters said that EPA is on the correct path in the NODA of incorporating the remaining useful life of affected units into the re-dispatch assessment. Commenters said this will greatly reduce electric system reliability concerns, and al low for more logical transition to lowering the carbon intensity from existing EGUs.

Commenters said that EPA correctly acknowledged in its NODA that adjustments in compliance may be necessary to account for the remaining usefu l life of coal-fired EGUs.

Commenters stated that the proposal to use book lif e in the NODA to allow states to adjust the interim goal has merit, provided that major polluti on control investments are included in this flexibility.273

5.12 DESIGN, EQUIPMENT, WORK PRACTICE, OR OPERATION AL STANDARDS

This section addresses comments on whether state pl ans may contain design, equipment, work practice, or operational standards, and if those ty pes of standards must be limited to the circumstances described in section 111(h) (i.e., wh en it is ‘‘not feasible’’ to prescribe or enforce a standard of performance.)

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments suggesting that emissions should be limit ed under section 111(h), and the EPA should require operations and maintenance p ractices to minimize heat rate variability.

Response 1: We disagree both that limiting emissions under sec tion 111(h) is the better application of the CAA and the most defensible mech anism for regulation of carbon emissions under section 111 and that such standards may be pr omulgated only under section 111(h). CAA section 111(h) concerns the relatively rare situati on in which an emissions standard, which entails a numerical limit on emissions, is not appr opriate because emissions cannot be measured, due either to the nature of the pollutant or the na ture of the source category. CAA section 111(h) provides that a design standard is appropriate unde r those circumstances, but only under those circumstances. In the context of the CPP, an emissi ons standard is appropriate, as described in detail in section III.B of the final rule preamble, and therefore CAA section 111(h) does not apply. Additionally, CAA section 111(h) applies onl y to standards promulgated by the Administrator, and therefore appears by its terms t o be limited to CAA section 111(b) rulemakings for new, modified, or reconstructed sou rces, not CAA section 111(d) rulemakings for existing sources. See sections V.B .and VIII.D of the final rule preamble of the CPP.

We also disagree that a work practice or operationa l standard can be promulgated as a standard of performance for existing EGUs. See Section VIII. D of the final rule preamble of the CPP. However, we are finalizing that a state may elect t o use emission standards for affected EGUs that result in a reduced CO 2 lb/MWh emission rate for affected EGUs because of operational or other standards. The state would include in its sta te plan an emission standard that is the rate standard that results from the applicable operation al or other standard. See section VIII.C of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that a work practice or operation al standard can be promulgated for existing EGUs using the authority in CAA section 111(h) when there is no demonstrated control technology for a particular pollutant. Commenters s tated that because there is no adequately demonstrated control technology for reducing carbon dioxide from existing coal-fired EGUs, EPA should require the best technological system of continuous emission reduction, which in this case would be operation and maintenance practi ces that minimize heat rate variability and periodic review of available equipment upgrades to determine whether such upgrades would cost effectively improve heat rate and boiler efficiency . Commenters indicated that limiting emissions274

under section 111(h) is the better application of t he Act and the most defensible mechanism for regulation of carbon emissions under section 111.

Commenters stated that EPA may not promulgate opera tional or work practice standards under section 111(d) because such standards may be promul gated only under section 111(h).

Comment 2: Comments supporting work practice-type standards i n face of technical uncertainties in monitoring and emission projection s.
Response 2: We disagree that a work practice or operational st andard can be promulgated as a standard of performance for existing EGUs. See sect ion VIII.D of the final rule preamble of the CPP. However, we are finalizing that a state may el ect to use emission standards for affected EGUs that result in a reduced CO 2 lb/MWh emission rate for affected EGUs because of operational or other standards. The state would inc lude in its state plan an emission standard that is the rate standard that results from the applicab le operational or other standard. See Section VIII.C of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters supported the development of a work prac tice standard because of a lack of readily quantifiable reductions that can demonstrate achiev ement with a rate-based goal or emission cap, and lack of real-time heat rate measurement technol ogy to assess improvements associated with particular operating practices or equipment upgrade s. Commenters stated that improvements in building block 1 cannot be reliably projected or en forced, and that EPA must acknowledge these uncertainties and revise its criteria to accommodat e a reasonable work practice standard.

Commenters also noted that a work practice standard could be used by states to evaluate future outage work and assure efficiency of existing fleet s275

5.13 EMISSIONS AVERAGING AND TRADING

This section addresses comments on emissions averag ing and trading, including comments on cap-and-trade programs. These comments cover such t opics as the potential advantages and issues related to emissions trading programs, inter state trading of emission allowances, emission averaging. Also included are commenters’ recommenda tions regarding the design and implementation of these programs and suggestions re garding areas where EPA can provide guidance and support to states considering incorpor ating a trading program into their state plan.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Numerous commenters supported emissions trading pr ograms and noted that this approach has been demonstrated by the Regional Gree nhouse Gas Initiative (RGGI) and California’s cap-and-trade program.

Response 1: Commenters note many benefits of emission trading programs. The EPA has implemented several of these programs and agrees wi th commenters’ statements.

The following are summaries of the specific public comments under this comment:

Many commenters supported emissions trading progra ms. Commenters supported emissions trading programs because they believe these approac hes provide greater flexibility for achieving state CO 2 goals, are the most cost effective way to reduce e missions, and would be beneficial to power consumers. Commenters argued this degree of flexibility is needed because many EGUs will not be able to make even the required heat rat e improvements, while the other building blocks are by definition beyond the control of indi vidual electric generating units (EGUs).

• RGGI WORKS: Commenters noted that existing market-b ased emission trading programs, such as RGGI and the California program, have successfully demonstrated that trading programs are an efficient , cost-effective method achieving emission reductions. Commenters noted tha t the nine states participating in the Regional Greenhouse Gas Initia tive have together reduced carbon pollution in the region by over 40 percent f rom 2005 to 2012. Commenters noted that the new RGGI cap of approximately 78 mil lion tons in 2020 is more than 50 percent below 2005 levels and the net benef its of RGGI were approximately $1.6 billion in the first compliance period. Commenters observed that the true cost of RGGI has never been revealed. Studies have failed to capture the costs of transmission upgrades or reliability m ust run orders. Commenters asserted RGGI might be the least bad means of attai ning compliance with the Clean Power Plan.

• CALIFORNIA'S PROGRAM WORKS: Commenters also mention ed California's economy-wide greenhouse gas (GHG) emissions cap. Co mmenters noted that276 California has already held four successful allowan ce auctions and the cap and trade program is projected to reduce emissions by 2 5 percent from 2006 to 2020. Commenters claimed that California's utility sector greenhouse gas emissions have declined with emissions from in-state and impo rted power falling by 16 million metric tons, or 16 percent, from 2005 to th e 2010-12 averaging period (from 108 million metric tons CO 2 e to 91 million tons CO 2 e). By 2025, California expects to cut utility sector emissions to below 80 million metric tons CO 2 e, a roughly 25 percent reduction from 2005 levels in th at sector, with already low emissions compared to other states.

Commenters stated they support market solutions as the best and most efficient means to drive emission reductions at the lowest cost to the econo my, and they agree with and support maintaining the Agency's interpretation that

"the definition of 'standard of performance' is bro ad enough to allow states to implement the proposed EPA guidelines by incorporat ing emissions averaging and trading provisions, including both emission rat e programs, in which sources may average or trade those rates, and mass emission limit programs, in which sources may buy and sell mass emission allowances ( and, under certain circumstances, offsets)."

Commenters supported allowing multi-year averaging to demonstrate compliance and cited RGGI as having a 3-year compliance period. However, the commenters stated there are several effective steps the Agency could take to improve st ates' ability to design plans that can fully utilize this valuable tool:

• Provide presumptive mass based standards for each s tate;

• Provide central, harmonizing standards and complian ce infrastructure for states to voluntarily utilize;

• Enable " out of sector " greenhouse gas emission reductions to be used to demonstrate compliance with a State's compliance goal; and

• Ensure adequate time is available for market design and formation.

Commenters supported allowing states to join region al trading initiatives as an additional tool by which to implement the carbon dioxide reductions re quired to meet their goals.

Commenters stated, to address greenhouse gas emissi ons from existing power plants, the States support EPA's proposal to allow states to utilize t rading programs. Commenters said, cap-andtrade programs are well suited to reducing greenhou se gas emissions because such programs ensure compliance with emission limitations and suc h emissions do not pose the type of "hot spot" concerns that toxic pollutants such as mercur y do. The commenters also discussed the success of RGGI.

Commenters also stated EPA may consider scenarios i n which emissions reductions attributable to renewables generation and increased end-use ener gy efficiency would be credited on the basis277

of CO 2 emissions avoided, with such credits to be used by covered facilities to achieve compliance with the emission guidelines. [See, e.g. , Natural Res. Def. Council, Closing the Power Plant Carbon Pollution Loophole: Smart Ways t he Clean Air Act Can Clean Up America's Biggest Climate Polluters (Mar. 2013).] C ommenters said, in considering these scenarios, EPA should evaluate and articulate any m ethodology to be used to determine credit eligibility.

Comment 2: Many commenters noted that cap-and-trade programs are efficient, simple to implement, and easy to enforce.

Response 2: The EPA has implemented several cap and trade prog rams in the final rule, and agrees with commenters’ opinions. Most covered sour ces under the Clean Power Plan final rule have had experience with trading and monitoring and reporting since 1995 with the Title IV Acid Rain Program, a national program to reduce sulfur d ioxide emissions from power plants. Commenters are correct to point out the success of such programs in achieving emission reductions in a cost-effective manner and that the equipment and protocols to comply are readily available and in most cases, already in place. The simple and straightforward manner of accounting for compliance has also been a benefit. Aside from the benefits to public health and welfare, resource savings for both sources and gove rnment have also been demonstrated. Sections V and VIII of the CPP final rule preamble address emission trading at length, specifically in section VIII, see VIII.J.3 for mass -based trading approaches and VIII.K.2-4 for rate-based approaches. Note also that concurrent wi th this final rule, the EPA is proposing a Federal Plan with model rules that states may consi der in developing their plans.

The following are summaries of the specific public comments under this comment:

Commenters stated that trading systems are an effic ient and easy way to ensure compliance. Commenters believe that an emissions cap is a good approach for monitoring and verifying compliance. For states that rely on a suite of poli cies to reduce emissions, commenters stated that an emissions cap is a simple but rigorous method of ensuring and verifying that the policies achieve the emission reductions.

• Commenters noted that even though the required emis sion reductions are achieved on a regional basis, the point of complian ce is with the source because sources cannot emit more than the number of allowan ces they hold.

• Commenters noted that the measurement of CO 2 emissions at sources covered by the cap can be accomplished using existing emission s monitoring equipment and protocols already in place at these sources. Commen ters noted that covered sources report CO 2 emissions in accordance with 40 CFR Part 75.

• If a source does not have adequate allowances to co ver its emissions, commenters stated that enforcement can be taken directly again st that source. Because of the simple and straightforward nature of determining wh ether the cap is met,278 Commenters believed budget trading programs obviate the need for EPA or states to conduct a complex analysis to determine whether a state meets its compliance requirements.

Commenters stated that California's Global Warming Solutions Act (GWSA) allows an economy-wide cap-and-trade program across sectors t o achieve carbon reductions. Commenters said the GWSA recognizes that for some energy-inten sive industrial sources, stringent requirements in California, either through inclusio n in a cap-and-trade program or through source-specific regulation, have the potential to c reate a disadvantage for California facilities relative to out-of-state competitors unless those l ocations have similar requirements. If production shifts outside of California, emissions could remain unchanged or even increase. Commenters said maintaining sector-specific require ments will help safeguard against such complications.

Comment 3: Commenters believed that market-based programs pro vide greater electricity reliability than other approaches.

Response 3: The EPA encourages states to work closely with RPO s in developing state plans that implement the emission standards. Section VIII .G.2 of the CPP final rule preamble discusses reliability. See also the TSD on resource adequacy and reliability in the docket to the CPP final rule.

The following are summaries of the specific public comments under this comment:

Commenters believed Regional Transmission Organizat ions (RTOs) should dispatch electric generating units (EGUs) according to complex mathem atical models with the goal of minimizing costs and emissions (or water use or some other res ource constraint). Pricing carbon may be a more viable solution to meeting carbon emissions st andards than environmental dispatch, but absent Congressional action the legal authority for RTOs or groups of states to act in a way that is envisioned by the CPP is uncertain. Commenters s tated that market-based emissions credit trading programs are the most efficient pathway to ensuring compliance costs are appropriately tied to economic dispatch priorities. "Baking" comp liance costs of various generators into their market bids allows both economic and environmental attributes to be accounted for in a single merit-order dispatch schedule and greatly simplifie s electricity market rules and operations.

Commenters believed that a market based trading pro gram would help mitigate any localized system reliability concerns, since power plants in areas with high electricity demand would be able to purchase allowances from facilities in stat es with better access to natural gas redispatch.

Comment 4: Commenters preferred market-based programs that ar e based on mass-based limits because they believed they would be easier to imple ment and states and utilities are familiar with other mass-based programs, such as the Acid Rain an d CAIR trading programs.279

Response 4: In the CPP final rule preamble, the EPA finalized both mass-based limits and ratebased performance standards. Section VIII describes state plan approaches including rate- and mass-based approaches with which states can elect t o comply. Section VIII also addresses massbased emission standards with a market-based emissi on budget trading program. Specifically, see VIII.J.3 for mass-based trading approaches and VIII.K.2-4 for rate-based approaches. Section V addresses the legal justification of including em issions trading within the best system of emission reduction (BSER). Note also that concurren t with this final rule, the EPA is proposing a Federal Plan with model rules that states may consi der in developing their plans.

The following are summaries of the specific public comments under this comment:

Commenters believed that a mass-based allowance sys tem has advantages over a rate-based system.

• A mass-based allowance system automatically account s for: 1) improved

efficiency at the plant level, 2) reduced demand re sulting from demand-side energy efficiency improvements, 3) load shifting to lower CO 2 emitting generation, and 4) and the deployment of renewable (zero-emitting) energy

sources.

• A mass-based allowance system parallel EPA's Acid R ain and CAIR trading programs; states have no experience with rate-based trading systems. The federal agency could establish state CO 2 budgets, based on application of site-specific BSER. States could then allocate their budgets to t heir facilities using whatever methodology they choose (e.g. auction or historical activity). States would then have the option of allowing their sources to partic ipate in an intrastate or interstate trading program.

Comment 5: Commenters supported trading programs because they believed they would provide an incentive for states to preserve their e xisting nuclear power plants.

Response 5: The EPA is not finalizing increased generation fro m new nuclear capacity as a component of the BSER in building block 3 in the CP P final rule preamble. The EPA is also not finalizing the proposal to include a component repr esenting preserved existing nuclear generation in the BSER. See section V of the CPP fi nal rule preamble for a discussion of nuclear generation and the final building block 3. Generati on from new nuclear units and capacity uprates at existing nuclear units would still be ab le to help sources meet emission rate-based standards of performance through the creation of cr edits, as discussed in section V.A of the final rule preamble, and would help sources meet mass-bas ed standards of performance through reduced utilization of fossil generating capacity l eading to reduced CO 2 emissions at affected EGUs. See section V of the CPP final rule preamble for a discussion on the legal justification of including emissions trading within the best system of emission reduction (BSER).280

The following are summaries of the specific public comments under this comment:

Commenters stated that this approach provides state s with a strong incentive to preserve the existing nuclear fleet because the premature retire ment of a nuclear plant and its replacement by natural gas-fired facilities would result in substa ntially increased carbon emissions, higher allowance prices, and higher electricity prices.

Comment 6: Commenters asserted that a rate-based trading prog ram would be too complex and that a mixture of rate-based and mass-based trading programs around the country would be difficult to affectively administer, arguing that i t would be difficult to link rate-based trading programs with mass-based trading programs.

Response 6: In order to provide states with the greatest numbe r of options and flexibility in meeting the performance rates, the emission guideli nes finalize both mass- and rate-based approaches, which each could be implemented through trading programs. Section V addresses the legal justification of including emissions trad ing within the best system of emission reduction (BSER) and section VIII of the CPP final rule pream ble discusses emission trading approaches. In the final rule preamble, the EPA provides approa ches in the emission guidelines for how a rate-based trading program and a mass-based trading program would be implemented but does not project linking rate and mass trading states. S tates have options and flexibility to choose to implement mass-based goals or rate-based goals or p erformance rates under the CPP final rule. Specifically in section VIII, see VIII.J.3 for mass -based trading approaches and VIII.K.2-4 for rate-based approaches. Note also that concurrent wi th this final rule, EPA is proposing a Federal Plan with model rules that states may consider in d eveloping their plans.

The following are summaries of the specific public comments under this comment:

Commenters asserted that rate-based trading system s are more complex and that a patch-work of mass-based and rate-based systems around the countr y would prove extremely difficult to administer effectively. Commenters cautioned that r esearch suggests enabling linkage between a state with a rate-based program and a state with a mass-based program will increase emissions relative to a scenario without linkage. Commenters stated the rate-based systems increases trade, depresses prices, and increases production; interst ate linkage compounds changes. Commenters stated the research includes a discussion of availa ble measures for ensuring that overall emissions do not increase due to linkage including, requiring states with rate-based programs to convert to mass-based standards prior to trading.

Comment 7: Commenters asserted that market based programs are good for consumers, employment, and the environment and note d that these advantages of a market-based program had already been demonstrated by Regional G reenhouse Gas Initiative (RGGI) had demonstrated.281

Response 7: The EPA agrees with commenters. As discussed in se ctions V and VIII of the CPP final rule preamble, the EPA concurs with commenter s that emission trading lowers overall costs, adds flexibility, and makes it easier for so urces to address pollution control objectives. Congress and the EPA have selected emission trading approaches when addressing national and regional pollution from the utility power sector co ntributing to problems such as acid precipitation and interstate transport of ozone and particulate matter. States will have every opportunity to design their section 111d plans to a llow the affected EGUs in their respective jurisdictions to employ emissions trading approache s to achieve the standard of performance established in those plans.

The following are summaries of the specific public comments under this comment:

Commenters suggested that revenues from cap and tra de programs can be used to fund renewable energy and energy efficiency programs. Co mmenters noted that states participating RGGI are investing revenue from allowance auctions in energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct bill a ssistance programs. Commenters stated these investments in energy efficiency have helped six of the nine RGGI states rank in the top ten most energy efficient states, according to the American Council for an Energy Efficient Economy. Commenters also noted that Massachusetts invests ap proximately 90 percent of its RGGI proceeds in energy efficiency and as a result has b een ranked the number one energy-efficient state for the last three years. Commenters stated a n independent study by The Analysis Group found that RGGI states have realized a $1.6 billion net benefit from the first three years of the program due in large part to the energy efficiency investments that have reduced consumer electricity spending and increased economic activit y (see http://www.analysisgroup.com/uploadedFiles/Publishi ng/Articles/Economic_Impact_RGGI_Rep ort.pdf). Commenters stated the same study also fou nd that the region would see a net increase of 16,000 jobs due to these energy efficiency investme nts and other auction revenue spending. Commenters said participating states have found tha t RGGI captures the benefits of complementary state policies and has resulted in si gnificant changes across the electricity system to reduce emissions. Commenters also said these inc lude investments by power companies to make existing units more efficient, shifts across t he electricity system to greater use of cleaner fossil-fuel generation sources, reduction of electr icity load growth through demand-side energy efficiency strategies, and replacement of fossil-fu el generation with increased renewable energy.

Commenters compared the RGGI-driven CO 2 emission reductions to the emission reductions that would result from the Existing Source Performa nce Standard and stated that calculations showed that the RGGI reductions are the greater of the two, underlining the contention that RGGI can be an adequate compliance mechanism.

Commenters noted that in 2012 RGGI states invested 73 percent of auction revenue in energy efficiency programs that are expected to save $1.8 billion on electricity bills over the lifetimes of the measures. Commenters also stated that between 2 009-2012 RGGI auctions generated $912 million or $33 per capita spread throughout the reg ion, which was allocated as follows: 65 percent to energy efficiency, 17 percent to direct bill assistance, 6 percent to clean and renewable energy, and 6 percent to GHG abatement. Commenters suggested that Coal-heavy states that join282

regional programs could decide to direct auction re venue to worker retraining and economic diversification, and should be encouraged to do so.

Commenters argued that participation in RGGI should fully satisfy EPA's current proposal, but acknowledged additional technical support materials will need to be provided to demonstrate equivalency. However, commenters took issue with th e post-2030 reductions and contended that RGGI targets, which caps emissions then requires a 2.5 percent per year reduction from 2015 to 2020, is more reasonable.

Comment 8: Commenters noted that trading programs could accel erate emission reductions.

Response 8: The EPA agrees with the commenters. Historically, evidence exists that trading programs provide cost-effective opportunities to ma ke reductions early and sooner than might otherwise have happened. For instance, the Title IV Acid Rain program, established by the CAAA of 1990, had a national goal of 10 million ton s of SO2 by the year 2010. Title IV was implemented by a mass-based cap and trade program w hich achieved the 10 million ton cap by 2007. See sections V and VIII of the CPP final rule preamble for a discussion of emission trading.

The following are summaries of the specific public comments under this comment:

Commenters believed a trading program would allow E PA to accelerate the reduction of greenhouse gas emissions. Commenters suggested a 30 % reduction in five to seven years and a 50% or greater reduction by 2030 may be possible if a trading program is adopted.

Comment 9: Commenters expressed concern that that cap-and-tra de programs may undermine economic planning due to price volatility of carbon allowances.

Response 9: Emission trading programs are discussed in section V and throughout section VIII of the CPP final rule preamble. Specifically in sec tion VIII, see VIII.J.3 for mass-based trading approaches and VIII.K.2-4 for rate-based approaches . Economic impacts of the final rule are addressed in section XI of the CPP final rule pream ble. Markets are inherently volatile but experience in the US with over 20 years of cap and trade programs and regional CO 2 programs in the Northeast and California does not reflect the p roblems in the EU that the commenters raise.

The following are summaries of the specific public comments under this comment:

Commenters were concerned cap and trade programs ma y undermine economic planning due to volatility in the price of carbon allowances. Comme nters specifically noted the volatility in the allowance prices in the European Union's Emission T rading System (ETS). Commenters noted that the price reached 47 Euros in 2008 and dropped to below 10 Euros in 2013. Despite intervention of the ETS, prices continued to fall a nd in March 2014 prices fell to 3.71 Euros, triggering stop-loss shutdowns. Commenters noted th at the ETS has allowed some companies to283

reap windfalls due to the over allocation of allowa nces. Commenters also noted that the ETS has experienced problems with fraud. Commenters noted t he spot marked had to be shutdown in 2011 after a group of Eastern European hackers infi ltrated the system, which cost European governments 5 billion Euros.

Comment 10: Commenters recommended the EPA evaluate allowance prices under the RGGI to determine impact on fuel diversity and determine wh ether third-party market participation is appropriate.

Response 10: EPA has not made an analysis of RGGI allowance pri ces and fuel diversity. In the US cap and trade markets, including the Acid Rain p rogram, regional NOx and ozone programs, and RGGI and California GHG programs, anyone can pu rchase allowances and participate in the markets.

The following are summaries of the specific public comments under this comment:

Commenters observed that allowances purchased by RG GI - EGUs in 2013 and through June of 2014 has declined. Commenters asked EPA to evaluate : 1) how the trend is impacting fuel diversity and 2) if third party (i.e., investors) m arket participation is appropriate.

Comment 11: Several commenters thought oversight of emissions trading was important; some recommended the EPA facilitate interstate trading b y providing assistance with allowance tracking, measurement and verification, etc.

Response 11: The EPA is committed to working with states to pro vide support for tracking of allowances or credits to help implement multi-state trading or other multi-unit compliance approaches. See section VIII.K.3 of the CPP final r ule preamble for discussions on allowance tracking and evaluation, measurement and verificati on.
The following are summaries of the specific public comments under this comment:

Several commenters were concerned that a cap and tr ade programs must include sufficient monitoring, verification, and enforcement controls to ensure compliance. Commenters believe EPA should facilitate interstate trading and ensure that other interested states are able to realize these types of benefits by providing assistance wit h tasks such as allowance tracking and auction administration. Commenters recommended the EPA deve lop a credit tracking system for states that wish to enter into trading programs that excha nge emission reduction credits as valid compliance instruments and assist states with evalu ation, measurement and verification (EM&V) for trading credits for energy efficiency programs.

Commenters believed that if states have a good tra ck record of administering trade programs, for example the RGGI states, then it may be appropriate for the EPA to delegate its authority284

provided the EPA includes robust requirements for m onitoring, verifying and enforcing trading
programs.

Commenters encouraged the EPA to provide the infras tructure for CO 2 and MWh tracking and trading systems that states can choose to use (on a n "opt-in" basis) for compliance with this rule. Commenters stated that such infrastructure could be similar to the system that Clean Air Markets Division (CAMD) provides now for tracking allowance s under the acid rain, NOx SIP call and CAIR/CSAPR programs. Commenters noted that this sys tem is already used to track CO 2 emissions from power plants, and states could choos e to structure programs to allow trading that utilizes this infrastructure.

Comment 12: Commenters recommended the EPA provide additional guidance to states wishing to implement a market-based trading program

. Response 12: See section VIII of the CPP final rule preamble un der state plan approaches. The emission standards state plan approach covers both a rate-based approach and a mass-based emission standard with a market-based emission budg et trading program. The state measures state plan type also addresses emission trading pro grams. Multi-state plans including multi-state coordination on rate-based emission trading program s and mass-based emission trading programs are further covered in section VIII of the CPP final rule preamble. Specifically in section VIII, see VIII.J.3 for mass-based trading a pproaches and VIII.K.2-4 for rate-based approaches. Note also that concurrent with this fin al rule, the EPA is proposing a Federal Plan with model rules that states may consider in develo ping their plans.

The following are summaries of the specific public comments under this comment:

Commenters asked that EPA give states additional gu idance on how to implement a flexible market mechanism. Carbon fees and allowance trading both are statutorily authorized implementation tools. Commenters believed that this guidance would reduce states' uncertainty and encourage the adoption of efficient approaches.

Comment 13: Several commenters recommended the EPA provide a m odel rule for an interstate emissions trading program that could be adopted by states.

Response 13: The EPA is proposing a federal plan concurrently w ith this CPP final rule which states could use as a model rule. Both rate-based a nd mass-based trading are addressed in the proposed federal plan.

The following are summaries of the specific public comments under this comment:

Commenters recommended the EPA provide a model rule for an interstate emissions credittrading program that could be easily adopted by sta tes. Commenters believed a model rule would help states establish appropriate trading and ceili ng policies that complies with the section 111(d) guidelines.285

Commenters noted that a similar approach was taken by the Agency for the NOx SIP Call and that states that included the model rule in their S IPs enjoyed a streamlined SIP approval process, while sources involved in the program "reaped subst antial cost savings and increased compliance flexibility." Commenters also described the basic e lements of the NOx SIP Call, which are equally appropriate for the CPP, and recommended th at the EPA include an allowance "setaside" for new fossil EGUs in any model CO 2 budget-trading program in an amount necessary to account for projected growth through 2030.

• Commenters stated that states participating in the model program would be required to include emissions from new fossil-fired generation under the cap, and allowances to such units would be allocated only fr om the new-source set-aside so that state budget cap would not be increased.

• Commenters noted that states could decide how to al locate the set-aside allowances (e.g., auctioned to new units, allocated based on a new source emission standard established under section 111(b), or some other method) and that unused allowances in the set-aside could be re turned each year to the state's general allowance pool for existing units or retire d.

• Commenters recommended the EPA provide states with incentives to adopt massbased allowance trading systems with an emissions c ap. Commenters believed the EPA could structure voluntary incentives for emissi on allowance trading in a number of ways, including: (a) creating a complete mass-based trading system for voluntary adoption by states, similar to that emplo yed in the NOx SIP Call; or (b) providing detailed guidance to states wishing to (1 ) create new regional massbased allowance trading systems, or (2) join existi ng systems such as RGGI or the California Global Warming Solutions Act Program, or (3) trade allowances with other states that have non-identical (but mass-base d) implementation plans.

• Commenters recommended the CO 2 budget-trading program should also address unit retirements. A reasonable approach would allow states, participating in the allowance trading program, to permit units that ret ire (or announce retirement) following the submission date for the state's 111(d ) plan to retire before 2030 to retain their allowances until 2030, and those that retire during or after 2030 would not retain any allowances post-retirement. This wou ld provide units with an incentive to retire prior to 2030, but would take f ull environmental advantage of those retirements starting in 2030.

Comment 14: Commenters recommended the EPA provide guidance fo r multi-state plans.

Response 14: See section VIII.C.5, VIII.J.3, and VIII.K.4 of th e CPP final rule preamble on state plan approaches, multi-state coordination of mass-based emission trading programs, and multi-state coordination of rate-based trading prog rams, respectively. These subsections discuss multi-state plans that addresses multi-state coordi nation through joint emission goals; multi-state coordination among states retaining individual stat e goals; multi-state coordination on rate-based286

emission trading programs; multi-state coordination on mass-based emission trading programs; multi-state plans that address a subset of EGUs in a state; and legal issues regarding multi-state plans.

The following are summaries of the specific public comments under this comment:

Several commenters recommended the EPA provide guid ance to states wishing to implement mass-based allowance trading programs, including pr oviding assistance to states wishing to develop multi-state trading programs. Commenters st ated that the EPA could allow states to build on existing mass-based allowance programs, su ch as RGGI and the California Global Warming Solutions Act program.

Commenters noted, however, that these existing prog rams would have to be adapted for the section 111(d) guideline by removing the offsets in the RGGI program and limiting the sources who could trade allowances in the California progra m.

Commenters stated that several states could establi sh a trading system without adopting identical trading plan provisions. Commenters believed that s uch as approach could appeal to states that want to take advantage of a mass-based allowance tr ading but do not agree on all aspects of a single trading program. Commenters noted, however, that the EPA would need to ensure that the trading program provisions of each state were compa tible, capable of practical implementation, did not compromise the integrity of the section 111 (d) requirements, and would meet the CPP state targets in the aggregate for all of the parti cipating states.

For such cases, commenters recommended EPA's guidan ce specify the minimum criteria for the program, including rules for banking, borrowing, an d a comparable price cap. Commenters stated that the trading programs must include a cap on total emissions, that "self-correcting" provisions be structured around a single interim co mpliance period, and allow for banking within this period in accordance with the program's allowa nce allocation processes.

Commenters believed a model CO 2 budget-trading program should also address unit re tirements. Commenters noted that retirement of existing high-e mitting units can be a substantial source of overall system emission reductions, but that benefi t can be compromised if retiring units are permitted to retain their original allowance alloca tion indefinitely. Commenters stated that requiring allowances to be immediately retired upon unit retirement could provide a disincentive for those units to retire in a timely fashion. Comm enters believed that a balanced approach would allow states participating in the allowance trading program to permit units that retire (or announce retirement) following the submission date for the state's 111(d) plan and retire before 2030 to retain their allowances until 2030, and tho se that retire during or after 2030 would not retain any allowances post-retirement. Commenters s tated using this approach provides units with an incentive to retire prior to 2030, but woul d take full environmental advantage of those retirements starting in 2030.

Commenters argued the EPA's proposed multi-state tr ading program is unnecessarily complex and stated that trading programs should not require states to complete a complicated interstate compact or memoranda of understanding. Commenters s tated if a state has an approved section 111(d) plan, then that state should be able to trad e credits (i.e., emissions or energy) with any287

other state that also has an approved plan without having to create any additional agreement. Absent this simplified approach, commenters believe d states with less stringent emission reduction goals may be unlikely to pool their requi rements with states subject to more stringent goals.

Comment 15: Commenters recommended carbon sequestration by agr iculture be incorporated into cap-and-trade programs.

Response 15: Measures that reduce CO 2 emissions outside the electric power sector may no t be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate-based or mass-based appro ach, because all of the emission reduction measures included in the EPA’s determination of BSE R reduce CO 2 emissions from affected EGUs. See section VIII.K.1 of the CPP final rule pr eamble. Examples of measures that may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal include GHG offset projects representing emiss ion reductions that occur in the forestry and agriculture sectors, direct air capture, and credit ing of CO 2 emission reductions that occur in the transportation sector as a result of vehicle electr ification. We note, however, that the final emission guidelines allow state measures like emiss ion budget trading programs to include outof-sector GHG offsets. For example, both the Califo rnia and RGGI programs allow for the use of allowances awarded to GHG offset projects to be use d to meet a specified portion of an affected emission source’s compliance obligation.
The following are summaries of the specific public comments under this comment:

Commenters believed carbon sequestration through ag riculture should be incorporated into cap and trade programs by adding "Agricultural Carbon C redits" to the Cap and Trade program. Commenters believed the soil is the world's second largest and the most accessible carbon sink for carbon sequestration. Commenters noted that rec ent research suggests that a two percent increase in world soil organic matter could sequest er all of the excess carbon dioxide in the atmosphere within ten years. Commenters stated prov en agricultural techniques for increasing the percent organic matter of soil, include intensi ve rotational grazing of grassland, along with cover crops and minimum tillage for arable lands. C ommenters argued that these farming techniques are readily available from any County Ex tension Office, as well as numerous sources online. Commenters believe that Agricultural Carbon Credits would provide the incentive needed to encourage ranchers and farmers to adopt these pr actices. Commenters stated the carbon content of soils can be determined from common soil test results. By adding Agricultural Carbon Credits to the Cap and Trade program, commenters be lieved the EPA would promote a cost effective method of moving carbon from the atmosphe re back to the soil where it is needed to feed the people.

Comment 16: Commenters recommended carbon sequestration by for ests be allowed in state plans to encourage investment in forests by states and utilities.

Response 16: Measures that reduce CO 2 emissions outside the electric power sector may no t be288

counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate-based or mass-based appro ach, because all of the emission reduction measures included in the EPA’s determination of BSE R reduce CO 2 emissions from affected EGUs. See section VIII.K of the CPP final rule prea mble. Examples of measure that may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal include GHG offset projects representing emiss ion reductions that occur in the forestry and agriculture sectors, direct air capture, and credit ing of CO 2 emission reductions that occur in the transportation sector as a result of vehicle electr ification. We note, however, that the final emission guidelines allow state measures like emiss ion budget trading programs to include outof-sector GHG offsets. For example, both the Califo rnia and RGGI programs allow for the use of allowances awarded to GHG offset projects to be use d to meet a specified portion of an affected emission source’s compliance obligation.

The following are summaries of the specific public comments under this comment:

Commenters maintained the final rule should include forest offsets. Commenters stated forests can sequester carbon dioxide back into soil, produc e biomass and durable products. Commenters stated these benefits can be achieved through a sys tem of direct investment by States and/or EGUs at costs in the range of $10-20/ton which is l ower than projected costs of emissions reductions within EPA's four building blocks. Comme nters said state compliance mechanisms within a SIP could generate revenue to partially or entirely fund forests, and that alternatively, states can provide mechanisms to work with landowne rs or developers.

Comment 17: Commenters recommended the EPA establish set-aside s for Tribes for interstate emissions credit trading programs.

Response 17: For areas of Indian country with affected EGUs whe re a tribe has not applied for TAS and submitted any needed plan, if the EPA deter mines that a CAA section 111(d) plan is necessary or appropriate, the EPA would have the re sponsibility to establish the plans. Tribes are not required to implement section 111(d) plans and no tribe has yet sought TAS eligibility for this purpose. See section XII.F of the CPP final ru le preamble for a summary of description of the implications of the rule for tribes, as well as the consultation and coordination process the EPA has engaged in with Tribal governments. The age ncy is proposing to find that it is necessary or appropriate to implement a section 111 (d) federal plan for the affected EGUs located in Indian country. CO 2 emission performance rates for these facilities we re finalized in the emission guidelines in the CPP final rule. See section VII. Tribes generally may seek “treatment as a state” (TAS) and submit a tribal pl an to implement CAA programs, including programs under section 111(d), and this proposed fi nding does not preclude tribes from doing that. However, tribes are not subject to the deadli nes applicable to state action under the emission guidelines and in the absence of a federal plan, CO 2 emissions from these EGUs could go unregulated. EPA did not propose tribal set-asides as part of the final rule but tribes will have the opportunity to comment on the federal plan proposal that is concurrent with this final rule.
The following are summaries of the specific public comments under this comment:289

Commenters recommended the EPA establish a Tribal s et-aside as part of an interstate emissions credit trading program. Commenters noted that a sim ilar approach was taken by the Western Regional Air Partnership (WRAP), where an annual SO 2 tribal set-aside of 20,000 tons was made available to Indian Tribes within the nine-sta te region. Commenters asserted that a setaside would help to ensure equitable treatment for tribal economies and prevent barriers to future economic development.

Commenters stated the integrated nature of the elec tricity grid, in which these jurisdictions do participate means that actions taken there do enabl e reduced utilization of designated facilities elsewhere on the grid. The question that remains is how CO 2 emissions avoided through low- or zero-carbon energy generation and energy efficiency measures in these jurisdictions could be used to adjust or credit CO 2 emission rates in states covered by the CPP. [SNPR M, 79 Fed. Reg. at 65,496.] Commenters' explained that states, and tribal or territorial areas without designated facilities must make a submittal to certify that th ere are no designated facilities within the pertinent areas, and where relevant, must make clea r the intention with respect to the future of any already retired designated facilities. To the e xtent that EPA finalizes a regional approach to BSER based on the potential for building block 3 an d 4 resources in these jurisdictions to reduce CO 2 emissions from designated facilities, the jurisdic tions must submit plans or statements certifying or confirming the resources available or projected to reduce utilization of designated facilities in other states. And, Commenters express ed that, should a state, tribe, or territorial area seek allowances under any mass-based allowance trad ing compliance system, there must be some basis for tracking the renewable or their low- or zero-carbon resources within their boundaries, which can be provided by such plan or c ertification.

Comment 18: Several commenters asked for clarification on whet her emission offsets could be used in a cap-and-trade program and whether entitie s other than utility boilers could particulate in such programs.

Response 18: See section VIII of the CPP final rule preamble. M easures that reduce CO 2 emissions outside the electric power sector may notbe counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate-based or mass-based approach, because all of the emission reduction mea sures included in the EPA’s determination of BSER reduce CO 2 emissions from affected EGUs. Examples of measure that may not be counted toward meeting a CO 2 emission performance level for affected EGUs or a state CO 2 goal include GHG offset projects representing emission reduction s that occur in the forestry and agriculture sectors, direct air capture, and crediting of CO 2 emission reductions that occur in the transportation sector as a result of vehicle electr ification. We note, however, that the final emission guidelines allow state measures like emiss ion budget trading programs to include outof-sector GHG offsets. For example, both the Califo rnia and RGGI programs allow for the use of allowances awarded to GHG offset projects to be use d to meet a specified portion of an affected emission source’s compliance obligation.

The following are summaries of the specific public comments under this comment:290

Commenters requested clarification on whether emiss ion "offsets " generated by energy efficiency improvements and power generated by rene wable energy (i.e., building blocks 3 and 4) would be eligible to participate in a cap and tr ade market. Commenters also asked whether an affected EGU can use an offset to demonstrate compl iance with emission performance or the offset can only be used in complying with emission limits.

Commenters argued that any offsets would enable tho se facilities to continue emitting and would increase emissions of co-pollutants without a corre sponding decrease in emissions from other facilities covered by the program. Commenters noted that environmental justice communities could be impacted by increases in co-pollutant redu ctions if offsets are allowed. Commenters also noted that certain offsets, such as those resu lting from biological carbon sequestration, would complicate emissions monitoring, as these pro jects are difficult to verify.

Commenters stated that distributing the legal oblig ation to hold allowances among entities other than power plants only complicates the administrati on and enforcement of a trading program. Commenters argued that these out-of-sector offsets have been demonstrated. Commenters stated The California Global Warming Solutions Act of 2006 ensures the reliability of out-of-sector offsets is through the concept of " additionality ." Commenters stated CARB's program has withstood challenge on the grounds that the additio nality standard was insufficient (see San Francisco Sup. Ct. filing Mar. 27, 2012).

Commenters recommended the EPA accommodate a divers ity of trading program designs, including economy-wide trading programs; specifical ly "umbrella" policies that include emission reductions from complementary programs, such as ren ewable portfolio standards, emission reduction programs directed at other pollutants, as well as fuel switching and power plant energy efficiency.

Comment 19: Commenters recommended emission allowances for tra ding programs be auctioned rather than allocated by the state to avo id windfall profits for utilities and to raise revenue for addressing environmental justice concer ns.
Response 19: See section VIII of the CPP final rule preamble fo r a discussion on emission trading programs. An emission budget trading progra m establishes a combined emission standard for a group of emission sources in the form of an e mission budget. Emission allowances are issued in an amount up to the established emission budget. Allowances may be distributed to affected emission sources through a number of diffe rent methods, including direct allocation to affected sources or auction. States are able to est ablish auctions for distribution of allowances, as is done in the RGGI and California GHG programs.

The following are summaries of the specific public comments under this comment:

Commenters recommended states auction allowances fo r cap and trade programs because they believe that requiring sources to pay for the rightto pollute forces them to internalize these costs, reduces the potential for windfall profits, and the revenues can be used to address environmental justice concerns.291

Comment 20: Commenters expressed concern that power plants wil l “buy their way out of compliance” if allowed to use trading programs.

Response 20: The CPP final rule is a national program that has e stablished source categoryspecific CO 2 emission performance rates for electric steam gene rating units and combustion turbines. The EPA has translated these performance rates into equivalent state-level rate-based and mass-based CO 2 goals in order to maximize the range of choices th at states will have in developing their plans. The EPA has also finalized three interim performance periods, each with its own milestone, as well as an interim goal (wher ein the state must demonstrate it has met its interim goal on average over the eight years of the period), and a final goal. States must demonstrate starting in 2025 that reductions are oc curring as reflected in the state’s 111d plan. EGUs must also achieve the final CO 2 performance rates or equivalent statewide goal by 2030 and maintain that level subsequently. Trading progr ams are an approach to compliance that afford cost-effectiveness and flexibility but also achieve needed reductions. See sections VIII.J and K of the CPP final rule preamble for a discussi on of mass-based and rate-based trading, respectively.

The following are summaries of the specific public comments under this comment:

Commenters were concerned that some companies " will buy their way out of compliance " if states are allowed to use market-based trading prog rams.

Comment 21: Commenters were concerned emissions trading progra ms would increase the costs of energy production.

Response 21: This has not been the EPA’s experience. The now hi storic Title IV Acid Rain Program, which Congress authorized in the 1990 CAAA , was the most successful, cost-effective national emission reduction program promulgated to date. It reduced sulfur dioxide from power plants across the country under a cap and trade pro gram that allowed sources to adjust operations, install pollution control equipment, sw itch fuels to meet requirements, and other flexibilities which kept the electric system stable and reliable and was cost effective. Most important, it achieved huge reductions earlier and faster than anticipated, delivering health benefits to the public and improved air quality. Ul timately, the 2010 cap of 10 million tons of SO2 nationwide was met in 2007. By putting a cost o n pollution, trading programs encourage the most cost-effective and efficient units to operate. Regarding brokers and middle men, EPA does not regulate such markets. Regarding transaction co sts, the EPA addressed perceptions about transaction costs in a previous proposal (that uses a cap and trade program) to which we refer the commenter: see 75 FR 45316, August 2, 2010. This se ction of the Transport Rule (CSAPR) preamble describes a literature search on transacti on costs that the EPA performed. We found no indication that transaction costs have been a probl em. The EPA further determined that there is enough competition among the dozen or so brokerage houses that any attempt at charging fees in excess of market standards will be bid down through competition. See section XI of the CPP final rule preamble for a discussion of the impacts of the final rule, such as energy impacts,292

compliance costs, and economic and employment impac ts. Also see the RIA in the docket for the CPP final rule for a discussion of costs and benefi ts of the final CPP rule. For discussions on trading in the CPP final rule, see sections V and V III of the CPP final rule preamble. Specifically in section VIII, see VIII.J.3 for mass-based tradin g approaches and VIII.K.2-4 for rate-based approaches. Note also that concurrent with this fin al rule, EPA is proposing a Federal Plan with model rules that states may consider in developing their plans.

The following are summaries of the specific public comments under this comment:

Commenters opposed emissions trading because they b elieve it does not reduce emissions and increases the costs of energy production and energy use by creating additional brokers and middle men in the price setting transaction process

.

Comment 22: Several commenters were concerned that emissions t rading programs would increase pollution in economically disadvantaged co mmunities, including Tribal areas.

Response 22: The EPA disagrees with these comments and has work ed hard throughout the proposal and final rule promulgation process with s takeholders, tribes, and vulnerable communities to address issues of concern including environmental justice. See section IX of the CPP final rule preamble on community considerations as well as sections XII.F and J. For 20 years EPA has implemented emission trading programs addressing criteria pollutants, starting in 1995 with the Congressionally-mandated Title IV Aci d Rain program. Throughout these years, we have addressed issues of concern regarding tradi ng. We have found no evidence that trading causes increases in emissions, localized impacts, o r other disproportionate impacts on vulnerable communities. Historically we have seen the greatest reductions under our cap and trade programs in the states with the highest emissions. Independe nt analyses by organizations such as the Environmental Law Institute, Resources for the Futu re, and Environmental Defense Fund, as well as Massachusetts Institute of Technology, have found that trading has not created “hot spots”. Additionally, the Clean Air Act provides “b ackstops” for federal regulations in that states and localities have the authority under Title 1 to address persistent air quality problems. States and localities may impose stricter limits on source s to address specific local air quality concerns. These limits must be met regardless of a source’s a ccumulated allowances or credits. States and sources across the nation are familiar with the EPA ’s cap and trade programs and under the CPP can build on these programs. However CO 2 is different from the criteria pollutants such as NOx and SO2 that we regulate. CO 2 is a global pollutant in that the location of its emission does not affect the location of the environmental harm it ca uses. See the proposed rule and section II of the CPP final rule preamble for more information on the characteristics of CO 2 pollution.

The following are summaries of the specific public comments under this comment:

Commenters expressed concern that cap and trade ap proach would potentially increase emissions of other pollutants (e.g., SO2, NOx, VOC, air toxics) in some areas. Commenters were particularly concerned that a cap and trade program would create "hot spots" of air toxic emissions in economically disadvantaged areas, area s with high minority populations, and areas293

with low income communities. Commenters stated thatthe proposed rule currently contains no systems to ensure that greenhouse gas reductions oc cur in communities that would benefit the most from co-pollutant reductions. Commenters recom mend provisions be included in the final rule to mitigate the disparate impacts of a cap and trade program. Commenters suggested the EPA identify high priority pollution zones where po lluters would pay a higher price for their greenhouse gas emissions or impose other provisions that would provide a strong incentive for industries to reduce emissions in disadvantaged are as impacted by a cap and trade program. Commenters argued that any flexible approaches will not apply, and are not transferrable to, emissions of hotspot pollutants from power plants. Commenters recommended that once a capand-trade program is in place, state regulators sho uld monitor facilities located in or surrounding these communities to ensure compliance with their o bligations under the program and communities should be encouraged to report any acti ons by facilities that they believe are in violation of these requirements.

Commenters were concerned about impacts on tribal a reas and recommended the EPA require the following provisions in approvable state implem entation plans:

• restrictions on allowance allocations and offsets f or individual EGUs that have the worst health impacts on nearby communities due to their h igh-levels of co-pollutants; and

• include controls to ensure reductions in co-polluta nts near Tribal lands.

Comment 23: Commenters recommended cap-and-trade programs incl ude stringent requirements regarding allocation of allowances to ensure states do not over-allocate allowances.

Response 23: See section VIII of the CPP final rule preamble fo r multiple discussions on trading programs under the different state plan approaches. Section V.A also discusses the role of emission trading. Specifically in section VIII, see VIII.J.3 for mass-based trading approaches and VIII.K.2-4 for rate-based approaches. Note that in the course of the 8 year interim compliance period, the CPP final rule requires states to repor t to the EPA 3 times, starting in 2025, to demonstrate compliance with the stated goals in the ir approved state plan. In developing state plans, states that decide to implement emission tra ding programs, for instance on a mass basis, would have a mass-based goal or budget of allowable emissions during the compliance periods. States would not be able to allocate allowances gre ater than the budget. For state plans to be approvable by the EPA, states have to demonstrate t hat they will attain the performance rates or mass-based or rate-based equivalent state goals. Th e EPA can enforce against violating EGUs if actual CO 2 emission performance exceeds a state plan’s specif ied level for an interim period step or final plan reporting period by 10% or more. The RECLAIM program differs from the regional and national trading programs the EPA has developed and implemented. The RECLAIM trading program was established to address local air pollut ion problems; it does not permit banking to deal with short term price volatility that results from endogenous or exogenous factors; it overallocated allowances in the early years allowing fo r an increase in emissions over historical levels for many sources; it has a very substantial administrative review process of reviewing all transactions that impacts confidence in the markets and transparency; it did not incentivize294

technological innovation; and has a limited/small n umber of participants due to its local nature. EPA does not find the RECLAIM program analogous to the national program set forth in this final rule.

The following are summaries of the specific public comments under this comment:

Commenters recommended the cap adopted by states im plementing cap and trade programs should be stringent enough to ensure the state goal is met and should not over-allocate allowances. Commenters supported the approach taken by California's AB32 program, where the cap in 2013 was set at 2 percent below the emission s level forecast for 2012, was decreased by 2 percent in 2014, and will be reduced by 3 percent a nnually from 2015 to 2020. As an example of the problems that may occur if states over-allocate allowances, commenters noted that the RECLAIM trading program for criteria pollutants in which large utilities opted to purchase allowances instead of adopting control technology a nd the program consequently failed to produce expected emissions reductions.

Comment 24: Commenters expressed concern that trading programs would promote business as usual and could provide " windfall " profits for some companies.

Response 24: We do not anticipate the same issues, including “ windfall profits ,” that commenters are concerned about which have occurred in the past in other countries, such as the EU ETS, but which have been subsequently resolved. Section VIII.C of the CPP final rule preamble describes state plan approaches and addres ses emission budget trading programs under the state measures plan type as well as rate-based emission trading programs. States may choose to adopt source category-specific CO 2 emission performance rates in lieu of other approa ches. However, the EPA believes that the requirements for state reports on the state plan program’s performance, implementation milestones, and status updates during the interim compliance period and at the final goal and beyond, should ens ure the reductions the rule requires. For instance, there are 3 interim reporting periods, st arting in 2025. The final goal is in 2030. The EPA can enforce against any EGUs that are violating by 10% or more a state plan’s specified level for an interim period step or final plan repo rting period.

The following are summaries of the specific public comments under this comment:

Commenters argued carbon trading programs tend to reward the heaviest polluters with

" windfall profits " when they are granted enough carbon credits to ma tch historic production. Commenters further believed that carbon trading enc ourages business-as-usual, tends to discourage less expensive long-term structural chan ges, and encourages use of cheap "offset" carbon credits from less developed countries where they may be generated by local polluters at the expense of local communities. Commenters stated the same argument, they believe, can be made against emission averaging.

Commenters agreed that emissions averaging and trad ing are allowable under section 111(d) but stated that an averaging and trading programs do no t justify a more stringent BSER determination by the EPA.295

Commenters questioned whether new source categories could be added to an EGU cap and trade program. Commenters believed that states would have to set up separate cap and trade programs for different categories because allowances for one source category would not be fully fungible with allowances from other source categories.

Commenters maintained a cap-and-trade system will i mpose an unnecessarily large burden on consumers and it will substantially impair the comp etitiveness of any jurisdiction that adopts it. Commenters stated revenue generated from a cap-and- trade auction would not benefit consumers because industry would lobby for a set-aside of fre e allowances allocated by a political or administrative process. Commenters described one em ission trading system that minimizes the cost increase to consumers; emissions trading combi ned with an intensity constraint. Commenters said States require all sources to compl y with the same carbon intensity constraint, and there is no fixed pool of allowances to be allo cated, and no central authority need collect any tax or pay any subsidy. Commenters stated that dete rmining the targets for the states may require national coordination and safety valve mechanism to prevent price spikes. Commenters stated EPA used this approach to control lead in gasoline in 1982.

Comment 25: Commenters supported restrictions being placed on areas where allowances can be traded to avoid emissions increases in areas wit h disadvantaged communities.

Response 25: The EPA disagrees that allowance trading causes in creased emissions in areas with vulnerable communities. In the CPP final rule, states are required to demonstrate interaction with vulnerable communities in the development of t heir state plans prior to submitting those to the EPA for approval. Additionally, section VIII.E discusses the consequences if actual emission performance does not meet the CO 2 emission performance rates or state CO 2 emission goal – in essence, in some cases the EPA can enforce against an EGU that exceeds a state plan’s specified level by more than 10% in an interim period step re porting period or final plan reporting period. The EPA has established three interim reporting per iods starting in 2025 and the final goal reporting period in 2030 and subsequently thereafte r which should enable the agency and the public to know if there are areas where reductions are not being achieved. For 20 years the EPA has implemented emission trading programs addressin g criteria pollutants, starting in 1995 with the Congressionally-mandated Title IV Acid Rain pro gram. Throughout these years, we have addressed issues of concern regarding trading. We h ave found no evidence that trading causes increases in emissions, localized impacts, or other disproportionate impacts on vulnerable communities. Historically we have seen the greatest reductions under our cap and trade programs in the states with the highest emissions. Independe nt analyses by organizations such as the Environmental Law Institute, Resources for the Futu re, and Environmental Defense Fund, as well as Massachusetts Institute of Technology, have found that trading has not created “hot spots”. States and sources across the nation are fa miliar with EPA’s cap and trade programs and under the CPP can build on these programs. However CO 2 is different from the criteria pollutants such as NOx and SO2 that we regulate. CO 2 is a global pollutant in that the location of its emission does not affect the location of the enviro nmental harm it causes. See the proposed rule296

and section II of the CPP final rule preamble for m ore information on the characteristics of CO 2 pollution. The RECLAIM program differs from the reg ional and national trading programs EPA has developed and implemented. The RECLAIM trading program was established to address local air pollution problems; it does not permit ba nking to deal with short term price volatility that results from endogenous or exogenous factors; it over-allocated allowances in the early years allowing for an increase in emissions over hi storical levels for many sources; it has a very substantial administrative review process of review ing all transactions that impacts confidence in the markets and transparency; it did not incentiviz e technological innovation; and has a limited/small number of participants due to its loc al nature. The Clean Air Act provides

“ backstops ” for federal regulations in that states and locali ties have the authority under Title 1 to address persistent air quality problems. States and localities may impose stricter limits on sources to address specific local air quality concerns. The se limits must be met regardless of a source’s accumulated allowances or credits.

The following are summaries of the specific public comments under this comment:

Commenters supported spatial restrictions on tradin g of allowances to prevent unacceptable pollutant concentrations in certain areas. Commente rs stated that this approach would avoid

" emission hot spots ," particularly in areas with disadvantaged communi ties. Commenters noted that this approach is used in the Los Angeles Regio nal Clean Air Incentives Market ("RECLAIM") program, which prohibits sources in the downwind zone from trading allowances with zones in the upwind zone. Commenters also sugg ested states should not prohibit trading but instead should discourage trading between sources o utside the zone and those inside the zone. Commenters noted this can be accomplished by requir ing a greater number of allowances per ton of emissions or charging higher allowance prices fo r sources located within these zones.

Comment 26: Commenters disagreed with those who suggested emis sions trading programs would result in emission hot spots because the envi ronmental impacts of increased CO 2 emissions are global.

Response 26: The EPA agrees with commenters that CO 2 is a global pollutant in that the location of its emission does not affect the locati on of the environmental harm it causes. For 20 years the EPA has implemented emission trading prog rams addressing criteria pollutants, starting in 1995 with the Congressionally-mandated Title IV Acid Rain program. Throughout these years, we have addressed issues of concern regardin g trading. We have found no evidence that trading causes localized impacts. Historically, we have seen the greatest reductions under our cap and trade programs in the states with the highest e missions. Independent analyses by organizations such as the Environmental Law Institu te, Resources for the Future, and Environmental Defense Fund, as well as Massachusett s Institute of Technology, have found that trading has not created “hot spots”. States and sou rces across the nation are familiar with EPA’s cap and trade programs and under the CPP can build on these programs.

The following are summaries of the specific public comments under this comment:297

Commenters noted that one potential drawback of all owance trading systems over broad geographic regions is that they do not ensure simil ar emission reductions throughout the affected region because some sources may choose to use allow ances to emit above the required emission level, while other sources emit below the level. Co mmenters noted that this creates the potential for certain areas to experience decreases in emissi ons, while other areas experience increases in emissions. However, commenters believed this would not be a problem in the context of the CPP, because CO 2 impacts are not localized.

Comment 27: Commenters recommended the EPA encourage regional cap-and-trade programs to link with other programs, as has already occurre d with the California and Quebec trading

programs.
Response 27: The CPP final rule establishes several approaches, options, and flexibility for states in developing state plans to implement their standards. See sections V and VIII for discussions on trading. Section VIII.J addresses co nsiderations for mass-based emission trading approaches while section VIII.K addresses considera tions for rate-based approaches. Section VIII also covers multi-state coordination and multi -state plans. The EPA encourages state partnerships and coordination in achieving the goal s in the emission guidelines.

The following are summaries of the specific public comments under this comment:

Commenters recommended the EPA encourage states and regional programs to links their cap and trade programs. Commenters noted that the Calif ornia program has already been linked with the Quebec program and that studies of how to link the California program with RGGI have also been undertaken by " Resources for the Future."

Comment 28: Some commenters recommended states adopting cap-and -trade programs should include provisions to protect minority and low inco me communities.

Response 28: The EPA has been engaged vulnerable communities th roughout the entire CPP development, proposal, and final promulgation proce ss. We have conducted trainings and webinars for communities and also have participated in a number of in person meetings and conference calls for communities and stakeholders r epresenting communities. Community concerns are addressed in section IX of the CPP fin al rule preamble and in section XII.J. In the CPP final rule, states are required to demonstrate interaction with communities in the development of their state plans prior to submittin g those to the EPA for approval. Furthermore, the agency provides recommendations on how states c an engage meaningfully with communities in sections VIID-E and IX.B. Additionally, section VIII.E discusses the consequences if actual emission performance does not meet the CO 2 emission performance rates or state CO 2 emission goal – in essence, the EPA can enforce against an E GU that exceeds a state plan’s specified level by more than 10% in an interim period step reportin g period or final plan reporting period. The EPA has established three interim reporting periods starting in 2025 and the final goal reporting298

period in 2030 and subsequently thereafter which sh ould enable the agency and the public to know if there are areas where reductions are not be ing achieved. The EPA also discusses community concerns in, among other areas, section I under outreach and resources for stakeholders; section II under stakeholder outreach and consultations; section IX on community considerations; section XI on impacts of the final rule; and sections XII.F and J. Recognizing that low-income communities are often under-represe nted in RE and EE investment, EPA is providing additional incentives to encourage such i nvestments that benefit low-income communities. EPA is providing a Clean Energy Incent ive Program to reward early investments in certain renewable energy (RE) and demand-side en ergy efficiency (EE) projects that generate carbon-free MWh or reduce end-use energy demand dur ing 2020 and 2021. State participation in the program is optional.

The following are summaries of the specific public comments under this comment:

Commenters recommended the EPA require states adopt ing cap and trade programs to include provisions that will ensure protection of minority and low income communities. Commenters noted that California's AB32 rule included provisio ns that required the California Air Resources Board (CARB) to: (1) consider the potential impacts on disadvantaged communities during the development of the program; and (2) establish an en vironmental justice advisory committee comprised of representatives from communities that have significant exposure to air pollution. Commenters believed the EPA should incorporate simi lar steps into the final rule. Commenters also suggested the EPA consider undertaking a targe ted outreach program for these communities and provide financial resources so that these commu nities can participate in the development of cap-and-trade programs.

Commenters suggested the EPA require states adoptin g a cap-and-trade program complete an environmental impact review as part of their progra m. This environmental impact review, commenters stated, should include a cumulative impa ct assessment that follows existing methodologies and EPA guidelines. Commenters believ ed this analysis will help design the trading program in a manner that avoids the creatio n of emission hotspots and that distributes the benefits from trading to these communities.

Commenters stated that a portion of the revenues fr om allowance auctions should be used to address the reduction of co-pollutants in environme ntal justice communities, such as targeted investments in demand-side energy efficiency, renew able energy, and in projects to revitalize environmental justice communities. Commenters noted that in California SB 535 and AB1532 mandates the California Department of Finance to al locate 25 percent of AB32 auction revenues to projects that provide benefits to vulnerable com munities, with at least 10 percent to be spent directly in communities identified as disadvantaged based on geographic, socioeconomic, public health, and environmental pollution. Commenters sta ted that the bill includes a requirement to develop a three year investment plan with public pa rticipation in the program ensured by the requirements to hold two public workshops and one p ublic hearing. Commenters further noted that where investment programs are adopted, the EPA should require the state to submit detailed information that shows that the earmarked funds are being used in projects that benefit environmental justice communities.299

Commenters acknowledged that increases in emissions in areas near environmental justice communities would occur as the result of a cap and trade program, but recommended state regulators monitor facilities located in or near th ese communities for co-pollutant emissions and required reporting of any increases in co-pollutant emissions that result from the cap and trade program. Commenters also stated that environmental justice communities should be encouraged to report any actions by facilities that they belie ve are in violation and should have access to the facility's trading transactions and emission levels

. Commenters supported a cap and trade program becaus e they believe it will also benefit public health through reducing emissions of co-pollutants.

Comment 29: Commenters recommended the EPA allow averaging acr oss power plants owned by the same company.

Response 29: The EPA does include averaging in the CPP final ru le. See section VIII of the CPP final rule preamble and also the Rate-based Program Accounting TSD in the docket for the CPP final rule. The use of averaging or aggregation app roaches would have to be authorized in the 111(d) state plans covering all the participating a ffected sources and would have to meet conditions set out for such approaches in section V III. Specifically, see sections VIII.C and K.

The following are summaries of the specific public comments under this comment:

Commenters asked whether it is permissible for subs idiaries owned by the same parent company to demonstrate compliance by averaging emis sions across power plants owned by the same parent company. Commenters stated these compan ies gave the example of Berkshire Hathaway Energy Company, which owns several entitie s in Illinois, including MidAmerican Energy Company (which is a joint owner of the Quad Cities Nuclear Power Station), MidAmerican Wind (owner of the Bishop Hill II wind facility), and MidAmerican Renewables with its subsidiary Cordova Energy Company (which o wns the Cordova Energy Center). Commenters believed the Berkshire Hathaway Energy-o wned encompasses the flexibility intended by EPA, it should be able to comply by agg regating the Cordova Energy Center emissions, the renewable generation from Bishop Hil l II wind farm, the applicable generation from the parent company's share of Quad Cities Nucl ear Power Station, and the energy efficiency savings achieved by MidAmerican Energy C ompany for Illinois customers. Commenters requested the EPA the final rule allow s uch averaging is an acceptable practice between affiliates to demonstrate compliance with t heir obligations under Section 111(d).

Comment 30: Commenters supported emissions trading between Trib es and States.

Response 30: EPA agrees with commenters. The EPA encourages par tnerships and coordination between tribes and states.

The following are summaries of the specific public comments under this comment:300

Commenters suggested creating a Trading Partnership with the Navajo Nation under federal rule and laws by which tribes may be treated in the same manner as states for purposes of the 40 CFR sections 49.1-49.11. Commenters believed support fo r such a partnership exists among non-tribal stakeholders and noted that EPA's proposed rule all ows tribes to be designated as a state for the purposes of a multi-state trading. Commenters attac hed a map of a multi-state carbon trading platform involving the Navajo Nation and noted that non-tribal and tribal stakeholders have already formed a working group to develop a state-t ribal trading relationship.

Comment 31: Commenters recommended the EPA allow states adopti ng trading programs to award allowances for emission reductions made prior to 2020.

Response 31: Many commenters supported providing incentives for states to deploy CO 2

- reducing investments, such as RE and demand-side EE measures, as early as possible. The EPA recognizes the value of such early actions, and in this final rule is providing states with discretion to credit reductions from the activities, implement ed from 2013 onward, in the context of both mass-based and rate-based plans. See section VIII.C and VIII.J and K in the CPP final rule preamble for details.

The following are summaries of the specific public comments under this comment:

Commenters recommended the EPA allow states to awar d allowances for early emission reductions of at least 20 percent below baseline th at were accomplished between the submission date for the state's section 111(d) plan and 2020, for use in meeting the interim goals until 2030. Commenters stated that the allowances could be reti red by 2030 and would be limited in amount to 5% of a state's total allocation.

Comment 32: Commenters noted the potential advantages of a regi onal cap-and-trade program for the upper Midwest states, indicating that such a program could significantly reduce emissions while also generating revenue that could be used by states to invest in EE, RE, and other

programs.
Response 32: The EPA finds the analysis that commenters submitt ed to be in line with our expectations of how states can take the initiative and develop their own approaches to meeting the goals of the final rule within the options and flexibilities provided. The EPA has provided in the final rule source category-specific CO 2 emission performance rates and equivalent statewid e CO 2 emissions performance goals that are mass-based or rate-based in order to provide flexibility and options for states in developing pl ans to meet the rule’s goals. A program such as that outlined by commenters appears to be within th e emission guidelines established by the EPA in the CPP final rule.

The following are summaries of the specific public comments under this comment:301

Commenters supported regional trading programs and submitted a paper describing an initial analysis they had completed of a hypothetical cap-a nd-trade program for the seven states in the Upper Midwest (Illinois, Indiana, Iowa, Michigan, M innesota, Ohio and Wisconsin). Commenters stated the hypothetical program would be similar to the RGGI program and would set binding caps beginning in 2020 based on each st ate's CO 2 /MWh goal. For Wisconsin, commenters stated the cap would be 35 million tons calculated by assuming statewide electricity demand grows at 0.25% from now until 2020 and multi plying 1,376 lb/MWh target by approximately 50 million MWh generated by power pla nts covered by EPA's Clean Power Plan. For all seven states, commenters calculated a regio nal cap all seven of 440 million tons in 2020, which would then decline to 343 million tons in 203 0 (an annual decline of 2.7% for each state). In their analysis, commenters assumed that each sta te would set an allowance price floor of $10/ton that escalates at 2% annually. Using these data, commenters estimated $7 billion would be raised through the sale of allowances between 20 20-2030, and CO 2 emissions would decrease from an estimated 41.4 million tons in 2012 to 27.4 million tons in 2030. Commenters stated that Wisconsin's cumulative CO 2 emissions from 2015-2030 under the BAU scenario ar e estimated at just over 468.1 million tons, compared to 342.3 mil lion tons estimated under the cap-and-trade compliance scenario, a 26% reduction. Commenters al so noted that the revenue could be used to fund renewable energy projects, clean transportatio n initiatives, demand side efficiency programs, and rebate programs for low-income househ olds.

Comment 33: Commenters recommended states be allowed to implem ent trading programs that cover both new and existing EGUs.

Response 33: See section VIII of the CPP final rule preamble. S tate plans may include emission budget trading programs that include affected EGUs as well as other non-affected emission sources. Under a program that applies to affected E GUs and other emission sources, compliance by affected EGUs with the emission standard – a req uirement to surrender emission allowances equal to reported emissions – will not assure that a state’s CO 2 mass goal is achieved. As a result, a further demonstration is required in the plan tha t compliance by affected EGUs with the program will result in CO 2 emissions from affected EGUs that are at or below a state’s CO 2 mass goal.

The following are summaries of the specific public comments under this comment:

Commenters recommended the EPA allow states that ch oose to implement a regional cap-andtrade program to include both existing and new EGUs

.

Comment 34: Comments requesting that the EPA should clarify tha t one or more RGGI states can exceed their specific emissions targets as long as the RGGI states as a whole reduce their emissions below required levels.

Response 34: Section VIII.D.2 of the final rule preamble discu sses design elements of emission budget trading programs with broader scope and addi tional compliance flexibility programs,302

such as RGGI, and Section VIII.J.2 of the final rul e preamble discusses the use of emission budget trading programs

The following are summaries of the specific public comments under this comment:

Commenters stated, RGGI permits emissions allowance s to be traded between participating states. Commenters said, EPA should clarify that on e or more RGGI states can exceed their specific emissions targets as long as the RGGI stat es as a whole reduce their emissions below required levels.

Commenters stated that it is critically important f or the smooth functioning of the RGGI program in the future that EPA not promulgate any restricti on on the fungibility of RGGI allowances among states even if it means that the sum of allow ances held by affected units within one or more states within the RGGI program might exceed th at states' budget. Commenters stated that EPA must acknowledge that the RGGI cap applies to t he region as a whole and not to any one state within the region. Commenters added that with in that framework, EPA should retain the authority to find a state out of compliance should the generators within that state fail to procure the required number of allowances to cover their em issions. Commenters stated that EPA is correct in assigning states no obligation of enforc ement over other states.

Comment 35: Comments related to the loss of local co-benefits related to multi-state trading

programs.

Response 35: Section VIII.D.2 of the final rule preamble discus ses design elements of emission budget trading programs with broader scope and addi tional compliance flexibility programs, such as RGGI, and Section VIII.J.2 of the final rul e preamble discusses the use of emission budget trading programs

The following are summaries of the specific public comments under this comment:

Commenters stated, while multi-state trading progra ms have worked well in other states to reduce carbon emissions cost effectively (for examp le, EPA cites the "RGGI" program operated by the Northeast states), commenters had concerns a bout the loss of local co-benefits associated with such programs. Commenters said, Indiana has a number of aging coal-fired units that could continue operation if sources can purchase carbon c redits from another state. Commenters said, one solution would be to require a minimum standard of performance for all EGUs prior to allowing credits from out-of-state.

Comment 36: Comments expressing opposition to BSER based on em ission trading.

Response 36: We disagree with the commenters. The EPA has imple mented several cap and trade programs in the final rule. Most covered sources under the Clean Power Plan fi nal rule have had experience with trading and monitoring and reporting since 1995 with the Title IV Acid303

Rain Program, a national program to reduce sulfur d ioxide emissions from power plants. These programs have been successful in achieving emission reductions in a cost-effective manner and that the equipment and protocols to comply are read ily available and in most cases, already in place. The simple and straightforward manner of acc ounting for compliance has also been a benefit. Aside from the benefits to public health a nd welfare, resource savings for both sources and government have also been demonstrated. Section s V and VIII of the CPP final rule preamble address emission trading at length, specifically in section VIII, see VIII.J.3 for massbased trading approaches and VIII.K.2-4 for rate-ba sed approaches.

The following are summaries of the specific public comments under this comment:

Commenters expressed strong concern that the draft 111(d) standard incentivizes development and continuation of carbon trading systems rather t han meaningful investments in efficiency and renewable energy sources. Commenters said, all such existing trading systems fail to achieve their stated goals due to poor construction and gap ing loopholes and disproportionately target communities impacted by extraction and environmenta l justice concerns. Commenters said, this sort of business-friendly approach buttresses the f alse narrative that given proper incentives the existing energy system will change its ways and red uce emissions drastically. Commenters said, history and common sense show this to be a farcical ideal. Commenters said, only by implementing systemic change and building a new ene rgy sector will the world succeed in meeting continued development goals while adequatel y mitigating and adapting to the ravages of climate disruption.

Commenters stated that the rule should not allow St ates to use cap-and-trade programs to meet the emissions targets. Commenters said, cap-and-tra de is designed to benefit big corporate polluters who can decide for themselves how to limi t their emissions based on profit motive. Commenters said, this makes it cheaper for the dirt iest power plants to simply pay for permits instead of cleaning up pollution.

Commenters stated, EPA has considered cap-and-trade type regulations before under 111(d), notably the now-vacated Clean Air Mercury Rule (CAM R). Commenters said, furthermore, a Part 60 regulation that is not unit-specific, can r esult in the undesirable inconsistency of emissions increases at an emissions unit. Commenter s said, environmental petitioners argued heavily against this application of the Clean Air A ct in CAMR, and it would apply here too. Commenters said, in this case, however, EPA not onl y would allow emissions increases at an individual unit as long as a state goal was met, bu t actually require increases at the unit level due to a potential misunderstanding or inappropriate ap plication of re-dispatching.

Commenters stated, trading and/or emissions averagi ng approaches should not be considered as the BSER. Commenters said, the BSER on which a Sect ion 111(d) standard of performance is based can only derive from reductions that are atta inable "inside the fence" at the affected source. Commenters said, once the performance stand ard is set, the affected utility may, with state approval, exercise flexible options to satisf y its obligations to reduce CO 2 emissions. Commenters said, this could include emissions avera ging or offsetting among affected EGUs or with other generation sources, as well as other act ions. Commenters said, in no case should a State be required to achieve emission reductions th at exceed those required by aggregating304

individual EGU obligations within the State; nor sh ould an EGU be obligated to achieve reductions that exceed its individual obligations.

Comment 37: Comments suggesting the emissions cap should not i ncrease with new RE/EE Projects

Response 37: Sections V and VIII of the CPP final rule preamble address emission trading at length, specifically in section VIII, see VIII.J.3 for mass-based trading approaches and VIII.K.2- 4 for rate-based approaches.

The following are summaries of the specific public comments under this comment:

Commenters stated that states should not increase t heir cap each time new generation comes online or new efficiency projects are deployed, reg ardless of how rate based standards are converted to mass-based standards. Commenters sugge sted that states that have adopted massbased standards could incentivize RE or EE projects with free allowance allocations or auction revenue without modifying the state cap. Commenters believed that this approach would preserve environmental integrity while promoting pr ojects that contribute to emission reductions from existing power plants305

5.14 STATE-SPECIFIC IMPLEMENTATION CONSIDERATIONS

This section addresses comments that discuss State- specific Implementation Considerations. Comments in this section address a variety of topic s on state and region-specific issues that affect ability to comply including: concerns with i nability to import power from other regions; geographic and administrative barriers to developin g gas transmission infrastructure; complications with using energy efficiency for comp liance due to the nature of the local utility structure; concerns about receiving credit for EE m easures already in place; compliance options where there are limited existing coal-fired units; requests for compliance extensions; and requests for technical assistance.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments stating that Alaska does not have a state wide electric transmission system, and does not have the transmission infrastr ucture in place to dispatch natural gas generation to replace its coal generating capacity.

Response 1: The EPA has determined that Alaska will not be subj ect to the final CPP’s BSER. Because the EPA does not possess all of the informa tion and analytical tools needed to quantify the BSER for the two non-contiguous states with oth erwise affected EGUs (Alaska and Hawaii) these emission guidelines do not apply to those are as, and those areas will not be required to submit state plans on the schedule required by this final action. Therefore, the EPA does not need to address the specific concerns of the commenters.

The following are summaries of the specific public comments under this comment:

Commenters stated that Alaska does not have a state wide electric transmission system to facilitate the use of Building Blocks 2, 3, and 4. Commenters advocated that Alaska should be exempt from the rule due the high cost of complianc e. Commenters (State Legislature) stated that if Alaska is not exempted, then they need 5 mo re years to comply in order to achieve the reductions needed on coal-fired plants. Commenters explained in detail why Alaska does not have the transmission infrastructure in place to di spatch natural gas generation to replace its coal generating capacity. Commenters also pointed out th at replacing coal-fired capacity would conflict with the spirit of a consent decree with E PA regarding Healy Unit #2 and would strand investments to upgrade the unit using a USDA loan. Commenters also stated that the isolated nature of Alaska's utility sector means that EPA's rationale for BSER does not apply to Alaska, because the state would not have the degree of comp liance flexibility that other states would have, and EPA has not provided a rationale for incl uding the state in the rule given the unique characteristics of the utility industry in the stat e. Commenters also expressed that state resources would be better served by investing in more basic i nfrastructure such as drinking and wastewater systems in remote villages.

Commenters stated that their utilities have activel y educated their customers about measures to reduce energy consumption. At some point, commenter s contended the reasonable cost options306

for reducing energy consumption will be exhausted a nd therefore EPA's assumption that declining trends will be maintained at the same pac e indefinitely is irrational. Commenters stated that Alaska has implemented EE programs within the state which have resulted in upgrades to over 37,000 residencies with an annual savings of t he equivalent of 932 GWh of electricity. Commenters noted that most of these residences are not interconnected with their EGUs and what is being saved is fuel oil or firewood consume d in relatively inefficient residential units. Commenters determined that the emphasis of demand s ide energy programs needs to be placed on the space heating needs of their residents since space heating is a health and safety concern that simply has to have priority over other potenti al demand side energy efforts. Commenters stated that their efforts have probably resulted in , and will continue to result in, a greater reduction in total carbon dioxide emissions than th e goal established by the EPA for Alaska under the building block 4. Commenters requested th at EPA exempt Alaska from building block 4 rather than try to force the state to divert limi ted resources into efforts that are unlikely to be as effective at reducing carbon dioxide emissions.

Comment 2: Comments suggesting municipal and cooperative unit s that are part of TVA cannot import power from other regions.

Response 2: Even if EE/RE resources cannot be implemented in th e state itself, the EPA is providing states with maximum flexibility to achiev e their emission standards or CO 2 state goals in the final emission guidelines. For example, stat es can enter into multi-state plans, multi-state coordination while retaining their individual state goals and emission budget trading programs. Rate-based programs can use or purchase ERCs genera ted from eligible resources (e.g., demand side energy efficiency and renewable energy) and do not need to implement these resources within their state, under ceratin state plan types. These flexibility provide enough latitude for all states to comply with this rule. See section VIII.C of the preamble final rule for details on different state plan approaches.

While the EPA is not requiring states to join and/o r form regional market-based programs, we note that such programs can be helpful for many rea sons, including features that support reliability. Market-based programs allow greater fl exibility for affected EGUs both in the shortterm and long-term. Under a market-based program, a ffected EGUs have the ability to obtain sufficient allowances or credits to cover their emi ssions in order to comply with their emission limits.

The following is a summary of the specific public c omment:

Commenters stated that the rule is not feasible for TVA because of the unique structure of the TVA power system. Commenters claimed that the munic ipal and cooperative utilities do not have access to transmission services from any sourc e other than TVA and therefore cannot import power from other regions.307

Comment 3: Comments suggesting the complexities of the wester n grid structure, including the large amount of federal and tribal land with govern ing authorities that need to be involved in decision making, create significant barriers to imp lementing the CPP.

Response 3: The Western states have a good track record working together for regional compliance, for example, the regional haze program and Grand Canyon visibility transport commission. The Western Electric Coordinating Counc il coordinates reliability throughout the region. The EPA is providing states with maximum fl exibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into multi-state plans, multi-state coordination while r etaining their individual state goals and emission budget trading programs. Certain rate-base d state plans can use or purchase ERCs generated from eligible resources and do not need t o replace resources within their state. This flexibility provides enough latitude for all states to comply with this rule. See section VIII.C of the preamble of the final rule for details on the d ifferent state plan approaches.

In addition , if states have approporate justification, such as ; a state’s required schedule for legislative approval and administrative rulemaking, the need for multi-state coordination in the development of an individual state plan, or the pro cess and coordination necessary to develop a multi-state plan they can seek extension beyond 201 6. See section VIII.E of the preamble of the final rule for details on state plan submittal and timing.

The following are summaries of the specific public comments under this comment:

Commenters assert the western grid structure is co mplex and creates significant barriers to developing, approving, and implementing regional co mpliance approaches. Commenters explained that outside of California and the Dakota s, there is no Regional Transmission Organization (RTO) or Independent System Operator ( ISO), but rather 38 electricity-balancing areas that are responsible for managing the western grid. Commenters stated that moreover, western states have a vast amount of both tribal an d federally managed public lands overlaying state boundaries; and these tribal governing author ities and Federal Land Managers (FLMs) must either direct, or be engaged in, the public process es needed to obtain approvals for new renewable and natural gas generation resources, new or expanded transmission lines, and new or expanded natural gas infrastructure. Commenters obs erved that federal agencies have a poor track record of timely permitting and delays could impact a state's ability to comply with its plan. Commenters stated that Idaho will have problems mee ting the emission limits because federally managed lands cover more than 63% of the state. Com menters said that EPA calculated RE potential without considering the various restricti ons on federal land. Commenters stated that as a result, they will have problems in obtaining the necessary permits for renewable energy projects and for transmission lines to move electri city from low carbon sources. Commenters gave a current example of a transmission line that is taking 14 years to construct due to delays by the Bureau of Land Management.

Comment 4: Comments requesting clarification regarding compli ance options for utilities that own only a single coal-fired EGU.308

Response 4: See section V.A of the final rule preamble of the CPP for EPA’s response to the comment associated with compliance options for owne rs of a single coal-fired EGU. Also see final rule preamble section VIII.G for information on geographic eligibility for RE and EE measures, and section VIII.C of the final rule prea mble of the CPP on multi-state coordination for EPA’s response to this comment.

In the CPP final guidelines for state plans to limi t CO2 from affected EGUs, however, the agency does not specify presumptive performance rat es that each individual EGU is to achieve in the absence of trading. Instead, these guidelines p rovide collective performance rates for two classes of affected EGUs (steam generating units an d stationary combustion turbines), and give states the alternative of developing plans to achie ve a state emission goal for the collective group of all affected EGUs in a state. These flexibiliti es will accommodate the concerns regarding individual units.

The following are summaries of the specific public comments under this comment:

Commenters stated that the rule provides unique com pliance problems for utilities like Missouri River Energy Services and Texas Municipal Power Age ncy who own only a single coal fired power plant. Commenters requested clarification on compliance options: 1) Does the utility receive credit for actions taken by its member citi es regarding renewable energy and demand side energy efficiency; 2) Does the utility receive credit for a coal-to-gas switch if a member city installs a gas unit; and 3) What if the power plant is located in one state and serves customers in another?

Commenters stated some states have a heavy reliance on coal. Commenters investigated compliance scenarios to quantify the impact of coal fired power plant retirements, and stated that closing one unit at the Utah's largest coal fired p ower plant would reduce the compliance gap to 341 and if both units were closed the gap would shr ink to 256 lbs/MWH.

Comment 5: Comments stating that Rhode Island has no coal gen eration, so they will likely comply through a regional mass-based plan and enhan ce RE and EE and continue participating in RGGI.

Response 5: States are not required to implement the building blocks set in the EPA’s BSER determination. The EPA is providing states with max imum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into multi-state plans, multi-state coordination while r etaining their individual state goals and emission budget trading programs. Certain rate-base d state plans can use or purchase ERCs generated from eligible resources (e.g., EE/RE). Th is flexibility provides enough latitude for all states to comply with this rule. See section VIII.C of the preamble of the final rule for details on the different state plan approaches states can use to comply with the final emission guidelines.

The following is a summary of the specific public c omment:309

Commenters stated that the State of Rhode Island ca nnot utilize building blocks 1 and 2 because the state has no coal generation. Commenters stated the state anticipates that they will comply through a regional, mass-based compliance plan and rely on enhancing their current energy efficiency and renewable programs and continuing to participate in RGGI.

Comment 6: Comments stating that Guam requests technical supp ort from the EPA to develop the SIP and in coordinating CPP goals with other en vironmental regulations, and requests an extension to the plan submittal deadline.

Response 6: Many commenters have asked the EPA to extend the t ime for final state plan submittals. We are revising the requirements in the proposal as follows. The EPA is requiring an initial plan by September 6, 2016 and is providing until September 2018 for state to submit a final plan if an extension until that date is justi fied. This should give states ample time to develop final plans, including resolving any related legal issues regarding the inclusion of new NGCC in state plans. See section VIII.E of the final rule p reamble for the EPA’s response regarding plan submittal deadlines.

The EPA regions will continue to be the entry pointfor territories to ask technical and policy questions. We intend to continue to work actively w ith states and tribes to provide information and technical support that will be helpful to them in developing and implementing their plans. See section I.A.4 of the final rule preamble of the CPP for EPA’s response to this comment regarding technical support.

Because the EPA does not possess all of the informa tion and analytical tools needed to quantify the BSER for the two non-contiguous states with oth erwise affected EGUs (Alaska and Hawaii) and the two U.S. territories with otherwise affecte d EGUs (Guam and Puerto Rico), these emission guidelines do not apply to those areas, an d those areas will not be required to submit state plans on the schedule required by this final action.

The following is a summary of this specific public comment:

Commenters stated that the goals are achievable if they get technical support from EPA Region 9, but because of inexperience with preparing SIPs, requested an extension to the 1-year deadline for SIP submittal (Commenters is Guam Power Authori ty). Commenters requested help in coordinating the CPP goals and timetable with other environmental regulations. Commenters asked for more time in the compliance schedule so t hat legal issues such as "including new NGCC units as part of BSER for existing units" can be resolved and state resources will not be wasted.

Comment 7: Comments suggesting the EPA has vastly underestima ted the regulatory and electrical system changes needed in Texas to implem ent the 111(d) guideline and the time needed to make the changes.310

Response 7: States are not required to implement the building blocks set in the EPA’s BSER determination.

The EPA is providing states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into multi-state plans, multi-state coordination while retaining the ir individual state goals and emission budget trading programs. Certain rate-based state plans ca n use or purchase ERCs generated from eligible resources and do not need to replace resou rces within their state. This flexibility provides enough latitude for all states to comply with this rule. See section VIII.C of the preamble to the final rule for details on the different state plan approaches states can use to comply with the emission guidelines.

If states have appropriate justification, such as; a state’s required schedule for legislative approval and administrative rulemaking, the need fo r multi-state coordination in the development of an individual state plan, or the process and coo rdination necessary to develop a multi-state plan they can seek extension beyond 2016. See secti on VIII.E of the final rule preamble for the EPA’s response to the comment about deadlines for s ubmission of the state plan.

The following are summaries of the specific public comments under this comment:

Commenters stated that the EPA has vastly underesti mated the regulatory and electrical system changes needed to implement the 111(d) guideline an d the time needed to make the changes. Commenters said Texas could not submit a state plan before 2017 at the earliest. Commenters stated that it would be especially difficult for Te xas to comply in the proposed timeframe because of the unique nature of their electricity m arkets. Commenters pointed out that a large portion of the state operates in a competitive whol esale and retail electric market (ERCOT) contained within the state, while other portions of the state operate within 3 distinct competitive wholesale markets overseen by the Federal Energy Re gulatory Commission (FERC) and traditional cost-of-service regulated retail market s (SPP, MISO, and WECC) that are regulated by the PUC. Commenters provided detailed informatio n about the Texas' unique and complex electricity market," which is designed to provide c ompetitive electricity markets.

Commenters stated that Texas law, the PUC rules, an d the ERCOT market protocols do not provide the authority to require heat rate improvem ents or the re-dispatch of natural gas plants required by the 111(d) guideline. Accordingly, comm enters stated that to implement the 111(d) rule, substantial revisions would have to be made t o Texas law, PUC rules, and the ERCOT market rules; and these changes could not be made b y June 2016. Commenters stated that the ability to obtain a one-year extension is not feasi ble for Texas because the TCEQ could not prepare the initial plan stipulated in the proposed rule, because TCEQ cannot bind a future Texas Legislature to pass the laws necessary to implementthe 111(d) plan. Commenters also pointed out that the Texas Legislature meets only every oth er year, and the 2015 session will be finished before the section 111(d) guidelines are published. Commenters added that even after the Legislature amends Texas law, commenters listed 25 state regulations that would have to be revised. Afterward, Commenters stated that amendmen ts would need to be made to the market rules for ERCOT, SPP, and MISO; and then IT systems would need to be redesigned. Commenters stated that making all the necessary cha nges likely would require several years.311

Comment 8: Comments suggesting phase-in periods for NGCC re-d ispatch under Building Block 2 are necessary for Texas.

Response 8: The EPA has made changes to the BB2 assumption in the final rule. See sections V.A.3 and V.D of the final rule preamble of the CPP for EPA’s response to this comment.

We carefully reviewed information submitted to us r egarding the feasible timing of various measures and identifying concerns that the required CO2 emission reductions could not be achieved as early as 2020 without compromising elec tric system reliability, imposing unnecessary costs on ratepayers, and requiring inve stments in more carbon-intensive generation, while diverting investment in cleaner technologies. The record is compelling. To respond to these concerns and to reflect the period of time re quired for state plan development and submittal by states, review and approval by the EPA, and impl ementation of approved plans by states and affected EGUs, the EPA is determining in this final rule that affected EGUs will be required to begin to make reductions by 2022, instead of 2020, as proposed, and meet the final CO2 emission performance rates or equivalent statewide goals by no later than 2030. The EPA is establishing an eight-year interim period that begi ns in 2022 and goes through 2029, and which is separated into three steps, 2022-2024, 2025-2027 , and 2028-2029, each associated with its own interim goal. Affected EGUs must meet each of t he interim period step 1, 2, and 3 CO2 emission performance rates, or, following the emiss ions reduction trajectory designed by the state itself, must meet the equivalent statewide in terim period goals, on average, that a state may establish over the 8-year period from 2022-2029. Th ese additional flexibilities give states more time to comply with the emission guidelines of this final rule and address the natural gas pipeline and reliability concerns raised by the commenters.

The following is a summary of the specific public c omment:

Commenters supported increased dispatch of NGCC uni ts but stated that the 70% re-dispatch of all NGCC generation in Texas by 2020 is too high an d too fast to be successfully implemented in the ERCOT market, because this level could require significant investments in additional electric transmission and natural gas pipelines to alleviate potential reliability concerns. To address this problem, commenters recommended phase-in periods fo r the implementation of the NGCC redispatch called for under Building Block 2, which w ould not require Texas to achieve the full implementation of Building Block 2 until 2029.

Comment 9: Comments suggesting the structure of the utility i ndustry in Texas complicates compliance, and Texas does not have the natural gas infrastructure to deliver sufficient quantities of natural gas.

Response 9: The CPP final guidelines include three approaches that states may adopt for purposes of implementing the BSER, any one of which a state may use in its plan. These are: 1) establishing standards of performance that apply th e subcategory specific CO2 emission312

performance rates to their affected EGUs, 2) adopti ng a combination of standards and/or other measures that achieve state-specific rate-based goa ls that represent the weighted aggregate of the CO2 emission performance rates applied to the affec ted EGUs in each state, and 3) adopting a program to meet mass-based CO2 emission goals that represent the equivalent of the rate-based goal for each state.

States do not need to implement the same BSER metho dology as the EPA used to set the emission guidelines in the final rule. The EPA is p roviding states with maximum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into multi-state plans, multi-stat e coordination while retaining their individual state goals and emission budget trading programs. C ertain rate-based state plans can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. This flexibility provides enough latit ude for all states to comply with this rule. See section VIII.C of the preamble of the final rule fo r details on different state plan approaches states can use to comply with the emission guidelin es.
The following are summaries of the specific public comments under this comment:

Commenters stated that due to the unique structure of the electric utility industry in Texas, the rule as proposed is not feasible in Texas. Commente rs stated that Texas electricity generating companies are not vertically integrated utilities, and thus the EPA's assumption that building blocks 2, 3, and 4 may be undertaken by the affecte d EGUs themselves is not valid for Texas. Commenters added the Texas market is restructured i nto generation and distribution utilities that are regulated separately. Commenters added, for exa mple, generation utilities cannot exert control over transmission infrastructure or demand- side energy efficiency programs. Commenters also stated some energy efficiency activ ities in Texas are subject to PUC regulatory oversight whereas other energy efficiency measures are subject to the authority of the Texas Legislature.

Commenters also stated that most of Texas is served by ERCOT, which is a closed intrastate grid. Therefore, commenters stated utilities in the ERCOT regions cannot participate in interstate strategies because most Texas utilities cannot redu ce coal generation by importing power from low carbon sources in other states and cannot parti cipate in interstate trading. Commenters stated that compliance in Texas would result in significan t stranded assets and reduced fuel diversity.

Commenters stated that building block #2 is not fea sible in Texas because Texas does not have the natural gas infrastructure to deliver sufficien t quantities of natural gas.

Commenters explained the size of the Texas utility market and its unique competitive design.

Comment 10: Idaho requested more time to meet the RE standard given time delays associated with installing transmission lines across federal l ands, and requested EPA assistance in working with federal land managers.313

Response 10: See section VIII.E of the preamble to the final rul e for details on plan submittal and timing. The EPA will work with states and stake holders and other federal agencies as appropriate.

The following is a summary of the specific public c omment:

Commenters stated that the EPA must adjust the time line for implementation of its RE requirements to allow for necessary transmission an d for RE projects to be permitted and built. Commenters requested EPA assistance in working with federal land management agencies.

Comment 11: Request for meeting with the EPA to address questio ns and concerns.

Response 11: To provide interested stakeholders with a better u nderstanding about the rule requirements, the EPA will continue to work with st ates, tribes, territories, and stakeholders to provide information and address questions about the final rule. The agency will host (or partner with appropriate groups to co-host) a number of web inars about various components of the final rule; these webinars are planned for the first two months after the final rule is issued. See sections I.A.4 and XII.E of the final rule preamble for details regarding stakeholder outreach.

The following is a summary of the specific public c omment:

Commenters (trade group for New York State energy s ervice providers) requested a follow-up meeting to clear up remaining questions and concern s given the complexity of the rule and the unique features of the New York electric system.

Comment 12: Comments stating that renewable resources that do not use synchronous machines coupled with long distances of power transmission c reate technical challenges in West Texas.

Response 12: Commenters have provided a few different mitigatio n measures that could mitigate potential reliability issues and states th ere is enough time to implement these mitigation measures at a reasonable cost. See section VIII.G.2 of the final rule preamble for details on how the EPA is handling reliability issues.

The following are summaries of the specific public comments under this comment:

Commenters stated that there are technical challeng es with integrating a large amount of renewable resources in West Texas, primarily due to two factors: 1) renewable resources in West Texas are located far from load centers requiring t heir power be transmitted over long distances; and 2) most renewable resources use power electroni c based devices and not synchronous machines. Together, these factors induce power syst em challenges not previously observed on a large scale.

As an example, commenters stated that the combinati on of long transmission lines and a lack of synchronous generation machines by wind turbines ca n lead to high/low voltage collapse, and314

system instability. Commenters stated the solutions to these challenges include the installation of synchronous generation, synchronous condensers, and new transmission lines.

Commenters stated another challenge of transferring power over long distances is handling the reactive losses in long transmission lines. Comment ers stated that often these reactive losses become more limiting than the inherent thermal capa bility of a transmission conductor for long transmission lines. Commenters stated the solutions to this challenge include installing dynamic reactive compensation devices, building transmissio n lines at higher voltages (i.e. 500 kV or 765 kV), constructing more transmission lines, or insta lling series compensation on transmission lines; and each of these solutions has drawbacks. C ommenters stated that: (1) dynamic reactive devices are expensive and provide only limited bene fit for long transmission lines, and (2) construction of higher voltage transmission lines i s often opposed by the public because of rightof-way issues and the aesthetic impact.

Commenters stated that ERCOT chose to handle this c hallenge primarily by installing series compensation devices. Commenters stated that, in 20 09, a wind generation resource in Texas experienced sub-synchronous oscillations of its con trol system with a series compensation device, and that this event caused significant dama ge to both the wind generation resource and the series compensation device. Commenters stated t hat mitigation measures must be put in place to prevent this from happening.

Comment 13: Comments stating Texas has made greater reductions than California in carbon dioxide emissions but is being asked to make dispro portionate changes in carbon dioxide generation and in its renewable portfolio without c redible explanation by the EPA.

Response 13: See section V.E. of the preamble to the final rule and the EPA’s CO 2 Emission Performance Rate and Goal Computation TSD for CPP F inal Rule for details on the EPA’s rationale for renewable energy BSER determination a nd how the EPA has changed the renewable enery assumptions under BSER in the final rule.

The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the p erformance period. The EPA recognizes the validity and importance of these perspectives, and as a result, the final rule contains two provisions that enable states to incentivize early investments in zero-emitting generation and demand-side EE.

First, states adopting rate-based plans may award E RCs to qualified providers that implement any eligible projects from 2013 onward for the quan tified and verified MWh of generation or savings those projects provide in 2022 and subseque nt years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass-based context, similar efforts will be inherently reflected in the affected EGUs stack emi ssions in 2022 forward. For more details on this treatment of early actions, see section VIII.K of the preamble to the final rule.315

Second, the EPA has developed the Clean Energy Ince ntive Program, an optional program designed to reward investment in certain RE and dem and-side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end-use energy demand during 2020 and 2021. Under this program, st ates may set aside allowances from their interim targets or generate early action ERCs (as d efined in section VIII.K.2 of the final rule preamble), and allocate to eligible projects allowa nces or ERCs equivalent to each MWh generated or avoided. For more details on this prog ram, see section VIII.B.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters charged that the 111(d) rule has a dispr oportionate and unfair impact on Texas. Commenters stated that EIA and U.S. Census data sho w that, from 2000 to 2010, Texas, the second most populous state in the United States, ha s reduced its carbon dioxide emissions by 8.05%, while over the same time period, California, the most populous state, has reduced its carbon dioxide emissions by only 4.36%. Commenters stated that, on a per-capita basis, California reduced its carbon dioxide emissions by 15.49% over the same time period while Texas has reduced its carbon dioxide emissions by n early 24% on a per-capita basis, while transitioning to competitive (and very successful) wholesale and retail markets. Commenters stated that Texas's heavy investment and remarkable transformation is penalized by a final target of 791 lbs. of CO 2 /MWh, which could not even be met by a state-of-the -art combined cycle power plant with existing technology. Commenters st ated that Texas produces 11% of the electricity in the United States, but its proportio n of total carbon dioxide reduction required by the 111(d) by 2030 is 17.87%; and EPA offers no rea sonable explanation for the disparate, seemingly punitive, treatment of Texas under the pr oposed rule.

As another example of unfair treatment, commenters stated that Texas's renewable energy mandate under 111(d) far exceeds the requirement fo r any other state. Commenters said that the rule would require Texas to add 52 million MWh of r enewable energy by 2030 and that this renewable energy mandate far exceeds the renewable energy requirement for any other state. Commenters said that Texas, already the nation's la rgest renewable energy producer, would be required to increase its renewable portfolio by 153 % over the next 8-14 years, while the next largest renewable energy producer, California, woul d only be required to increase its renewable energy portfolio by 37%. Commenters said that the r equired increase in Texas's renewable energy fleet required under the rule would be great er than the increases of 29 states combined and would be larger than the present day wind and s olar fleets of every country in the world, except for the U.S. Commenters believed that EPA has offered no credib le or reasonable explanation for this disparate treatment of Texas.

Comment 14: Comments stating the EPA must consider state-speci fic variations and capabilities in establishing guidelines.

Response 14: See section V.A. of the final rule preamble regard ing changes in the interim deadlines for the EPA’s response to the comment reg arding states’ ability to meeting interim deadlines. See section I.A.4 of the final rule preamble for th e EPA’s response to the comment316

regarding considering state variations in developin g the CPP. See sections I.A.3, V.A, and VII.A and of the final rule preamble for the EPA’s respon se to the comment regarding providing states flexibility.

See the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for the EPA’s response to the comments about baselines.

In addition, the EPA is providing states with maxim um flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example , states can enter into multi-state plans, multi-state coordination while r etaining their individual state goals and emission budget trading programs. Rate-based progra ms can use or purchase ERCs generated from eligible resources. This flexibility provides enough latitude for all states to comply with this rule. See section VIII.C of the preamble to the final rul e for the various state plan approaches states can adopt to comply with the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated that some of their member states are very concerned about their ability to meet the proposed (especially interim) targets, gri d reliability, and the cost of the rule due to state-specific regional, geographic, economic, and power generation and regulation differences and due to the wide range of options proposed by th e EPA. Cost, timing, and energy generation impacts will likely differ from state to state depe nding on legislative and administrative factors and differences in each state's energy portfolio an d connections, or lack thereof, to the larger grid. Commenters stated that the EPA must:

• consider variations in states' ability to implement the various proposed options;

• account for variations in state implementation cost s; and

• structure final guidelines to "provide the maximum flexibility possible that is still consistent with underlying statutory objectives".

Regarding baselines for setting state goals and det ermining compliance, commenters stated that baselines must be representative of actual performa nce related to the goals of the rule and must not, for example, work against states or entities t hat took early action contributing to the goal. Commenters stated that the EPA also must consider s ignificant year-to-year variations that have occurred, and will continue to occur, e.g., anomali es in hydropower generation and plant outages have had an undue influence on the baseline in some states; and the EPA should work with those specific states to make needed adjustments in the f inal rule.

Comment 15: Comments stating that Kentucky is concerned that n eighboring states will raise electricity prices on Kentucky ratepayers.

Response 15: The EPA disagrees with Kentucky’s assessment because itis difficult to assess the impacts of the rule until it is known how Kentucky and states within the same grid region will comply with the final CPP. It’s important for the E PA to point out that if Kentucky doesn’t put a317

CO 2 price on electricity generation and other states d o in their region, then Kentucky would be able to provide more generation to other states at a lower cost. The impacts to rate payers will depend upon the choice Kentucky makes relative to t heir neighbors, Kentucky’s rate payers could benefit from the rule, depending on the choic es made within and outside of Kentucky.

The EPA is providing states with maximum flexibilit y to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into multi-state plans, multi-state coordination while retaining the ir individual state goals and emission budget trading programs. Rate-based programs can use or pu rchase ERCs generated from eligible resources. This flexibility provides enough latitud e for all states to comply with this rule. See section VIII.C of the preamble to the final rule fo r the various state plan approaches states can adopt to comply with the final rule.

The following are summaries of the specific public comments under this comment:

Commenters were concerned that their rate payers wi ll be subject to higher electricity prices because of actions that neighboring states take to comply with the rule. Commenters pointed out that Kentucky has some electric utilities that are operate a part of two different regional interconnections and two large utilities that are n ot part of a multi-state construct. Commenters pointed out that whether or not Kentucky chooses to be a part of a multi-state collaborative for rule compliance, other states might place a price o f carbon into their dispatch system, and as a result Kentucky ratepayers will be subject to marke t forces that will result in higher prices because of the actions in other states.

Comment 16: Comments stating Florida’s limited import capacity , unique geography and electricity needs, and the low percentage of househ olds with natural gas service foreclose many of the proposed regional options.

Response 16: The EPA is providing states with maximum flexibilit y to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into multi-state plans, multi-state coordination while r etaining their individual state goals and emission budget trading programs. Rate-based progra ms can use or purchase ERCs generated from eligible resources and do not need to replace resources within their state. This flexibility provides enough latitude for all states to comply w ith this rule. See section VIII.C of the preamble to the final rule for the various state pl an approaches states can adopt to comply with the final rule.

Also, s ee Section VIII.G.2 on details regarding the EPA ha ndles reliability issues.

The following are summaries of the specific public comments under this comment:

Commenters noted that Florida has unique characteri stics of weather, geography, customer base, and high reliance on electricity for cooling and he ating that must be carefully considered to ensure Florida's electricity supply is cost-effecti ve and reliable. Commenters noted that they have the highest number of cooling degree days of any st ate, a large population of senior citizens with about 89% of Florida's electricity customers a re on fixed incomes, and only about 7% of318

households have natural gas service. As a peninsula r state, commenters noted limit Florida's interconnections and transmission capabilities for importing electricity and natural gas. Commenters stated that the transmission capability for import energy to Florida is limited to 3,800 megawatts, which is just 6.6% of Florida's su mmer capacity. This limited import capacity, commenters believe forecloses many of the proposed regional options included in the proposal.

Commenters pointed out also that their coal generat ing capacity assets are located in northern Florida and gas assets are in south Florida; so EPA has not considered the effect of massive load shifting on intrastate reliability and system contr ol areas.

Commenters stated that Florida has limited ability to import high-voltage electric transmission from nearby states given its peninsular geography. Commenters stated that they currently import only 8 percent of their power from other states. Gi ven this difficulty, commenters believed that importing electricity would do little to help Flori da achieve the proposed goal.

Comment 17: Comments stating that Michigan, Montana, Texas and West Virginia submitted reports on the feasibility and cost of reducing car bon emissions in their states and asked for the EPA to consider the findings.

Response 17: The EPA provides a response regarding the MISO repo rt and reliability issues in Section VIII.G.2 of the preamble of the final rule.

If states have approporate justification, such as; a state’s required schedule for legislative approval and administrative rulemaking, the need for multi-state coordination i n the development of an individual state plan, or the process and coo rdination necessary to develop a multi-state plan they can seek extension beyond 2016. See secti on VIII.E of the final rule preamble for the EPA’s response to the comment about deadlines for s ubmission of the state plan.

The following are summaries of the specific public comments under this comment:

Commenters submitted reports about the feasibility and cost of reducing carbon emissions in their states and asked EPA to consider the findings in preparing the final rule. Commenters stated the report attached by Michigan is a MISO report on the proposed rule. Commenters considered the collective impact of six environmental regulati ons (i.e., MATS, CSAPR, Regional Haze, Cooling Water Intake Structures, Coal Ash Regulatio ns, Clean Power Plan) and concluded that the impact would be retirement of up to 8,700 MW of coal-fired capacity; and stated modeling assumptions were based on a survey. Commenters stat ed these closures would strain ERCOT's ability to integrate new intermittent renewable gen eration resources leading to a delay in achieving compliance with the proposed Clean Power Plan limits.

Commenters discussed preliminary modeling results w hich suggested that if all non-retired coal plants are dispatched with the same capacity factor , the 2030 rate limit would not be met; however, the limit would be met if the cleanest pla nts were dispatched first. Commenters stated dispatch decisions are complicated, trigger grid re liability considerations, require coordination among parties both within and outside of the state to plan and execute, and have important319

impacts to ratepayers and utilities. Commenters als o stated the dispatch scenarios highlight the importance of interstate coordination in the state planning process.

Comment 18: Comments requesting a longer period for compliance for Texas.

Response 18: If states have appropriate justification, such as; a state’s required schedule for legislative approval and administrative rulemaking, the need for multi-state coordination i n the development of an individual state plan, or the pro cess and coordination necessary to develop a multi-state plan they can seek extension beyond 201 6. See section VIII.E of the final rule preamble for the EPA’s response to the comment abou t deadlines for submission of the state plan.

The following are summaries of the specific public comments under this comment:

Commenters requested a longer period for compliance for Texas, such that their coal fleet can have a reasonable transition time until disputed na tural gas fired plant permits can be issued and new wind projects can go operational.

Comment 19: Comments stating that Virginia ranks low in EE and RE initiatives and has significant opportunity for improvement.

Response 19: The EPA agrees there is significant opportunity fo r states like Virginia. Many affected EGUs are already planning on deploying sig nificant amounts of RE according to their integrated resource plans (IRPs). A recent study of IRPs, included in the docket for this rulemaking, shows this trend. For instance, Dominio n plans for over 800 megawatts of wind and solar in their 2015 to 2029 planning period. Duke E nergy Carolinas’ IRP has no plans for new coal, but describes plans for roughly 1,250 megawat ts of additional RE by 2021, and approximately 2,150 megawatts by 2029. A significan t portion (1,670 megawatts) of the planned RE is solar. We appreciate the commenter’s informat ion and data. See section V.E. of the preamble to the final rule where the EPA addresses the feasibility of renewable energy deployment under EPA’s determination for BSER.

The following are summaries of the specific public comments under this comment:

Commenters claimed that Virginia's State Corporatio n Commission exaggerated the potential cost of the proposed rule and it should be acknowle dged that Virginia has significant opportunities for compliance. Commenters stated in a recent independent survey of the 32 largest investor-owned utility holding companies, Dominion Resources (Virginia's largest utility) ranked at the bottom for energy efficiency gains and Ameri can Electric Power (the parent of Appalachian Power Company, Virginia's second invest or-owned utility) ranking 23rd.

Furthermore, commenters stated Virginia is near the bottom and had enormous potential for solar and wind. Commenters stated Dominion Resources rank s 30 out of 32 for renewable energy320

sales, and American Electric Power ranks 24 out of 32. Commenters contended PJM said that it can handle 30% solar and wind without reliability c oncerns.

Comment 20: This comment addresses a number of issues specific to Tennessee: Tennessee does not have a single entity or traditional PUC re sponsible for overseeing all utility EE and valuing or crediting demand-side EE; TVA’s EE measu res cannot be readily attributed to and credited to individual states; demand-side EE costs in proposal do not consider how utility EE programs are funded in Tennessee. A general concern is also expressed about forcing EE into CAA environmental regulations.

Response 20: The EPA recognizes that one of the major approaches available for achieving CO 2 emission reductions from the electric power sector is demand-side EE. The EPA continues to believe that significant emission reductions can be achieved by affected EGUs by the use of such measures cost effectively and that such measures ar e likely to represent an important component of state plans.

The EPA has decided not to include demand-side EE ( building block four) in the BSER of this final rule and, therefore, does not need to address the comments related to setting EE targets in BSER. This determination is discussed in section V. A.3.d of the final rule preamble.

Even though demand-side EE is not being included in the BSER in this final rule and, thus, not included in the determination of emission performan ce rates, the final rule provides states the flexibility to use demand-side EE measures in their state plans for compliance to meet the emission guidelines set forth in the final emission guidelines, provided they meet the applicable requirements established in section VIII.K of the p reamble to the final rule.

The final rule provides maximum flexibility to comp ly with the EPA’s emission guidelines. For example, states can enter into multi-state plans, m ulti-state coordination while retaining their individual state goals and emission budget trading programs. Rate-based programs can use or purchase ERCs generated from eligible EE/RE and oth er resources for compliance. This flexibility provides enough latitude for all states to comply with this rule. See section VIII.C. of the preamble to the final rule for the various stat e plan approaches states can adopt to comply with the final rule.

The following are summaries of the specific public comments under this comment:

Commenters stated a number of different EE measures have been or are currently available in Tennessee and are offered by utilities (TVA and its local power companies), the public sector, private organizations, and businesses to public, co mmercial, industrial, and residential end-use customers. While the diversity of programs and oppo rtunities within Tennessee is encouraging, commenters stated the current decentralized nature of EE efforts throughout the state and the absence of a traditional state PUC role in the cont ext of the majority of electricity production in Tennessee, results in no single or readily-identifi able entity taking full responsibility for overseeing all utility EE efforts. Commenters state d additionally, Tennessee does not have an EE321

resource standard or other EE policy mechanism that may provide centralized, consistent efforts to value and credit EE programs both inside and out side the utility context.

Commenters agreed EE is a cost effective way to red uce demand and a means to reduce carbon emissions. However, commenters were concerned the E PA is requiring states to act in a role that is unprecedented. Specifically, commenters were con cerned the proposed guidelines will force EE programs to be incorporated into traditional env ironmental regulation under the CAA and require them to deliver emissions reductions in a w ay they have not historically been required to do. Commenters stated that this approach will impac t the perception of EE, its relative cost, and usefulness. Given the unique nature of EE, commente rs argued the EPA's approach to crediting EE programs within state compliance plans poses con siderable challenges and provided the following examples for Tennessee:

• Tennessee has not yet developed a mature, comprehen sive EE program structure nor does it have a PUC specifically charged with ma naging EE program performance within the utility sector. Commenters b elieved the proposed guidelines inappropriately assume states already ha ve a structure for valuing and crediting demand-side EE programs and noted that be cause Tennessee does not already have such a structure the work that must be done to establish the ability to value and credit these programs for the purposes of a state compliance plan is significant.

• EPA establishes EE targets on a state-by-state basi s but electricity and EE are not bound by state borders - particularly in Tennessee. Commenters explained that TVA, the primary electricity provider within Tennes see, plans, generates, and distributes electricity throughout a multi-state sy stem, rather than on a state-bystate basis. Commenters believed that it will be a cumbersome and complex to dissect TVA's EE programs so that they can be treat ed and credited on a state-bystate basis.

• Commenters asserted that demand-side EE program cos ts as used in the proposed guidelines do not adequately take into consideratio n how the majority of current utility EE programs are funded within Tennessee. Co mmenters stated that the TVA Act requires TVA to charge power prices necessa ry to pay for the electricity system's operations, maintenance, and administratio n, provided that power is sold at rates as low as are feasible and therefore, TVA does not have an EE rate recovery mechanism like many other utilities.

Commenters recommended the EPA consider these chall enges in finalizing the guidelines and develop guidance and support materials to address s ome of these concerns as they relate to EE. Commenters stated that failure to take these issues into account would not only discredit EE measures as a low-cost and environmentally-friendly means of compliance in meeting state emissions targets, but also result in reduced flexi bility for states.322

Comment 21: Comments stating that Arizona's limited gas supply is an obstacle to replacing coal-fired power plants and makes the electricity g rid more susceptible to natural gas pipeline service interruptions.

Response 21: The EPA does not prescribe how a state must meet th e emission guidelines, but if a state chooses to take the path of meeting a state goal, these final guidelines identify the methods that a state can or, in some cases, must, u se to demonstrate that the combination of measures and standards that the state adopts meets its state-level CO2 goals. While the EPA accomplishes the phase-in of the interim goal by wa y of annual emission performance rates, states and EGUs may meet their respective emission reduction obligations “on average” over that period following whatever emission reduction trajec tory they determine to pursue over that period.

The combination of multiple ownership and types of operational control adds to the complexity of electricity dispatch, but all affected EGUs, reg ardless of ownership and type of control, can use Building Block 2 to comply with the final rule. The principal difference among the differing entities lies in the types of methods that are avai lable for the affected EGU owner to bring about the shift in generation that will make use of this building block for compliance. There are several alternatives to accomplish this result: the owner o f the higher-emitting affected EGU may also own, or have affiliates that own, lower emitting ge neration and thus reduce its own generation and use its control over these other EGUs to increa se their generation; an EGU may be able to reduce its generation and buy replacement power fro m the market that is lower emitting; or the EGU may be able to reduce its generation and procur e generation from a separately-owned lower-emitting EGU. These alternatives will be avai lable in states with either rate or mass-based state plans without any change in their general for m
For further response to this comment see Section V. D of the final rule preamble of the CPP where EPA describes the rationale for Generation sh ifts among affected EGUs and the CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule for further details on the final methodology for building block 2 and h ow the EPA changed assumptions for Arizona.

The following are summaries of the specific public comments under this comment:

Commenters were concerned that Arizona's limited ga s supply is an obstacle to replacing coalfired power plants and makes the electricity grid m ore susceptible to natural gas pipeline service interruptions.

Some commenters were concerned that the EPA's assum ptions regarding Arizona's power generating capacity are based on annual power consu mption rather than peak demand, which fails to account for the times during the year thatthe system operates at full capacity to supply electricity during hot summer months. While it appe ars there is unused available natural gas capacity in the system already, commenters said tha t the reality is that Arizona experiences extreme heat in the summer months, and all availabl e capacity is necessary to meet the spikes in demand that occur during that time. Although the ca pacity is not used year round, commenters said that it is an essential element of the overall power system in Arizona. Commenters said that323

the power supply capacity assumptions for Arizona m ust take into consideration the unique climate and resulting demands on the system.

Comment 22: Comments from Wyoming requesting clarification reg arding demand-side EE and RE and how retirements are factored into generation calculations.

Response 22: The baseline inventory the EPA uses relies on histo rical data and does not incorporate anticipated future retirements. The EPA and most commenters supported this treatment as they viewed those scheduled retirement s (and corresponding emission reductions) as an alternative compliance flexibility based on alre ady scheduled reductions. If the state is implementing a rate-based plan than it could use el igible RE and demand-side EE to adjust the emission rates for compliance. This adjustment woul d only be applied to the affected units that are still in operation and it apply to the current emission rate of the affected units. For details on the specific calculations for adjusting the emissio ns rate see Section VIII.K.2 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:

Commenters also asked if, by 2020, Wyoming has been obliged to prematurely retire a large portion of its coal fired EGUs, how would the Block 3 and 4 savings anticipated between 2020 and 2029 either apply to the retired generation, or apply to the remaining generation. Commenters explained that some Wyoming wind generat ion is not associated with either Wyoming EGU operators or local distribution in Wyom ing and asks should those Block 3 hours apply to Wyoming Block 1 generation, and if so, on a proportionate basis. Further, should those Block 3 hours apply to Block 1 generation in anothe r state and should they simply be ignored.

Comment 23: Comments suggesting requiring Nebraska and Kentuck y to meet emission goals will impose significant challenges and the states m ay not be able to meet the goals in the expected timeframe.

Response 23: States are not required to implement the building blocks set in the EPA’s BSER determination. The EPA is providing states with max imum flexibility to achieve their emission standards or CO 2 state goals in the final emission guidelines. For example, states can enter into multi-state plans, multi-state coordination while r etaining their individual state goals, and emission budget trading programs. Certain rate-base d state plans can use or purchase ERCs generated from eligible resources (e.g., EE/RE). Th is flexibility provides enough latitude for all states to comply with this rule. See section VIII.C of the preamble to the final rule for details on the different state plan approaches states can use to comply with the final emission guidelines. See section VII.E of the preamble to the final rule for details on plan submittal and timing. The EPA will work with states and stakeholders and othe r federal agencies as appropriate.

The following are summaries of the specific public comments under this comment:324

Commenters stated that requiring Nebraska and Kentu cky to meet emission goals will pose significant challenges and these states may not be able to meet the goals in the expected timeframe. Flexibility to use all the building bloc ks in a compliance plan may be limited, making it difficult to achieve the results the EPA is anti cipating with this proposal.

Comment 24: Comments suggesting that Idaho not be subject to a performance goal.

Response 24: See section V.E. of the preamble to the final rule and the EPA’s CO 2 Emission Performance Rate and Goal Computation TSD for CPP F inal Rule for details on the EPA’s rationale for renewable energy BSER determination a nd how the EPA has changed the renewable energy assumptions under BSER in the fina l rule.

The following are summaries of the specific public comments under this comment:

Commenters stated Idaho should not be subject to a CO 2 emission performance goal because Idaho's generation mix reflects BSER and its carbon profile is already very low, citing that Idaho's 2012 CO 2 emission level was next to the lowest emission lev el in the country, second only to the emission level of Vermont, the one stat e that the EPA does not require to meet a goal. Idaho's carbon profile is low because Idaho has no in-state coal generation and that Idaho's two NGCC plants (including one that just started operat ing in mid-2012) already comply with the NSPS that the EPA has proposed under CAA Section 11 1 (b). Commenters stated that these sources thus already employ BSER under Section 111( d).

Comment

25: Comments responding to the four major questions in “ Considerations in the Design of a Program to Reduce Carbon Pollution from Existing Power Plants.”

Response 25: We appreciate this information. No response to thi s comment is necessary.

The following are summaries of the specific public comments under this comment:

Commenters offered the following responses to the f our major questions in EPA's

" Considerations in the Design of a Program to Reduce Carbon Pollution from Existing Power Plants ": 1. What is state and stakeholder experience with programs that reduce CO 2 emissions in the electric power sector? Kansas has no specific r egulatory requirements for sources to report CO 2 emissions or CO 2 emissions reduction for inventor y or control purposes. Kansas relies on EPA's greenhouse gas reporting program as a source for CO 2 emissions data.325

5.15 OTHER

This section contains comments regarding the state plan that do not fit the topic area of other sections in chapter 5. The comments in this section generally include comments requesting certain issues be covered in the state plans, such as regional electricity markets, development of transmission and energy infrastructure, least-cost dispatch, consumer protections, and environmental and climate justice considerations. C ommenters asked for guidance on incorporating certain considerations into a state p lan, requested that local governments be involved in designing and implementing the state pl an, and requested that EPA not make the eligibility of reductions contingent on state requi rements.

Commenters have raised a number of issues related t o this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments recommending collaboration with local gov ernments in developing and implementing state plans.

Response 1: The EPA agrees with commenters that consultation and coordination with local governments and cities will be an important compone nt in the development and implementation of many state plans. In the final emission guidelines’ state plan develo pment process, there are various opportunities for input from local governme nts prior to initial plan submittal, prior to complete plan submittal, and when the EPA proposes to act on a state plan and publishes a notice in the Federal Register. This includes a requiremen t that states provide an opportunity for public engagement on their state plans. See section VIII.D .2 of the final rule preamble of the CPP. Additionally, one of the justifications for seeking an extension for plan submittal is for states who wish to actively engage with communities, inclu ding low income communities and communities of color, throughout the state plan dev elopment process beyond the public participation requirements of 40 CFR 60.27. See sec tion VIII.E.2 of the final rule preamble of the CPP.

The final emission guidelines provide flexibility f or states to pursue policies to reduce carbon pollution that:

• continue to rely on a diverse set of energy resourc es;

• ensure electric system reliability;

• provide affordable electricity;

• recognize investments that states and power compani es are already making; and

• tailor plans to meet their respective energy, envir onmental and economic needs and goals, and those of their local communities.326

The final emission guidelines also allow states to build on their existing progress, and the progress of cities and towns, in addressing GHGs, a nd minimizes additional requirements for existing programs where possible. We therefore disa gree with commenters that the EPA should include a mechanism to “reward” states based on the quality of partnerships with local governments and program implementers. To ensure the coherence of state plan requirements and to maximize the flexibility for states in developin g their state plans, the EPA will approve state plans that meet the requirements and include the co mponents listed in the final guidelines and are not including a mechanism to reward states for anyt hing additional.

We acknowledge the EPA’s limited outreach specifica lly to cities and local governments during the proposal phase. Because states are the EPA’s co -regulators, the EPA has primarily focused outreach efforts on states. We intend to engage wit h local governments on strategies and to support states in working with and considering loca l governments during their plan development and implementation. To provide local governments, c ommunities ( including low income communities and communities of color) , and other stakeholders with an understanding of t he rule requirements, and to provide efficiencies where pos sible and reduce the cost and administrative burden, the EPA will continue outreach throughout t he plan development and submittal process.

The following are summaries of the specific public comments under this comment:

Commenters recommended that Federal agency and stat e CPP initiatives should be supported through local government implemented and managed pr ograms. Commenters pointed out that coordination and support with local government is k ey for implementing all aspects of CPP BSER, but especially for energy efficiency programs and for incorporating greater use of power from renewable energy sources. Commenters believed that the agency should and can more effectively partner itself with local governments t o achieve CPP goals. Commenters stated that extensive planning is required of states, and it ma kes sense for states and local governments to comprehensively address local circumstances that co uld compromise the electric system and reliability. Commenters pointed to environmental fa ctors such as heat and drought and severe weather events that could impact utilities that wou ld need to be addressed on a local level.

Commenters believed that state plans should incorpo rate collaboration with local government. Commenters suggested that the agency should use a m echanism in reviewing state plan adequacy which rewards consistent behavior on a continuous i mprovement basis, and that a similar mechanism can reward the quality of partnerships wi th local governments and program implementers. Commenters referred to hundreds of in itiatives implemented in cities and regions that were developed with support of the Administrat ion's Partnership for Sustainable Communities program, and this program was presented as an example of a mechanism that might be developed and used in revie wing state plans and to encourage actions that could be counted toward emission reduction goa ls.

Commenters noted that outreach in support of the ru le shows only one specific effort aimed at cities and local governments out of hundreds listed , and are suggesting that this is not enough.

Commenters noted that these ideas are consistent wi th recommendations included in The White House State, Local and Tribal Leaders Task Force on Climate Preparedness (WHTF) and EPA's statements contained in the Federal Register announ cement of the CPP. Precedent for327

implementation of CPP initiatives at the local leve l is supported by the following examples given by the commenters:

• stipulation in the CAA (1990) that control of crite ria pollutants is implemented at the metropolitan level;

• the U.S. EPA launched Green Infrastructure Collabor ative among government agencies, NGOs, and other private sector entities t o advance green stormwater infrastructure; and

• National law that allows for the allocation of disa ster response funding targeted to counties and principle cities.

Further, commenters believed that electrical demand reduction will come from larger numbers of smaller sources (e.g., buildings, mobile sources an d improvements induced in both these sectors by better land use) in local place-based settings; rates and energy efficiency programs for 20 percent of the population is controlled by publicly -owned and rural electric utilities; and it was noted that cities and communities are independently adopting climate protection goals. Commenters provided examples of successful carbon r eduction programs implemented at the local level including:

• The Chicago energy efficiency program that led to s ignificant State level GHG reductions through the closing of 3 coal powered pl ants, and

• Locally implemented energy efficiency initiatives t hrough Federally supported local programs such as the Better Buildings Neighbo rhood Initiative;

• Property Assessed Clean Energy (PACE) programs, an innovation founded by MIP member the City of Berkeley CA and proliferated nationally in hundreds of communities with the support of enabling legislatio n in over 20 States since.

• Local governments that have already adopted climate protection goals: Arlington, Chicago, Dubque, El Paso, Portland and Multnomah Co unties, and San Antonio.

Commenters strongly recommend that the rule provide a platform for this kind of collaboration, and include these ideas into State plans, to help i mplement the Clean Power strategy. Commenters suggested that operationally, the rule s hould reward states and utilities that ensure effective implementation at the local level through partnerships, and that co-leverage actions intended to reduce emissions, increase climate resi lience and that do so cost-effectively with the maximum potential local value creation and value ca pture to ensure growing public support.

Comment 2: Comments on including interests of regional market s and development of transmission and energy infrastructure in developme nt of state plan.

Response 2: We agree with commenters that the interest of regi onal markets should be considered in developing state plans. States share grid regions, impacts from plan328

implementation will be regional in nature and multi ple analyses indicate that regional approaches could achieve state goals at lesser cost than indiv idual state plan approaches. The EPA is not requiring states to develop transmission and energy infrastructure, but note that to the extent that meeting final rule requirements results in upgrades in transmission efficiency and infrastructure, the outcome could be that the system is more robust and faces fewer risks to electric reliability. See Section VIII.C.5 of the final rule preamble of the CPP.

We agree with commenters that we should consider th e interaction of other regulations and agencies with the CPP, particularly FERC. See Secti ons I.A.2 and II.C.3 of the final rule preamble of the CPP. See Section VIII.G.2 of the fi nal rule preamble of the CPP for a discussion of the final guidelines’ protection of reliability. For a discussion of resources available to states in designing state plans, see section VIII.H.

The following are summaries of the specific public comments under this comment:

Commenters recommended that the EPA ensure that the interest of regional markets and the development of transmission and energy infrastructu re should be represented in the development of state compliance plans. Commenters noted that th e EPA must consider whether the complicated applications of MATS, the CPP, and FERC would impact the planning and development of transmission and energy infrastructu re, and should coordinate with FERC for consideration of whether changes to market rules wo uld be needed to support reliable implementation of the state plans. Commenters noted that the EPA could leverage existing planning resources and studies that consider electr ic reliability as well as emissions reductions, such as the Eastern Interconnection Planning Collab orative, as support for states to consider in the development of CPP compliance plans.

Comment 3: Comments on including considerations of the electr icity markets and least-cost dispatch in state plans.

Response 3: We agree with the commenters that states should be allowed to develop state plans that mesh with the operation of existing electricit y markets. We encourage states to cooperate regionally, as regional cooperation in planning and reliability assessments is an important tool to meeting system needs in the most cost-effective, ef ficient, and reliable way. See Section VIII.C.5 of the final rule preamble of the CPP.

We also note that the final guidelines support emis sions trading, which provides a way for states to set standards of performance that realize the re quired emissions reduction without requiring any form of “environmental dispatch” because, as ma ny existing trading programs have shown, monetization of the environmental constraint is con sistent with a least-cost dispatch system. See Section V.A.2.f of the final rule preamble of the C PP. For discussion of the EPA’s consideration of “economic dispatch,” see Section V.D.1 of the fi nal rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters requested that EPA allow for State Imple mentation Plans that mesh with the operation of competitive wholesale electricity mark ets, considering parts of the country that have329

had electricity industry restructuring and those th at have not. Commenters stated that the rule must recognize the importance of centralized least- cost dispatch, and allow for direct monetization of emission reductions and compliance costs as inputs to these competitive markets.

Comment 4: Comment requesting guidance to consider conditiona l exemptions, subcategorization, and alternative compliance mecha nisms.

Response 4: In response to comments that the EPA must establis h the Best System of Emission Reductions (BSER) specifically for affected sources , rather than by means of merely setting state-specific goals, the final guidelines express the BSER by establishing performance-based CO 2 emission rates that are uniform across each of two source categories (fossil fuel-fired electric steam generating units and stationary comb ustion turbines) for the affected EGUs covered by the guidelines. We cannot emphasize enou gh that, while the final guidelines now take a source-specific approach in setting CO 2 emission performance rates, this does not change t he fact that each state’s goal is tailored to its part icular sources, and it in no way alters or curtails the flexibility inherent in the proposal’s state-specif ic goals approach, which the final guidelines retain. Thus, to maintain the proposal’s flexibilit y for states, the guidelines continue to define state planning and implementation obligations throu gh state-level goals, which we have calculated by translating the source category-speci fic CO 2 emission performance rates into equivalent statewide rate-based and mass-based CO 2 goals.

Given this, we agree with commenters that state pla ns may exempt a utility or unit from contributing to the reductions needed to meet the s tate goal, subcategorize by utility type within a state plan, and establish more than one compliance option within a state. See Section VIII of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters requested that EPA provide guidance for states to consider conditional exemptions, subcategorization of utilities, and alternative com pliance mechanisms in state plans. Commenters stated that their utility's carbon intensity equati on already meets or exceeds what is expected of a utility or unit to achieve as a result of the propo sed rule. For these reasons, commenters stated that a state plan should be authorized to condition ally exempt a utility or unit based on specific findings at the state level that the integration of the utility or the unit would cause disproportionate financial hardship while not subst antively aiding the state in meeting the goals of the CPP. Commenters also requested that the EPA should expressly clarify the ability of a state to subcategorize by utility type within a sta te plan, in order to better reflect the obligations that will accrue to each utility based on the asset s it owns, its ownership structure, the authority of the state EPA to require actions, and how it eng ages in electric markets. Commenters also requested that EPA clarify that states may establis h more than one compliance option within a state such that utilities with different ownership structures, assets and obligations may choose to aid the state in meeting its obligations to comply with the CPP in the most efficient manner possible.330

Comment 5: Comment stating that environmental and climate jus tice should be considered in state plans.

Response 5: In the state plan development process for the fina l guidelines, there are various opportunities for public input prior to initial pla n submittal, prior to complete plan submittal, and when the EPA proposes to act on a state plan and pu blishes a notice in the Federal Register. Additionally, one of the justifications for seeking an extension for plan submittal is for states who wish to actively engage with communities, inclu ding overburdened communities, throughout the state plan development process beyon d the public participation requirements of 40 CFR 60.27. See Sections VIII.D-E and IX.B of the final rule preamble of the CPP.

The following are summaries of the specific public comments under this comment:

Commenters stated that environmental and climate ju stice issues must be a part of the state implementation planning process. Commenters urged t hat environmental leaders be involved in the process. Commenters requested that affected com munities be engaged throughout the process. Commenters urged that public resources mus t be made available to communities as they transition to cleaner forms of energy.

Comment 6: Comments recommending ways to ensure that state pl ans include consumer protections.

Response 6: We disagree with the commenters that the final gui delines should require state plans to include a mechanism to protect consumers b y constraining residential rates. (We also disagree with the commenters’ characterization of t he requirement that determination of BSER include consideration of non-air quality health and environmental impacts. See Section V.A.1.c of the final rule preamble of the CPP.) Instead, th e final guidelines provide states with flexibility to design plans that reduce costs to consumers, min imize stranded assets, and spur private investments in renewable energy and energy efficien cy technologies and businesses.

Regarding the commenters’ specific recommendations, the final guidelines provide ample latitude for states and utilities to rely on demand -side EE in meeting emission reduction requirements. We are providing resources to assist states in developing their plans; see Section VIII.H of the final rule preamble. The final guidel ines include requirements for state and EGU reporting and verification; see Sections VIII.D.2 a nd VIII.F of the final rule preamble of the CPP. The EPA will publicly disclose state plans and progress by proposing and taking final action on each state plan submittal in the Federal Register and provide an opportunity for notice and comment. When a state plan submittal is approve d by the EPA, the EPA will codify the approved 111(d) state plan in 40 CFR part 62. See S ection VIII.D.3 of the final rule preamble of the CPP. The final guidelines require public partic ipation and certification of a hearing on each state plan, including encouraging states to particu larly focus on low-income and other vulnerable communities; see Section VIII.D.2.a.6 of the final rule preamble of the CPP. We are also offering an additional incentive to remove current barriers to implementing RE and demand-side331

EE programs in low-income communities through a Cle an Energy Incentive Program; see Section VIII.A.2 of the final rule preamble of the CPP.

We disagree with the commenters that energy efficie ncy measures should be required for a state plan to be approved. See Section V.A.3.d of the fin al rule preamble of the CPP for a discussion of why we are not finalizing the proposed Building Block 4, demand-side energy efficiency measures, as part of BSER.

The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA require that each s tate plan include a mechanism to protect consumers by constraining residential rates. Commen ters argued that while a state could conceivably force onto residential consumers any in creased costs from reducing emissions, these actions would not meet the definitional requirementthat BSER include non-air quality health and environmental impacts. Commenters recommended three ways in which EPA could ensure that state plans include consumer protections:

• by emphasizing cost-effective energy efficiency, an d helping states share information to implement successful programs that save energy and money;

• mandating transparency and data collection as part of each implementation plan, and publicly disclosing states plans and progress in a manner that is accessible to the average consumer; and

• requiring consumer participation and oversight to e nsure fairness for consumers.

First, Commenters asserted that EPA should not appr ove a state plan as meeting the BSER if robust energy efficiency measures are not included. ; Commenters also noted that for state plans where customer participation is required, such prog rams should include a strategy for achieving high participation rates, especially among low-inco me ratepayers. Commenters stated that EPA must hold states accountable by requiring transpare ncy, analysis, and data to compare how states are serving consumers through the state plans; spec ifically, commenters recommended that EPA require states to report on utility bill impacts, i nclude impacts for low-income ratepayers and strategies to mitigate them. Commenters also stated that customer participation in the development of state plans would hold states, utili ty boards, and utilities accountable for costeffective investments and programs that reduce emis sions while maintaining affordability. Commenters also requested that EPA require as part of BSER that consumer interests be considered in addressing variables that can raise r esidential rates, such as increased infrastructure costs, low participation rates in EE programs, high er rates of return for utility shareholders, or higher fixed charges or surcharges on bills. Commen ters noted that EPA could require public notice and comment, economic analysis from a consum er standpoint, or a requirement that each state plan includes actions that ensure that effici ency programs and any changes to rate design will help lower bills for residential ratepayers an d low-income residents.