***E.O. 12866 Review

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– Do Not Cite, Quote or Release During R eview*** EO12866_CPP Federal Plan 2060 AS47 NPRM_ 20150 702 20150 801 **6560 -**  **50 -**  **P ENVIRONMENTAL PROTECTION AGENCY**  **40 CFR Part 62 [EPA**  **- HQ**  **- OAR**  **- 2015**  **- 0199; FRL_**  **XXXX -**  **X ]** 
**RIN 2060**  **- A**  **S4 7** 
**F ederal**  **P lan**  **Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before**  **January 8, 2014 ; Model Trading**  **Rule Rule**  **s; Amendments to Framework Regulations**  **AGENCY:** Environmental Protection Agency (EPA)
. . **ACTION:** Proposed Rule.
**SUMMARY:** In this action, the Enviro nmental Protection Agency (EPA) is proposing a federal plan to implement the greenhouse
gas (GHG) e mission g uidelines (EG s ) for existing fossil fuel

fired electric generating units (EGUs) under the Clean Air Act (CAA)
. The EGs were proposed in June 2014 and finalized on [&&&] August 3, 2015 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units ( also known as the Clean Power Plan or EGs ). This proposal presents two a pproaches to a federal plan for states and other jurisdictions that do not adopt and submit to the EPA in a timely manner an approvable plan to the EPA : a rate

- based emission trading program and a mass

- based emission trading***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 2 of 515 program. These proposals also constitute proposed model trading rule s that states can adopt or tailor for implementation of the fi nal EGs. T he federal plan is an important measure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented . The proposed federal plan is related to but separate from the final EGs
. The final EGs establish the best system of emission reduction ( BSER ) for applicable fossil fuel

- fired EGUs in the form of a standard of
&&& carbon dioxide ( CO 2 ) emission performance rate for steam

- fired EGUs and a standard of &&& CO 2 emission performance rate for natural gas

- fired combined cycle units , and provide guidance and criteria for the development of approvable state plans . The purpose of the proposed fede ral plan is to establish requirements directly applicable to a state’s affected EGUs that
meet these emission performance levels, or the BSER equivalent statewide goal, in order to achieve reductions in carbon dioxide ( CO 2 ) emissions in the case where a state or other jurisdiction does not submit an approvable plan
. These CO 2 reductions laid
out The stringency of the emission performance levels established in the final EGs will be equivalent the same whether implemented through a state plan or a federal pla n . The EPA is also proposing enhancements to the CAA section 111(d) framework regulations related to the process and timing for state plan submissions and EPA actions. The EPA intends to finalize both***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 3 of 515 the rate

- based and mass

- based model trading rules in su mmer 2016
. **DATES:** Comments . Comments must be received on or before [ **insert date**  45 DAYS FROM **90 days after**  **date of publication in the**  **Federal Register** ]. Public Hearing . If anyone contacts the EPA by [INSERT DATE 10 DAYS FROM DATE OF PUBLICATION IN THE **FEDERAL REGISTER** ] requesting to speak at a public hearing, the EPA will hold a public hearing on [INSERT DATE 15 DAYS FROM DATE OF PUBLICATION OF THIS PROPOSED RULE IN THE **FEDERAL REGISTER** ]. Public Hearing
. The EPA will be holding **[insert number of hearings here]**  public hearings on the proposed federal plan. The hearings will be held to accept oral comments on the proposed federal plan. The hearings will be held **[insert number, days of and locations of hearings here]**  . The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p.m. (local time).
**ADDRESSES** : Submit your comments on the federal plan requirements proposed rule, identified by Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199, by one of the following methods:

• Federal Rulemaking Portal http:// www.regulations.gov : Follow the online instructions for submitting comments.

• Email : Send your comments via electronic mail to A

- and

- R

Docket@epa.gov , Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199
. • Facsimile : Fax your comments to (202) 566

- 9744, Attention Docket ID No. EPA

- HQ

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- 2015

- 0199
.***E.O. 12866 Review

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• Mail : Send your comments to: EPA Docket Center (EPA/DC), Environmental Protection Agency, EPA Docket Center (EPA/DC), Mailcode: 28221T, 1200 Pennsylvania Ave., NW, Washington, DC 20460, Attention Docket I D No. EPA

- HQ

- OAR

2015

- 0199
. We request that a separate copy also be sent to the contact person identified below (see **FOR FURTHER INFORMATION CONTACT**  ). In addition, please mail a copy of your comments on the information collection provisions to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attn: Desk Officer for EPA, 725 17th Street NW., Washington, DC 20503.

• Hand Delivery : Deliver your comments to: EPA Docket Center (EPA/DC), , Room 3334, EPA WJC West Building , Room 3334 , 1301 Constitution Ave., NW, Washington, DC, 20004, Attention Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199 . Such deliveries are accepted only during the Docket’s normal hours of operation (8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays) and s pecial arrangements should be made for deliveries of boxed information. Instructions : Direct your comments on the federal plan requirements proposed rule to Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199. The EPA’s policy is that all comments received will be included in the public docket and may be made available online
at http:// www.regulations.gov , including any personal information provi ded, unless the comment includes information claimed to be confidential business information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through http:// w ww.regulations.gov or email. The http:// www.regulations.gov W eb site is an “anonymous access” system, which means the EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an email comment dir ectly to the EPA***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 5 of 515 without going through http:// www.regulations.gov , your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, the EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD

- ROM you submit. If the EPA cannot read your comment due to technical difficulties and cannot contact you for clarification , the EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption and be free of any defects or viruses. Public Hearing : **[insert number of hearings here**  **]** public hearings will be held to accept oral comments on the proposed federal plan. The hearings will be held on **[insert number of, dates and locations of hearings here]**  **.** The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p.m. (local time). There will be a lunch b reak from 12:00 p.m. to 1:00 p.m. and a dinner break from 5:00 p.m. to 6:00 p.m. To register to speak at a hearing, please use the online registration form available at : http:// www.epa.gov/cleanpowerplan . For questions regarding registration, please contact **[insert name]** at (919) 541 **– [insert number]**  . The last day to pre

- register to speak at the hearing s will be **[insert date]** , 2015. Additionally, requests to speak will be taken the day of each hearing at t he hearing***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 6 of 515 registration desk, although preferences on speaking times may not be able to be fulfilled. Please note that registration requests received before each hearing will be confirmed by the EPA via email. We cannot guarantee that we can accommodate all timing requests and will provide r equestors with the next available speaking time, in the event that the ir requested time is taken. Please note that th e time outlined in the confirmation email received will be the time the one will b e scheduled to speak
. Again, depending on the flow of the day, times may fluctuate
. If you require the service of a translator or special accommodations such as audio description, we ask that you pre

register for the hearing s by **[insert date]** , 2015, as we may not be able to arrange such accommodations without advance notice. Please note that any updates made to any aspect of the hearings will be posted online at http:// www.epa.gov/cleanpowerplan. Public Hearing : If a public hearing is held, it will be held at [&&& XX ] . Contact Ms. Aimee St. Clair at (919) 541

- 1063 , to request a hearing, to request to speak at a public hearing or to determine if a hearing will be held. If no one contacts the EPA requesting to spea k at a public hearing concerning this proposed rule by [INSERT DATE 10 DAYS FROM DATE OF PUBLICATION OF THIS PROPOSED RULE IN THE **FEDERAL REGISTER**  ], the hearing will be cancelled without further notice.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 7 of 515 While the EPA expects the hearing s to go forward as set forth above, we ask that you monitor our Web site or contact **[insert name]** at (919) 541

– **[insert number]** to determine if there are any updates to the information on the hearings. The EPA does not intend to publish a notice in the Federal Register announcing any such updates. The hearing s will provide interested parties the opportunity to present data, views, or arguments concerning the proposed action. The EPA will make every effort to accommodate all speakers who arrive and register. The EPA may ask clarifying questions during the oral presentations, but will not respond to the presentations at that time. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and s upporting information presented at the public hearing. Verbatim transcripts of the hearing and written statements will be included in the docket for the rulemaking. The EPA plans for the hearing s to run on schedule; however, due to on

- site schedule fluctua tions, actual speaking times may shift slightly. Because these hearings are being held at United States ( U.S. ) government facilities, individuals planning to attend the hearing should be prepared to show valid picture identification to the security staff in order to gain access to the meeting room. Please note that the REAL ID Act, passed by Congress in***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 8 of 515 2005, established new requirements for entering federal facilities. If your driver’s license is issued by Alaska, American Samoa, Arizona, Kentucky, Louisi ana, Maine, Massachusetts, Minnesota, Montana, New York, Oklahoma, or the state of Washington, you must present an additional form of identification to enter the federal building. Acceptable alternative forms of identification include: Federal employee bad ges, passports, enhanced driver’s licenses, and military identification cards. In addition, you will need to obtain a property pass for any personal belongings you bring with you. Upon leaving the building, you will be required to return this property pass to the security desk. No large signs will be allowed in the building, cameras may only be used outside of the building, and demonstrations will not be allowed on federal property for security reasons. Attendees will be asked to go through metal detectors . To help facilitate this process, please be advised that you will be asked to remove all items from all pockets and place in provided bins for screening; remove laptops, phones, or other electronic devices from their carrying case and place in provided bi ns for screening; avoid shoes with metal shanks, toe guards, or supports as a part of their construction; remove any metal belts, metal belt buckles, large jewelry, watches; and follow the instructions of the guard if identified for secondary***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 9 of 515 screening. Ad ditionally, no weapons ( e.g . , pocket knives) or drugs or drug paraphernalia ( e.g . , marijuana) will be allowed in the building. We recommend that you arrive 20 minutes in advance of your speaking time to allow time to go through security and to check in with the registration desk. Docket : The EPA has established a docket for this action under Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199. The EPA has previously established a docket for the January 8, 2014, Clean Power Plan proposal under Docket ID No. EPA

- HQ

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- 200 9

- 0559. All documents in the docket are listed in the http:// www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g. , CBI or other information whose disclosure is restricted by statute. Certain other materi al, such as copyrighted material, will be publicly available only in hard copy form. Publicly available docket materials are available either electronically at http:// www.regulations.gov or in hard copy at the EPA Docket Center EPA/DC, EPA WJC West Buildin g, Room 3334, 1301 Constitution Ave., NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding holidays. The telephone number for the Public Reading Room is (202) 566

- 1744, and the telephone number f or the EPA Docket Center is (202) 566

- 1742. **FOR FURTHER INFORMATION CONTACT** : Ms. Toni Jones, Fuels and Incineration Group, Sector Policies and Programs Division***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 10 of 515 (E143

- 05), Environmental Protection Agency, Research Triangle Park, North Carolina 27711; telep hone number: (919) 541

- 0316; fax number: (919) 541

- 3470; email address: jones.toni@epa.gov
. **SUPPLEMENTARY INFORMATION:** Acronyms and Abbreviations
. The following acronyms and abbreviations are used in this document. AG Attorney General ANSI American Nation al Standards Institute ASME American Society of Mechanical Engineers ASTM American Society of Testing and Materials ARP Acid Rain Program BSER Best s ystem of e mission r eduction CAA Clean Air Act CAIR Clean Air Interstate Rule CARB California Air Resources Board CBI Confidential Business Information CDX Central Data Exchange CEMS Continuous e missions m onitoring s ystem CFCs Chlorofluorocarbons CISWI Commercial Industrial Solid Waste Incinerators CFR Code of Federal Regulations CAIR Clean Air Interstate Rule CHP Combined h eat and p ower CO 2 Carbon dioxide CO 2 Carbon d ioxide e quivalent CSAPR Cross

- state Air Pollution Rule EG DOE Department of Energy EE Energy e fficiency EG s Emission Guidelines eGRID Emissions & Generation Resource Integrated Database EGU Electric g enerating u nit EIA Energy Information Administration EJ Environmental j ustice EM&V Evaluation, m easurement, and v erification EPA Environmental Protection Agency EO Executive Order FERC Federal Energy Regulatory Commission FIP Federal i mplementation p lan FR Federal Register GHG Greenhouse g as GHGRP Greenhouse Gas Reporting Program***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 11 of 515 GJ/h Gigajoule per h our HAP Hazardous a ir p ollutants ICR Information c ollection r equest IGCC Integrated g asification c ombined c ycle u nit IPM Integrated Planning Model IPCC Intergovernmental Panel on Climate Change ISO/RTO Independent System Operator/Regional Transmission Organization lbs Pounds LML Lowest m easured PM 2.5 l evels MATS Mercury and Air Toxics Standards M&V Measurement and v erification MMBtu /h Million British Thermal u nits per h our MSW Municipal s olid w aste MW Megawatts MWh Megawatt

- h ours NAAQS National Ambient Air Quality Standards NAICS North American Industrial Classification System NEEDS NERC North American Electric Reliability Corporation NSPS New s ource p erformance s tandards NSR New Source Review NTTAA National Electric Energy Data System Technology Transfer and Advancement Act NTAA National Tribal Air Association NO X Nitrogen o xides OAP Office of Atmospheric Programs OAQPS Office of Air Quality Planning and Standards PPA Power Purchase Ag reement PRA Paperwork Reduction Act PUC Public Utility Commission RE Renewable e nergy REC Renewable Energy Certificate RFA Regulatory Flexibility Act RGGI Regional Greenhouse Gas Initiative SBA Small Business Administration RIA Regulatory i mpact a nalysis SCT Stationary c ombustion t urbine SGU Steam g enerating u nit SIP State i mplementation p lan SO 2 S ulfur d ioxide TSD Technical support document The Court U.S. Court of Appeals for the District of Columbia Circuit TTN Technology Transfer Network UMRA Unfunded Mandates Reform Act of 1995 UNFCCC United Nations Framework Convention on Climate Change***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 12 of 515 U.S. United States WWW Worldwide World W ide Web Organization of This Document . The following outline is provided to aid in locating information in this preamble. **I. General Information** A. Executive Summary B. Organization and Approach for this Proposed Rule 1. The Rate

- based Approach 2. The Mass

- based Approach 3. Other Proposed Actions C. Who Does the Proposed Action Apply to? 1. What is an Affected Electric Utility Generating Unit? 2. How to Determine if a Unit is Covered by an Approved and Effective State Plan D. What Should I Consider as I Prepare my Comments? **II. Background Information** A. What is the Regulatory D evelopment Background for this Proposed Rule? B. What is the Purpose of this Proposed Rule? 1. Federal plan 2. Model Trading Rule C. Legal Authority D. Timing of EPA Actions on the Model Trading Rules, Federal Plan, and other Proposed Actions E. Use of the Model Trading Rule as a Backstop **III. Federal Plan Structure to Achieve Reductions** A. Overview 1. Interactions with State Plans and scope of trading 2. Addressing Potential Leakage and Interstate Effects 3. Provisions to Encourage Early Action B. Inventory of Emissions C. Affected EGUs D. Compliance Schedule E. Addressing Reliability Concerns F. Worker Certification G. Remaining Useful Lives and Potential for “Stranded Assets” H. Implications for Other EPA Programs and Rules 1. Title V Permitting 2 . Implications for New Source Review Program I. Administrative Appeals Process J. Consistency of Program Structure with Clean Air Act Authority 1. General Section 111(d)(2) Authority***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 13 of 515 2. Use of Market Techniques to Implement Standards of Performance under t he Clean Air Act
**IV. Rate -**  **based Implementation Approach** A. Overview B. Rate Goals C. Crediting Mechanism 1. ERCs Generated and Owed Against a Standard 2. Incremental NGCC ERCs 3. Eligible Emission Reduction Measures for ERC Generation D. ERC Tracking and Compliance Operations 1. Designated Representatives and Alternate Designated Representatives 2. ERC Tracking and Compliance System 3. Tracking System Requirements 4. Compliance and General Accounts 5. Compliance Demonstration 6. Recordation of ERC Generati on and ERC Issuance 7. Independent Verifiers 8. Evaluation, Measurement, and Verification (EM&V) Plans, Monitoring and Verification (M&V) Reports, and Verification Reports Submittals 9. ERC Transfers and Trading 10. Compliance with Emissions Standards 11. Other ERC Tracking and Compliance Operations Provisions 12. Banking of ERCs 13. Emissions Monitoring and Reporting E. Federal Plan and State Plan Interactions 1. Interstate Trading 2. Treatment of States Entering or Exiting the Trading Program.
**V. Mass -**  **ba sed Implementation Approach**  A. Trading Program Overview B. Statewide Mass

- based Emissions Goals C. Compliance Timing and Allowance Banking D. Initial Distribution of Allowances 1. Proposed Allocation Approach and Alternatives 2. Timing of Allowance Recorda tion 3. Allowance Set

- asides to Address Leakage to New Sources 4. Provisions to Encourage Early Action 5. Allocations to Units that Change Status D. State

- determined Allowance Distribution E. Treatment of States Entering or Exiting the Trading Program F. A llowance Tracking, Compliance Operations, and Penalties 1. Designated Representatives and Alternate Designated Representatives***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 14 of 515 2. Allowance Tracking and Compliance System 3. Compliance and General Accounts 4. Recordation of Allowance Allocations and Transf ers 5. Compliance with Emissions Limitations 6. Other Allowance Tracking and Compliance Operations Provisions G. Emissions Monitoring and Reporting Requirements **VI. Implementation of the Federal Plan and Delegation** A. Delegation of the Federal Plan and Retained Authorities B. Mechanisms for Transferring Authority 1. Federal Plan Becomes Effective Prior to Approval of a State or Tribal Plan 2. State or Tribe Takes Delegation of the Federal Flan C. Implementing Authority D. Necessary or Appropriate Finding for Affected EGUs in Indian Country **VII. Amendments to Process for Submittal and Approval of State Plans and EPA Actions**  A. Partial Approvals/Disapprovals B. Conditional Approvals C. Calls for Plan Revisions D. Completeness Criteria E. Update to Deadline s for EPA Actions F. Proposed Interpretation regarding Existing Sources that Modify or Reconstruct G. Separate Finalization of these Changes **VIII. Impacts of this Action** A. Endangered Species Act B. What are the Air Impacts? C. What are the Energy Impacts ? D. What are the Compliance Costs? E. What are the Economic and Employment Impacts? F. What are the Benefits of the Proposed Action? **IX. Community and Environmental Justice Considerations** A. Proximity Analysis B. Community Engagement in This Rulemaking Process C. Providing Communities with Access to Additional Resources D. Federal Programs and Resources Available to Communities E. Co

- Pollutants F. Assessing Impacts of Federal Plan Implementation G. The EPA’s Continued Engagement **X. Statutory and Executi ve Order Reviews**  A. Executive Order 12866: Regulatory Planning and Review and***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 15 of 515 Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act (PRA) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act (UMRA) E. E xecutive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act (NTTAA) J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations

**I. General**  **Information**
A. Executive Summary
In t he Clean Air Act CAA , Congress created a partnership between the E nvironmental P rotection A gency EPA and the states . Under section 111(d) of the Clean Air Act ( CAA ) , , t he Environmental Protection Agency ( EPA ) establishes emission targets performance levels based on its determination of the BSER for existing sources of air pollution and provides guidelines for state plans to apply the emission targets standards of performance to their sources
. that meet the BSER level of performance
. T he EPA has promulgated the se Emission Guidelines ( EGs ) under CAA section 111(d ), ) which sets set source - level CO 2 emission performance rates for the electric generating units ( E GUs ) at certain large fossil fuel

- fired power plants (“ affected EGUs ”) , which the ”)
. S tates then apply these EGs to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 16 of 515 their sources in developing state plans . T he EG s to achieve these emission performance levels for EPA approval, or initial submittals, by Septem ber 6 , 2016. The amount of reductions in CO 2 that the EPA determined to be achievable for these sources is based on its determination of what constitutes the BSER. This determination is finalized in the EGs, which are designed to maximize the flexibility of both states and affected EGUs in meeting CO 2 emissions performance rates . While states may impose the emission rates directly on their affected EGUs, states also have the option of submitting more tailored plans tha t meet
state

- specific emissions goals . The EGs also provide flexibility by allowing for emissions trading and multi

- state compliance options. The amount of reductions in CO 2 that the EPA determined to be achievable for these sources was based on its determ ination of what constituted the best system of emission reduction ( the BSER) . This determination was finalized in the
EGs. At this point, the responsibility shifts to the states, who

can submit plans to achieve these emission performance levels for EPA ap proval, or, in lieu of plans, initial submittals, by August 31, 2016. While i t has been the EPA’s longstanding view that the statute identifies states as the preferred implementers of CAA programs , t he agency ma kes clear in the EGs that states cannot and will not be penalized for failing to participate in***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 17 of 515 this program. However, if a state does not submit an approvable plan under section 111(d) of the CAA , the EPA will develop, implement , and enforce a federal plan t o reduce CO 2 from the fossil fuel

- fired power plants in that state. This is wholly consistent with the “cooperative federalism” structure of the
CAA and many of our nation’s other environmental laws
. In addition, we have heard from states and other stakeho lders that it would be helpful for the agency to present model designs for state plans, and a federal plan would be an appropriate means of doing that. Accordingly, the EPA proposes a federal plan under section 111(d) of the CAA for the control of CO 2 , a greenhouse gas GHG pollutant, from certain large emitting fossil

- fuel

- fired power plants , in the event that some states do not adopt their own plans
. Specifically, the EPA is proposing approaches in the form of mass

- and rate

- based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs.
B oth proposed approaches to the federal plan would requir e affected EGUs to meet emission standards set using the CO 2 emission performance rates in the EGs . The federal pla n will achieve the same levels of emissions performance as required of state plans under the EGs. The EPA will only promulgate a final federal plan for only the affected EGUs in states that the EPA determines did not submit an approvable plan.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 18 of 515 At the same time, these two proposed options offer states model trading rules that the states can follow in developing their own plans in order to capitalize on the flexibility built into the final EGs . Thus, this n otice document proposes four discrete actions : ( 1) A rate

- based federal plan for each state with affected EGUs; (2) a mass - based federal plan for each state with affected EGUs; (3) a rate

- based model trading rule for potential use by any state; and (4) a mass - based model trading rule for poten tial use by any state. The regulatory text of each federal plan and the corresponding model trading rule is identical
. , except as indicated otherwise within the text of the model rule (for instance, the EPA is providing model rule text for states to use re lated to the crediting of a broader set of clean energy resources than is being proposed in the federal plan)
. The EPA intends to finalize both the rate

- based and mass

based model trading rules in summer 2016 . The EPA will only finalize a federal plan for only a given state in the event that the state fails to does not submit an approvable plan by the deadlines specified in the final EGs and the EPA takes action finding that the state has failed to submit a plan, or disapproving a submitted plan because it does not meet the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 19 of 515 requirements of the EGs
. 1 Indeed, states may simply choose to accept a federal plan for their sources rather than undertake the development of a plan of their own by not submitting a state plan
. Under today’s pr oposal this propos ed rule , a federal plan promulgated for a particular state would take the form of either the mass

- based model trading rule or the rate

- based model trading rule. The EPA is strongly considering taking currently intends to finalize a single a pproach ( i.e., either the mass

based or rate

- based approach) for every state in which it promulgates a federal plan , and we are inviting comment on given the benefits of a broad trading program, as discussed in the following section of this preamble
. We also invite comment on which approach , i.e., either mass - based or rate

- based trading , should be selected if we opt to finalize a single approach. It is the EPA’s intention to give the states as much opportunity as possible to set their own course for carry ing out the EGs. Even where a federal plan is put in place for a particular state, that state will still be able to submit a

1 For simplicity, at times this document may refer to the co

- proposed federal plans as “the federal plan.” (It may refer to the model trading rules in the singular as well.) Even though the singular is used, this term is meant to encompass both the rate

- bas ed approach and the mass

- based approach. The use of the singular when referring to this proposed federal plan also is intended to encompass all state

- specific federal plans. In other words, the EPA intends to finalize “the federal plan” as a series of stat e - specific “federal plans.” This is consistent with the agency’s prior practice in other multi

state trading programs such as the NOx Budget Trading Program, the Clean Air Interstate Rule (CAIR), and the Cross

- State Air Pollution Rule (CSAPR), where a sing le rule promulgated multiple FIPs.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 20 of 515 plan, which, upon approval, will allow the state and its sources to exit the federal plan. In addition, as discussed in s ection
&&& , VI.A of this preamble , states may take a full or partial delegation of administrative aspects of the federal plan in order to become the primary implementers. And as discussed in section &&&, s ection s V.E and VII.A of this preamble , states may submit partial state plans in order to take over the implementation of a portion of a federal plan. For instance, in

a mass - based trading program, the agency proposes to allow states to submit partial state plans t o replace the federal plan all owance - distribution provisions with their own allowance

distribution provisions, similar to the approach we have taken in prior trading programs. Finally, even in states in which the affected EGUs are operating under a federal plan, the agency recognizes t hat states may adopt complementary measures outside of CAA programming to facilitate compliance and lower costs that could benefit power generators and consumers, directly or indirectly.
A state program that adheres to the model trading rule provisions spe cified in this rulemaking would be presumptively approvable. States may submit means of meeting the EGs ’ requirements that differ from the model trading rule provisions, so long as the state demonstrates to the EPA’s satisfaction in the state plan submitta l that such alternative means of***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 21 of 515 addressing requirements are at least as stringent as the presumptively approvable approach described here. 2 Additionally, there are stand

- alone portions of the model trading rules, such as the evaluation, measurement , and verification (EM&V) procedures, that would be approvable even if a state adopted an approach that differs from the federal plan. The model trading rules serves serve as a mechanism to create facilitate larger trading markets since consistency with the f ederal plan allows trading across both the state and federal programs. The EPA expects a larger trading region is likely to result in lower overall costs. These and other aspects of the model trading rules and federal plan provide additional support for th is rule as proposed. Thus, the proposed rule would ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented, either by the states in the first instance, or by the EPA where needed. The agency is prop osing a finding that it is necessary or appropriate to implement a CAA section 111(d) federal plan for the affected EGUs located in Indian country. CO 2 emission performance rates for these facilities were finalized in the

2 For example, in the context of a mass

- or rate

- based trading program, a state may submit a plan with alternative components other than those described, so long as the program includes each of the requirements and the s tate satisfactorily demonstrates in the state plan submittal that such alternative means of addressing the requirements are as stringent as the presumptively approvable approach as described, and therefore provide for the implementation of the state plan’s emission standards.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 22 of 515 EGs. Tribes generally may seek “tr eatment as a state” (TAS) and submit a tribal plan to implement CAA programs, including programs under CAA section 111(d), and this proposed finding does not preclude tribes from doing that. However, tribes are not subject to the deadlines applicable to st ate action under the EGs and in the absence of a federal plan, CO 2 emissions from these EGUs could go unregulated. Therefore, as discussed in
&&& s ection VI.D of this preamble , we are proposing a necessary or appropriate finding. This N otice document also proposes certain enhancements to the process and timing for state submittals and EPA action in the CAA section 111(d) framework regulations of 40 CFR part 60 ,
s ubpart B ( these proposal s are not a part of the federal plan or model trading rules)
. These chan ges, if finalized, would be applicable under the Clean Power Plan an d other CAA section 111(d) rules
. These changes clarify the availability of certain procedural mechanisms similar to those available under CAA section 110 (such as calls for plan revisions and the availability of “conditional approvals,” etc.). They also extend the deadlines for EPA action, in part to conform with the timelines in the EGs. These changes do not alter the timelines for state action under the EGs and do not alter the submissio n requirements established in the EGs. These proposed changes are discussed in &&§ion VII. Finally, the agency proposes to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 23 of 515 clarify and request comment on an interpretive issue raised in the Clean Power Plan proposal regarding whether a reconstruction

or modification that is subject to a CAA section 111(b) standard

mo ves an existing source out of a CAA section 111(d) program. These proposed changes are discussed in s ection VII of this preamble
. The agency intends to finalize these changes earlier than the finalization of the model trading rules. In proposing a federal plan, the EPA considered a variety of potential impacts that its action might have on the environment, on businesses, particularl y in the energy sector, and on the reliability of the electrical grid , and , importantly,

on . The agency gave extensive consideration to impacts on vulnerable communities, particularly low

- income communities and , communities of color
. , and indigenous communities
. These considerations are generally discussed in &&& s ections III, VIII, IX, and X
. of this preamble
. The agency convened a Small Business Advocacy Review Panel under the Regulatory Flexibility Act and has completed an Initial Regulatory Flexi bility Analysis (IRFA). In section
&&& X Various recommendations from the Panel are found reflected throughout this proposal. In section X of this preamble , the agency explains how it has conducted or intends to conduct all other statutory or executive order (EO) reviews that apply to this proposed action. The EPA also explains in this***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 24 of 515 notice document how it proposes to take into consideration the “remaining useful liv e s ” of affected EGUs in the design of the proposed federal plan, as discussed below in sectio n &&& III. H G of this preamble
. The agency considered the impacts this action could have on the electricity grid and developed options for compliance that
are cost

- effective and ensure that provide substantial flexibility for the affected EGUs that will accommodate the parties charged with maintaining the reliability of electrical
power. A key feature of the proposed federal plan

– and model trading rule

– is that the flexibility inherent in both of the two approaches (i.e., rate

- and based or mass - based t rading) enables the EPA and the states to create a level of flexibility for affected EGUs that allows owners and operators to determine the best way to achieve emissions reductions, at the EGU

- , state

- , multi

- state

- , regional

- , or national level. As a resu lt, compliance strategies can mirror, or be integrated with, the ongoing operations of the current electricity grid as it continues to serve its primary critical function of ensuring an uninterrupted supply of affordable and reliable electricity. This flex ibility is especially valuable whenever the need to address specific reliability concerns arises
. I t allows owners and operators of reliability

- critical EGUs to continue to meet***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 25 of 515 their compliance obligations while operating to maintain electric reliability. The EPA outlined and initiated the Clean Energy Incentive Program (CEIP) in the final EG s ( see section VIII of the final EGs ) . The program is designed to incentivize investment in certain types of renewable energy ( RE ) projects, as well as demand

- side energy efficiency ( EE ) projects implemented in low

income communities , that generate MWh or reduce end

- use energy demand during 2020 and /or 2021. The EPA proposes to apply the CEIP in all states subject to either a rate

- based or mass

- based federal plan.
We also reviewed impacts that this action could have on the environment and the need to ensu re environmental integrity of the program as well as avoid unintended environmental impacts. We took measures to ensure that the reductions in carbon emissions this p lan will achieve are real, and not just apparent. As in the EGs, i n both the rate

- and mass

- based approaches , the EPA has incorporated components to address the concern that the dynamics of either a rate

- or mass - based trading program could incentivize shi fting generation from existing units in ways that would result in more CO 2 emissions than would otherwise be expected , or that undermine the purpose of the CAA section 111(d) program
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 26 of 515 We considered whether compliance choices under a federal plan could lead to an unintended concentration of other air pollutants in certain overburdened communities, particularly low

- income communities and communities of color. As discussed below, our analy sis shows why we do not expect this to occur at any significant level. In general, as in the EGs, we anticipate that the federal plan will result in overall reductions of co

pollutants, in addition to reductions in CO 2 , with corresponding

co - benefits to pu blic health. We also reviewed whether this action could trigger an obligation to consult with other agencies responsible for implementing the Endangered Species Act, and propose to conclude that it will not. In the final emission g uidelines, the EPA emphas ized the importance of state actions to ensure that in developing their respective compliance plans the states addressed the concerns and priorities of overburdened vulnerable communities. In the process of developing a final federal plan, the EPA will also take actions to address those concerns as well. In addition to the public hearings that the EPA will be holding for all members of the American public on this proposed rulemaking, we will also be conducting a national webinar and outreach meeting ( s ) in all ten regions on this proposed rulemaking for overburdened communities . The goal of these outreach activities is to provide communities with the information they need to understand how the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 27 of 515 proposed rulemaking will potentially impact their respective communities. At the same time, this information will be useful in helping overburdened communities engage the EPA during our comment period, as well as with their states during the state plan development process. We will also be providing other outreach an d support activities for overburdened vulnerable communities, which are outlined in the community and environmental justice (EJ) considerations in section IX.B of this preamble
. B. Organization and A pproach for t his P roposed R ule
In today’s this action, the EPA is proposing a federal plan to implement the Clean Power Plan EGs for affected fossil fuel

fired EGUs operating in states that do not have approved state plans . Specifically, the EPA is co

- proposing two different approaches to a federal pl an to implement the Clean Power Plan EGs

— a rate

- based trading approach and a mass

- based trading approach. While establishing emission standards for affected EGUs that would be directly enforceable against the owners and operators of the source, both appr oaches would grant EGUs substantial flexibility in meeting their compliance obligations. For this reason, among othe r s, these proposed approaches also serve as two proposed model trading rules that states may adopt or tailor in designing their own plans.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 28 of 515
T he EGs provide that states have until August 31 September 6 , 2016 (or later, if extensions are granted upon making an initial submittal, until September 6, 2018 ) to submit state plans, and the EPA does not inten d to finaliz e and implement the federal plan fo r any states prior to the agency’s action of determining a failure to submit a state plan or disapproving a state plan. At the same time, in order to support states’ consideration of adoption of one of the model trading rules as an approvable state plan, t he agency intends to finalize either

or both model rule options presented in today’s proposal this
propos ed rule by summer 2016, prior to the deadline for state submittals. The EPA is currently considering finaliz ing only intends to finaliz e a single approach

— i.e
. , either a rate

- based or a

mass - based approach

— in all promulgated federal plans for particular states in order to enhance the consistency of the federal trading program, achieve economies of scale through a single, broad trading program, ensure efficient administration of the program, and simplify comp liance options for affected
EGUs. However, the EPA recognizes that The EPA recognizes that the mass

- based trading approach would be more straightforward to implement compared to the rate

- based trading approach, both for industry and for the implementing age ncy. The EPA, industry, and many state agencies have extensive knowledge of and experience***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 29 of 515 with mass

- based trading programs. The EPA has more than two decades of experience implementing federally

- administered mass

based emissions budget trading programs in cluding the Acid Rain Program ( ARP ) sulfur dioxide ( SO 2 ) trading program, the Nitrogen Oxides ( NO X ) Budget Trading Program, CAIR, and CSAPR. The tracking system infrastructure exists and is proven effective for implementing such programs. The EPA requests comment on which approach

– mass - based or rate

- based trading

– is preferred for the federal plan. Some stakeholders have suggested there could be utility in the availability of both approaches based on the unique circumstances of particular states. Therefore, we are inviting comment on whether the agency should T he EPA recognizes that it remains potentially possible to finalize only one a different approach for all states that may become subject to the to a federal plan (and which approach that should be) , or whether a rate

- based or mass

- based approach should be selected based on the unique in some circumstances of each state , but believes that in general, and consistent with prior federal trading programs such as CSAPR, creating a single, broad program has the most advantages
. The stringency of the proposed federal plan is the same as the CO 2 emission performance rates established for affected EGUs in the EGs . As explained in the final EGs, the EPA determined the CO 2 emission performance rates through the application of the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 30 of 515 best system of emission reduction (BSER). BSER. In the EGs , the EPA has taken final action on the BSER for CO 2 emissions from existing fossil fuel

- fired EGUs. Any comments on today’s this proposed rule relating to the BSER, its stringency, rationale, or legal basis, will not be considered as, by definition, they will be beyond the scope of this action. 3 The state goals, stated as both an aggregated emission rate, and as mass

- equivalent, are presented in Table 1. [ &&& insert Tab le here?] These numbers are the same as those established for states in the final EGs . The emission standards that the EPA proposes to apply to each affected EGU in the federal plan are derived directly from these numbers. 1. The Rate

- based Approach In the first approach, the EPA would implement a rate

- based emissions trading program. In a rate

- based program, affected EGUs must meet an emission standard, derived from the EGs , expressed as a rate of pounds of CO 2 per megawatt hour (lbs/MWh). If sources emit above their assigned rate, they must acquire a sufficient number of emission rate credits (ERC), each

3 The agency recognizes that the “remaining useful lives” of facilities subject to a CAA section 111(d) federal plan is a factor that it must consider at the time it implements the federal plan. This factor, and how the agency proposes to consider it, is discussed in section III.G of this preamble below.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 31 of 515 representing a zero

- emitting megawatt hour (MWh), to bring their rate of emissions into compliance. ERCs may be generated by affected EGUs or by oth er entities that supply zero

- or low

emitting electricity resources to the grid through an approval and recognition process that the EPA will administer. ERCs may be bought and sold , or banked for use in later years . The rate

based approach is explained in greater detail in s ection IV of the th is p reamble. 2. The Mass

- based Approach The second approach to a federal plan that the EPA is proposing in this action is a mass

- based trading program. In a

mass - based program, the EPA would create a state emissions budget equal to the total tons of CO 2 allowed to be emitted by the affected EGUs in that each state according to , consistent with the mass

- equivalency formula goals established in the EGs . The EPA would initially distribute the allowances within each
state budget

– less two three proposed allowance set

- asides

– to the affected EGUs based on their historic historic al generation. Allowances may then be transferred, bought , and sold on the open market , or banked for future use . The compliance obligation on each of the affected EGUs is to surrender the number of allowances sufficient to cover the EGU’s respective emissions at the end of a given c ompliance period. The EPA is also proposing as a part of the mass

- based approach two three set

- asides of***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 32 of 515 allowances: one ( 1) F or a Clean Energy Incentive Program; (2) to support renewable energy RE projects ; and the other ( 3 ) to allocate allowances based on an updating measurement of affected

- EGU generation. The EPA is also proposing that a jurisdiction may choose to replace the federal

- plan allocation provisions with its own allowance

- distribution allocation provisions. The mass

- based approach is explained in greater de ta il in s ection V of the th is p reamble. 3. Other Proposed Actions The EPA is proposing in this action a finding that it is necessary or appropriate to regulate affected EGUs in certain parts of Indian country via a federal plan. This is discussed in section [&&& VI.D ]
. of this preamble
. In today’s this action, the EPA is also proposing a number of changes to the framework CAA section 111(d) regulations of Subpart B of 40 CFR p art 60 , subpart B . These changes generally are intended to provide enhancements to the process for state plan submissions and the timing of EPA actions related to state plans and the federal plan
. Specifically, the EPA proposes six changes, to include: (1) P artial approval/disapproval mec hanisms similar to CAA section 110(k)(3); (2) a conditional approval mechanism similar to CAA section 110(k)(4 ) ; ); (3) a mechanism for the EPA to make calls for plan revisions similar to the "SIP

- call" provisions of CAA s ection 110(k)(5); (4) an error***E.O. 12866 Review

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cor rection mechanism similar to CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar to CAA section 110(k)(1) and (2); and (6) updates to the deadlines for EPA action. These proposed changes are explained in greater detail in s ection
&&& V II of the th is p reamble. They are not a component of the proposed federal plan, or changes in the EGs. If these changes are finalized, they will be applicable to other CAA section 111(d) rules. The EPA intends to finalize these changes earlier than the finalization of the model trading rules.
C. Who Does the Proposed Action Apply to ?
R egulated Entities. E xisting fossil fuel

- fired electric generating unit s ( EGUs ( or affected EGU s ) covered by the final Clean Power Plan Emission Guidelines that are located in a state that does not have an EPA

- approved state plan are potentially subject to th is proposed action . Existing fossil fuel

- fired Affected EGUs are those that were in operation , or had commenced construction , on or before January 8, 2014 4 . The following North American Industrial Classification System ( NAICS ) codes could apply as shown in Table 1 below of this preamble :

4 An affected EGU is any fossil fuel

- fired EGU that was in operation or had commenced construction as of January 8, 2014, and is therefore an “existing source” for purposes of CAA secti on 111, but in all other respects would meet the applicability criteria for coverage under the GHG standards for new fossil fuel

- fired EGUs.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 34 of 515 **Table 1**  **. Examples of Potentially Regulated Entities**  **a**

**Category NAICS**  **Code Examples of potentially regulated**  **entities** Industry 221112 a Fossil fuel electric power generating units State/Local Government 221112 b Fossil fuel electric power generating units owned by municipalities

a Includes NAICS categories for source categories that own and operate electric power generating units (includes boilers and stationary combined cycle combustion turbines). b State or local government

- owned and operated establishments are classified accord ing to the activity in which they are engaged. This table is not intended to be exhaustive, but rather provides a general guide for identifying entities likely to be affected by the proposed action. W hether a n affected EGU is affected by this action is described in the applicability criteria in 40 CFR &&& 62. XXX to 62. XXX 6 0
. 5845 and 6 0
. 5850 of subpart MMM being proposed today UUUU . Q uestions regarding the applicability of this action to a particular entity should be directed to the person listed in the pre ceding **FOR FURTHER INFORMATION CONTACT**  section. 1. What is an Affected Electric Utility Generating Unit ? For the federal plan , the definition of an affected electric generating unit ( EGU ) is identical to the definition in the final Clean Power Plan Emission Guidelines (EGs)
. . Additionally , the applicability of the federal plan is consiste nt with the EGs , where an affected EGU subject to the federal plan is any steam generating unit , (SGU) , integrated gasification combined cycle unit ( IGCC , ) , or sta tionary***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 35 of 515 combustion turbine (SCT) that was in operation o r had commenced construction as of January 8, 2014, 5 and that meets certain criteria, which differ depending on the type of unit. The criteria to be an affected EGU are as follows : A unit, if it is

a steam generating unit SGU or IGCC, must serve a generator capable of selling greater than 25 MW (Megawatts) to a utility power distribution system, have a base load rating greater than 260 GJ/ hr h (250 MMBtu/ hr h ) heat input of fossil fuel (either alone or in combination with any other fuel), and historically have supplied more than 1/3 of its potential electric output and 219,000 MWh as net

- electric sales on any 3 calendar year basis. If a unit is a stationary combustion turbine SCC , the unit must meet the def inition of a combined cycle or combined heat and
power (CHP) combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, have a base load rating of greater than 260 GJ/h (250 MMBtu/ hr h ), and historica lly have combusted more than 90 percent natural gas on a heat input basis on an annual basis. 2. How to D etermine if a U nit is C overed by an A pproved and Effective State Plan

5 January 8, 2014 is the date the proposed GHG standards of performance for new fossil fuel

- fired EGUs were published in the Federal Register (79 FR 1430).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 36 of 515 Section 111(d) of the CAA, as amended, 42 U.S.C. 7411(d), authorize s the EPA to develop and implement a f ederal plan for affected EGUs upon the EPA’s action finding a failure to submit or disapproving a state plan. 6 The affected EGUs covered in EPA

approved state plans are not subject to the federal plan . If the federal plan ha s been put in place in a state, but is later replaced by a n EPA

- approved state plan, the affected EGUs would become subject to the state plan as of the effective date specified in the a Federal Register notice announcing regarding the EPA’s approval of the state plan. The EPA is not expecting state plans to be submitted by the states that submit negative declarations. However, in the event that there are later determined to be affected EGUs located in these states, the final federal plan would be appl ied to such EGUs
. through a future action
. Part 62 of t itle 40 of the CFR identifies the status of approval and promulgation of CAA section 111(d) state plans for designated facilities in each state. Recognizing the urgent need for actions to reduce GHG emissions , and in

6 In this Preamble, the term “state” generally encompasses the 50 states and the District of Columbia , U.S. territories, and any Indian Tribe that has been approved by the EPA pursuant to 40 CFR 49.9 as eligible to develop and implement a CAA section 111(d) plan. However, the federal plan is not proposed for affected EGUs in certain states or territories where the EGs did not finalize emission performance rates.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 37 of 515 accordance with the Presidential Memorandum 7 , as well as the benefit of providing state state s with model trading rule options to consider as they prepare their state plans, the EPA is proposing this rulemaking concurrently with the Administrator’s signing and promulgation of the final Clean Power Plan EGs. 40 CFR part 62 is updated only once per year. Thus, if 40 CFR part 62 does not indicate that your state has an approved and effective plan after the compliance date has passed requiring state plan submittal , you should contact your state environmental agency’s Air Director or your EPA Regional Office (see Table &&& XXX 2 in section II. D B of this preamble) to determine if approval occurred sinc e publication of the most recent version of 40 CFR part 62.
D. What Should I Consider as I Prepare my Comments ? Submitting CBI Do not submit information that you consider to be CBI electronically through http:// www.regulations.gov or email. Send or deliver information identified as CBI to only the following address: OAQPS Document Control Officer (Room C404

- 02), U.S. EPA, Research Triangle Park, NC 27711, Attention Docket ID No.
EPA

- HQ

- OAR

- 2015

- 0199 . Clearly mark the part or all of the

7 Presidential Memorandum

— Power Sector Carbon Pollution Standards, June 25, 2013. http://www.whitehouse.gov/the

- press - office/2013/06/25/presidential

memorandum

- power - sector

- carbon

- pollution

- standa rds
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 38 of 515 information that you claim to be CBI. For CBI on a disk or CD

ROM that you mail to the EPA, mark the outside of the disk or CD

- ROM as CBI and then identify electronically within the disk
or CD

- ROM the specific information that is claimed as CBI. In addition to one complete ver sion of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information marked as CBI will not be disclosed except in accorda nce with procedures set forth in 40 CFR part 2. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the **FOR FURTHER INFORMATION CONTACT**  section. 2. Docket . The docket number for the proposed actio n (40 CFR part 62, subpart MMM) is Docket ID No. EPA

- HQ

- OAR

- 2015

- 0199. 3. World Wide Web (WWW) . In addition to being available in the docket, an electronic copy of the proposed action is available on the WWW Internet through the EPA’s Technology Transfer Ne twork (TTN) W eb site
. , a forum for information and technology exchange in various areas of air pollution control
. Following signature by the EPA Administrator , the EPA will post a copy of the proposed action at http:// www www 2 .epa.gov/ airtoxics/XX. The TTN provides information and technology exchange in various areas of air***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 39 of 515 pollution control. Additional information is also available
at cleanpowerplan / regulatory

- actions#regulations
. Following publication in the Federal Register (FR) , the EPA will post the
FR version of the proposed rule and key technical documents on the same Web site.
**II. Background Information** 
A. What is the R egulatory D evelopment B ackground for this
P roposed R ule? On &&& July 31 August 3 , 2015 , the EPA finalized the Clean Power Plan EG s for existing fossil

- fuel

- fired EGUs (40 CFR part 60 , subpart UUUU) under authority of section 111 of the CAA (79
FR 34950). The Guidelines apply to existing fossil

- fuel

- fired EGUs, i.e
. , those that were in operation or had commenced construction before January 8, 2014. S tates with existing EGUs subject to the guidelines are required to submit to the EPA by August 31 September 6 , 2016 , a state plan that implements the emission guidelines. EGs . States may also make initial plan submittals in lieu of a complete state plan , in which case extensions can will be granted until September 6, 2018 (40 CFR
&&& ). part 60 , s u b part UUUU). 8 As discussed in s ection &&& VI.D of

8 See Section VII of this preamble for additional information on proposed changes to 40 CFR 60.27 to provide enhancements and flexibilities to the agency’s process for review and action on state plans and promulgation of federal plans.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 40 of 515 this preamble, Indian Tribes may, but are not required to, submit t ribal plans. Once the EPA finds that a state has failed to submit a plan, or disapproves a state plan, 9 section 111 of the CAA and 40 CFR 60.27 require the EPA to develop, implement, and enforce a f ederal plan for existing EGUs located in that
state . In addition, CAA section 301(d)(2) authorizes the Administrator to treat an Indian Tribe in the same manner as a
state for this EGU requirement. See 40 CFR 49.3 ; see also

‘‘ “ Indian Tribes: Air Quality Planning and Management ,’’ , ” hereafter ‘‘ “ Tribal Authority Rule ,’’ , ” ( 63 FR 7254, February 12, 1998 )
. As discussed in s ection VI.D of this preamble, the agency in this action is proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these af fected EGUs. The agency believes it is appropriate to propose the federal plan at this time for a ny states that may ultimately be found to have failed to submit a plan, or had their plan disapproved by the EPA. For some states in this situation , the federa l plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an

9 If a state ha s submitted a complete plan, then the EPA will go through a public notice and comment process to fully or partially approve or disapprove the state plan.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 41 of 515 approved plan in place
. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves as two proposed model trading rule s which states can adopt or tailor for adoption as their state plan. The role of the model rules is discussed in the following section. In this proposal, the EPA is soliciting public comment only

on the proposed approaches for a federal plan and model trading rule for the implementation of the Clean Power Plan EG s . C omments on the underlying Clean Po wer Plan rule will be considered out of out side the scope for this action proposed rule
. B. What is the Purpose of this Proposed Rule ? The purpose of this action is t wo - fold: (1) T o co - propose two approaches to a federal plan to implement the Clean Power Plan EGs for affected EGUs operating in any state lacking an approved state plan by the relevant deadlines , ; and (2) to propose these same approaches as model trading rule s for states to consider in developing their own plans. 1. Federal p lan Section 111 of the CAA and 40 CFR 60.27 require the E PA to develop, implement and enforce a federal plan to cover existing EGUs located in states that do not have an approved plan. Section 111 (d) of the CAA relies upon sta tes as the preferred implementers of EG EG s for existing EGUs. States with affected EGUs are to submit state plans or make initial submittals to the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 42 of 515 EPA by August 31 September 6 , 2016 that ar e at least as protective as pursuant to the EG s . 10 States without any existing EGU s are directed to submit to the Administrator a letter of negative declaration certifying that there are no affected EGUs in the state. No plan is required for states that do not have
any affected EGUs . Affected EGUs located in states that mistakenly submit a letter of negative declaration will become subject to the federal plan until a state plan covering those EGUs becomes approved. The EPA intends to finalize the federal plan only for those states that the EPA finds failed to submit plans or whose plans the EPA disapproves. For more information on the timing and mechanics of EPA action on state plans and finalization of this federal plan , see section II.D .1 of this preamble below. 2. Model Trading Rule The E PA is also proposing the federal plan approaches as two forms of a model trading rule ( mass - based and rate

- based), which states can adopt or tailor for implementation as a state plan under the EGs . The EPA intends to finalize the model trading rule s earlier than it promulgates a federal plan for a
state. When the EPA finalizes one or both of its proposed approaches as a final model trading rule, and a state adopts a

10 States may request extensions of up to two years as part of a complete initial CAA section 111(d) s ubmission.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 43 of 515 final model trading rule in its entirety a s its state plan, it would be presumptively approvable
. The EPA has designed these rules so that they meet the requirements of the final EGs. If one of the model rules is adopted by a state without any change, it would be presumptively approvable. We use the term “presumptively” in recognition that a state plan submission must be accompanied by other materials in addition to the regulatory provisions. These requirements are set forth in the final CPP EGs Clean Power Plan and framework regulations of 40 CFR p art 60, subpart B. For instance, they inclu de a formal letter of submittal from the Governor or his or her designee, evidence that the rule has been adopted into state law and that the state has necessary legal authority to implement and enforce the rule, and evidence that procedural requirements, including public notice participation under 40 CFR 60.23, have been met. In further support of state use of the model rules, we are drafting the model trading rule so that it can be adopted or incorporated by reference with a minimum of c hanges that

are would be necessary to make the rule appropriate for use by states. This way, a state may incorporate by reference the model rule as the state plan, or as the backstop to a state measures plan with few if any adjustments. States may make changes to the mode l trading rule, so long as they still meet the requirements***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 44 of 515 of the EGs. If the state chooses to tailor or modify the model trading rule

– for instance, such as by expanding the scope of eligibility of projects that may generate ERC s in a rate

- based trading program – the EPA may still approve the plan, but appropriate review of such provisions for consistency with the EGs would need to be conducted. , the EPA may still approve the plan, but the EPA would conduct appropriate review of such provisions for consis tency with the EGs and the state would have to demonstrate to the EPA’s satisfaction that its alternative provisions are as stringent as the presumptively approvable approach described. We note here, and as a “note” in the

r egulatory text of the model trading rule, that the scope of eligibility of proposed “ERC resources” for the federal plan is different than the scope of eligibility provided for in the model rule. Thus, all of the language and provisions in the regulatory text relevant to these other ERC resources is relevant only to the proposed model trading rule and not to the federal plan as such ( i.e. , those ERC resources discussed in section I V .C.3 of this preamble are applicable to the model rule and only metered RE and applicable nuclear are applicable to the federal plan)
. Recognizing the amount of time The EPA’s approval of a state plan, including a plan that adopts the model trading rule, will be the result of an independent notice

- and

- comment***E.O. 12866 Review

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process, the EPA recognizes that it may take for some states be able to go through their decision making processes, the EPA intends to approve or “conditionally approve” state plans that adopt one of the model trading rules as proposed . Thi s provides states an immediate additional pathway to an ultimately approvable state plan. The condition for approval of a state plan based on one of the proposed model rules, is that the state commit to adopt are substantially similar, but not identical to, the final model trading rule, when it is finalized, or submit materials explaining why any changes to the final rule are not being adopted, and demonstrating that rules. Ultimately, state plans must meet the requirements of the EGs for approvability. Thus , a conditional approval would be based on a condition that the state plan based on the proposed model trading rule continues take such actions as may be necessary by a date certain to meet the requirements of the EGs. ( ( The EPA is proposing to explicitly provide for conditional approvals in the CAA section 111(d) framework regulations. See &&& s ection VII . B of this preamble
. ) In accordance with the EGs, the process for review and approval (or disapproval) of state plans, whether based on the model trading rules or otherwise, would occur once the states have made their submissions by August 31 September 6 , 2016. As***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 46 of 515 provided in th e EGs, states have the option of not submitting a full state plan , but rather making an initial submittal, in order to obtain an extension of two 2 years before submitting a full state plan for EPA approval. The EPA believes I t could be beneficial for coord ination purposes if a state that is interested in adopting one of the model trading rules and but intends to make an initial submittal rather than submit a full plan next August year were to indicate this , and which one, in their submittal model trading rule they intend to adopt
. This is not an additional requirement beyond what the EGs require for initial submittals, however. The EPA strongly encourages states to consider adopting one of the model trading rule s , which are designed to be referenced by s tates i n their rulemaking s . U se of the model trading rules by states would help to ensure consistency between and among the

s tate programs, which is useful for the potential operat i on of a broad trading program that spans multi

- state regions or operates on a nati onal scale. As discussed at length in the EGs, EGUs operate less as individual, isolated entities and more as multiple components of a large interconnected system designed to integrate a range of functions that ensure an uninterrupted supply of affordable and reliable electricity

– and while also , for the past several decades, maintaining compliance with air pollution control programs. Since , as a practical matter under***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 47 of 515 both the EGs and any federal plan , emissions reduction s must occur at the affected EGUs, a broad

- scale emissions trading
program would be particularly effective in allowing EGUs to operate in a way that achieves pollution control , without disturbing the overall system of which they are a part and the critical functions it that this syste m performs. In addition,

c onsistency of requirements benefits the affected EGUs, as well as the states and the EPA in their roles as administrators and implementers of a trading program. States of course remain free to develop a plan of their own choosing to submit to the EPA for approval following the criteria set out in the final Clean Power Plan EG s . The EPA believes there are compelling policy reasons that support the provision of a proposed model trading rule at this time. The EPA has heard from multiple stakeholders and in public comments submitted on the proposed EG s that there is a strong interest in seeing a model state plan or trading rule prior t o the deadline for state submittals under the EGs. According to these stakeholders, model rules can provide predictability for planning purposes, both among states and affected EGUs . In addition, some states have indicated that they may prefer to rely on a federal plan , either temporarily or permanently, rather than develop a plan of their own. This proposal of a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 48 of 515 model trading rule , which, again, also serves as the proposed federal plan , addresses th e s e policy interests
. The approach of proposing model trad ing rule s that are identical in all key respects to proposed federal plan s that may be promulgated later, is consistent with prior CAA section 111(d) and CAA section 110 rulemakings. For example, the NO x state implementation plan ( SIP ) Call model rule at 40 CFR part 96 (63 FR 57356; Oct. 27, 1998) was identical in all meaningful respects with the Federal NO x Budget T rading Program at 40 CFR part 97 (65 FR 2674; Jan. 18, 2000). And the Clean Air Interstate Rule ( CAIR ) model rule in 40 CF R p art 96 (70 FR 25339; May 12, 2005) was identical in all meaningful respects with the federal CAIR in 40 CFR p art 97 (71 FR 25396; April 28, 2006). 11 While these identical programs for model rules and Federal Implementation Plans ( FIPs ) were finalized in separate parts of the Code of Federal Regulations, C FR , the EPA does not
see any reason that it could not just as easily propose the federal plan as the model trading rule in the same section of the CFR. 12 If a federal plan were to be fina lized for a given state at a later time, this would be reflected in 40 CFR p art 62

11 We also note that historically under the CAA section 111(d)/129 rules, the content of EGs and their corresponding federal plans have had significant overlap. 12 We propose to include a note in the regulatory text explaining where aspects of the proposed subpart relevant to states as part of the model trading rule are not applicable***E.O. 12866 Review

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- reference , along with any modifications or adjustments that may be appropriate at the time of actual promulgation of a federal plan
. **Table 3**  **2 . Regional Office**  **Contacts Region**  **Regional contact Phone**  **S tates**  **and protectorates**  Region I Shutsu Wong wong.shutsu@epa.gov 617

- 918

- 1078 Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont Region II Gavin Lau lau.gavin@epa.gov 212

- 637

- 3708 New York, New Jersey, Puerto Rico, Virgin Islands Region III Mike Gordon gordon.mike@epa.gov 215

- 814

- 2039 Virginia, Delaware, District of Columbia, Maryland, Pennsylvania, West Virginia Region IV Ken Mitchell mitchell.ken@epa.gov 404

- 562

- 9065 Florida, Georgia, North Carolina, Alabama, Kentucky, Mississippi, South Carolina, Tennessee Region V Alexis Cain cain.alexis@epa.gov 312

- 886

- 7018 Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio Region VI Rob Lawrence lawrence.rob@epa.gov 214

- 665

- 6580 Arkansas, Louisiana, New Mexico, Oklahoma, Texas Region VII Ward Burns burns.ward@epa.gov 913

- 551

- 7960 Iowa, Kansas, Missouri, Nebraska Region VIII Laura Farris farris.laura@epa.gov 303

- 312

- 6388 Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming Region IX Ray Saracino saracino.ray@epa.gov 415

- 972

- 3361 Arizona, California, Hawaii, Nevada, American Samoa, Guam,***E.O. 12866 Review

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**Region Regional contact**  **Phone S**  **tates and**  **protectorates** Northern Mariana Islands Region X Madonna Narvaez narvaez.madonna@epa.g ov 206

- 553

- 2117 Alaska, Idaho, Oregon, Washington

C. Legal Authority S ection 111(d)(2) of the CAA, 42 U.S.C. 74 1 1 (d)(2) provides the EPA the same authority to prescribe a plan for a state in cases where the state fails to submit a satisfactory plan as the

a gency would have under CAA section 110(c) in the case of failure to submit an implementation plan. In addition, t he EPA has authority under CAA section 111(d)(1) to prescribe regulations that establish procedures similar to CAA section 110 with respect to the submission of state plans, and the EPA also has gener al rulemaking authority as necessary to implement the CAA under CAA section 301. A f ederal p lan under CAA section 111(d) appl ies , implement s and enforce s standards of performance for affected EGUs
. &&& Under the Clean Power Plan EG EG s , state plans will be due on [ August 31 September 6 , 2016 ]. , but s tates are also allowed to seek a two 2

- year extension for a final plan submittal , upon submitting a satisfactory initial plan submittal by the same deadline
. See 40 CFR 60.5755, 60.5760(b). If a state fails to does not submit a final state plan or initial plan***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 51 of 515 submittal, 13 or if either a final state plan or an initial plan submittal , does not meet the requirements of the EG , the agency will take the appropriate steps to finalize and implement a federal plan to for that state’s EGUs . Further, s tates will remain free , and indeed are strongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jur isdiction s . U pon approval of the state p lan by the EPA , the federal plan will no longer apply to the affected EGUs covered by the state p lan. See
&&& 40 CFR 60.5720.
D. Timing of EPA Actions on the Model Trading Rules, F ederal
P lan , and other Proposed Actions Today’s This action co

- proposes two approaches to the federal plan , both of which also constitute proposed model trading rules that states could adopt as state plans for EPA approval. The EPA currently intends to finalize one or both of the model tr ading rules by next summer so that they may be

13 Indeed, states may simply choose to accept a federal plan in lieu of undertaking to develop a state plan at all. While the statute uses the phrase “fails to submit a satisfactory plan,” the EPA does not believe this should carry any pejorative connotation. While Congress identified states and local governments as having “primary responsibility” for air pollution prevention and control, CAA section 101(a)(3), states are in no way penalized for not submitting a plan under CAA section 111(d). Rather, the EPA steps into the shoes of the state to carry out the CAA section 111(d) program in its stead. To the extent states may be interested in accepting a federal plan, the EPA would be interested in hearing that through the comment process on this proposal.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 52 of 515 available to states as soon as possible to help inform their state plan development efforts prior to the initial submittal deadline of August 31, 2016 September 6 , 2016 , and 2 years before the states’ final plan deadline of September 6, 2018
. 14 If the EPA finalizes the model trading rules in that timeframe, the only direct consequence will be to provide t he states certainty
as to one or two particular approaches to the design of their state plan that the EPA will approve if adopted in full. The finalization of a model trading rule will not constitute a final action with respect to a federal plan for the affected EGUs in any state. Rather, the proposed federal plan will remain jus t that, a proposal. The EPA will promulgate a final federal plan for any state only after it has made a finding on a state’s failure to submit a plan, or fully or partially disapproved a submitted state plan. The EPA will go through a public notice and comment process before disapproving a submitted and complete state plan, in whole or part. The EPA invites comments on this staged approach to finalizing one or more model trading rules on the one hand (which we currently in tend to do in summer 2016 ) , and finalizing federal plans on the other (which we currently

14 We anticipate that the model rules’ text could be finalized either in a new subpart or subparts of 40 CFR part 62 of title 40 of the CFR as proposed, or in a final docu ment that is not published in the CFR.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 53 of 515 intend to do state

- by

- state upon our taking predicate action on states’ plans)
. In this action, the EPA is also proposing enhancements to the process for agency actio n on s tate submittals and promulgation of a federal plan under CAA section 111(d) . For more detailed discussion of these changes, see &&& s ection V II of this preamble
. This aspect of today’s this proposal is separate from the federal plan and the model trading rules. The EPA intends to finalize these changes on a timeline earlier than both a model trading rule and the federal plan
. Under the framework regulations and the final EG s , at 40 CFR Part 60.27 and &&& 60.5715 and &&& 5760, respecti vely, the initial timelines for EPA action on state submittals and, potentially, the promulgation of a federal plan will b e as follows: the EPA will have twelve 12 months from the date of a state's submission to approve or disapprove that state ’s plan. The EPA will have twelve 12 months from the date of its action on

a state submission to promulgate the federal plan for the EGUs in that state. The EPA will have six 6 months from the date of a state’s submission to notify a state that its submittal does not meet completeness criteria and constitutes a failure to submit a plan
. In the case of initial submittals under 60. 5760, 576 5 , the EPA will have 60 days from August 31 September 6 , 2016 to notify a state that its initial submittal does not meet the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 54 of 515 requirements of 60.5760(a). As with state plans, the EPA will have twelve 12 months from the date of a state's initial submittal to promulgate a federal plan for from the affected EGUs in states date of its finding that a state failed to submit a complete and approvable initial submittal. (Formally, such a finding would be that the state failed to submit a state plan.) The timeframes stated in the previous paragraph reflect the maximum time allow ed for EPA action. We note that u nder CAA section 111(d)(2) and CAA section 110(c), the EPA may promulgate a final federal plan for a state immediately upon making a finding of failure to submit a complete state plan or initial submittal, or upon making a finding of final disapproval of a state pl an. Congress gave the EPA authority in CAA section 111(d)(2), as it did in CAA section 110(c), to promulgate a federal plan at any time after it disapproves or finds a failure to submit a state plan. The Supreme Court has recognized that under this authori ty , the EPA may promulgate a Federal Implementation Plan FIP “at any time” within the two 2

- year limit of CAA section 110(c) “that begins the moment EPA determines a SIP to be inadequate.” EME Homer City v. EPA , 134 S. Ct. 1584, 160 1 (2014). “EPA is not obliged to wait two years or postpone its action even a single day . . . .” Id. Where, as here, I t is essential to implement plans for the control of emission s of carbon dioxide CO 2 expeditiously , and avoid unnecessary delay.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 55 of 515 Among other reasons, this will provide affected EGUs regulatory certainty , and avoid any unnecessary delay and will assist the regulated entities as well as those authorities with responsibility for ensuring grid reliability t o have as much time as possible to plan for the 2022 compliance start date set in the EGs. Thus , it is reasonable to propose this federal plan

now so that federal plans will be ready to be promulgated quickly in cases where state s have failed to submit a plan or their plan s are found unsatisfactory
. In addition, this will assist the regulated entities as well as those authorities with responsibility for ensuring grid reliability to have as much time as possible to plan for the 2022 comp liance start date set in the EGs. It is the agency’s intention to promulgate federal plans promptly for states who do not submit plans or initial submittals by September 6 , 2016 . However, the effect of putting the federal plan in place at that time would u ltimately be limited in impact upon states. Because the EPA would implement the federal plan, its promulgation does not obligate state officials to take any actions themselves. Further, s tates remain free

- and the EPA in fact encourages s tates

- to submit state plans that can replace the federal plan. States can do so in advance of the beginning of the performance period in 2022, or may transfer to a state plan after that date. However, in doing***E.O. 12866 Review

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r egulatory certainty discussed in the prior paragraph.
Because we are proposing a federal plan that would apply emission standards to affected EGUs in all states that the

a gency determines not to have an approvable plan, the EPA invite s comment from all persons with concerns about or comments on the proposed federal plan as it may apply in any state , whether or not that state ha s submitted , or intends to submit, its own plan on which the EPA ha s yet to take action. In this Notice document , the EPA is proposing regulatory text setting out the substantive provisions for both of the proposed federal plans/model trading rules. The EPA is not providing specific regulatory text that would , if finalized, actually promulgate a federal p lan for each state fo r which this proposed federal plan might be applied. 15 We currently envision that this lan guage would be in the form of a new section to the
state

- specific subparts of p art 62 and would be ministerial in
nature . It would likely provide that the affected E GUs in each such state are subject to a federal plan and would then cross

reference or incorporate by reference the substantive provisions of one of the final model trading rules, two subparts proposed in this action (if finalized) , along with any applicabl e

15 The minimum contents of a notice of proposed rulemaking under the CAA are set forth at CAA section 307(d)(3) and 5 U.S.C. 553(b).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 57 of 515 modifications or adjustments as may be necessary, either based on new information or in response to comments regarding the application of the federal plan to that particular state. This
text may appear similar to the FIP language found in the final CSAPR rule , ( 76 FR 48208, 48361

- 78 (Aug. ; Aug ust 8, 2011).
E. Use of the Model Trading Rule as a Backstop As discussed in the final EG s , &&&citation , the EPA believes that ei ther a mass

- based or rate

- based model tradi ng rule could function well as the federally enforceable “backstop” that the EGs require to be included in “state measures” type state plans. 16 ( The proposed federal plan does not itself require a “backstop” because it relies on an “emission standard s ”
appr oach, rather than a “state measures” approach , as delineated in the final EGs .) The conditions and requirements for the federally enforceable backstop in a state measures approach are discussed in detail in the final EGs. See &&&Section s ection s VIII.C. 4 3 .b and &&& VIII.C. 4 6 .c .2 of the final EGs . To summarize those provisions, without reopening them for comment, the federally enforceable backstop must fully achieve the CO 2 emission performance rates or the state’s interim and final CO 2

16 We are aware of at least one case in which a court has upheld the use of a trading program as a backstop to ensure CAA requirements are met. See WildEarth Guardians v. U.S. EPA , No. 12

- 9596 (10th Cir. filed Oct. 21, 2014) (upholding use of backstop cap

- and

- trade program under 40 CFR 41.309 of the Regional Haze Rule).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 58 of 515 emission goal if the state plan fails to achieve the intended level of CO 2 emission performance. T he state plan submittal must identify the federally enforceable emission standards for affected EGUs that would be used in the backstop , demonstrate that those emission standards meet the requirements that apply in the context of an emission standards approach, identify a schedule and trigger for implementation of the backstop that is consistent with the requirements in the emission guide lines EGs , and identify all necessary state administrative and technical procedures for implementing the backstop ( e.g ., how and when the state would notify affected EGUs that the backstop has been triggered). In addition, t he backstop emission standards mu st make up for any shortfall in CO 2 emission performance during a prior plan performance period that led to triggering of the backstop. The EGs explicitly recognized that the backstop emission standards could be based on one of the model trading rules that the EPA is proposing in this action. As discussed in s ection
&&& II.B of this preamble above , w e are drafting the model trading rule so that it can be adopted or incorporated by reference with a minimum of changes necessary to make the rule appropriate for use by states , and this includes its use as a backstop
. I nstances of this approach are throughout the proposed rule text and reflect our desire to ease the use of the model***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 59 of 515 rule for states , as a full state plan, or as a backstop to a “state measures” plan
. One way in which a backstop may need to differ from the model trading rules proposed in this action is the requirement to make up for a shortfall in emissions performance in a state’s prior plan performance period. The model trading rules do not provide provisions that would automatically adjust the emission standards to account for any prior emission performance shortfall (which is an option states have if designing their own backstop). Thus, a state relying on the model trading rule as its backstop woul d likely need to submit an appropriate revision to the backstop emission standards adjusting for the shortfall through the state plan revision process . This would likely be done in conjunction with the process for putting the backstop into effect
. If a sta te chooses to use the model rule as its federally enforceable backstop in a state measures plan, this does not mean that the backstop is itself the federal plan . Rather, the model rule becomes adopted as a part of the state plan. B oth approaches to the mod el trading rule are “emission standard” approaches under the EGs , in which where an emissions standard in the form of an allowable rate of emissions, or an allowance system, emission standard is imposed and federally enforceable on the affected EGUs : in th e rate

- based approach the emissions***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 60 of 515 standard is an allowable rate of emissions ; in the mass

- based approach the emission standard is the requirement to hold allowances equal to reported emissions
. The EPA may also handle the administration of the trading pr ogram for states utilizing the model trading rule. However, even though the backstop may take the form of an EPA

- administered, federally

- enforceable trading rule , this does not mean that a federal plan has been put into effect . The state retains all of its rights and responsibilities with respect to the implementation and enforcement of the backstop as a component of its state plan
. Applicability and Enforceability
. If promulgated for the affected EGUs in a particular state, t h is federal plan will
req uire affected EGUs to meet specific emission standards for CO 2 and related requirements
. The se enforceable compliance obligations will apply to the owners and operators of those affected EGUs. See 40 CFR 62.13. No obligation fall s on states or state officials (except to the extent they may be owners and operators of affected EGUs )
. 17 In the event of noncompliance, the provisions in the federal plan are federally enforceable against

17 See Reno v. Cond on , 528 U.S. 141, 151 (2000). State officials responsible for developing state plans, however, should be aware of the procedural enhancements being proposed to the framework regulations of 40 CFR part 60, subpart B, in this rulemaking document. These chang es are discussed in section VII of this preamble below. These changes are not a component of the proposed federal plan or the EGs. Although these changes do not alter the deadlines or submission obligations provided in the Clean Power Plan Emission Guideli nes, state officials and other interested parties are encouraged to review and comment on these changes.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 61 of 515 an affected EGU, in the same manner as the provisio ns of an approved state plan under CAA section 111(d), and similar to a FIP or an approved SIP under CAA section 110. See CAA section 111(d)(2)(B), 42 U.S.C. 7411(d)(2)(B) (power to enforce state and federal plans )
. ) , section 113(a)

– (h), 42 U.S.C. 7413(a)

- (h), and section 304, 42 U.S.C. 7604
. This means that the Administrator and the state have ha s the ability to enforce against violations and secure appropriate corrective actions pursuant to CAA sections 113(a)

– (h), and states and other third parties maintain the ability to enforce against violations and secure appropriate corrective actions pursua nt to CAA section 304.
**III. F**  **ederal P**  **lan Structure to Achieve Reductions** 
A. Overview 1. Interactions with S tate P lans and scope of tra ding The EPA intends to set up and administer a program to track trading programs

– both rate

- based and mass

- based

– that will be available for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs in any other state covered by a federal plan that uses the same approach
. or a state plan meeting the conditions for linkage to the federal plan
. In the proposed mass - based federal

- plan trading program , this would mean that affected EGUs in a state covered by the federal plan***E.O. 12866 Review

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or a state meeting the conditions f or linkage to the federal plan could use , as a compliance instrument, an allowance distributed in any other state covered by the federal plan
. or a state meeting the conditions for linkage to the federal plan
. Similarly, in the proposed rate

- based federal

- plan trading
program approach, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use , as a compliance instrument, an ERC issued in any other state covered by th e federal plan
. or a state meeting the conditions for linkage to the federal plan
. We propose that an affected EGU in a state covered by the mass

- based trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a stat e covered by the rate

- based trading federal plan must use ERCS for compliance (not allowances). The agency promulgated provisions for “ready

- for

interstate

- trading ” plans in the EGs. The EPA is proposing the federal plans as ready

- for

- interstate

- trading plans. States plans that adopt the model rule are also considered ready

- for

interstate

- trading. The EPA proposes to allow interstate trading between sources affected E GUs in states covered by the proposed federal plan s and sources affected EGUs in states covered by state plans (referred to below as “linking” states, or***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 63 of 515 “linkages”) under the following conditions , which are discussed further below the list :

• The state plan must be approved
. • The state plan must implement the same type of trading program as the federal plan trading program in order to be linked for interstate trading , i.e ., mass - based trading programs could can link to mass

- based trading program s only, and rate

- based trading programs could can link to rate

- based trading programs only
. • The state plan must use the identical compliance instrument as the federal plan (this requirement is detailed below )
. • The state plan must be approved as a ready

- for

- interstate

trading plan
. • The state plan must use an EPA

- administered tracking system (we are also requesting comment on expanding this to include a state plan that uses a n EPA

- designated tracking system that is interoperable with an EPA

- administe red system , as detailed below )
. The EPA proposes that interstate ERC trading could occur both i 1 ) from affected EGUs in states covered by the rate

- based trading federal plan to affected EGUs in states with approved
rate

- based trading state plans meeting th e proposed conditions for linkages , (including the conditions for being “ready

- for

interstate

- trading” that were finalized in the EG) , and ii 2 ) from sources affected EGUs in such state

- plan

- covered states to

sources affected EGUs in federal

- plan

- covered states . The EPA also requests comment on expanding the scope of interstate trading to include linking states covered by the rate

- based trading federal plan with any state that has an approved rate

based trading state plan meeting the proposed conditions fo r***E.O. 12866 Review

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- designated ERC tracking system that is interoperable with an EPA

- administered ERC tracking system. The EPA also takes comment on allowing a state that has an approved rate

- based trading state plan meeting the proposed condit ions for linkages and that uses an EPA

- designated ERC tracking system to register with the EPA, and after registration, to link with state s covered by the rate

- based trading federal plan. There are multiple benefits to a registration requirement, which inc lude ensuring that the tracking systems are functionally interoperable. For the mass

- based federal plan, t he EPA proposes that interstate allowance trading c ould occur in both dir ections, i.e ., from affected EGUs in states covered by the mass

- based trading federal plan to affected EGUs in states with approved

mass - based trading state plans meeting the proposed conditions for linkages, and from affected EGUs in su ch state

- plan

- covered
states to sources in federal

- plan

- covered states . The EPA proposes that a condition of link age between a state plan and the federal plan is the use of an identical compliance instrument . In the mass

- based federal plan the EPA proposes to issue allowances in short tons ; as a result, the EPA is pro posing in this rule that linkage for the mass

- based federal plan is limited to state plan s that issue allowance s in short tons. The agency also requests comment on whether to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 65 of 515 extend linkage to state plan s that issue allowances in metric tons and on what pr ovisions would be necessary to implement such linkages. The EPA be lieves that considerations for linkages to state plans that use metric tons may include tracking system design , and stipulation of which parties convert state plan allowance s denominated in metric tons to allowances denominated in short tons and at what stage of compliance operations the conversion occurs. The agency r equests comment on these and any other considerations for linkages between the federal plan and state plans that issue allowan ces in metric tons. 18 The EPA also requests comment on expanding the scope of interstate trading to include linking states covered by the

mass - based trading federal plan with any state that has an approved mass - based trading state plan meeting the proposed conditions for linkages and that use s an EPA

- designated allowance tracking systems system that is interoperable with an
EPA

- administered allowance tracking system. The EPA also requests takes comment on allowing a registration requirement state that has an approved mass

- based trading state plan meeting the proposed conditions for linking to linkages and that uses an EPA

- designated allowance tracking system , as noted above for the rate

- based approach to register with the EPA, and

18 In this preamble all references to “tons” are short tons, unless otherwise noted.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 66 of 515 after registration, to link w ith states covered by the mass

based trading federal plan
. In the Clean Power Plan EGs, the EPA promulgated requirem ents that apply to an emissions budget trading state plan that includes non

- affected EGU emission sources , to provide the opportunity for su ch a state plan to be potentially approvable for linking to other state plans . Th os e requirements include accounting adjustments for net import and export of allowances [&&& cite to final EGs preamble section]. ( see Clean Power Plan EGs , section VIII)
. In this proposed rule, the proposed approach to link from the mass

- based trading federal plan to state plans could result in linking of the federal plan to state plans that include non

- affected emission sources. The EPA requests comment on this proposed ap proach. The EPA believes that a broad trading region provides greater opporunities oppor t unities for cost

- effective implementation of reductions compared to trading limited to a smaller region. The proposed approach to interstate trading is intended to stri ke a reasonable balance between providing the opportunity for a wide interstate trading system while maintaining the integrity of the linked programs. The agency requests comment on the proposed approach to interstate trading linkages in the federal plans.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 67 of 515 Whether the EPA ultimately finalizes rate

- based or mass

based federal plans, the a gency believes that the ERC market and the allowance market would be competitive. The opportunities for interstate trading detailed above would reduce any potential for firm s to exercise market power in the E RC market or allowance market. The EPA requests comment on this expectation of a competitive ERC market and a competitive allowance market, and
comment on potential program design choices that could address any identified market power concern
. The EPA intends to provide information to the market and the public, consistent with other trading programs that the agency administers, as detailed in sections IV and V of this preamble , for the rate

- based and mass

based approaches, respectively
. Interstate Effects and Addressing Potential Leakage
The final E mission G uidelines reco gnized that emission reduction measures will likely have impacts beyond their borders because of the interstate nature of the grid (see final emission guidelines Sec. VIII. L for a detailed discussion of interstate effects and addressing potential leakage ). Interstate effects and leakage c ould interfere with meeting reduction obligations under federal and state plans, usually because of dynamics resulting from the regional grid existing in combination with differences in
state

- based characteristics, including the portfolio of affected***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 68 of 515 EGUs within a particular state, the availability of eligible state
measures, existing policies in the state and the cost of compliance in the state. In the final G uidelines, the EPA acknowledged that some amount of interstate movement of generation will inevitably be present and unavoidable and may affect how affected EGUs achieve the applicable CO 2 emission performance rates or state goals under a state plan. In fact, the final guidelines are premised in part on reductions due to the movement of generation from higher

emitting to lower

- emitting affected EGUs. However, the risk of foregone emission reductions due to the moveeme nt of generation should be minimized. The final guidelines also discussed how the use of the sub

- categorized uniform emission rates for steam and
gas , and the state plan requirements ( particularly their approach
to ac counting for measures that cross state boundaries ) , serve to reduce the risk of interstate effects. The final guidelines A transparent and well

- functioning allowance or ERC market is an important element of a mass

- based
or rate

- based trading program. The EPA has over 20 years of experience imple menting emissions trading programs for the power sector and based on that experience, believes the potential or likelihood of market manipulation is fairly low. Nonetheless, the EPA is evaluating the options for providing oversight of the allowance or ERC markets that may be established through the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 69 of 515 final EGs and federal plans. This could include engaging with other federal and state agencies as appropriate, and potentially with third parties, in conducting market oversight. The agency requests comment on ap propriate market monitoring activities, which may include tracking ownership of allowances or ERCs, oversight of the creation and verification of credits, and tracking market activity ( e.g. , transaction volumes and prices). 2. Addressing Potential Leakage and Interstate Effects The final EGs specify the concern of leakage, which is defined in s ec tion VII.D of the final EGs as the potential of an alternative form of implementation of the BSER ( e.g. , the rate

based and mass

- based state goals) to create a lar ger incentive for affected EGUs to shift generation to new fossil fuel

- fired EGUs relative to what would occur when the implementation of the BSER took the form of standards of performance incorporating the subcategory

- specific emission performa nce rates r epresenting the BSER . The final EGs specified that mass

- based plan approaches must address leakage, because the form of the mass goals may ultimately impact the relative incentives to generate and emit at affected EGUs as opposed to shifting generation to new sources, with potential implications for whether the mass goal implements or is consistent with the BSER and overall emissions from the sector
. These circumstances are much less likely to be present under a rate

- based plan approach , where the form of t he***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 70 of 515 goal ensures sufficient incentive to affected existing EGUs to generate and thus avoid leakage, similar to the CO 2 emission performance rates . By requiring mass - based plan components that address leakage, the final EGs ensure that mass goals are equival ent to the CO 2 emission performance rates and are thus an equivalent expression of the BSER
. S ection VII.D of the final EGs details the requirement for addressing leakage and why it is needed, and section VIII.J of the final EGs specifies options for mass - based state plan compon ents that address leakage. We are proposing, as part of the mass

- based approach under the federal plan and model rule , to implement allowance allocation approaches to address leakage , specifically through establishing an output

- based allocation set

- aside and a set

- aside that encourages the installation of RE . These proposed strategies are detailed in section V.D of this preamble
. In t he final EGs , the EPA also discussed the concern that CO 2 emissions reductions would be eroded in situations where a n affected EGU in a rate

- based state counts the MWh from measures located in a mass

- based state, but the generation from that measure acts solely to serve load in the mass

- based state. In that scen ario, expected CO 2 emission reduction actions in the
rate

- based state are foregone as a result of counting MWh that resulted in CO 2 emission reductions in a mass

- based state. The proposed rate

- based approach, in accordance with the final***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 71 of 515 guidelines , requir es that restricts ERC issuance for any emission reduction measures located in a mass

- based state, except for RE. RE measures located in a state with a mass

- based state plan can only be approved for ERC issuance for use by a state under a
rate

- based federal plan if it can be demonstrated that that load

- serving entities in the electricity generated is delivered with rate

- based state have contracted for the intention delivery of the RE generation that occurs in a mass

- based state to meet load in that state. a rate

- based state
. As part of this federal plan, we are proposing that t his can be demonstrated through : 1) the provision of a power delivery contract or power purchase agreement in which an entity in the rate

- based state contracts for the supply of the MWh s in question and 2) providing documentation that the electricity was treated as comparable to a generation resource used to serve regional load that included the rate

- based state
. T his demonstration must be included as part of the project application for E RC issuance to the EPA or its agent from the RE provider in the mass

- based state . Once the project is approved, subsequent application s for issuance of credit to the EPA will need to reference that the MWh submitted

are achieved by an approved project located in a mass

- based
state. The EPA requests comment on this approach associated with that contractual arrangement with the mass

- based RE provider
. The EPA requests comment on this approach. It should also be***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 72 of 515 noted that we are propo sing that u nder the proposed mass - based approach , if RE located in a mass

- based state receive s mass based set

- aside allowances for any generation , that generation is not eligible to be issued ERCs in a rate

- based state
. Under the proposed mass - based approach there is a restriction to counting RE that is located in a mass state in a rate

- based system: RE providers that receive mass - based set

- aside allowances for their generation are barred from having ERCs issued for that generation in a ra te

- based state. Under the proposed mass - based approach, double counting due to interstate effects is minimized because compliance with mass goals is based only on stack emissions . However, mass

- based states face the problem of generation shifting to unaffe cted

sources , particularly new generation , if the plan does not include new generation under a cap ) that operate within the state but outside of the mass cap . This is much less of a concern under rate

- based plan, and thus could mean that mass

based goals a nd CO 2 performance rates (along with associated
rate

- based goals) may not be equivalent if leakage is not addressed. Therefore, the final emission guidelines require that mass

- based plans make a demonstration that leakage to new unaffected EGUs has been sufficiently addressed. To meet this requirement in the mass

- based federal plan , the EPA is proposing allocation options that mitigate leakage to new unaffected EGUs
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 73 of 515 Specifically, the EPA is proposing to implement output

- based allocation, which r eserves some allowances to be allocated to affected EGUs based, in part, on their level of electricity generation in a recent period(s). Therefore, the allocation s are not fixed, but instead update over time depending on an affected EGU’s generation. Affec ted EGUs can increase their allowance allocation based on their generation, which incentivizes generation to remain under the mass , thereby helping to avoid leakage of generation to unaffected EGUs. Additionally, a set

aside awarding allowances for RE gene ration is being proposed, which can make more RE available in states with a mass

- based federal plan, and increase the amount of low

- emitting generation available in the states. The need to address leakage and b oth of the proposed set

- asides are discussed in detail in Sec.
&&& V.D.3
. The EPA takes comment on both the set

- aside for output

- based allocation and the set

- aside of allowances for RE generation
. The EPA requests comment on the proposed treatment of leakage and of interstate effects under both the pr oposed rate

based federal plan approach and the proposed mass

- based federal plan approach
. Applicability and Inventory of Affected Units [ &&& under developments ]***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 74 of 515 Inventory , and as part of Emissions [&&& under development ] Compliance Schedule In accordance with the schedule set out in the Emission Guidelines, t he federal plan is proposed to be implemented in a phased approach. The first period, corresponding to the interim period in the EG, is proposed to run from beginning of calendar year 202 2 until end of calendar year 2029 (January 1, 2022 to December 31, 2029) . The final period would run from beginning of calendar year 2030 (January 1, 2030) indefinitely into the future, unless there is a need to modify later , such as future EPA action amending the EGs
. The first p eriod is proposed to be comprised of three “ c o mpliance periods, ” set by calendar year. The first compliance period will be from January 1, 2022 to midnight, December 31, 2024 (three calendar years). The second compliance perio d will be from January 1, 2025 to midnight, December 31, 2027 (three calendar years). The third compliance period will be from January 1, 2028 to midnight, December 31, 2029 (two calendar years). proposed model rules
. 3. Provisions to Encourage Early Actio n The EPA outlined and initiated the Clean Energy Incentive Program (CEIP) in the final EGs (see section VIII.B.2 of the final EGs). The program is designed to incentivize investment in certain types of RE projects, as well as demand

- side energy***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 75 of 515 efficiency (EE) projects implemented in low

- income communities. These RE projects must commence construction , and these EE projects must commence implementation after the date of submission of a final plan to the EPA by the state they are located on or benefitting , or after September 6, 2018 for those states on whose behalf the EPA is implementing the federal plan, and will receive incentives for the MWh they generate or the end

- use energy demand reductions they achieve during 2020 and/or 2021. The CEIP also provides an additional incentive to drive investment in demand

- side EE projects implemented in low

- income communities. The EPA proposes to apply the CEIP in all states subject to either a rate

- based or mass

- based federal plan. The EPA’s proposed approaches to implementing the program in the
rate

- based and mass

- based feder al plans are detailed in sections IV and V of this preamble, respectively.
B. Inventory of Emissions Fossil fuel

- fired EGUs are by far the largest emitters of GHGs among stationary sources in the U.S., primarily in the form of CO 2 , and among fossil fuel

- fi red EGUs, coal

- fired units are by far the largest emitters. This section describes the amounts of these emissions and places these amounts in the context of the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 76 of 515 U.S. Inventory of Greenhouse Gas Emissions and Sinks 19 (the U.S. GHG Inventory). The EPA implem ents a separate program under 40 CFR p art 98 called the Greenhouse Gas Reporting Program 20 (GHGRP) that requires emitting facilities over threshold amounts of GHGs to report their emissions to the EPA annually. Using data from the GHGRP, this section also places emissions from fossil fuel

- fired EGUs in the context of the total emissions reporte d to the GHGRP from facilities in the other largest

- emitting industries. The EPA prepares the official U.S. GHG Inventory to comply with commitments under the United Nations Framework Convention on Climate Change (UNFCCC). This inventory, which includes recent trends, is organized by industrial sectors. It provides the informat ion in Table 3 of this preamble , which presents total U.S. anthropogenic emissions and sinks 21 of GHGs, including CO 2 emissions, for the years 1990, 2005 , and 2013.

19 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 201 3”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html
20 U.S. EPA Greenhouse Gas Reporting Program Dataset, see http:// www.epa.gov/ghgreporting/ghgdata/reportingdatasets.html 21 Sinks are a physical unit or process that stores GHGs, such as forests or underground or deep sea reservoirs of CO 2 .***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 77 of 515 **Table 3**  **. U.S. GHG Emissions and Sinks by Sector ( M**  **illion Metric**  **Tons Carbon Dioxide E quivale**  **nt (MMT CO 2**  **Eq.)) 22**  **SECTOR 1990**  **2005 2013**  Energy 23 5,290.5 6,273.6 5,636.6 Industrial Processes and Product Use 342.1 367.4 359.1 Agriculture 448.7 494.5 515.7 Land Use, Land

- Use Change and Forestry 13.8 25.5 23.3 Waste 206.0 189.2 138.3 Total Emissions 6,301.1 7,350.2 6,673.0 Land Use, Land

- Use Change and Forestry (Sinks) (775.8) (911.9) (881.7) Net Emissions (Sources and Sinks) 5,525.2 6,438.3 5,791.2 Total fossil energy

- related CO 2 emissions (including both stationary and mobile sources) are the largest contributor to total U.S. GHG emissions, representing 77.3 percent of total 2013 GHG emissions. 24 In 2013, fossil fuel combustion by the utility power sector

– - entities that burn fos sil fuel and whose primary business is the generation of electricity

– - accounted for 38.3 percent of all energy

- related CO 2 emissions. 25 Table 4

22 From Table ES

- 4 of “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html
. 23 The energy sector includes all greenhouse gases resulting from stationary and mobile e nergy activities, including fuel combustion and fugitive fuel emissions. 24 From Table ES

- 2 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015. http://w ww.epa.gov/climatechange/ghgemissions/usinventoryreport.html
. 25 From Table 3

- 1 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15, 2015.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 78 of 515 of this preamble presents total CO 2 emissions from fossil fuel

fired EGUs, for years 1990, 2005 , and 2013.
**Tabl e**  **4 . U.S. GHG Emissions from Generation of Electricity from**  **Combustion of Fossil Fuels (MMT CO 2**  **) 26** 

In addition to preparing the official U.S. GHG Inventory , which re present s comprehensive total U.S. GHG emissions and compl ies with commitments under the UNFCCC, the EPA collects detailed GHG emissions data from the largest emitting facilities in the U.S. through its GHGRP. Data collected by the GHGRP from large stationary sources in the industrial sector show that the utility po wer sector emits far greater CO 2 emissions than any other industrial sector. Table 5 of this preamble presents total GHG emissions in 2013 for the largest emitting industrial sectors as reported to the GHGRP. As shown in Table 4 and Table 5 of this preamble , respectively, CO 2 emissions from fossil fuel

fired EGUs are nearly three times as large as the total reported

http://www.epa.gov/c limatechange/ghgemissions/usinventoryreport.html
. 26 From Table 3

- 5 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013”, Report EPA 430

- R

- 15

- 004, United States Environmental Protection Agency, April 15 2015. http://www.epa.gov/climatechange/ ghgemissions/usinventoryreport.html
. **GHG EMISSIONS 1990**  **2005 2013** 
Total CO 2 from fossil fuel

- fired EGUs 1,820.8 2,400.9 2,039.8

- from coal 1,547.6 1,983.8 1,575.0

- from natural gas 175.3 318.8 441.9

- from petroleum 97.5 97.9 22.4***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 79 of 515 GHG emissions from the next ten largest emitting industrial sectors in the GHGRP database combined.
**Table 5**  **. Direct GHG Emissio ns Reported to GHGRP by Largest**  **Emitting Industrial Sectors (MMT CO 2**  **e) 27** 

Under the Emission Guidelines, midnight, December 31, 2029 marks the end of the interim period, and the beginning of the final period. The EPA proposes that the compliance periods in the final period will each be two calendar years. Thus, the first complia nce period after 2030 would be from January 1, 2030 to midnight, December 31, 2031 . The second compliance period would be from January 1, 2032 to midnight, December 31, 2033. This would repeat accordingly unless changed by EPA through a revision to the federal plan or other action. 28 The EPA recognizes that the compliance periods provided for

27 U.S. EPA Greenhouse Gas Reporting Program Dataset as of August 18, 2014. http://ghgdata.epa.gov/ghgp/main.do.
28 This schedule would be the same under either a rate

- or mass - based approach.

**Industrial s**  **ector 2013**  Petroleum Refineries 176.7 Onshore Oil & Gas Production 94.8 Municipal Solid Waste Landfills 93.0 Iron & Steel Production 84.2 Cement Production 62.8 Natural Gas Processing Plants 59.0 Petrochemical Production 52.7 Hydrogen Production 41.9 Underground Coal Mines 39.8 Food Processing Facilities 30.8***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 80 of 515 in this rulemaking are longer than those historically and typically specified in CAA rulemakings. As reflected in long

standing CAA precedent, “[t]he time over which [the compliance standards] extend should be as short term as possible and should generally not exceed one month.” See e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 Guidance on Enforceability Requi rements for Limiting Potential to Emit through SIP and §112 Rules and General Permits. The EPA determined that the longer compliance periods provided for in this rulemaking are acceptable in the context of this specific rulemaking because of the unique cha racteristics of this rulemaking, including that CO 2 is long

lived in the atmosphere, and this rulemaking is focused on performance standards related to those long

- term impacts. Prior to the beginning of the first compliance period in 2022, the agency inten ds to establish the infrastructure for operating a federal trading program and to work closely with affected EGUs in the states where the federal plan is promulgated prior to the compliance period in 2022. The EPA requests comment on whether there is any reason to use shorter c ompliance periods than the proposed periods , and how modifying these periods could be done in a manner that is consistent with the Emission Guidelines
. T o the extent this schedule is governed by the schedule set in the final EG, the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 81 of 515 agency is not re

- opening such issues, and comments regarding the schedule finalized in the EG will be considered out of scope.

C. Affected EGUs For the CPP EGs Clean Power Plan and this federal plan, an affected EGU is any steam generating unit SGU , IGCC, or stationary combustion turbine that was in operation or had commenced construction as of January 8, 2014, 29 and that meets the following criteria, which differ depending on the type of unit. To be an affected EGU, such a unit, if it is a steam generating unit SGU or IGCC, must serve a generator capable of selling greater than 25 MW to a utility power distribution system and have a base load rating greater than 260 GJ/h (250 MMBtu/h) heat input of fossil fuel (either alone or in

com bination with any other fuel). If such a unit is a stationary combustion turbine SCT , the unit must meet the definition of a combined cycle or combined heat and power CHP combustion turbine, serve a generator capable of selling greater than 25 MW to a utilit y power distribution system, and have a base load rating of greater than 260 GJ/h (250 MMBtu/h).

29 Under section 111(a) of the CAA, determination of affected sources is based on the date that the EPA proposes action on such sources. January 8, 2014 is the date the proposed GHG standards of performance for new fossil fuel

- fired EGUs were published in th e Federal Register (79 FR 1430).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 8 2 of 515 When considering and understanding applicability, the following definitions may be helpful. Simple cycle combustion turbine means any stationary combustion tu rbine which does not recover heat from the combustion turbine engine exhaust gases for purposes other than enhancing the performance of the stationary combustion turbine itself. Combined cycle combustion turbine means any stationary combustion turbine SCT which recovers heat from the combustion turbine engine exhaust gases to generate steam that is used to create additional electric power output in a steam turbine. Combined heat and power ( CHP ) combustion turbine means any stationary combustion turbine SCT which recovers heat from the combustion turbine engine exhaust gases to heat water or another medium, generate generate s steam for useful purposes other than exclusively for additional electric generation, or directly uses the heat in the exhaust gases for a useful purpose. We note that certain affected EGUs are exempt from inclusion in a state plan and this federal plan. Affected EGUs that may be excluded under the Emission Guidelines EGs are those that (1) A re subject to subpart 40 CFR part 60, subpart TTTT as a result of commencing modification or reconstruction; (2) steam generating units are SGU s or IGCC units that are currently and always have been subject to a federally enforceable permit limiting net

- electric sales to one

- third or less of its***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 83 of 515 potential electric output or 219,000 MWh or less on an annual basis; (3) are non - fossil units ( i.e ., un its that are capable of combusting 50 percent or more non

- fossil fuel) that have historically limited the use of fossil fuels to 10 percent or less of the annual capacity factor or are subject to a federally enforceable permit limiting fossil fuel use to 1 0 percent or less of the annual capacity factor; (4) are stationary combustion turbines that are not capable of combusting natural gas ( i.e ., not connected to a natural gas pipeline); (5) are a combined heat and power unit CHP unit s that are subject to a fe derally enforceable permit limiting, or have historically limited, annual net electric sales to a utility power distribution system to the product of the design efficiency and the potential electric output or 219,000 MWh (whichever is greater) or less; (6) serve a generator along with other steam generating unit SGU (s), IGCC(s), or stationary combustion turbine(s) where the effective generation capacity (determined based on a prorated output of the base load rating of each steam generating unit SGU , IGCC, or stationary combustion turbine) is 25 MW or less; (7) are a municipal waste combustor unit subject to subpart Eb of 40 CFR p art 60; or (8) are a commercial or***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 84 of 515 industrial solid waste incineration unit that is subject to subpart CCCC of 40 CFR p art 60. 30 The E PA is also taking comment on an alternative compliance pathway that could be available to units under a mass based approach. The ways that the approach could be implemented are further outlined in the Alternative Compliance Pathway for Units that Agree to Retire Before a Certain Date TSD. Under this approach, two basic requirements would need to be met. The first is that the unit would have to take a commitment that it would retire on a date on or before December 31, 2029. The second is that the unit would have to demonstrate that it will take an enforceable emission limitation that would assure that the overall state emission goal is met. The TSD explores ways that this approach could be implemented, including ways that the enforceable emission limitation c ould be calculated and implemented. The EPA requests comment on whether this approach should be available for all units or limited to small units (e.g. less than 100 MW nameplate capacity). EPA is also taking

30 We had proposed in the CPP EGs that affected EGUs were those existing source fossil fuel

- fired EGUs that met the applicability criteria for coverage under the final GHG standards for new fossil fuel

- fired EGUs being promu lgated under CAA section 111(b). However, we are finalizing in the EGs that states need not include certain units that would otherwise meet the CAA section 111(b) applicability in this CAA section 111(d) EGs. These include simple cycle turbines, certain no n - fossil units, and certain CHP units. The final CAA section 111(b) standards include applicability criteria for s imple cycle combustion turbines, for reasons relating to implementation and minimizing emissions from all future combustion turbines.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 85 of 515 comment on whether and how such an approach cou ld be included under a rate

- based approach. The applicability of this proposed federal plan follows the same applicability criteria as the final Emission Guidelines
. EGs . The rationale for these criteria is provided at &&&citation to EGs. in section IV.D of the Clean Power Plan
. We are not reopening the criteria or rationale here. In the federal plan Affected EGU Technical Support Document ( TSD , ) , the EPA lists all applicable affected EGUs according to our records from the National Electric Energy Data System (NEEDS), Energy Information Administration (EIA), and comments from the CPP. In this TSD, each affected EGU is assigned its proposed applicable standards if a federal plan is applicable were to be promulgated for that af fected EGU at any time. The EPA requests comments and updates to this list of affected units. Section VI.C of the CPP final EGs describes the data used in setting the standards and how an inventory of affected units has been compiled.
D. Compliance Schedule In accordance with the schedule set out in the EGs , t he federal plan is proposed to be implemented in a phased approach. The first period, corresponding to the I nterim P eriod in the EG, is proposed to run from beginning of calendar year 2022 until end of calendar year 2029 (January 1, 2022 to December 31,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 86 of 515 2029) . The F inal P eriod would run from beginning of calendar year 2030 (January 1, 2030) indefinitely into the future. The first p eriod is proposed to be comprised of three “ c o mpliance periods, ” set by ca lendar year. The first compliance period will be from January 1, 2022 to midnight, December 31, 2024 ( 3 calendar years). The second compliance period will be from January 1, 2025 to midnight, December 31, 2027 ( 3 calendar years). The third compliance perio d will be from January 1, 2028 to midnight, December 31, 2029 ( 2 calendar years). Under the EGs , midnight, December 31, 2029 marks the end of the I nterim P eriod, and the beginning of the F inal P eriod. The EPA proposes that the compliance periods in the F in al P eriod will each be 2 calendar years. Thus, the first compliance period after 2030 would be from January 1, 2030 to midnight, December 31, 2031 . The second compliance period would be from January 1, 2032 to midnight, December 31, 2033. This would repeat accordingly unless changed by the EPA through a revision to the federal plan or other action. 31 The EPA recognizes that the compliance periods provided for in this rulema king are longer than those historically and typically specified in CAA rulemakings. As reflected in long

standing CAA precedent, “[t]he time over which [the compliance

31 This s chedule would be the same under either a rate

- or mass - based approach.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 87 of 515 standards] extend should be as short term as possible and should generally not exceed on e month.” See e.g ., June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 Guidance on Enforceability Requirements for Limiting Potential to Emit through SIP and §112 Rules and General Permits. The EPA determined that the longer compliance periods provided for in this rulemaking are acceptable in the context of this specific rulemaking because of the unique characteristics of this rulemaking, including that CO 2 is long

lived in the atmosphere, and this rulemaking is focused on performance standards related to those long

- term impacts. Prior to the beginning of the first compliance period in 2022, the agency intends to establish the infrastructure for operating a federal trading program and to work closely with affec ted EGUs in the states where the federal plan is promulgated prior to the start of the first compliance period in 2022. We request comment on whether it would be possible to grant, on a case

- by

- case basis, certain affected EGUs, particularly small entities , additional time to come into compliance, and to request additional input from the public as to the design of such flexibility that would be compatible with the EG s and a federal plan that implements a trading system. The EPA recognizes that it is importa nt to ensure a degree of liquidity in compliance instruments in either of the proposed***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 88 of 515 trading approaches, while also maintaining the stringency required by the final EGs. A number of aspects of the rate

- based and mass

- based programs would assist with this , including allocation methods or rules, mechanisms to place allowances or credits into the market relatively early, requirements for public transparency of information related to allowance , or credit issuance, tracking, transfers and holdings. The EPA sol icits comment on other approaches to ensure market liquidity while continuing to meet the stringency of the final EGs.
E. Addressing Reliability Concerns The proposed federal plan was h as been designed to ensure that, to the greatest extent possible, implementation would not in ter fere with the power sector ’ s ability to maintain electric reliability. 32 Like the EG s , the federal plan provides a long planning horizon and implementation period. In a ddition the federal plan allows affected EGUs to obtain tradable allowances and credits to meet obligations which assures that reliability can be maintained without disruption to the electricity system
. The re are many features of the electricity system tha t

ensur e that electric system reliability will be maintained. For

32 The EPA evaluated certain aspects of electric reliability in the context of modeling projections for the final Clean Power Plan, and that evaluation is described in the “Resource Ade quacy and Reliability Analysis TSD” for that rulemaking, a copy of which is also included in the docket for this rulemaking.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 89 of 515 example, in the Energy Policy Act of 2005, Congress added a section to the Federal Power Act to make reliability standards mandatory and enforceable by FERC the Federal Energy Regulatory Comm ission ( FERC ) and the North American Electric Reliability Corporation (NERC), the Electric Reliability Organization which FERC designated and oversees. Along with its standards development work, NERC conducts annual reliability assessments via a 10

- year fo recast and winter and summer forecasts; audits owners, operators and users for preparedness; and educates and trains industry personnel. Numerous other entities such as FERC, Department of Energy ( DOE , ) , state public utility commissions ( PUCs , ) , independent system operators and regional transmission organizations ( ISOs/RTOs , ) , and other planning authorities also consider the reliability of the electric system. There are also numerous remedies that are routinely employed when there is a specific lo cal or regional reliability issue. These include transmission system upgrades, installation of new generating capacity, calling on demand response, and other demand

- side actions. Additionally, planning authorities and system operators constantly consider, plan for , and monitor the reliability of the electricity system with both a long

- term and short

- term perspective. Over the last century, the electric industry’s efforts regarding electric system reliability have become***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 90 of 515 multidimensional, comprehensive , and sophisticated. Under this approach, planning authorities plan the system to assure the availability of sufficient generation, transmission, and distribution capacity to meet system needs in a way that minimizes the likelihood of equipment failure. 33 Long

- t erm system planning happens at both the local and regional levels with all segments of the electric system needing to operate together in an efficient and reliable manner. In the short

- term, electric system operators operate the system within safe operatin g margins and work to restore the system quickly if a disruption

occurs. 34 Mandatory reliability standards apply to how the bulk electric system is planned and operated. For example, transmission operators and balancing authorities have to develop, maintain , and implement a set of plans to mitigate operating emergencies. 35 The EPA’s approach in this proposed federal plan builds on the foundation provided in the EG’s determination of BSER to

ensur e that the final federal plan, like the final EG , does not interfere with the industry’s ability to maintain reliability of

33 Casazza, J. and Delea, F., Understanding Electric Power Systems: An Overview of the Technology, the Marketplace, and Government R egulations, IEEE Press, at 160 (2010). 34 Id
. 35 NERC Reliability Standard EOP

- 001

- 2.1b

— Emergency Operations Planning, available at http://www.nerc.net/standardsreports/standardssummary.aspx
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 91 of 515 the nation’s electricity supply. First , t he federal plan , like the EG, provides more than six 6 years before reductions are required and an eight 8

- year period from 2022 to 2029 to meet interim goals. This allows time for planning and steady , measured implementation. Second, the federal plan is a market

- based trading program which will allow affected EGUs the opportunity to buy and sell emissions credits or al lowances as well as ban k them. The EPA’s proposed federal plan includes two alternative approaches ; : a

mass - based trading program and a rate

- based trading program. Trading programs of both types have many positive attributes. Among them is that they help to ensure that imposition of the federal plan will not interfere with the industry’s ability to maintain the reliability of the nation’s electricity supply. Such a program does not restrict unit

- level operational decision

- makin g beyond requiring units to hold a sufficient number of tradable permits ( e.g ., allowances or ERC s) to cover emissions. It , therefore , inherently allows for unit level operational flexibility to facilitate the maintenance of reliability and makes the progr am enormously resilient
. If a unit finds it needs to run more than anticipated, the market

based compliance system provides a way for the EGU to meet its generation needs while it maintains compliance with the federal plan.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 92 of 515 Third, just as we have required the states to do in developing state plans, the EPA is considering reliability as a part of developing this federal plan
. For example, the EPA will

cons ult with planning authorities. The EPA will work with the ISO/RTO Council to convene a face

- to

- face mee ting for planning authorities with the EPA during the comment period to discuss any concerns or other feedback on the federal plan from those entitie s. This meeting will help to ensure that the EPA is taking into consideration any concerns about the relati onship of this rulemaking to the ability of the industry to maintain electric reliability across the country as we finalize the federal plan
. It will give the planning authorities an opportunity to hear directly from the EPA how the federal plan is designed and gives the planning authorities an opportunity to

vo ice concerns and ask questions. This will help inform comments that planning authori ties may submit to the docket.
In t he final Clean Power Plan CPP EG s , the EPA laid out the availability of a reliability safety valve that could be used if an unanticipated catastrophic emergency caused a conflict between maintenance of electric reliability and inflexible requirements that a state plan might impo se on an affected EGU or EGUs. Under the feder al plan , inflexible requirements are n ot imposed on specific plants. Rather as explained earlier, the very nature of the federal plan , in which affected EGUs can***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 93 of 515 obtain allowances or credits if needed, supports reliability. Therefore, a reliability safety valve for the federal plan is not needed. The EPA invites comments on this aspect of the proposed federal plan
. The EPA, Department of Energy ( DOE ) and FERC have agreed to coordinate efforts to help ensure continued reliable electricity generation and transmission during the implementation of the final EG EG s and the final federal plan in any state that does not have an approved state plan. The three agencies have developed a coordination strategy that reflects their joint understanding of how they will work together to monitor implem en tation
. The three agencies will work together to monitor implementation, share information and resolve any difficultie s that may be encountered. The EPA is not proposing to include an allowance set

- aside , or similar mechanism in a rate

- based approach, to address reliability issues in the federal plan; however, we request comment on including such a set

- aside in the contex t of a mass

based approach . The EPA requests comment specifically on creation of an allowance set

- aside for the purpose of making allowances available in emergency circumstances in which an affected EGU was compelled to provide reliability critical generat ion and demonstrated that a supply of allowance needed to offset its emissions was not available.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 94 of 515 The set

- aside would be in addition to the proposed set

asides that are detailed in section V.D in this preamble. The EPA would set aside allowances in each s tate under the mass

based federal plan, and if a reliability issue is perceived by the EPA, DOE and FERC coordinated monitoring process discussed above, the EPA would distribute allowances from the set

- aside to support affected EGUs during or after an unfo reseen, emergency reliability event. If there were unused allowances remaining in the set

- aside , then the EPA would distribute them to affected EGUs pro rata based on the allocation approach that is detailed in section V.D of this preamble . The EPA requests comment on all elements of such an approach, including what events would trigger the need for allowances from the reliability set

- aside; eligibility criteria to receive the set

- aside allowances; the size of the set

- aside; and the timing of distrib ution of allowances from the reliability set

- aside. Additionally, the EPA requests comment on how a reliability “set

- aside” approach could be implemented in the rate

- based federal plan. As detailed later in this preamble, the EPA proposes in the federal pl an to implement a CEIP , which was established in the EGs to reward investment in certain clean energy projects that achieve MWh results during 2020 and 2021 (see sections IV and V of this preamble for the proposed approach to implement this incentive progr am in the rate

- based and mass

- based federal***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 95 of 515 plans, respectively). Implementation of the Clean Energy Incentive Program in the federal plans would create ERCs and allowances before 2022, allowing for creation of banks that could be used in the event of an u nforeseen, emergency reliability issue. The EPA requests comment on the potential for these banks of ERCs and allowances to support reliable electricity generation and transmission to be utilized in the event of this kind of reliability emergency.
F. Worke r Certification In the EG EG s, the EPA suggested that to ensure that emission reductions are realized, it is important that construction, operations and other skilled work undertaken pursuant to state plans is performed to specifications, and is effective, safe, and timely. The EPA asks for comments as to whether the federal plan should encourage EGUs to ask for a demonstration that the work undertaken under a f ederal p lan is performed by a proficient workforce. A good way to ensure such a workforce is to re quire that workers have been certified by: ( 1)
A n apprenticeship program that is registered with the U.S. DOL, Office of Apprenticeship or a state apprenticeship program approved by the DOL; ( 2) a skill certification aligned with the U.S. DOE Better Buildi ng Workforce Guidelines and validated by a third party accrediting body recognized by DOE; or ( 3) other skill certification validated by a third party accrediting body.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 96 of 515 G. Remaining Useful Li v e s and Potential for “Stranded Assets” Section 111(d)(2) of the CAA provides, “In promulgating a standard of performance under a plan prescribed under this paragraph, the Administrator shall take into consideration, among other factors, remaining useful lives of the sources in the category of sources to which such stan dard applies.” 42 U.S.C. 7411(d)(2). This language tracks similar language in CAA section 111(d)(1) with respect to state plans
. In the final Emission Guidelines EGs , we explained how the Guidelines permit
states in applying a standard of performance in the ir state plans to consider the remaining useful life of a facilit y . We determined that it was appropriate to specify that the general variance provisions in 40 CFR 60.24(f) should not apply to the class of affected facilities covered by the se Guidelines.
& &&citation. We concluded that facility

- specific factors and in particular, remaining useful life, do not justify a state making further adjustments to the performance rates or aggregate emiss i on goal that the Guidelines define for affected EGUs in a
state and that must be achieved by the state plan. Because the Guidelines do not allow for states to deviate from state

- wide targets goals based on remaining useful life, the EPA does not believe such goal adjustments are necessary or appropriate in the federal plan either. Nonetheless, t his does not obviate the requirement that the EPA itself, in the design***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 97 of 515 of its federal plan , consider, among other factors, the remaining useful li v e s of the affected facilities. The agency therefore proposes an the following ana l ysis of this factor in
&&& section III.G.1
. . 36 In section III.G. 2 , w e discuss a related concern raised by some stakeholders, which is whether the federal plan could result in widespread “stranded assets” as a direct result of the rule. As explained below in &&§ion III.G. 2 , we believe this concern is distinct from the the “remaining useful liv e s ” factor Congress directed the agency to consider in section 111(d) (2)
. Nonetheless, we undertook analysis of whethe r and to what extent there may be a “strande d asset” concern . We believe our analysis demonstrates that this is not likely to be a widespread issue under the federal plan
. We request comment on this, as well as all other aspects of this discussion.

36 We note that the preamble and supporting materials for the EGs discuss a related concern raised by some stakeholders, which is whether the EGs could result in widespread “stranded assets” as a direct result of the rule. As explained there, we believe this concern is distinct from the “remaining useful lives” factor i n CAA section 111(d)(1), and for the same reasons, believe it is distinct from the factor Congress directed the agency to consider in CAA section 111(d)(2). Nonetheless, we undertook analysis in the final EGs of whether and to what extent there may be a “s tranded asset” concern. See memorandum to Clean Power Plan Docket EPA

- HQ

- OAR

- 2013

- 0602 titled “Stranded Assets Analysis” dated July 2015 . We believe that analysis demonstrates that this is not likely to be a widespread issue under the federal plan either.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 98 of 515 Consideration of Remaining Useful Lives Congress ad ded the “remaining useful liv e s ” factor to CAA section 111(d)(2) in the 1977 CAA Amendments. Congress did not provide in the statute any direction on how or to what degree “remaining useful li v e s ” of facilities subject to a section 111(d) federal plan is to be considered
. As discussed in the preamble to the final EGs, Congress’ intent in enacting the provision was to allow for older facilties with short remaining useful lives to not be required to install capital

- intensive pollution control devices to meet emission standards that would only be used for a short period of time before a plant ceased operation. A House of Representatives report on a predecessor bill to the enacted statute stated, “Older plants with relatively short remaining useful lives mi ght have chosen to cease operation if the only means of emission limitation available to meet emission limits were pollution control technology.” H. Report 94

- 1175, at 159 (1976) (emphasis added). This language is probative of the fact that Congress viewed “remaining useful lives” as a consideration of the physical age of for facilities
. As explained below, we believe with relatively little remaining useful life
. W e are confident the proposed federal plan will not force costly pollution control investments at older pl ants with short remaining useful lives.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 99 of 515 Further, t he statute provides that this factor is one “among other factors” that the agency is to consider in promulgating a standard of performance. Congress provided no gui dance in the statute as to what those other factors could be.
T he inclusion of unspecified factors that the agency may determine for itself to consider , along with the use of the term “consider , ” highlights that Congress intended to give the agency a subst antial degree of di scretion in determining how the “remaining useful li ves e li ves ” factor is considered. T he statute does not require, and Congress did not intend , that this consideration mandate the agency to prevent all premature retirements of affected EGUs, to impose no emission requirements on older affected EGUs, or to ensure that profitability is maintained at all times for all affected EGUs. Congress knew how to explicitly exempt older pla nts from CAA requirements at the time of the 1977 Amendments. For example, Congress excluded plants in existence before August 7, 1977 from the preconstruction requirements of the PSD/non

- attainment new source review (NSR) program, see CAA section 165(a). And in CAA section 169A related to visibility impairment in f ederal class I areas, Congress excluded from applicability units that began operation before August 7, 1962 . 42 U.S.C. 7491(b)(2)(A). In CAA section 111(d) Congress did not set any such specific criteria.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 100 of 515 Rather it directed the agency to “consider” the remaining useful liv e s of facilities, among other factors. This view also accords with past agency practice in implementing a similar provision. In the 1977 Amendments, Congress listed “remaining us eful life” as a factor for consideration in the visibility program under section 169A. 42 USC 7491. The “remaining useful life of the source” is one of several enumerated factors that the state or the EPA is to consider in determining the best available re trofit technology (BART) for a particular source. Consistent with congressional purpose, the EPA has implemented this factor in the regional haze program for many years through the BART guidelines, in

a ppendix Y to 40 CFR p art 51. The BART Guidelines provide: The “remaining useful life” of a source, if it represents a relatively short time period, may affect the annualized costs of retrofit controls. ... If the remaining useful life will clearly exceed th[e] time period [for amortiza tion based on the type of control], the remaining useful life has essentially no effect on control costs and on the BART determination process. Where the remaining useful life is less than the time period for amortizing ocsts costs , you should use this shor ter time period in your cost calculation. 40 CFR p art 51, App. a pp endix Y, section IV.D.4.k. In the agency’s view, this approach to “remaining useful life” aligns with congressional intent and informs our view of how the “remaining useful lives” factor shou ld be considered under this
CAA section 111(d) federal plan. T he key consideration is***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 101 of 515 whether the time period associated with amortizable costs of compliance will exceed the remaining useful lives of the source s in question.
C onsistent with legislative int ent and past agency practice , w e propose that the f ederal Plan adequately consider s ”remaining useful lives” of affected EGU s in that the plan does
not mandate that plants with short remaining useful lives must install costly, capital

- intensive pollution control upgrades
. by providing for trading and other flexibilities authorized in the EGs. To summarize, these include: relatively long periods for affected EGUs to come into compliance, the abil ity to credit earl y action, the use of emissions trading, the use of multi

year compliance periods, and the ability to link to other federal or state plans to create larger emissions markets. T he f ederal p lan is proposed to include a Clean Energy Incentive Program as provid ed for in the EGs, which will credit early action and ease compliance in the initial years of the program. These tools will create economic incentives that reward over

performance of some affected EGUs, and allow others to simply acquire credits or allowan ces to comply with their emission standard, thereby avoiding the need for installation of costly pollution controls at sources with a short remaining life.
T hus, t he proposed federal plan is designed in such a way that it adequately, and inherently, takes into account the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 102 of 515 remaining useful liv e s of affected EGUs. It provides substantial compliance flexibility, including means of avoiding the need to make extensive ca pital investments in control technologies that could not be recouped during the remaining use ful liv e s of a facility. 37 The design of the federal plan as a form of emission trading provides individual affected EGUs the flexibility to make co st

- conscious com pliance choices. This flexibility avoids or substantially diminishes any likelihood that compliance will be a physical impossibility or result in unreasonable costs. By relying on either rate

- or mass - based emission trading, the proposed federal plan capit alizes on the inherent flexibility available through market

- based techniq ues. In effect, under a trading program with repeating compliance periods, a facility with a short remaining useful life has a total outlay that is proportionately smaller than a faci lity with a long remaining useful life, simply because the first

37 Because we believe that this is the case for all facilities through the basic design of the federal plan, we also can confirm, in line with the EGs, that the availability of variances from the emission standards is unnecessary in the federal plan. Under the general framework regulations, facility

specific variances from an otherwise applicable standard of performance have been potentially available under the application process in 40 CFR 60.27(e)(2), which incorporates the factors provided in 40 CFR 60.2 4(f) for states. Consistent with our view that the federal plan adequately considers remaining useful lives, and for the same reasons, the need for facility

specific variances under the circumstances of 60.24(f) (unreasonable costs of controls, physical im possibility of installation of necessary control equipment, or other factors that make longer compliance times or less stringent standards significantly more reasonable) is not expected to arise, and thus, the agency proposes to make 40 CFR 60.27(e) inappl icable in this federal plan.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 103 of 515 facility would need to comply for fewer compliance periods and would need proportionately fewer ERCs or allowances than the second facility. Buying ERCs or allowances as a compliance method c ould avoid excessive up

- front capital expenditures that might be unreasonable for facilities with short remaining useful liv e s , and therefore addresses the consideration of “remaining useful liv e s .” Buying ERCs or allowances as a compliance method also wou ld reduce the potential for stranded assets. In addition , the timing of the federal plan limits the immediate costs of compliance, particularly for facilities that have useful liv e s ending before 2022, but also for facilities that have useful liv e s ending before 2030. There are no compliance obligations for affected EGUs under this federal plan until 2022, when the first compliance period begins. At that point, the agency is using a step

- down approach, or following the glide path provided for in the EGs , which begins with relatively higher emission targets that will slowly strenghten over the interim performance period from 2022

- 2029 through three multi

year compliance periods . The final, most stringent, compliance obligation does not begin until 2030
. Further, unlike state plans that can be more stringent under CAA section 116, the federal plan is no more stringent than the Emission Guidelines EGs , and , as explained in the EGs, the Guidelines reflect a reasonable, rather than a maximum***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 104 of 515 possible, implementation level for each building block in order to establish overall goals that are achievable. As discussed in the EG , &&&cite , the BSER determined an average level of emissions achievable by collective groups of EGUs, rather than for an individual EGU. In considering the remaining useful liv e s of facilities under a federal plan, the EPA believes this approach to setting the emission standards, coupled with the ability to trade, a dequately accounts for remaining useful liv e s of facilities. In essence, it allows the facilities to comply with the federal plan through the purchase or acquisition of ERCs or allowances, and to avoid the need to make costly investments in control technol ogy for plants that have short remaining useful liv e s . 38 For these reasons, we believe the federal plan adequately considers “remaining useful liv e s .” We invite comment on our consideration of facilities’ “remaining useful liv e s ” in the federal plan.
Potent ial for Stranded Assets While we believe the analysis above satisfies the consideration of remaining useful liv e s in this proposed federal plan, the agency in its discretion has also considered a different, but related problem, which has been raised by some

38 In addition, the ability to generate ERCs for sale or to sell unneeded emission allowances (depending on whether in a rate

- or mass - based system) may give some affected EGUs an economic incentive to take measures to reduce em issions that otherwise would have been uneconomical.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 105 of 515 commenters and stakeholders on the CPP EGs . This is the concern that the CPP will force or mandate the premature retirement of affected units which have extended remaining useful lives (i.e., the CPP should not result in stranded assets). For the reas ons presented in this section, we do not believe these concerns are warranted with respect to the proposed federal plan. The analysis presented here is meant to demonstrate that, on the whole, the federal plan is not anticipated to force or result in wides pread stranded assets. [&&& final analytics results needed here ***]

H. Implications for Other EPA Programs and Rules 1. Title V Permitting

a. Permitting Requirements Under the proposed f ederal p lan, title V permits for sources with affected EGUs will need to include any new applicable requirements that the plan places on the affected EGUs. The EPA, however, is not proposing any permitting requirements independent of those that would be required under title V of the Clean Air Act C AA and the regulations implementing title V, 40 CFR p arts 70 and 71. 39 All major stationary sources

39 Part 70 addresses requirements for title V programs implemented by state, local, and tribal governments, and part 71 governs the title V program implemented by the EPA or delegate agencies in areas und er federal jurisdiction, such as Indian country.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 106 of 5 15 of air pollution and certain other sources are required to apply for title V operatin g permits that include emission limitations and other conditions as necess ary to assure compliance with applicable requirements of the CAA, including the requirements of an applicable CAA section 111(d) state plan or federal plan.
CAA §§ sections 502(a) and 504(a), 42 U.S.C. 7661a(a) and 7661c(a). The “applicable requirements” th at must be addressed in title V permits are defined in the title V regulations, and include requirements under CAA section 111(d) (40 CFR 70.2 and 71.2 (definition of “applicable requirement”)). The EPA anticipates that, given the nature of the units

cover ed by the proposed f ederal p lan, most of the sources at which they are located are already or will be subject to title V permitting requirements. For sources subject to title V, the requirements applicable to them under the proposed f ederal p lan will be “a pplicable requirements” under title V and , therefore , will need to be addressed in the title V permits. For example, requirements under the proposed f ederal p lan concerning designated representatives, monitoring, reporting, and recordkeeping, the requireme nt to either meet an emission rate (including through holding ERCs (rate

- based approach ), ) ) , or to hold allowances covering emissions (mass

- based approach ) ) ) will be “applicable requirements” to be addressed in the permits.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 107 of 515 The EPA does not believe this approach is affected by the Supreme Court’s decision in Utility Air Regulatory Group v U.S.
EPA , 134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that the EPA may not treat GHGs as an air pollutant for purposes of determining whether a source is a m ajor source required to obtain a title V operating permit. In accordance with that decision, the D.C. Circuit’s amended judgment on April 10, 2015 vacated the title V regulations under review in that case (40 CFR 70.12 and 71.13) to the extent that they re quire a stationary source to obtain a title V permit solely because the source emits or has the potential to emit GHGs above the applicable major source thresholds. The D.C. Circuit also directed the EPA to consider whether any further revisions to its reg ulations are appropriate in light of UARG v. EPA , and, if so, to undertake to make such revisions. As the agency made clear in a memorandum to Regional Administrators last year, “While the EPA will no longer apply or enforce the requirement that a source o btain a title V permit solely because it emits or has the potential to emit greenhouse gases GHGs above major source thresholds, the agency does not read the Supreme Court decision to affect other grounds on which a title V permit may be required or the app licable requirements that must be***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 108 of 515 addressed in title V permits.” 40 Accordingly, while the emission of GHGs alone cannot trigger the need for a title V permit under UARG , the EPA believes a final federal plan under CAA section 111(d) will create new “applica ble requirements” in the form of an emission standard (either an emission rate or an allowance system) and related requirements for GHGs (here, carbon dioxide CO 2 ) on affected EGUs. See 40 CFR 70.2, 71.2 (definition of “applicable requirement” includes “any standard or other requirement under section 111 of the Act, including section 111(d) ”) (emphasis added). Thus, an affected EGU may be required to modify their its existing title V permit, or obtain a new permit if it does not already have one, if it becomes subject to an emission standard for carbon dioxide under a CO 2 under a CAA section 111(d) f ederal p lan. The title V permits program is structured to provide flexi bility for market

- based approaches, such as allowance trading programs under the f ederal p lan, including flexibility to make changes under such programs without necessarily requiring a formal permit revision
. For example, the title V regulations provide th at a permit issued under title V shall include, for any “approved * * * emissions trading or other

40 Memorandum from Janet McCabe, Acting Assistant Administrator, Office of Air and Radiation, and Cynthia Giles, Assistant Administrator, to Regional Administrators, Regions 1

- 10, at 5 (July 24, 2014).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 109 of 515 similar programs or processes” applicable to the source, a provision stating that no permit revision is required “for changes that are provided for in the pe rmit.” 40 CFR 70.6(a)(8) and 71.6(a)(8). Consistent with this provision in the title V regulations, the proposed f ederal p lan regulations include a provision stating that no permit revision shall be required for the allocation, holding, deduction, or trans fer of allowances
. once the requirements applicable to such allocations, holdings, deductions, or transfers of CO 2 allowances are already incorporated in such permit
. Consistent with title V regulations, this provision should be included in each title V
pe rmit for a covered source. As a result, allowances will be able to be traded (or allocated, held, or deducted) under the f ederal p lan without a revision of the title V permit of any of the sources involved. As a further example of flexibility under title V , the title V regulations allow the use of the minor permit modification procedures for permit modifications “involving the use of economic incentives, marketable permits, emissions trading, and other similar approaches, to the extent that such minor permi t modification procedures are explicitly provided for in an applicable implementation plan or in applicable requirements promulgated by EPA.” 40 CFR 70.7(e)(2)(i)(B) and 40 CFR 71.7(e)(1)(i)(B). Therefore, the EPA is proposing that any***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 110 of 515 changes that may be required to an operating permit with respect to a trading program under the federal p lan may be made using the minor permit modification procedures of the title V rules. The EPA proposes that s uch changes may include the initial changes needed to the title V permit to establish the applicability of the trading program to the source, specify the covered units, and to include other permit terms that may be needed for implementation, including the general approach for monitoring and reporting. The minor permit modification procedures may could also be used for any subsequent changes to permit terms that may be needed with respect to the trading program, although we expect such changes to be rare infre quent . As noted above, once a trading program has been established in the permit, there may be transactions, such as individual trades, that will require no formal permit modification procedures because such trading would be already addressed and allowed b y the permit (“provided for in the permit”) and provided the changes do not conflict with any existing terms of the permit. If a sources wishes to make an operational a change that would violate go against any express term of the permit, the permit must be r evised to allow such a change before the source begins operation of the change. Under the implementation strategy described above, the EPA believes it would be unlikely that any change in trading allowances would violate a term of a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 111 of 515 permit, but this princi ple is important to keep in mind when deciding if a minor permit modification is needed appropriate with respect to operating a trading program in the context of a title V permit. As new applicable requirements under title V, the requirements for covered un its under the proposed f ederal p lan will need to be incorporated into covered sources’ existing title V permits either pursuant to the provisions for reopening for cause (40 CFR 70.7(f) and 40 CFR 71.7(f)) or the permit renewal provisions (40 CFR 70.7(c) a nd 71.7(c). The EPA believes that the approach to permitting requirements we are proposing here, which imposes no additional permitting requirements independent of title V and provides for the use of minor permit modification procedures, will streamline the process for sources already required to be permitted under title V and on for permitting authorities. If there are any sources that would become newly subject to title V as a result of the requirements of this proposed f ederal p lan, the initial title V per mit that would be issued pursuant to 40 CFR 70.7(a) will or 71.7(a) would address the f ederal p lan requirements, when finalized. The EPA notes that the approach to title V permitting that it is proposing today being propos ed is very somewhat similar to the approach adopted in the final Cross

- State Air Pollution Rule ( CSAPR ).
. See 76 FR 48299

- 30 (Aug. 8, 2011). The agency recently***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 112 of 515 issued guidance to assist permitting authorities and sources subject to CSAPR in incorporating CSAPR requirements i nto title V permits. 41 The EPA invites comment on its proposed approach to permitting requirements for the f ederal p lan , including whether it would be of use to develop guidance similar to the guidance developed for permitting under CSAPR. The EPA invites c omment on its proposed approach to incorporating applicable requirements of the federal plan into title V permits and revising those requirements, including specifically seeking comment on whether all requirements should be eligible for incorporation into title V permits via minor modification procedures or if only a specified subset of such requirements should be eligible for such procedures. The EPA also notes that the applicable requirements of this proposed federal plan would apply to a source and are independently enforceable regardless of whether they have yet been included in the source’s Title V permit. 2. Implications for New Source Review Program The new source review ( NSR ) program is a preconstruction permitting program that requires maj or stationary sources of air

41 Memorandum from Anna Marie Wood, Director, Air Quality Policy Division, Office of Air Quality Planning and Standards (OAQPS), and Reid P. Harvey, Director, Clean Air Markets Division, Office of Atmospheric Programs (OAP), to Regional Air Division Director s, 1

- 7, regarding Title V Permit Guidance and Template for the Cross

- State Air Pollution Rule (May 13, 2015).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 113 of 515 pollution to obtain permits prior to beginning construction. The requirements of the NSR program apply both to new construction and to modifications of existing major sources. Generally, a source triggers these permitting requi rements as a result of a modification when it undertakes a physical or operational change that results in a significant emission increase and a net emissions increase. NSR regulations define what constitutes a significant net emissions increase, and the co ncept is pollutant

- specific. In the EG, &&&[citation], final EG s , the EPA recognized that, as part of its CAA section 111(d) plan, a state may impose requirements that require an affected EGU to undertake a physical or operational change to improve the uni t’s efficiency that results in an increase in the unit’s dispatch and an increase in the unit’s annual emissions. If the emissions increase associated with the unit’s changes exceeds the thresholds in the NSR regulations for one or more regulated NSR pollu tants, including the netting analysis, the changes would trigger NSR. We noted that while there may be instances in which an NSR permit would be required, we expect those situations to be few. The EPA believes the analysis of NSR applicability is basically the same for sources under a CAA section 111(d) federal plan. That is, it is conceivable that a source under a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 114 of 515 federal plan may choose, as a means of compliance with either a
rate

- based or mass

- based approach, to undertake a physical or operational change to improve an affected EGU’s efficiency that results in an increase in annual a significant net emissions increase of a regulated NSR pollutant. This would trigger NSR. However, as with state plans, the EPA believes that these situations will be few. After the proposal for the Clean Power Plan was published in June of 2014, the United States U.S. Supreme Court issued its opinion in UARG v EPA , 134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that an increase in greenhouse gas GHG emissions alone cannot by law trigger the NSR requirements of the PSD program under section 165 of the CAA. On remand from the Court, the D.C. Circuit issued an amended judgment in Coalition for Responsible Regulation, Inc. v. Environmental Protection Age ncy , Nos. 09

- 1322, 10

- 073, 10

- 1092 and 10

- 1167 (D.C. Cir., April 10, 2015), vacating the relevant regulations . Therefore, increases in emissions of greenhouse gases GHGs alone, including those that may occur through actions taken at sources to comply with t he proposed f ederal p lan (such as may occur when an NGCC unit increases its operations due to generation shift from a steam generating unit SGU ), cannot trigger NSR. The EPA invites comment on what actions sources might take to comply with the f ederal p lan that could trigger NSR, and what***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 115 of 515 flexibilities may be available in the existing NSR program to avoid the need for pre

- construction review in those circumstances. The EPA will invite comment on potential scenarios in which affected EGUs, particularly small e ntities , could be subject to the requirements of the NSR program as a result of taking compliance measures under the federal plan, and any ideas for harmonizing or streamlining the permitting process for such sources that are consistent with judicial prece dent. However, the EPA is not proposing any changes to the NSR program in this action, and the agency is not reopening or reconsidering any prior actions or determinations related to NSR in today’s this action. Any comments related solely to the NSR program will be considered out of out side the scope of this proposed rule. 3. Interactions with Other EPA Rules 3. Interactions with Other EPA Rules Existing fossil fuel

- fired EGUs, such as those covered in this proposal, are or will be potentially impacted by several other rules recently finalized or proposed by the EPA rules
. 42 . These rules include the Mercury and Air Toxics Standards (MATS)

42 We discuss other rulemakings solely for background purposes. The effort to coordinate rulemakings is not a defense to a violation of the CAA. So urces cannot defer compliance with existing requirements because of other upcoming regulations.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 116 of 515 (77 FR 93 04; Feb. 16, 2012 ) ) ; 43 ; the Cross

- State Air Pollution Rule ( CSAPR ); ; Requirements for Cooling Water Intake Structures at Power Plants (79 FR 48300; Aug. 15, 2014); Disposal of Coal Combustion Residuals from Electric Utilities (CCR Rule), , issued on December 19, 2014; and the proposed Steam Electric Effluent Limitation Guidelines and Standards ( SE ELG Rule) ( 78 FR 34432; June 7, 2013). These rules are discussed in more detail in the final Emission Guidelines EGs along with steps the EPA is t aking to enable compliance with obligations under other power sector rules as efficiently as possible. &&&citation. We solicit comment on whether there are specific things the EPA can do in the design and implementation of the f ederal p lan that further thi s objective. J
I . Administrative Appeals Process Under either a rate

- based or mass

- based trading program, the EPA anticipates that there may be situations in which individual parties are affected by decisions of the a gency. For example, under a rate

- based plan, a determination may be made that an eligibility application by an ERC provider is denied. And, for certain set

- asides in the mass

- based program, an affected EGU may believe that its generation numbers

43 The Supreme Court recently reversed and remanded a D.C. Circuit Court of Appeals decision that had upheld the MATS rule. Mich. v. EPA , No. 14

- 46 (S. Ct. filed June 29, 2015). The Court did not vacate the rule, however, and it remains in effect.***E.O. 12866 Review

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were allowance allocation amount was miscalculated . Similar to prior trading programs, the agency believes it would be efficient and potentially avoid the need for recourse to litigation , to provide an administrative appeals process. Therefore we are proposing, and requesting comment on, the use of the re gulations for appeals procedures set forth in 40 CFR
p art 78, to provide for the adjudication of certain disputes that may arise during the course of implementation of a federal plan under CAA section 111(d). We also propose to revise part 78 to accommodat e such appeals
. The p art 78 procedures cover prior CAA emission trading programs and were specifically designed with these types of disputes in mind
. The persons eligible to file such appeals would be similar to the existing definition of an “interested person” in p art 78. The filing of an appeal and the exhaustion of administrative remedies under p art 78 would be a prerequisite to seeking judicial revi ew. For purposes of judicial review, final agency action would occur only when an agency decision under the federal plan listed as appealable under p art 78 has been issued, and the procedures of p art 78 for appealing the decision are exhausted. The action s we propose to list as appealable under the p art 78 procedures are as follows.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 118 of 515 In the case of the rate

- based federal plan: decisions on an eligibility application for ERCs; decisions regarding the number of ERCs generated; decisions on the transfer of ER Cs; decisions on the disallowance of ERCs for compliance; decisions that there has been an excess of emissions requiring a 2

- for

- 1 ERC administrative compliance penalty; decisions regarding deduction or surrender of ERCs for compliance from affecte affecte d EGUs’ compliance accounts ; decisions on the accreditation of independent verifiers ; the use of error corrections regarding information submitted by ERC providers, affected EGUs, or other ERC account holders; and the finalization of control compliance perio d emissions data, including retroactive adjustment based on audit or other investigation. In the case of a mass

- based federal plan: decisions on an eligibilty application for set

- aside allowances; decisions regarding the allocation of allowances to affect ed EGUs; decisions regarding the calculation allocation of generation by affected EGUs during allowances from set

- asides; decisions on the baseline period or compliance periods transfer of allowances ; decisions regarding the calculation finalization of emissio ns data by affected EGUs during compliance periods; decisions making error corrections to information submitted by affected EGUs and other account holders; decisions that there has been excess emissions requiring a 2

- for

- 1 allowance administrative***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 119 of 515 complian ce penalty; and decisions regarding the deduction or surrender of allowances for compliance from affected EGUs’ compliance accounts. We request comment on this list of actions for both types of approaches to the federal plan, and whether there are other d ecisions that may be made in the course of implementation of the federal plan that are party

- specific that would be appropriate to list as appealable under p art 78. We also take comment on whether it would be appropriate for the EPA to finalize an administrative appeals process that differs in any
way from that offered under p art 78, or in addition to that offered under p art 78. If so, we request comment broadly on a ll aspects of the alternative or additional adminsitrative appeals process, including with respect to any structural, procedural, subtantive, and timing requirements it should include, who should have access to it and in what manner, and how it would diffe r from p art 78. Finally, we request comment on whether, similar to other programs identified in 40 CFR 78.1(a)(1), the agency should make the procedures of p art 78 available to any actions of the Administrator under the comparable state regulations approve d as a part of a state plan under the EGs . J. Consistency of Program Structure w ith Clean Air Act Authority The EPA is co

- proposing two distinct forms of emissions trading as the mechanism for federal implementation of the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 120 of 515 standards of performance established that achieve the emission performance levels by determined by application of the Best System of Emission Reduction ( BSER ) in the Emission Guidelines ( Clean Power Plan EGs ).
. Both proposals are “emission standard” approaches as defined in the EGs , and t he EPA is not proposing an approach like the “state measures” approach discussed that is also available to states in the final CPP EG. EGs . The EPA has legal authority to establish either of the proposed trading systems as the a federal plan under CAA section 111(d)(2). We discuss this topic briefly here and invite public comment. T he
E mission Guidelines EGs discussed the role of emissions trading in the BSER, see , e.g ., &&& FR XXXX (XX XXXX) (“ [ s ection V ] iewed from the source

- category perspective, .A of the BSER implicitly includes an element of source

- category

- wide multi

- unit compliance, which at preamble to the level of implementation could be realized through trading of rate

- based emission credits

or mass - based emission allowances. ”)
. final EGs . Th e EPA regards this to be a separate issue and is not revisiting or reopening th e discussion of the BSER or the role of trading in the BSER here. The Emission Guidelines EGs recognize and provide ample opportunity for states to establish standards of perform ance that allow the use of emissions trading or other multi

- unit compliance approaches. Id. Here we discuss why an emissions trading program is a lawful and appropriate form of federal***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 121 of 515 “implementation” of a " “ standard of performance " ” under CAA section 111(d)(2). We invite comment on this legal discussion and the agency’s interpretation of its authority. 1. General Section 111(d)(2) Authority Section 111(d)(2) provides as follows: The Administrator shall have the same authority

— (A) to prescribe a plan for a State in cases where the State fails to submit a satisfactory plan as he would have under section 7410(c) of this title [CAA section 110(c)] in the case of failure to submit an implementation plan, and (B) to enforce the provisions of such plan in c ases where the State fails to enforce them as he would have under sections 7413 and 7414 of this title [CAA sections 113 and 114] with respect to an implementation plan. In promulgating a standard of performance under a plan prescribed under this paragrap h, the Administrator shall take into consideration, among other factors, the remaining useful lives of the sources in the category of sources to which such standard applies. 42 U.S.C. 7411(d)(2). 44 The phrase “same authority to prescribe” indicates that Con gress viewed the EPA’s authority to issue a federal plan for designated pollutants under CAA section 111(d) as, in some
sense, co - extensive with its authority to issue a federal implementation plan FIP for National Ambient Air Quality Standards ( NAAQS ) poll utants under CAA section 110. This authority under CAA section 111, of course, must be understood

44 The agency’s interpretation of the “remaining useful lives” provision is discussed above in s ection III.G of this preamble
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 122 of 515 in reference to the purpose of that section ( i.e ., to establish standards of performance achieve emission reductions for designated pollutants from designated facilities), rather than in reference to the purpose of CAA s ection 110 ( i.e ., to attain and maintain the NAAQS). However, it has been the agency’s longstanding view that , in both procedural and substantive
respec ts, Congress intended that the CAA s ection 110 authority be looked to under CAA s ection 111(d)(2). See 40 FR 53340, at 53342 (Nov. 17, 1975) (“It is obvious that [the Administrator] could only prescribe standards on some substantive basis. The references t o section 110 of the CAA suggest that (as in CAA section 110) [she] was intended to do generally what the states in such cases should have done, which in turn suggests that (as in CAA section 110) Congress intended the states to prescribe standards on some substantive basis. Thus, it seems clear that some substantive criterion was intended to govern not only the Administrator’s promulgation of standards but also [her] review of state plans.”). Over the several decades of implementation of the Clean Air
Act C AA , the courts, and the EPA, have addressed the nature and scope of CAA section 110 authority. See, e.g ., 71 FR 25328, 25338 (May 12, 2005) (CAIR final rule). In general, the EPA has broad power under CAA section 110(c) to cure a defective state implement ation plan. SIP . Thus, in promulgating a federal***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 123 of 515 implementation plan ( FIP ) under CAA section 110, the EPA may exercise its own, independent regulatory authority in accordance with CAA section 110(c) and the CAA more broadly. When the EPA has promulgated a F IP, courts have not required explicit authority for specific measures: “We are inclined to construe Congress' Congress ’ broad grant of power to the EPA as including all enforcement devices reasonably necessary to the achievement and maintenance of the goals established by the legislation.” South Terminal Corp. v. EPA , 504 F.2d 646, 669 (1 st Cir. 1974). Further, the same authority that is exercised by the states under the CAA in connection with the adoption, implementation, and enforcement of a SIP may be assumed to be available to the EPA when the agency issues a FIP, after determining that a state has not adopted a satisfactory SIP. As the Ninth Circuit has held, when the EPA acts in place of the state pursuant to a FIP under CAA section 110(c), the EPA “stands in the shoes of the defaulting state, and all of the rights and duties that would otherwise fall to the state accrue instead to EPA.” Central Ariz. Water Conservation Dist. V. EPA , 990 F.2d 1531, 1541 (9 th Cir. 1993). Accord, South Terminal , 504 F.2d at 668 (“[T]he Administrator must promulgate promptly regulations setting forth an imp lementation plan for a state should the state itself fail to propose a satisfactory one. The statutory scheme would be unworkable were it read as giving to the EPA when promulgating***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 124 of 515 an implementation plan for a state, less than those necessary measures all owed by Congress to a state to accomplish f ederal clean air goals. We do not adopt any such crippling interpretation.”). By the same token, if there are clear limits to the EPA’s CAA section 110(c) authority, those too, would arguably carry
over to CAA sec tion 111(d)(2). For instance, CAA section 110(c)(1) ties the EPA’s authority to promulgate a final FIP for
a state to the EPA’s predicate action on a state implementation plan SIP (or lack thereof): generally, either an action disapproving a plan, or a finding that a state has failed to submit a plan. However, even here, as the Supreme Court has recognized, “the plain text of the CAA grants EPA plenary authority to issue a FIP ‘at a ny time’ within the two 2

- year period that begins the moment EPA determines a SIP to be inadequate.” EPA v. EME Homer City Generation , 134 S. Ct. 1584, 1602 n.14 (2014). Congress gave the EPA the same authority to prescribe a plan under CAA section 111(d)( 2) as it possesses under CAA section 110(c). The EPA believes this authority is the “same” in the sense described above and in the case law. 45 The scope of the

45 We interpret the cross

- reference to be to the currently enacted version of CAA section 110(c), rather than to a prior version. As discussed in section VII of this preamble, below, the current version of CAA section 110,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 125 of 515 EPA’s action to undertake a FIP under CAA section 110 is informed by the scope of the state’s action to undertake a SIP; likewise, the scope of the EPA’s action to undertake a federal plan under CAA section 111(d) is informed by the scope of the state’s action to undertake a state plan. The agency received comments on the proposed EGs from commenters who stated that the EPA cannot require states to implement the building blocks that make up the BSER ; for example, ordering re

- dispatch to natural gas

- fired units, or ordering the constructio n of RE projects. These commenters went on to say that the EPA itself would have no authority to order these types of actions under a federal plan. As we explain ed in the Legal Memorandum for the final EGs , and reiterate here, the premise of these comments is incorrect. The EPA is not requiring the implementation of the BSER or the building blocks in the EGs . Even where the EPA is directly implementing standards of performance in a federal plan, the agency will not, and need not, attempt to order sources to implement the measures that comprise the BSER. Rather, as set forth in the co

- proposed federal plans discussed in s ections IV and V of this preamble ,

including subsection (c), reflects changes made in the 1990 Amendments based on experience gained in the first two decades of the CAA’s implementation. The statute and legislative history do not expressly address the question, but there is no indication Congress would have intended to prevent these improvements from being available under CAA section 111 as well.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 126 of 515 the EPA would set emission standards for each of the affected EGUs in the federal

- plan state, provide mec hanisms for their implementation and enforcement, and otherwise leave to the owners and operators of the affected EGUs the decisions about what measures they want to take to comply with the emission standard. Though the emission standards will be federally enforceable, as under a state plan, sources may achieve them through implementation of measures in the BSER, or any other method. Thus, the question whether the EPA would have the authority to directly order the implementation of the measures in the build ing blocks in this proposed federal plan is not only not relevant but represents a categorical misunderstanding of the nature of the BSER in relation to the imposition of standards of performance under a CAA section 111(d) plan. To illustrate this, by the same token the EPA could not enforce many logistical aspects of a control requirement such as a scrubber

– for instance, the EPA does not need to assert the authority to order into existence companies that manufacture scru bbers, or order their construction or delivery on a certain schedule. The EPA need not in setting emission standards have before it all of the information regarding manufacturing, transportation of parts, or other logistical requirements to ensure that eac h scrubber gets constructed and delivered to a source. Similarly, the EPA here***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 127 of 515 does not, and needs not, propose an implementation approach of directly intervening to re

- dispatch certain units, construct new
RE projects, or take other measures, either inclu ded in the BSER
or not. T he agency determined the BSER and emission performance levels in the EGs on a reasonable assumption that all of those things can actually happen. In providing for the implementation of federally enforceable standards of performance in the federal plan proposed in this action , the agency is ensuring that these things will happen
. 2. Use of Market Techniques to Implement Standards of Performance under the Clean Air Act The use of market techniques such as emission trading is well

- supp orted in the Clean Air Act C AA and has many regulatory precedents. The EPA discussed this history, and the reason why trading is a supportable method of implementation of standards of performance under CAA section 111(d) in the Emissions Guidelines. [&&& cite XX FR XXXXX]. We adopt EGs . See s ection V.A of the same reasoning here, and final EGs . Here we supplement that discussion with respect to the agency’s own authority under
CAA section 111(d)(2) to use trading as a method of implementation of a “standard of performance” in the federal plan
. The 1990 CAA Amendments added broad authorizations for the use of market techniques in several sections of the statute,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 128 of 515 including in Title I. States were provided express authority to use such approaches in their NAAQS implementation plans under CAA s ection 110(a)(2)(A): “Each [state] plan shall

— include enforceable emission limitations and other control measures, means, or techniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights)....” 42 USC 7410(a)(2)( A). The EPA was given similar authority in the definition of a “Federal Implementation Plan” in CAA section 302: “The term ‘Federal implementation plan’ means a plan (or portion thereof) promulgated by the Administrator ... which includes enforceable emissio ns limitations or other control techniques (including economic incentives, such as marketable permits or auctions of emissions allowances), and provides for attainment of the relevant national ambient air quality standard.” 42 U.S.C. 7603(y). Section 111(d )(2) of the CAA provides the EPA “the same power to prescribe” a federal plan under CAA section 111 as it would have to promulgate a FIP under
CAA section 110(c). Thus, the EPA believes the plain language of the statute authorizes the use of market techniq ues in CAA section 111(d) federal plan s. However, even if one were to view this language as not wholly unambiguous with respect to the scope of federal authority under CAA section 111, the EPA believes that CAA section 111, in conjunction with authorizatio ns and endorsements***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 129 of 515 of market techniques throughout the Act CA A , and other indicia of congressional intent, strongly support the view that market techniques are within the EPA’s authority to promulgate a federal plan under CAA section 111(d ). See also 40 CFR 60.21(f) ( defin ing an “emission standard” as “a legally enforceable regulation setting forth an allowable rate of emissions into the atmosphere, establishing an allowance system, or prescribing equipment specifications for control of air pollution emissions.” ); 40 CFR 60.24(b)(1 ). Case law throughout the history of the CAA has generally confirmed the legal viability of emissions trading as an implementation measure so long as the trading ultimately achieves the emission reduction goals of the statut e. See, e.g ., Sierra Club v. EPA , No. 12

- 3169 (6 th Cir. F iled March 18, 2015), Slip Op. at 11

- 14 (upholding EPA approval of redesignation of area to attainment on basis that reductions in emissions from
cap - and

- trade programs ( NO x SIP Call, CAIR, and CSAPR ) are permanent and enforceable). Chevron, U.S.A ., Inc. v. Natural Res. Def. Council, Inc. , 467 U.S. 837 (1984) (“ Chevron ”), the seminal case establishing the Supreme Court’s deferential standard of review of agency interpretations of the statutes they adm inister, upheld one of the EPA’s early emissions trading programs, the Netting Rules of 1980 (45 FR 52676; Aug. 7, 1980), which the EPA in its discretion chose to allow states to apply***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 130 of 515 in both attainment and nonattainment areas (46 FR 50766; Oct. 14, 1981). The Netting Rules allowed existing major sources to modify without triggering certain requirements of PSD or nonattainment NSR, so long as any increase in emissions associated with the modification is compensated for by a corresponding decrease in emissions elsewhere within the same facility, such that there is no significant net increase in emissions from the facility as a whole. In upholding this approach in Chevron , the Supreme Court gave deference to the EPA’s definition of the term “source,” finding in that term sufficient ambiguity to support the a gency’s reasoned application of an emissions averaging approach for total pollutio n emitted from the source. See EPA v. EME Homer City , 134 S. Ct. 1584, 1603 (2014) (“Because ‘a full understanding of the force of the statutory policy . . . depend[s] upon more than ordinary knowledge’ of the situation, the administering agency’s
construc tion is to be accorded ‘controlling weight unless . . . arbitrary, capricious, or manifestly contrary to the statute.’”) (quoting Chevron , 467 U.S. at 844). 46

46 The EPA is not aware of any case since at least the Chevron decision in which a trading program under the CAA was invalidated simply by virtue of being a trading program. The CAIR trading program was set aside by the D.C. Circuit because the court held it did not accomplish the objective of the Good Neighbor provision of the CAA, not because it used a trading approach per se. North Carolina v. U.S. EPA , 531 F.3d 896, 921 (D.C. Cir. 2008). More recently the Supreme Court uph eld key portions of the CSAPR trading program that replaced CAIR in EPA v. EME Homer City , 134 S. Ct. 1584 (2014).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 131 of 515 With the increasing recognition of the utility of trading, crediting, and averaging to meet emiss ion reduction goals efficiently , the EPA set forth a comprehensive policy on trading in 1986. Emissions Trading Policy Statement; General Principles for Creation, Banking and Use of Emission Reduction Credits, 51 FR 43814 (Dec. 4, 1986) (hereinafter “ERC P olicy”). In the ERC Policy, the EPA stated that it “endorses emissions trading and encourages its sound use by states and industry to help meet the goals of the Clean Air Act CAA t more quickly and inexpensively.” At the same time, based on lessons learned f rom its earlier 1982 trading policy, the EPA took steps to tighten its policies on the use of “bubbles” to ensure environmental integrity of trading, particularly in non

- attainment areas. The agency emphasized the requirements of enforceability, tracking ( and preventing double

- counting), determining the appropriate baseline from which to measure emissions, and demonstration of actual air quality benefits. The use of an emissions trading system for CO 2 reductions for affected EGUs under CAA section 111(d) is also analogous to the trading system for chlorofluorocarbons (CFCs) under the pre

1990 CAA provision for control of stratospheric ozone depleting substances. This program was reviewed by the Office of Legal Counsel (OLC) within the Department of Justice in 1989. See Memorandum for Alan Raul, General Counsel, Office of Management***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 132 of 515 and Budget, from the Office of the Assistant Attorney General (April 14, 1989) (hereinafter “OLC Memo”). 47 The OLC was asked by OMB to opine whether a general grant of reg ulatory authority to the EPA to “control” CFCs was sufficient to authorize an emissions fee or an a cap - and

- trade system, including auction , of tradable allowances. The statute authorized the EPA to issue regulations “for the control of any substance, pract ice, process, or activity (or any combination thereof) which in his judgment may reasonably be anticipated to affect the stratosphere, especially ozone in the stratosphere, if such effect in the stratosphere may reasonably be anticipated to endanger public health.” Former CAA 157(b) (as enacted in the 1977 CAA amendments). The Office of Legal Counsel concluded that this language

-- – which it characterized as “plain,” “unambiguous,” and “sweeping”

-- – was sufficient to authorize the EPA to establish a cap

- an d

- trade program with auction for
CFCs. See id. A t 7 (“It cannot seriously be argued that the use of economic incentives to regulate pollution is a novel or strange idea that could not have been anticipated by the authors of the Clean Air Act Amendments [of 1977].”) (citing multiple examples from the policy literature as early as E. Mishan, The Costs of Economic Growth (1967 ). ) )
. The OLC noted that as of

47 A copy of this memorandum has been placed in the docket for this rulemaking.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 133 of 515 1977, “Congress was cognizant of economic forms of regulation, did not prohibit them, but instead used general language permitting a wide scope of regulatory measures for the control of CFCs.” To interpret the general authority of this section of the CAA as affirmatively prohibiting market incentives would be, in the OLC’s words, to read into the statute the italicized clause “regulations for the control [of CFCs] by traditional command and control or specification standard methods ,” id
. A t 9

– a rewriting “unwarranted in any case, but especially so where Congress was aware of economic methods of control and where such methods so ably serve the underlying purposes of the statute.” Id. By the time of the 1990 CAA Amendments, as discussed above, Congress was comfortable enough with the efficacy of market techniques that they were broadly authorized for use in
state SIPs and federal implementation plans FIPs for NAAQS. See 42 U.S.C. 7410(a)(2)(A), 7602(y). In the wake of the 1990 Amendments, t he EPA issued an “Implementation Strategy for the Clean Air Act Amendments of 1990.” 48 This Strategy included as one of nine overarching implementation principles, “Market

based: Use of market

- based approaches and other innovative strategies to creatively solve environmental problems.” Further,

48 U.S. EPA, Office of Air and Radiation, Implementation Strate gy for the Clean Air Act Amendments of 1990 (Update, 1992) (July 1992), 400

- K

- 92

- 004.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 134 of 515 it announced that the EPA would make “full use of innovative market

- based approaches,” and that the a gency will supplement traditional approaches with broader use of market incentives and other innovative approaches “whenever possible.” Id. A t 3, 9. Since the 1990 Amendments, the EPA has established t hree of its most robust trading programs

– the Federal NO x Budget Trading Program (65 FR 2674; Jan. 18, 2000), the Clean Air Interstate Rule ( CAIR ) (71 FR 25328; April 28, 2006), and the Cross

- State Air Pollution Rule ( CSAPR ) (76 FR 48208; Aug. 8, 2011), u nder CAA section 110(a)(2)(D)(i)(I), relating to air pollution that causes nonattainment or interference with maintenance of air quality standards in downwind states. 49 As noted in the rulemaking notice for the final Emission Guidelines, &&&cite&&&, EGs , the EPA has instituted or authorized the use of emissions trading programs twice in the past under CAA section 111(d). The EPA authorized NO x emissions averaging or trading within or between facilities under the Municipal Waste Combustors Emission Guidelin es EG s in 1995. 60 FR 65387, 65402 (Dec. 19, 1995) (codified at 40 CFR 60.33b(d)(1) and (2)). The EPA also developed a cap - and

- trade system for mercury under CAA

49 The EPA notes that complications that arise with respect to assigning a “significant contribution” among upwind states for NAAQS pollutant levels in downwind states, an d designing a trading regime that accomplishes Good Neighbor objectives, are not present with respect to CO 2 , which is a global pollutant; emission reductions anywhere contribute to the environmental objective of addressing climate change.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 135 of 515 section 111(d) in the Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 2005). The EPA proposed a federal plan for trading that was identical in all relevant respects to the CAMR rule. 71 FR 77100 (Dec. 22, 2006). However, CAMR was vacated by the D.C. Circuit on grounds unrelated to the establishment of a trading system for implementation , b efore the CAMR federal plan could be finalized. New Jersey v. EPA , 517 F.3d 574 (D.C. Cir. 2008). 50 The agency believes these legal and administrative precedents for federal trading programs under the Clean Air
Act C AA going back decades amply support its d ecision to propose two forms of emission trading as the method of implementation of the carbon dioxide Emission Guidelines Clean Power Plan E G s in the federal plan . Notably, emissions trading is particularly appropriate with respect to a global pollutant su ch as carbon dioxide that CO 2 that is well

- mixed in the atmosphere and does not have direct, acute health impacts due to inhalation at ambient levels
. 51

50 The CAMR progr am was vacated because the EPA had not made requisite findings under CAA section 112(c)(9) in delisting EGUs with respect to emissions of a hazardous air pollutants (HAP). No such procedural concern is present here with respect to CO 2 , which is not a HAP under CAA section 112. 51 We recognize that some commenters on the EGs raised concerns about the localized impacts that may occur from the potential for concentrations of co

pollutants associated with CO 2 emitted from affected EGUs. We address those concerns in the communities sections of the final EGs, at section IX, and in this preamble in section IX below.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 136 of 515 Finally, the Supreme Court has affirmed the breadth of the agency’s discretion under CAA section 111(d) to select the method by which it would control carbon dioxide emissions CO 2 emissions from existing power plants. See AEP v. Connecticut , 131 S. Ct. 2527, 2538 (2011) (“Congress delegated to EPA the decision whether and how to regulate carbon

- dioxide emissions from power plants.”) (emphasis added); see also id. A t 2539 (“The appropriate amount of regulation in any particular greenhouse gas GHG

- producing sector cannot be prescribed in a vacuum: as with other questions of national or international policy, informed assessment of competing interests is required. Along with the environmental benefit potentially achievable, our Nation’s energy needs and the possibility of economic disruption must weigh in the balance. The Clean Air Act C AA entrusts such complex balancing to the EPA in the first instance, in combination with state regulators.”). Today’s This proposal is guided by the relevant cases and the experiences of the agency in implementing the CAA trading programs discussed above. The EPA invites comment on this discussion and the agency’s interpretation that CAA section 111(d)(2) authorizes the two a pproaches to a federal plan proposed here.
**IV. Rate**  **- based Implementation Approach** 
A. Overview***E.O. 12866 Review

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T he EPA’s federal plan r equirements for GHGs CO 2 from affected EGUs implement the EGs as previously discussed
. In this federal plan and model rule proposal the EPA is proposing , as one option, rate

- based emission standards (i.e., the emission standard approach) for affected EGUs not covered by an approved state plan as specified in the EGs. Clean Power Plan
. The EPA is proposing to apply the subcategorized emission rates in this federal plan proposal. The se rate

- based emission standard s are consistent with , and would satisfy, the degree of emission limitation achieved by the BSER determination made in the f inal
CP P Clean Power Plan EGs , which included sub

- categorized CO 2
e mission p erformance r ates for affected EGUs to meet during the plan performance periods . An affected EGU subject to this federal plan will demonstrate compliance by achieving a stack emission rate less than or equal to the rate

- based emission standard or by applying ERCs , acquired by the EGU , to its measured stack emission s rate. The application of ERCs by an affected EGU to comply with an emission standard has been determined in the final CPP EGs Clean Power Plan as a mechanism available to affected EGUs with a CO 2 emission rate greater than its respective performance rate to meet compliance obligations ,
see s ection IV.A.5.a [&&&] VIII . K of the CPP final EGs . Under a
rate

- based federal plan, the EPA would act as the state described in s ection VIII.C. 3 1 .a of the CPP [&&&] final EGs with***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 138 of 515 the EPA acting as the issuer of ERCs, and otherwise implementing and enforcing the standards of performance for affected EGUs subject to the federal plan
. This section describes how a the proposed rate

- based federal plan and model trading rule and how each would be designed and operated, and how measures consistent with the CPP EG s building blocks can generate . For the federal plan, the EPA is proposing to limit the issuance of ERCs . to designated categories of affected EGUs and to RE resources and nuclear generation (from new capacity and incremental capacity uprates) that are measured by a revenue quality meter, rather than the full suite of options discussed in the EG s . The EPA requests comment on these means of generating ERCs and whether to limit the scope of the federal plan in this manner, and if not, what other sources of low

- or zero - emitting electricity not included in the building blocks in federal plan states should also be eligible to generate ERCs for compliance purposes
. A For both the proposed federal plan and model rule, the EPA requests comment on which E M&V plan, measurement and verification ( M&V ) report , and verification report requirements should apply for each eligible

resource . F urther discussion of non

- BSER measures that may be able eligible to generate ERCs can be found in the CPP EGs. Clean
Power Plan and section IV.C. 3 of this preamble
. (The EPA is not reopening its determination of the BSER.)***E.O. 12866 Review

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B. Rate Goals In the federal plan , the EPA is proposing to apply the subcategorized emission rates to the respective affected EGUs. The EPA is proposing Clean Power Plan the EPA identified a rate

based federal plan that uses the “emissions standards” option from the EG s . Rate Goals In the CPP EGs the EPA established the “emission standards” approach as a a n approvable method of compliance for state plans , while recognizing the availability of equivalent alternative methods of compliance
. to implement the final EGs . In this approach the requirements for compliance rest solely on affected EGUs in the form of federally enforceable emission standards
. As noted above, this proposed rate

- based federal plan adopts the “emission standards” approach
. In the CPP EGs expressed as a rate of emissions of CO 2 per unit of energy output
. In the Clean Power Plan , the EPA established , through application of the BSER , separate CO 2 emission performance rates for affected EGUs in two subcategories. The two subcategories are natural gas

fired stationary combustion turbines ( i.e ., natural gas combined cycle units , or NGCCs NGCC units ) and fossil fuel fired steam generating units SGU s ( i.e ., utility boilers and IGCC units ). ) 52 .

52 For simplicity, affected utility boilers and IGCC units will collectively be called “steam generating units.”***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 140 of 515 The CO 2 emission performance rates set in the CPP EG s Clean Power Plan are reflected below in Table 4 6 of this preamble
. The EPA is proposing to apply these rates in the rate

- based federal plan as the emission standards for NGCCs , and utility boiler/IGCC NGCC units , and SGU s, respectively. For a thorough discussion of affected EGU category

- specific CO 2 emission performance rates and rationale , see s ection VI of the CPP final EGs . These calculated limits standards and the premises that these limits standards are based on are not within the scope of comment in this rulemaking as they were finalized in the CPP EGs Clean Power Plan
. As discussed in section III.D of this preamble above , the EPA proposes to implement a compliance schedule for the rate

based federal plan with multi

- year compliance periods as follows: A three 3

- year period (2022 through 2024), followed by a three 3

- year period (2025 through 2027), followed by a two 2

- year period (2028 and 2029), for the I nterim P eriod; and, commencing in 2030, successive two 2

- year compliance periods for the F inal
P eriod. In the CPP EGs Clean Power Plan , the EPA established CO 2 emission performance rates for the subcategories of affecte d EGUs for the performance periods . The EPA proposes to use those emission performance rate s promulgated in the CPP EGs Clean Power Plan as the emission rate standard for the respective EGUs that would become subejct sub je ct to this proposed federal plan if finalized . The EPA is not opening for comment the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 141 of 515 determinations , made in the CPP EGs, Clean Power Plan of each subcategorized CO 2 emission performance rates . The emission rate standards for respective EGU types are provided for convenience in Table 4 6 of this preamble
. **Table 4**  **.** The EPA is proposing to use a glide path during the
I nterim P eriod for EGUs to provide a smooth transition to the final compliance periods after 2030. This approach is established in the final EGs . In Table 6 of this preamble, the applicable standards for each interim compliance period is listed.
**Table 6**  **. Glide Path Interim**  **Performance Rates (Adjusted Output**   ** Weighted** **- Average Pounds of CO**  **2 Per Net MWh From All Affected**  **Fossil Fuel -**  **Fired EGUs) Technology**  **2022 -**  **2024 Compliance**  **Rat e**  **2025 -**  **2027 Compliance**  **Rate 2028**  **- 2029**  **Compliance Rate**  **Final Rate** 
SGU or IGCC 1,671 1,500 1,380 1,305 Stationary combustion turbine 877 817 784 771 The EPA is using the subcategorized rate s in the rate

- based trading approach because it allows ERCs to be fungible across jurisdictional borders and most closely correlates provides an incentive structure, as compared to how the EPA envisions other
rate

- based approaches, that facilitates implementation of measures identifie d as part of the BSER to function . Using subcategorized rates allows for: (1) an equitable distribution of burden for consistently applied emission reductions rates for***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 142 of 515 power plants of different types ; and (2) free trading of fungible ERCs among all affected EGUs subject to the federal plan and within the federal trading program. The EPA broadly solicits comments on all aspects of the subcategorized rate approach. The EPA solicits comments on whether th e subcategorized rate approach is the preferred rate

- based approach for the federal plan and model trading rule
. 53 If a subcategorized approach for a rate

- based model rule and federal plan is not preferred by commenters , the EPA requests comment on the perceived benefits of an alternative rate or set of rates ( e.g ., applying a uniform rate, i.e ., the state goal, to all affected units within the state as the EGUs’ emission standard). C. Crediting Mechanism Under a rate

- base d “ emission standard ” implementation approach in the federal plan , we are proposing that EGUs subject to the emission performance r equirements for GHGs will either need to emit at or below their emission rate standard , or they will need to acquire ERCs to achieve compliance. A n ERC is a tradable compliance unit representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions
. These ERCs may then be used to adjust the measured and reported CO 2 emission rate of an affected EGU when

53 Note that the values of limits and de terminations made as the BSER are not open for comment.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 143 of 515 demon strating compliance with a rate

- based emission standard. For each ERC, one MWh is added to the denominator of the reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. Under this proposal proposed federal plan , ERCs will be issued by the EPA to two three categories of entities: (1)
A ffected EGUs that perform at a rate below the applicable emission rate limit ; and (2) RE providers that develop
RE standard ; (2) affected NGCC units for all generation (represents shifting genera tion from SGU s to NGCC units , as anticipated under Building Block 2 ); ( 3 ) new nuclear units and capacity uprates at existing nuclear units, and (4) RE providers that develop metered projects and programs whose results, in MWh, are quantified and verified according to EM&V criteria as described below in section IV.D. 6 8 of this preamble . We are also discussing in this preamble and , taking comment on for the federal plan, and proposing for the model trading rule a potential third fourth category: other low

- and zero

- emitting

non - BSER measures that are described in section IV. C. 2 3 of this preamble [ &&& ].
. The concept of using an ERC as a crediting mechanism to meet compliance obligations is consistent with the CPP EGs and is being adopted in this federal plan
. . 54

54 The use of ERCs and definition as a compliance mechanism to meet the BSER emission performance rates is established in section VIII.K of the final EGs.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 144 of 515 EGU Based ERC Generation Because the goal of this rulemaking is the actual reduction of CO 2 emissions, it is fundamental that ERCs represent the MWh of energy generation or savings they purport to represent. To this end, only valid ERCs that actually meet the standards articulated in this rule may be used to satisfy any aspect of compliance by a n affected EGU with emission standards. The responsibility for the validity of the ERC rests with the affected EGU. Despite safeguards included in the structure of ERC issuance and tracking systems, such as the review of eligibility applications and M&V re ports, and EPA issuance of ERCs, ERCs may be issued that do not, in fact, represent eligible zero

- emission MWh as required in the EG s . A variety of situations may result in such improper ERC issuance, ranging from simple paperwork errors to outright fraud. The EPA requests comment on ways that the EPA could safeguard the val idity of an ERC. 1. ERC s Generat ed and Owed Against a Standard The number of ERCs generated or needed for surrender by a n affected fossil fuel

- fired EGU is based on the CO 2 emission rate of the EGU in comparison to an emission rate standard. The calculation of ERCs generated by an EGU or needed for compliance is the differenc e of the limit the EGU is subject to minus the CO 2 stack emission rate of the EGU subtracted from the standard***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 145 of 515 the EGU is subject to , and then this value is subsequently divided by the limit standard the EGU is subject to. This value is a normalized quantity of how much better or worse the EGU is performing compared to its standard. The normalized value is weighted by multiplying the MWh energy electricity output from the EGU at that the EGU is applying the limit to emission rate
. This can be generically expressed as:

ERC MWh ERCs

= ( EGU limit

− EGU operating rate ) EGU limit ( EGU standard

− EGU operating rate ) EGU standard ∗ EGU generation If the value calculated is positive, this indicates the number of ERCs that are being generated , and, ; conversely, a negative value indicates how many ERCs will need to surrendered be acquired to meet the unit’s emission rate for that compliance period
. ERCs will be issued on an annual basis to ERC providers ( i.e ., entities generating ERCs via the ERC approval and issuance process detailed below). S urrender of ERCs for compliance by affected EGUs w ill not occur until the end of the compliance period as further described in section IV.D.10 of this preamble
. As an example, assume a steam EGU operating in the second interim compliance period is subject to a rate standard of 1, 465 500 lbs CO 2 /MWh. Assume it operates at 2,000 lbs CO 2 /MW h , and also assume it generates 1 million MWh over a co mplianc e***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 146 of 515 period. Its total emission rate would be 2 billion lbs CO 2 / 1 million MWh. In order to achieve the emission standard, it would need to purchase 365,188 333 , 334 ERCs (rounded to the nearest higher integer). In essence, th is quantity of ERCs represents the quantity of MWh that need to be added to the steam EGU’s denominator ( i.e ., generation , here, 1 million MWh ), such that 2 billion pounds of CO 2 (total emissions ), divided by total generation ( i.e ., in this case, 1, 365,188 333,334 MWh) equals the emission rate for compliance (1, 465 500 lbs/MWh). The needed quantity of ERCs for any given amount of generation can be easily calculated by dividing the total emissions of the affected EGU by the applicable emission rate limit, and then subtracting the generation of the affected EGU. To incentivize The discussion in this subsection builds on and capture the emission reductions of Building Block 2 applies the definition, benefits, use, and determination of using ERCs from the final EGs ( s ection VIII of the CPP EGs, the EPA
proposes in final EGs)
. We invite comment on use of th e approach just described as a method of implementation of a federal plan and a model trading rule , and we take comment on any alternatives to this approach that NGCC generation has still fall within the capability to generate ERCs on a pro - rata basis reflecting incremental NGCC generation. established criteria described in the CPP EGs . Comments that solely relate to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 147 of 515 determinations finalized in the EGs will be considered out side the scope of this proposed rule
. 2. Incremental NGCC operation is the relationship of an affected EGUs operation co mpared to the baseline year of 2012, used in setting the CO 2 emission performance rates. Through ERCs Building Block 2 there is a call to shift (BB2) of the BSER determination in the CPP EGs describes shifting generation from fossil steam EGUs SGU s to NGCCs NGCC units because NGCCs NGCC units generate electricity at a lower less carbon intensity and, thus, reduces CO 2 emissions for the same intensive rate. BB2 describes NGCC units generat ing at 75 percent of the unit’s annual operating capacity
. This level of g eneration
. To account for incremental generation the federal plan will use , for most NGCC units, would represent an increase in annual generation from a 2012 baseline. For every hour of electricity generated by an NGCC beyond its 2012 baseline ( i.e ., incremental generation) , there is a corresponding emission reduction in the power system. 55 The EPA is proposing to reflect the emission reductions of BB2 by crediting all NGCC generation on a pro - rata basis that reflects expected incremental operation of a NGCC in Building Block 2 of 75% to allow a NGCC to generate ERCs for operation in relation to the incremental NGCC generation detailed in Building Block 2.

55 It is assumed that any increase in NGCC gen eration above 2012 levels is displacing fossil fuel

- fired steam EGU generation.***E.O. 12866 Review

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A ll to 75 percent capacity
. This means that for every hour that an NGCC generates electricity, it will also generate a partial credit associated with the generation shift from fossil steam to NGCC units. The NGCC will generate a partial credit because the emission reductions associat ed with BB2 have been distributed on

an hourly basis. A discussion on the concepts behind the distribut ion of emission reductions of incremental NGCC generation on an hourly basis can be found at the end of this subsection.
A ll affected NGCC generation wi ll be credited , with ERCs, by a factor that represents the described emission reductions from incremental generation; ERCs credited in this way will be designated as BB2 G as Shift ERC s (GS

- ERCs) for clarity 56 . T he collective sum of the BB2 GS

- ERC s generated realizes the amount of emission reductions described in B uilding B lock 2 BB 2 when 75
per cent capacity is achieved
. This incentive is not a requirement, however. If NGCC s NGCC units do not collectively meet the increase to 75 percent capacity , the missed emission reductions or above , the lost opportunity for ERC generation simply will need to be achieved through other means ( e.g ., emissions performance improvements at affected EGUs or

56 A GS

- ERC is treated and represents the same value as an ERC, but has a compliance restriction that it can only be used by steam generating units and not by stationary combustion turbines for compliance obligations.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 149 of 515 additional RE generation). The amount of BB2 GS

- ERC s the EPA proposes to be generated for every MWh of NGCC operation is set
at a factor relating the amount of electricity generation that
NGCCs NGCC units collectively will need to would generate to reach at the level described in B uilding B lock 2 BB 2 ( i.e ., reaching 75 percent capacity ). ) and the associated emission reductions
. This means that fractional BB2 GS

- ERC s are generated for every NGCC MWh and when the interconnect region collectively reaches the level that would be generated if all NGGCs in the
reg ion operated at a 75 percent summer time capacity factor there will be the an amount of BB2 GS

- ERC s equating that correlates to the emission reductions calculated in building block 2 anticipated under BB 2 of the BSER. NGCCs NGCC units are expected to be incentivized to reach this level of generation because of in part due to market demand for them. BB2 ERCs will GS

- ERCs . Thus, GS

- ERC s have the potential to play a large a n important role in the sector meeting compliance obligations. The BB2 ERC generating fa ctor is calculated by taking t he number of additional MWh The number of GS

- ERCs that an NGCC generates is a combination of three factors. The first is the GS

- ERC Emission Factor. This emission factor represents how much better an individual NGCC’s emission rate is compared against the fossil steam standard. This measures the emission reductions because of the BB2 shift in generation. The SGU standard used as***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 150 of 515 reference here is as described above in section IV.B of this preamble and established in the BSER determination from the EGs of the least stringent region 57 ( i.e ., the region with the highest calculated emission rate standard for SGU s). The GS

- ERC Emission Factor is expressed by taking the complement of the ratio of the NGCC standard to the fossil

- steam standard. It can be summarized by the following expression:

GS

- ERC Emission Factor = 1

− NGCC emission rate Steam Standard The second factor is the Incremental Generation Factor. This factor represents the distribution of the inc reased NGCC generation across all NGCC generation. In essence, it is prorating the incremental NGCC generation over all NGCC generation. The Incremental Generation Factor is calculated by taking the number of MWh beyond the 2012 baseline needed for the

cor responding region to reach 75 percent NGCC generation capacity and dividing it by the the MWh that is 75 percent NGCC generation capacity, giving a factor. This factor is the rate at which BB2 ERCs are generated for every MWh of energy from an
NGCC. This c an also be expressed in summarized by the following equation expression :

57 The regions that are used in the CPP E Gs and for this proposal are the Eastern Interconnect, Western Interconnect, and Electric Reliability Council of Texas (ERCOT).***E.O. 12866 Review

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Incremental Generation Factor = 1

− Regional 2012 NGCC Baseline 75 % NGCC Regional Capacity The Incremental Generation Factor is a factor that the EPA will calculate and will be calculated for every compliance period based on the least stingent region’s Incremental Generation Factor based on increased utilization of RE and its replacement of fossil fuel fired generation (based on Building Block 3 of the CPP EGs ). 58 For the cal c ulat ion of this factor the EPA is using the least stringent region for each compliance period and applying it for all GS

- ERC calculations subject to the federal plan
. The calculations for determinating the least stringent regional Incremental Generation Factor can be found in the GS

ERC TSD. Table 7 of this preamble presents the proposed values that would apply for all NGCC units to calculate the amount of issued GS

- ERCs.
**Table 7**  **. Incremental Generation Factors for Interim and Final Compliance Periods**  **Corresponding Incremental Generation Factor Compliance**  **Peri od 1**  **2022 -**  **2024 Compliance**  **Period 2 2025**  **- 2027**  **Compliance Period 3**  **2028 -**  **2029 2030**  **- 2031**  **and thereafter** 0.22 0.32 0.28 0.26 BBBB 2 EEEEEE GGGGGGGGGGGGGGGGGGGG FF FF FF = NN GGGGGG BBBB 2 ( MMMM h )

− NN GGGGGG

. 2012 ( MMMM h ) NN GGGGGG BBBB 2 ( MMMM h )

58 Note that per the discussion in s ection VI of the final EGs, if the EPA had measured incremental NGCC generation for reassign ment to fossil steam rate as the difference from the post building block three levels and full utilization, the post building block three levels would be used in the numerator here, resulting in a higher “incremental generation factor” and more ERCs for th e same amount of NGCC generation.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 152 of 515 The EPA has calculated this factor rate to be [&&&] 0.09 BB2 ERCs/MWh. BB2 ERCs are generated at this rate by an NGCC for any level of annual generation to the grid. The calculation of BB2 The third factor in calculating an NGCC’s generaton of GS

ERC is the NGCC G eneration. The NGCC Generation is the total net energy output ge neration of the affected NGCC duri ng the year that ERCs are being calculated. The three factors combine to make the following equation:

GS

- ERCs = NGCC Generation * Incremental Generation Factor * GS

- ERC Emission Factor The GS

- ERC equation above gives the number of GS

- ERCs that an NGCC wil l generate. The Incremental Generation Factor and GS

- ERC Emission Factor combine to make the GS

- ERC generating rate for the NGCC. This functions by the Incremental Generation Factor prorating all incremental NGCC generation and the GS

- ERC Emission Factor d esignating the proportion of the incremental NGCC generation that will generate ERCs. The GS

- ERC generating rate multiplied by the total NGCC Generation gives the total GS

ERCs generated by the NGCC for the year. The EPA is proposing this approach , which provides GS

- ERCs for all affected EGU NGCC generation but at a fractional, pro rated level, using the three factors above, for several reasons. This approach has the benefit of allowing NGCC units to bid into the electricity market without having to adjus t bids based on a projection of whether or not the NGCC will have generation incremental to its baseline in a given year . The proposed method***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 153 of 515 also promotes the best performers within the NGCC subcategory by crediting them with a higher rate of generating G S

- ERCs, as shown by the calculations above
. The better the emission performance of an NGCC unit , the more GS

- ERCs it is capable of earning per MWh. The proposed method also promotes and incentivizes all NGCC units, regardless of historical generation, to c ontinue to operate at a greater capacity to replace steam generation. The EPA believes that this will allow for more fluidity in the market and flexibility for greater NGCC generation. In the Clean Power Plan the BSER determination for subcategory rates is calculated by using the least stringent region and applying the standards from that region on a national level. The determination of the BSER in the final EGs was a one time determination and is not being altered, updated, or changed here. Rather, i n this preamble the EPA is proposing to use the same regions and to apply the least stringent components to an NGCC’s GS

- ERC calculation at a national level ( i.e ., applying the GS

- ERC calculation components that generate the most GS

- ERC s for every MWh). The EPA solicits comment on applying the least stringent regional factor to calculate GS

- ERCs for all affected NGCC units subject to the federal plan and model rule on a national level. Conversely, t he EPA also requests comment on applyin g, for each region , its own regional GS

- ERC generation***E.O. 12866 Review

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rate. As proposed, the least stringent region could change from compliance period to compliance period. The EP A requests comment on whether a single “least stringent” region should be chosen and used f or calculations or whether being “least stringent” should be evaluated on a compliance period by compliance period basis. The EPA also requests comment on whether “least stringent” should be evaluated on a year

- to

- year basis. The EPA also requests comment on whether the GS

- ERC Emission Factor should be calculated on a unit by unit basis (as currently proposed) or be calculated based on the least stringent region’s baseline 2012 average emission rate. This will simplify the prac tice of calculating and distributing GS

ERC generation, but would not reward the better performing NGCC units within the subcategory. In the GS

- ERC TSD, the EPA used the regions ’ average emission rate to calculate a factor that would credit GS

- ERCs to all NGCC units subject to the federal plan. For 2030 and beyond , this value is based on the Eastern Interconnect and is 0.08 GS

- ERCs/MWh. So for every MWh that an NGCC generates it would be issued 0.08 GS

- ERCs and , if this were the approach the EPA proposed, t his would apply to every NGCC that would be subject to the federal plan. In the GS

- ERC TSD, the spreadsheet can be manipulated to show what an individual NGCC’s GS

- ERC Emission Factor would be in the proposed method. This is done by adjusting the cell for a***E.O. 12866 Review

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year ’s Average GS

- ERC Emission Factor to account for the individual NGCC’s emission rate instead of the average NGCC emission rate. The calculation of GS

- ERC s for an NGCC is independent of the calculation of ERCs generated or owed against the NGCC

s tandard. It is possible that an NGCC will owe ERCs against the NGCC its assigned emission standard for every MWh generated, but still be generating BB2 GS

- ERC s. BB2 GS

- ERC s may only be used to
meet fossil steam generation units’ compliance obligations.
In the following example the EPA has taken the average NGCC operation in the Eastern Interconnect and divided it by the 75% of Building Block 2 to calculate an ERC generating factor for Building Block 2 of 0.09. This factor can be applied to every hour of ope ration of an NGCC to account for the effects of incremental operation of NGCC units across the system. The ERCs that are then generated can be used by any affected EGU that is subject to the sub

- categorized steam EGU CO 2 emission performance
rate. In this As an example, an NGCC is connected to the grid and generates 1 million MWh of electric output for the first year of the final performance period. During this year it emits 850 million lbs of CO 2 giving it an emission rate of 850 lbs CO 2 /MWh. The NGCC is s ubject to a F inal P eriod emission rate limit of 780 7 71 lbs CO 2 /MWh. Since the NGCC is always subject to its NGCC***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 156 of 515 emission rate limit standard of 780 771 lbs/MWh and it is operating at a rate above that limit standard it will owe non GS

ERCs for all generation its own compliance . The ERCs owed are calculated by solving for the number of ERC MWh the NGCC will need to adjust its rate down to its emission rate limit. This is shown in the following equation: 850 , 000 , 000 llllll CC 2 / [ 1 , 000 , 000 MMMM h + EEEEEE MMMM h ] = 780 llllll CC 2 / MMMM h 850 , 000 , 000 lbs CO

_ 2 / [ 1 , 000 , 000 MWh + ERC MWh ] = 771 lbs CO

_ 2 / MWh When that equation is solved for the number of ERC MWh needed, the NGCC would need to acquire 89,74 4 102,464 ERCs to adjust its emission rate to its emission rate standard. Additionally, the BB2 ERC generation rate, as determined by the [ref &&&] EPA, is 0.09 BB2 ERCs/MWh of NGCC generation. Using this value the quantity of BB2 ERCs generated can be GS

ERC Emiss ion Factor for this NGCC is calculated by the following using 771 lbs CO 2 /MWh for the NGCC emission rate and 1,404 lbs
CO 2 /MWh for the SGU emission standard in the equation : described above. NN GGGGGGGGGGGGGGGG GG ∗ BBBB 2 EEEEEE GGGGGGGGGGGGGGGG GG = BBBB 2 EEEEEE And to solve the equation for this example:
GS

- ERC Emission Factor = 1

− 771 lbs / MWh 1 , 404 lbs / MWh This calculation results in a GS

- ERC Emission Factor of 0.45. This is o nly an example. Because the Incremental Generation Factor is calculated by the EPA, it can be found in***E.O. 12866 Review

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- ERC TSD and is proposed to be 0.26. By using the GS

- ERC Emission Factor and Incremental Generation Factor calculated above with the NGCC’s generation for the year, the number of GS

ERCs for this NGCC can be calculated.
0

. 45 ∗ 0

. 26 ∗ 1 , 000 , 000 MMMM h ∗ 0

. 09 BBBB 2 EEEEEE MMMM h = BBBB 2 EEEEEE = GS

- ERC The calculation results in 90 117 thousand BB2 GS

- ERCs being generated. Because an NGCC cannot use the BB2 GS

- ERC s it generates to meet its compliance obligations, this NGCC will both generate ERCs ( 90 117 ,000 BB2 ERCs for its incremental generation GS

- ERC s ) and owe ERCs ( 89,744 102,464 non - BB2 GS

- ERC s against NGCC limit standard ). This NGCC may sell (or otherwise transfer) or bank its BB2 GS

- ERC s. If a BB2 GS

- ERC is sold , those proceeds may, in turn, be used to acquire non

- BB2 GS

- ERC s to satisfy the NG CC’s compliance obligations. A GS

- ERC may not be used to meet an NGCC’s compliance obligation because they ar e generated to reflect incremental
NGCC generation replacing a SGU ’s generation. The calculation to derive a GS

- ERC represents this generation shift. If a GS

- ERC were to be used for compliance for an NGCC it would represent a shift from one NGCC to another , which serves little purpose in achieving emission reductions
. Th e EPA requests comment on this the proposed approach and requests comment and suggestions on other approaches for existing NGCCs NGCC units to generate GS

- ERCs at all times. The***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 158 of 515 EPA is considering this methodology that BB2 GS

- ERC s are generated for all NGCC generation because it en sure s that all existing NGCCs NGCC units are encouraged to run at a greater capacity. The EPA is requesting comment on alternative methods
to account for NGCCs to generate BB2 NGCC units generat ing GS

ERC s. Specifically, the EPA soli cits comment on NGCCs NGCC units generating BB2 GS

- ERC s once a threshold of electric generation for the year is achieved exceeded . This threshold is based on emissions from 2012 for as a baseline and any NGCC generation beyond this threshold would be consider ed incremental generation. There are two different options to evaluate against a baseline. The first is on an a unit level, if a n NGCC generates more than it did in 2012, all generation above the 2012 level ( i.e, incremental generation) is eligible to be credited with BB2 GS

- ERC s. The other threshold option is to use a percentage threshold. This percentage is the 2012 Evaluated on a regional NGCC generation of total NGCC regional level, the 2012 baseline capacity in 2012. This percentage for NGCC units in t he least stringent region is applied at the to all units . Each unit level and all generation by the NGCC that is considered to be incrementally generating after it exceeds that percent the capacity at the NGCC is eligible to percent and will be credited with B B2 GS

- ERCs accordingly
. The BB2 GS

- ERC s in these instances are calculated by the following equation:***E.O. 12866 Review

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BB2 ERCs GS

- ERC

= ( Steam standard

− NGCC operating rate ) Steam standard ( Steam standard

− NGCC emission rate ) Steam standard ∗ Incremental NGCC generation This equation quantifies the reductions of the generation shift from fossil steam to NGCCs NGCC units by the NGCC operating rate being evaluated against the fossil steam standard. For all incremental NGCC generation the NGCC operating rate is compared again st two different standards: (1) T he NGCC standard against which ERC generation is evaluated; and (2) the steam standard against which BB2 GS

- ERC generation is evaluated. An evaluation against each standard is independent of one another and BB2 GS

ERC s, in this situation, are only available for fossil steam compliance purposes. While having a baseline threshold for EGU generation to credit BB2 GS

- ERC s against closely resembles the EPA’s BSER determination, it enables a system in which BB2 GS

- ERC s can be
gen erated by displacing replacing NGCC generation from one unit with other NGCC generation
. from another
. In this situation there is not necessarily any additional NGCC generation as a subcategory, but a shift in which NGCC units are generating electricity and to what degree
. This allows for a situation in which BB2 GS

- ERC s can be generated without necessarily corresponding to achieving the CO 2 reductions anticipated by the BSER. Another aspect that reductions in CO 2 emissions
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 160 of 515 The EPA considered is proposing to use a a pro

- rata approach for generating BB2 also requests comment on whether a distinct type of ERC that comes with the proposed restrictions (i.e., GS

- ERCs ) is that this allows NGCCs to bid into the electricity market without h aving to adjust bids based on projecting whether or not the NGCC will generate beyond a threshold. This discussion builds on and applies the definition, benefits, use, and determination of using ERCs from the CPP EGs S ection VIII . We invite comment on this approach as a method necessary to maintain the integrity of implementation of a federal plan and a model the rate

- based trading rule proposal
. Comments regarding this section that solely relate to determinations finalized in the EGs will be considered o ut of out side the scope of this proposed rule
. Other 3. Eligible Emission Reduction Measures of for ERC Generation Under the rate

- based federal plan, the EPA is proposing to specify zero - and low

- emitting emission reductions measures used to adjust an emission rate that are eligible for ERC issuance
. under the federal plan
. Specifically, the EPA is proposing that
RE capacity incremental to 2012 implementing the generation that meets the requirements for eligible resources in the EG s (a s specified in section VIII.K of the final EG s ) , meets all other***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 161 of 515 requirements related to ERC issuance in the EG s and this proposal, and falls into one of the following specific categories of RE measure types resources (as specified in section
V.E of the final EGs ) are eligible for rate

- based crediting: on

shore to be issued ERCs : wind, solar photovoltaics (PV), concentrated solar power , geothermal power, and hydropower. 59 Further, the EPA is proposing for the federal plan that new nuclear units and capacity uprates at existing nuclear units that meet the requirements for eligible resources in the EG s (as specified in section VIII.K of the final EG s ) and all other requirements related to ERC issuance in the EG s and this proposal are eligible to generate ERCs
. Further, these RE and nuclear measures must have the capacity ability to provide data from a revenue quality meter, a requirement which that is further discussed in Sec. section IV. G.4 Evaluation, Measurement, and Verification , provided below. This treatment for eligible measure types is also proposed for the set

- aside for RE that is part of the proposed mass

- based implementation approach, and all proposed aspects of the eligible measure types described in this

59 This treatment for RE as an eligible measure type is also proposed for the set

- aside for RE that is part of the proposed mass

- based implementation approach co

- proposed in s ection V of this preamble as the federal plan, a nd all proposed aspects of the eligible measure types described in this section and the requests for comment included below also apply in the mass

- based set

aside context. Incremental nuclear is not eligible for the RE set

- aside. The set

- aside method and t he use of this eligibility treatment within it are specified in section V.D.3 of this preamble
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 162 of 515 section and the r equests for comment included below also apply in the mass

- based set

- aside context. The set

- aside method and the use of this eligibility treatment within it are specified in Sec. &&&. D.8 of this preamble
. The EPA is proposing the inclusion of these measure types in the federal plan for the following reasons. These technologies , with the exception of nuclear, are part of the quantification of renewable energy RE generation potential for the BSER. Thus, they a re included in the quantification of CO 2 emission performance rates and should be available to affected EGUs to meet their CO 2 emission performance rate under the federal plan , . See the final guidelines EGs for details on the treatment of these measures in BSER (see Sec. section V.E .). of the final EGs ). These technologies are also expected to be able to deploy on an economic basis during the compliance period, as discussed in the final EGs (see Sec. section V.E.6 of the final
EGs ). These technologies also provide the simplest and most timely path for EM&V implementation under a federal plan,

as because they can use their existing metering infrastructure to quantify generation and submit it for ERC issuance
. This EM&V approach is al lowable under the EM&V requirements in this proposal, outlined in Sec. &&&, and is consistent with the requirements outlined in the final guidelines (see Sec. VIII.&&&). A concern unique to federal plan implementation is the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 163 of 515 need for an ERC issuance process that can be implemented in a streamlined manner across many jurisdictions in the time frame allowed by the federal plan while still assuring a rigorous EM&V process. By limiting eligibility to measures that can be directly metered, a feasible federal plan process for ERC issuance across a potentially large number of jurisdictions is ensured. This approach would allow for easier determinations of compliance with the requirements for EM&V proposed in s ection
IV .D.8 of this preamble below (see als o s ec tion VIII .K.3 of the final EGs ). The agency requests comment on the inclusion of other zero and low

- emitting emission reduction measures as eligible for ERC issuance under the rate

- based federal plan , and comments on how to assure suggested sources can be validated to assure reductions of CO 2 . This may include other RE technologies not included above, such as distributed RE generation and various types of biomass. In this proposal, the EPA is also offering for
comment various treatment options for di fferent types of biomass fuels, if it is included as an eligible measure under the federal plan ( see below
. )
. The EPA requests comment on the inclusion of various types of demand

- side EE as eligible measures for ERC issuance under the federal plan , such a s state and utility EE programs, project

- based demand

- side EE, state building codes, state***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 164 of 515 appliance standards, and conservation voltage reduction. The agency also requests comment on the inclusion of combined heat and power (CHP) as an eligible measure CHP as an eligible measure under the federal plan . Later in this section, the agency has provided detailed requirements for the issuance of ERCs for CHP, and we request comment on these requirements for inclusion in the federal plan
. The EPA requests comment on the inclusion as eligible for ERC issuance under the federal plan of any other zero - or low

emitting measure types emission reduction measure s beyond those mentioned here, as long as they meet the eligibility requirements outlined in the final E G s for rate

- based crediting. For all of the above measures on which the EPA requests comment, the agency is particularly interested in comments on how EM&V methods can be implemented for these measures across applicable jurisdictions in the timeframe provid ed by this proposal in a way that is rigorous, straightforward, widely demonstrated, and in accordance with the EM&V requirements in this proposal, outlined in Sec. &&&, section IV.D.8 of this preamble , and within the requirements outlined in the final guid elines (see Sec. section VIII. G.5 K . 3 of the final EGs ). It should also be noted that any eligible measure will be subject to the eligibility requirements outlined in this proposal and the final***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 165 of 515 EGs , such as the requirement that the measure be incremental to 2012. The EPA acknowledges that as new technologies mature, there should be an avenue to add new technologies to this specified set of eligible measures
. under the federal plan
. The agency is requesting comment on appropriate processes through which , afte r the federal plan is finalized, the EPA and/or stakeholders could make a demonstration of demonstrate the appropriateness of new measure types and the EPA could evaluate and approve the demonstration so that a new measure type can could be considered eligible for ERC issuance under the federal plan. Under the rate

- based model rule, the EPA is proposing that any emission reduction measure is eligible as long as the requirements for eligible resources in the final EGs (as specified in section VIII.K of t he final EG s ) and all other requirements related to ERC issuance under the model rule that are specified in the EGs and this proposal. In particular, these measures should be able to meet the requirements for EM&V as finalized in the final EGs section VIII .K and those proposed for the model rule in section IV.D.8 of this proposal. In this section, the EPA is also providing detailed requirements for CHP and waste heat power (WHP) , these requirements are proposed under the model rule, and we request comment o n their inclusion in the federal plan. We are requesting comment on the inclusion***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 166 of 515 of biomass and an option for the treatment of biomass in both the proposed rate

- based federal plan and proposed rate

- based model rule. As mentioned above, the EPA is requesting comment on the inclusion of biomass as an eligible measure for rate

- based crediting. The EPA is also requesting comment on the following treatment options for biomass if biomass is included as an eligible measure. In the final emissions guidelines EGs , the EPA recognizes that the use of some biomass

- derived fuels can play an important role in controlling or reducing the contribution of
CO 2 emissions to the atmosphere (see Sec. &&&). increases of CO 2 levels in the atmo sphere (see section V.A.6 of the final EGs ). The use of some kinds of biomass has the potential to offer a wide range of environmental benefits, including carbon benefits. However these benefits can typically be realized only if biomass feedstocks are sourced responsibly and attributes of the carbon cycle related to the biomass feedstock are taken into account. Many states have already recognized the importance of waste

derived feedstocks via mandatory and voluntary programs

s upporting such efforts. 60 Some states have also acknowledged the

60 Types of waste

- derived biogenic feedstocks may include: landfill gas generated through the decomposition of Municipal Solid Waste ( MSW ) in a landfill; biogas generated from the decomposition of livestock waste, biogenic MSW, and/or other food waste in an anaerobic digester; biogas generated through the treatment of waste water, due to the anaerobic decomposition of biological materials; livestock waste; and the biogenic***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 167 of 515 potential role of certain forestry and agricultural industrial byproducts (such as black liquor) in energy production. Many states have also recognized the importance of forests and other land s for climate resilience and mitigation, and have developed a variety of sustainable forestry policies, biomass

- related renewable energy RE incentives and standards, and GHG accounting procedures. 61 In addition to acknowledging such state programs, the EPA has undertaken a technical assessment of biogenic CO 2 emissions from stationary sources associated with the production, processing and use of biomass fuels. In November 2014, the agency released a second draft of the technical report, Framework for Assessing Biogenic Carbon Dioxide for Stationary Sources . The revised Framework , and the EPA’s Science Advisory Board (SAB) peer review of the 2011 Draft Framework , finds concluded that it is not scientifically valid to assume that all biogenic feedstocks a re “carbon neutral” and that the

fraction of MSW at waste

- to

- energy facilities (as discussed in section VIII. I . 2
. C of the final EGs ). 61 Some states, for example Oregon and California, have programs that recognize the multiple benefits that forests provide, including biodiversity and ecosystem services protection as well as climate change mitigation through carbon storage. Others, like California’s Forest Practice Regulations, support sustained production of high

- quality timber while considering ecological, economic and social val ues. Several states focus on sustainable bioenergy, as seen with the sustainability requirements for eligible biomass in the Massachusetts RPS, which, among other requirements, limits old growth forest harvests.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 168 of 515 net biogenic CO 2 atmospheric contribution of different biogenic feedstocks generally depends on various factors related to feedstock characteristics, production, processing and combustion practices, and, in some cases, what would happen to that feedstock and the related biogenic emissions if not used for energy production
. 62 The EPA is engaging in a second round of targeted peer review on the revised Framework with the SAB in 2015. 63 Information in the revised Framework and the second SAB peer review process, including stakeholder comments, will assist the EPA in assessing potential qualifying qualif ied biomass feedstocks in federal plan applications. Provided for comment below are options If biomass is included as an eligible measure, we are taking comment on an option for biomass treatment under the rate

- based federal plan, which w ould also apply to eligible generation under the mass

based plan allowance set

- aside and to the calculation of covered emissions for affected EGUs that are co

- firing biomass , which include:
.

62 Specifically, the SAB found that “There are circumstances in which biomass is grown, harvested and combusted in a carbon neutral fashion but carbon neutrality is not an appropriate a priori assumption; it is a conclusion that should be reached only after considering a particular feedstock’s product ion and consumption cycle. There is considerable heterogeneity in feedstock types, sources and production methods and thus net biogenic carbon emissions will vary considerably. Of course, biogenic feedstocks that displace fossil fuels do not have to be car bon neutral to be better than fossil fuels in terms of their climate impact.” http://www.epa.gov/climatechange/ghgemissions/biogenic

- emissions.html
. 63 http://www.epa.gov/sab
.***E.O. 12866 Review

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• A list of specific acceptable biomass fuels

• General principles and/or specific criteria regarding biomass fuel production, processing and use for energy

• A combination of th e above options. The first Th is option offered for comment is to specify a list of specific pre - approved acceptable qualified biomass fuels. For example, the EPA could recognize the biogenic CO 2 emissions and climate policy benefits of waste

- derived feedsto cks ( e.g ., landfill gas) and certain industrial byproduct feedstocks ( such

as e.g ., black liquor or other forestry and agricultural industrial byproducts with no alternative markets ), based on ). As another example, the EPA could also recognize biomass feedstocks from sustainably managed forests lands, provided that these feedstocks meet certain requirements such as demonstration that the conclusions supported by a variety of technical studies. The feedstock is sourced from sustainably managed lands (for example, feedstocks from forest lands with sustainable practices like improved management to increase carbon sequestration benefits) and therefore help s control increases of
CO 2 in the atmosphere
. The pre - approved qualified biomass feedstocks list could be amended in the future as the science related to biogenic CO 2 emissions assessments evolves. Also, The EPA asks for comment on whether to include a provision could be included that allows sources to seek approval for other types of***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 170 of 5 15 biomass to be added to th e pre - approved list and what that process would entail
. For example, this process could include consideration of the production, processing and use of forest

and agriculture

- derived biomass fuels and related CO 2 benefits
. The second option offered for comment would be to establish general principles and/or specific criteria concerning the production, processing and use of biomass fuels. These principles or criteria would reflect sustainability and sustainable practices that enhance carbon sequestration and storage in a manner consistent with widely accepted principles. For example, general principles for forest

- and agriculture

derived biomass fuels could include efforts to: protect, sustain, and enhance ecosystem health and vitality; maintain and enhance c arbon sequestration and storage; ensure long term forest and landscape productivity and economic viability; protect culturally and environmentally sensitive areas; and employ rigorous monitoring and verification of carbon stock levels. Under this option, t he EPA could specify criteria for the production, processing and use of forest

- and agriculture

derived biomass fuels that could also include the preservation of, and/or limiting or restricting the use of biomass fuels from, natural and old growth forests, peatlands, wetlands, high conservation value areas, biodiverse areas, protected lands and***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 171 of 515 other sensitive lands. Examples of other potential criteria include:

• Improved management to increase carbon sequestration benefits and protect forest health, includi ng the retention of recommended levels of slash, woody debris, crop and other biogenic materials from harvest/related activities.

• L imitations on deforestation and targeted land use change, especially of high carbon and/or otherwise ecologically sensitive a reas for the production of bioenergy feedstocks.

• Employment of sustainable management practices which promote production levels that can continue at a given intensity of management consistent with required environmental protection and which is professional ly planned to achieve over time the desired balance between growth and removals on the landscape.

• Maintain soil and water quality and minimizing the amount of fertilizers and chemicals used on biomass fuel

- producing lands through integrated pest and fuel m anagement activities.

• Use of the best scientific information and systems available to assess landscape health , carbon stock attributes and net carbon emissions attributable to production harvesting and use of biomass for combustion,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 172 of 515 and to continually refine and update inventories of these attributes.

• Monitor and verify implementation of sustainable production and best management practices, including credible records and other evidence of management, monitoring and verification activ ities.

• Ensure forest and landscape productivity, and economic viability, including primary and secondary products. For example, if the biomass fuel is an industrial process residuals 64 , then the primary uses of sourced material (i.e.

non - energy products) a nd related land use and industry practices remain intact. The third option offered for comment is a combination of the specific acceptable feedstock list and , for feedstocks not included on that list, general and/or specific criteria that reflect sustainability and sustainable practices considered in a manner consistent with widely accepted principles. The EPA also requests comment on options for demonstrating compliance with the options listed above that include criteria that reflect sustainability and sustainable how EGUs would demonstrat e that feedstocks meet the requirements to be accepted

64 Industrial process r esidu al s can be considered as substance s that are not the primary end product that a production process is in place specifically to produce. Residual materials are not a primary aim of the production process and the process has not been delib erately modified to produce it.***E.O. 12866 Review

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as a pre - approved qualified biomass feedstocks. These requirements co uld include demonstration of certification or verification of practices that are additional to the other monitoring , reporting and EM&V requirements discussed in section &&& above. These options for demonstration of compliance with criteria are described b elow. The first option offered for comment would require this proposal , such as provision of sufficient credible evidence, such as monitoring records and metrics showing that the forest/agricultural feedstock sources meet the criteria listed above and any others that might be adopted , and are at low risk of non

- compliance. The second option offered for comment would require the provision of approved analysis of carbon benefits, third party verification and/or certification entities or programs to d emonstrate compliance with established sustainability criteria. Biomass that is acknowledged as sustainable and certified under a verification body and/or third party scheme [(e.g., Forest Stewardship Council, Programme for the Endorsement of Forest Certif ication , Sustainable Forest Initiative ], that is deemed or determined to be acceptable is at low risk of non

- compliance with the criteria offered for comment. These third party verifications can include demonstration of sustainable origin of feedstock (via chain of custody verification), mass balance***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 174 of 515 calculations and/or other performance

- based metrics. The EPA requests comment on what considerations, if any, to take into account when including acceptable certification programs or criteria. The third option offered for comment allows for the

use of any other verification programs or entities to demonstrate compliance which are not pre

- approved but can be proven to employ generally accepted sustainability metrics . For example, this would include verification p rograms that reflect sustainable production practices and responsible land use resource management, are performance based, and are at low risk of non

- compliance may be used . Entities that use verification programs that are not pre

- approved may be required to provide additional forms of records and metrics to verify feedstock sustainability
. The fourth option offered for comment requires , or a determination of the biogenic emissions and sequestration related to the production, processing and use of the biom ass fuel, with supporting records. A potential calculation method is the application of an assessment framework like that provided in the 2014 Framework for Assessing Biogenic Carbon Dioxide for Stationary Sources that assesses the extent to which the prod uction, processing, and use of biogenic material results in a net atmospheric contribution of net biogenic CO 2 emissions. This type of method could use the actual measured (and verified)***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 175 of 515 net biogenic CO 2 emissions and sequestration values or biomass fuel

- specific default values to calculate the carbon intensity of the biomass fuel effects related to the production, processing and use of the feedstock
. It is possible that compliance options could be implemented in isolation or simultaneously (e.g., use of certification and/or verification entities and determination of biogenic emissions). The calculated carbon intensity of the biomass feedstock could then be applied to calculations relevant to meeting rate

based and mass

- based obligations through co

- fi ring of biomass. The EPA is taking comment on the following options. The carbon intensity of the feedstock in question could be used to determine the net emissions of biomass used as a co

- fired fuel at an affected EGU. As is outlined in the final EGs (see Sec. &&&) , an affected EGU using qualifying biomass as a fuel must monitor and report both its overall CO 2 emissions and its biogenic CO 2 emissions. In a rate

- based context, the biogenic emissions can be included in the calculation of the fossil rate at th e affected EGU for the purpose of determining whether the affected EGU has met its obligation under a rate

- based federal plan. In a mass

- based context, the affected EGUs that are co

firing would be required to hold allowance equivalent to those calculated biogenic emissions.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 176 of 515 The EPA requests broad comment on the types of qualif ied biomass feedstocks that should be specified in the final model rule, if any. We request comment on the methods that we should specify in the final model rule for the measurement of the associated biogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the final model rule related to biomass. Specifically, we seek comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model rule. We request comment on any other requirements that should be included in the final model rule regarding EM&V for qual if ied biomass. Discussion of the biomass EM&V requirements in the rate

- based model rule can be found in section IV.D.8 of this preamble below. The eligibility requirements for ERC resources discussed in this s ection meet the requirements outlined in the f inal EGs ( s ee Fina l Emission Guidelines preamble section VIII. G.1.b: Actions taken K.2 of the final EGs ). The agency in this proposal is including in the regulatory text for the model rule language related to the crediting of these other potential ERC resources, even though they are not being proposed as a part of the federal plan. Our intent is to provide sta tes further direction through the model rule on how states may include this broader set of
ERC

- generating resources in a rate

- based plan. To reduce***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 177 of 515 confusion over the applicability of these provisions, the agency has added a note in the regulatory text to clarify that these resources, and provisions throughout the proposed subpart that are related to those resources, are not applicable in the case of a federal plan. Rather they are proposed as part of the model trading rule only. However, again, the agency is requesting comment on the inclusion of these resources in the federal plan. The EPA is proposing with respect to the rate

- based model rule that CHP units are eligible to generate ERCs. With respect to the federal plan, the EPA is requesting comment on the incorporation of non

- affected CHP units. Electric generation from non

- affected CHP units 65 may be used to adjust the CO 2 emission rate of an affected EGU ). , as CHP units are low

emitting electric generating resources that can replace generation from af fected EGUs. Electrical generation from non

affected CHP units that meet the eligibility criteria under section VIII.K.1.a of the Clean Power Plan preamble can be used to adjust the reported CO 2 emission rate of an affected EGU.

65 The accounting treatment described in this section is for a “topping cycle” CHP unit. A topping cycle CHP unit refers to a configuration where fuel is first used to generate electricity and then heat is recovered from the electric generation process to provide additional useful thermal and/or mechanical energy. A CHP unit can also be configured as a “bottoming cycle” unit. In a bottoming cycle CHP unit, fuel is first used to provide thermal energy for an industrial process and the waste heat from that process is then used to generate electricit y. Some waste heat power (WHP) units are also bottoming cycle units and the accounting treatment for bottoming cycle CHP units is provided with the WHP description below.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 178 of 515 The electrical generation f rom a non - affected CHP unit that can be used to adjust the CO 2 emission rate of an affected EGU must be calculated in accordance with the method specified in this section. The CHP unit’s electrical output is prorated based on the CO 2 emission rate of the e lectrical output associated with the CHP unit (a CHP unit’s “incremental CO 2 emission rate”) compared to a reference CO 2 emission rate. 66 This “incremental CO 2 emission rate” related to the electric generation from the CHP unit would be relative to the applicable CO 2 emission rate standard for affected EGUs in the state and would be limited to values between 0 and 1. The CHP unit’s electrical output is prorated as follows: Prorated MWh = (1

- incremental CHP electrical emission rate/applicable affected EGU emission rate standard)* CHP MWh output Where the ratio is limited to values between 0 and 1. The CHP electrical CO 2 emission rate is the net emission rate when the CHP unit’s CO 2 emissions related to its thermal output are deducted from the CHP unit’s total CO 2 emissions. The CHP electrical CO 2 emission rate is derived as follows:

66 The applicable CO 2 emission rate standard is in Table 6. of this preamble.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 179 of 515 CHP electrical CO 2 emission rate = [CHP fuel input 67 * fuel emission factor 68
– (UTO/ boiler efficiency) * fuel emission factor]/CHP electrical MWh Where UTO is the useful thermal output from a counterfactual industrial boiler that would have existed to meet thermal load in the absence of the CHP unit. This accounting approach takes into ac count the fact that a

non - affected CHP unit is a fossil fuel

- fired emission source, as well as the fact that the incremental CO 2 emissions related to electrical generation from a non

- affected CHP unit are typically very low. To generate ERCs for CHP, the C HP Electrical CO 2 Emission Rate that is calculated (from above) is applied against the applicable affected EGU standards in the same fashion as described in section IV.C.1 of this preamble. The low CO 2 emission rate for electrical generation from a non

- aff ected CHP unit is a product of both the fact that CHP units are typically very thermally efficient and the fact that a portion of the CO 2 emissions from a non

- affected CHP unit would have occurred anyway from an industrial boiler used to meet the thermal l oad in the absence of the CHP unit. In contrast, the CHP unit also provides the benefit of electricity generation while resulting in very low incremental CO 2 emissions beyond what would have been

67 This term generally represents the thermal energy associated with the total fuel input.
68 The fuel emission factor can be determined through 40 CFR Part 75 Appendix G.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 180 of 515 emitted by an industrial boiler. As a result, the accounting method does not presume that emission reductions occur outside the electric power sector, but instead only accounts for the CO 2 emissions related to the electrical production from a CHP unit that is used to substitute for electrical generation from affect ed EGUs. The EPA is proposing with respect to the rate

- based model rule that WHP units are eligible to generate ERCs. With respect to the federal plan, the EPA is requesting comment on the incorporation of non

- affected WHP units. WHP units that meet the el igibility criteria under section VIII.K.1 of the Clean Power Plan preamble may be used to adjust the CO 2 emission rate of an affected EGU. There are several types of WHP units. There are units, also referred to as bottoming cycle CHP units, where the fuel is first used to provide thermal energy for an industrial process and the waste heat from that process is then used to generate electricity. 69 There are also WHP facilities where the waste heat from the initial combustion process is used to generate additional power. Under both configurations, unless the WHP unit supplements waste heat with fossil fuel use, there is no additional fossil fuel use d to generate this additional power. As a result, there are no incremental CO 2 emissions

69 In such a configuration, the waste heat stream could also be generated from a mechan ical process, such as at natural gas pipeline compressors.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 181 of 515 associated with that additional power generation. As a result, the incremental electric generation output from the WHP facilities could be considered non

- emitting, for the purposes of meeting the emission guidelines, and the MWh of electrical output could be used to adjust the CO 2 emission rate of an affected EGU. 70 The MWh of electrical output from a WHP unit that can be recognized may not exceed the MWh of industrial o r other thermal load that is being met by the WHP unit, prior to the generation of electricity. 71 In addition, where fossil fuel is used to supplement waste heat in a WHP application, the EPA requests comment on what provisions to include in the final model rule to prorate the proportion of fossil fuel heat input to total heat input that is used by the WHP unit to generate electricity. The EPA also solicits comments on other potential accounting mechanisms for WHP. As noted above, the EPA requests comment inc orporating WHP as an ERC generating resource for the federal plan.
D. ERC Tracking and Compliance Operations

70 This only applies where no additional fossil fuel is used to supplement the use of waste heat in a WHP facility. Where fossil fuel is used to supplement waste heat in a WHP application, MWh of el ectrical generation that can be used to adjust the CO 2 emission rate of an affected EGU must be prorated based on the proportion of fossil fuel heat input to total heat input that is used by the WHP unit to generate electricity.
71 This limitation prevents oversizing the thermal output of a WHP unit to exceed the useful industrial or other thermal load it is meeting, prior to generation of electricity.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 182 of 515 The EPA proposes that the rate

- based federal trading
program use the agency’s already

- existing allowance tracking and compliance system ( ATCS ). Under the proposed rate

- based trading program, the federal trading program would be maintained in the EPA’s existing data system. The ATCS would be used to track the trading of ERCs held by affected EGUs , as well as ERCs held by other entities. Specific ally, the ATCS would track the generation of ERCs , holdings of ERCs in compliance accounts ( i.e ., accounts for affected EGUs ) and general accounts ( i.e ., accounts for other entities and for affected EGUs part of , including affected EGUs that are under a re ady

- for

- interstate

trading ready state plan ), deduction of ERCs for compliance purposes, and transfers of ERCs between accounts. The primary role of the ATCS is to provide an efficient, automated means for covered sources to comply, and for the EPA to determine whether covered sources are complying, with the emissions rate limits standards . The ATCS would also provide data to the ERCs market and the public, inc luding a record of ownership of ERCs, dates of ERC issuance , ERC transfers, buyer and seller information, serial numbers of ERCs transferred, emissions, and compliance information. This information would be publicly available on the EPA’s W eb site and in a nnual progress reports. The ATCS and the EPA pro vide all required elements of a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 183 of 515 qualified ERC tracking system as described in section VIII of the CPP final EGs . In the subsections that follow, the mechanisms by which a
rate

- based trading program is would be implemented and administered are detailed. This section elabrorates on this proposal, which implements through specific provisions the requirements for rate

- based trading programs in the EGs. The EPA requests comment on each component of the trading system that is
propo s ed in this preamble and the associated model rule , the trading program as a whole , and specifically requests
comments comment on means to expedite the process of issuing ERCs , any minimum and means to insure the integrity of the maximum periods for which ERCs that may should be issued ( e.g ., monthly, quarterly, annually), and any means to e nsure that the ERCs issued meet the requirements of the EG s and these proposed rules
. Th e rate

- based federal plan and model rule borrow many concepts from other successful trading programs , and the agency is interested in receiving additional information through comments on successful implementation of similar
programs . 1. Designated Represen tatives and Alternate Designated Representatives This section establish es the procedures for certifying and authorizing the designated representative, and alternate***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 184 of 515 designated representative, of the owners and operators of the affected EGU and for changin g the designated representative and alternate designated representative. These sections would also describe the designated representative’s and alternate designated representative’s responsibilities and the process through which he or she could delegate to an agent the authority to make electronic submissions to the Administrator. These provisions would be patterned after the provisions concerning designated representatives and alternates in prior EPA

administered trading programs. The designated represent ative would be the individual authorized to represent the owners and operators of each affected EGU in matters pertaining to the rate

- based trading program. One alternate designated representative could be selected to act on behalf of, and legally bind, the designated representative and, thus, the owners and operators. Because the actions of the designated representative and alternate would legally bind the owners and operators, the designated representative and alternate would have to submit a certificat e of representation certifying that each was selected by an agreement binding on all such owners and operators and was authorized to act on their behalf. The designated representative and alternate would be authorized upon receipt by the Administrator of the certificate***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 185 of 515 of representation. This document, in a format prescribed by the Administrator, would include: specified identifying information for the covered source and covered electric generating units EGUs at the source and for the designated representa tive and alternate; the name of every owner and operator of the affected EGU ; and certification language and signatures of the designated representative and alternate. All submissions ( e.g ., monitoring plans, monitoring system certifications, and allowance transfers) for a n affected EGU would have to be submitted, signed, and certified by the designated representative or alternate. Further, upon receipt of a complete certificate of representation, the Administrator would establish a compliance account in th e ATCS for the affected EGU involved. In order to change the designated representative or alternate, a new certificate of representation would have to be received by the Administrator. A new certificate of representation would also have to be submitted to reflect changes in the owners and oper ators of the affected EGU involved. However, new owners and operators would be bound by the existing certificate of representation even in the absence of such a submission. In addition to the flexibility provided by allowing an alternate to act for the de signated representative ( e.g ., in circumstances where the designated representative might be***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 186 of 515 unavailable), additional flexibility would be provided by allowing the designated representative and alternate to delegate authority to make electronic submissions on his or her behalf. The designated representative and alternate could designate agents to submit electronically certain specified documents. The previously

- described requirements for designated representatives and alternates would provide regulated enti ties with flexibility in assigning responsibilities under the rate

- based trading program, while ensuring accountability by owners and operators and simplifying the administration of the proposed rate

- based trading program. 2. ERC Tracking and Compliance S ystem The rate

- based trading program rules establish the procedures and requirements for using and operating the Allowance Tracking and Compliance System (which is the electronic data system through which the Administrator would handle ERC issuance , holding, transfer, and deduction), and for determining compliance with the ERC

- holding requirements in an efficient and transparent manner. The ATCS provide s a record of ownership, dates of ERC transfers, buyer and seller information, origin of ERCs, the serial numbers of ERCs transferred , and ERC type ( i.e ., if it is BB2 a GS

- ERC or not) . ERC price information would not be included in the ATCS . The EPA’s experience is that private parties ( e.g ., brokers) are in a better position to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 187 of 515 obtain and disseminate timely, accurate price information than is the EPA. For example, because not all ERC transfers are immediately reported to the Administrator for recordation, the Administrator would not be able to ensure that any reported price information associated with the transfers would reflect current market prices. 3. Tracking System Requirements This federal plan and model rule’s proposed tracking system and tracking systems that will be presumptively approvable for state plans fufill the criteria set forth in the final EGs . The EPA’s tracking system i nclude s provisions to ensure that ERCs issued to any eligible entity are properly tracked from issuance to submission by affected EGUs for compliance (where ERCs are “surrendered” by the owner or operator of an affecte d EGU and “retired” or “cancelled” by the Administrator or administering state regulatory body), to ensure they areused only once to meet a regulatory obligation. This is addressed through specified requirements for tracking system account holders, ERC iss uance, ERC transfers among accounts, compliance true

- up for affected EGUs, 72 and an accompanying tracking system infrastructure design
. Each issued ERC will have a unique identifier ( i.e. ,

72 “Compliance true

- up” refers to ERC submission by an owner or operator of an affected EGU to adjust a repo rted CO 2 emission rate, and determination of whether the adjusted rate is equal to or lower than the applicable rate

- based emission limit.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 188 of 515 serial number) and the tracking system will provide traceability of issued ERCs back to the program or project for which they were issued. The EPA received a number of comments from states and stakeholders on the Clean Power Plan about the value of the EPA’s support in developing and/or administeri ng tracking systems to support state administration of rate

- based emission trading systems. As described above in section III.A of this preamble , the EPA is proposing , as part of both types of model trading rules, a federal trading platform that would allo w state plans that are ready

- for

- interstate

- trading to operate through a program in which the EPA provides the tracking and compliance system. This system will meet the requirements of the Clean Power Plan
. 4. Compliance and General Accounts This section describes two types of ATCS accounts: compliance accounts, one of which would be established by the Administrator would establish for each affected EGU upon receipt of the certificate of representation for the source; and general accounts, whi ch could be established by any entity upon receipt by the Administrator of an application for a general account. A compliance account would be the account in which any ERCs used by the affected EGU for compliance with the emissions limitations would have t o be held until retired for compliance
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 189 of 515 General accounts could be used by any person or group for holding or trading ERCs. However, ERCs could not be used for compliance with emissions limitations so long as the ERCs were held in, and not properly and time ly transferred out of, a general account. To open a general account, a person or group would have be required to submit an application for a general account, which would be similar in many ways to a certificate of representation. The application would inclu de, in a format to be prescribed by the Administrator: T he name and identifying information of the individual who would be the authorized account representative and of any individual who would be the alternate authorized account representative; an identify ing name for the account; the names of all persons with an ownership interest with the respect to allowances held in the account; and certification language and signatures of the authorized account representative and alternate. The authorized account
repre sentative and alternate would be authorized upon receipt of the application by the Administrator. The provisions for changing the authorized account representative and alternate, for changing the application to take account of changes in the persons having an ownership interest with respect to ERCs, and for delegating authority to make electronic submissions would be analogous to those applicable to comparable matters for***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 190 of 515 designated representatives and alternates. The EPA requests
comment on these complianc e mechanisms. Averaging 5. Compliance D emonstration The EPA proposes that affected EGUs subject to this federal plan are required to meet compliance obligations by November 1 of the year following the end of the compliance period. For an affected EGU to meet its compliance obligations its average stack emission rate over the compliance period must be at or below its applicable rate standard, or the affected EGU must use ERCs to adjust its average stack emission rate to be at or belo w its applicable rate standard. An EGU’s average emission rate over the compliance period will be calculated based on submitted data to ATCS. The compliance period average would be calculated by taking the total measured CO 2 mass in units of pounds of CO 2 emitted (lbs) summed over the compliance period for an affected EGU and dividing it by the total net MWh of energy output over the compliance period for that affected EGU produced. in units of MWh
. 73 This averaged emission rate will be compared to the emissions standards that the EGU is subject to during the corresponding interim compliance period or final goal.
. Accordingly , and if necessary, the appropriate number of ERCs

73 Note that these values will be the submitted values from the affected EGUs to the EPA that have gone through a tran sparent review process.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 191 of 515 will be deducted retired from the EGU’s compliance account to adjust the emission rate of the EGU to be equal to the emission standard. The discussion of using ERCs for compliance is found in section IV.D. 8 10 of this preamble. 6. Recordation of ERC Generation and ERC Issuance The EPA proposes to issue ERCs for ERC generating entities
once per year. Thus, in a 3

- year compliance period, for instance, there would be three points at which the agency issues ERCs. After each calendar year, the EPA will calculate the ERCs generated for EG U and non

- EGU ERC generators based on data submitted to the EPA through the Emissions Collection and Monitoring Plan System ( ECMPS ) . These calculated ERC quantities will be proposed as part of a Notice of Data Availability (NODA) with a 30

- day comment peri od. Subsequently, the EPA will finalize this NODA and issue ERCs accordingly with tracking and serial numbers. For affected EGUs with compliance accounts, the ERCs will be issued to these. For entities without compliance accounts, the EPA will issue ERCs t o an entity’s general account. The timing for issuing ERCs is consistent with existing programs, and the EPA believes there is value in consistency. However, we solicit comment on the annual issuance of ERCs and whether issuance should occur at different intervals ( e.g. , quarterly, biannually, or other time frames). The EPA requests justification along with corresponding comments regarding***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 192 of 515 issuance of ERC intervals. ERC

- issuance intervals. We request comment on how reporting and recordkeeping requirements c ould be minimized , particularly for small entities , to the extent possible under the statute and existing regulations.

a. Issuance of ERCs to Affected EGUs
. Following the determination of the number of ERCs an affected EGU is eligible to receive, based on an affected EGU’s reported CO 2 emission rate compared to a specified reference rate 74 , the EPA will issue those ERCs into the affected EGU’s compliance account in ATCS
. The issuance will occur annually through the NODA process. ERCs will have a unique serial number, tracking number, and will distinguish ERC type ( i.e., if it is BB2 or not) when issued to an affected EGU
. b. Issuance of ERCs for RE, Demand

- Side EE and Other
Measures Used to Adjust an Emission Rate
. In the final EGs , the EPA has specified requirements for an ERC issuance process for the quantification and verification of RE and other measures used to adjust an emission rate that seeks to provide the necessary rigor and transparency while being efficient and streamlined. This is the intent of the f ederal p lan as well , where there is a particular concern with implementing a streamlined and efficient federal process for ERC issuance

74 As described in section IV.C.1 of this preamble.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 193 of 515 across federal plan states . As required in the final EGs , we are proposing a two

- step application process to the federal plan tracking systems for RE ERCs . that allows for project approval to take place prior to the performance period, and makes the issuance of ERCs as quick and efficient as possible after
gene ration has been quantified and verified, while still assuring a rigorous approval process
. For the first step in the ERC issuance application process, the EPA proposes that RE and nuclear generation providers submit a project to the EPA a n eligibility appl ication for EPA approval to EPA , or its designated agent, demonstrating that the project is eligible for the issuance of credits, including an EM&V plan that meets EPA requirements. The EPA takes comment on all aspects of the proposed ERC issuance process. The EPA is also taking comment on how an ERC issuance process would apply to emission reduction measures for which we are taking comment regarding their eligibility for ERC issuance under the federal plan, including types of RE not covered by the federal plan , demand

- side EE, CHP, biomass, and any other measure that could be considered eligible under the final guidelines. The following are proposed required components of the project eligibility application , as specified for these measures in the final EG s :***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 194 of 515 (1) The EPA proposes that the federal plan will require that providers must show that the generation they would be providing to the federal plan system for ERC issuance are is only being credited in the federal framework plan , and will not be submitted for E RC issuance in any other rate

- based crediting system in any other state. As discussed in s ection &&& above, it is proposed IV.C. of this preamble , we are proposing that states with rate

- based emission standards plans that have eligibility and EM&V requireme nts compatible with the federal plan will would have the opportunity to participate in the federal plan trading systems, and create a shared pool of creditable reductions, in which case credits approved by such states would be eligible for use by affected E GUs in the federal plan. (2) The provider must show that the project is using an eligible RE or nuclear resource. Specific requirements are proposed in Sec. &&& s ec tion IV.C of this rule preamble
. (3) The provider must show that the project has an EM&V protocol plan that meets the federal plan requirements. Proposed requirements specific to the federal plan are proposed in Sec. &&& section IV.D.6 of this rule preamble
. As specified in section IV.D.8 of this preamble , w e request comment on whether nuclear energy resources should be subject to the same EM&V requirements as RE resources, and if not, we take comment on to which EM&V requirements nuclear energy resources sho uld be subject
. (4) There are special conditions if the provi der is located in a state with a mass - based state plan. For eligible RE capacity , the provider can only be credited in a rate

- based state or rate

- based multi

state system if the provider can demonstrate that the measure must be implemented to meet electrici ty load in a state with a rate

- based plan . The EPA is proposing that an RE provider can make this demonstration by providing documentation of a power purchase agreement (PPA) or delivery contract from the rate

- based state. or delivery contract from the rate

based state and show that the measure was treated as a generation resource used to serve regional load that included the rate

- based state
. For incremental nuclear capacity, no provider in a state with a mass

- based plan can be eligible for ERC issuance in a rate

- based state. This requirement and the justification for its***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 195 of 515 inclusion is further discussed in section III.A of this preamble on Interstate Effects and also discussed in the Interstate Effects section of the final EGs ( section VIII.L of the final EGs ). The EPA is proposing that there is no other geographic limitation on the location of the providers of RE . This requirement and the justification for its inclusion is further discussed in Sec.&&& on Interstate Effects and also discussed in the Interstate Effects section of the final guidelines (Sec. VIII.G.2). and incremental nuclear generation under the federal plan
. (5) This application must include an independent third

- party verifier’s review and approval of the eligibility requirements, as is reflect ed in EM&V requirements for the final guidelines, and specified as part of proposed federal plan EM&V requirements below in section IV.D.6 of this preamble
. We request comment on each criteri on of the eligibility application described herein and in the proposed model rule, for each eligible resource. Specifically, we seek comment on the substantive content of the criteria, and we seek comment on the level of detail provided and whether more or l ess detail (and what detail) should be included in the final model rule. ERCs will be tracked in the Allowance Tracking and Compliance System (ATCS). Additionally, t he EPA is proposin g that the agency will establish a complementary tracking system for administering the rule that provides the ERC issuance process. It will provide for transparent access to RE project and program eligibility applications and regulatory approvals as well as information on ERC transfers and the activities of accredited third p arty verifiers (third party verifiers are further discussed below in section IV.D.6 of this preamble ) , as part of Evaluation, Measurement and Verification)
. well for the public to be able to generate reports based on this information
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 196 of 515 The agency is proposing that these the project eligibility applicat ions will be accepted after the finalization of the federal plan and prior to the first compliance period, as soon as the agency is able to establish an application process, and that applica tions will be accepted on a periodic a n annual basis. The agency requests comment on whether a quarterly or semi

annual bi annual application process is more appropriate. These applications will be accepted through the entirety of all compliance periods. The EPA will review and approve the project applications. It is proposed that the EPA ma y designate an agent to coordinate the project application process and assist with review of applications. For the second step in the credit issuance application process, t he EPA proposes that RE providers submit an application for ERC issuance M&V report to the EPA , or its designated agent , prior to the EPA’s issuance of ERCs . This can only occur after the approval of a project application, the RE has been generated, and necessary EM&V has been completed. The following are proposed required components of the credit ERC issuance application: (1) Documentation of completed EM&V in accordance with the EM&V plan submitted by the RE provider , including quantification of the MWh of generation to be credited and verification of their creation. This needs to meet the federal plan EM&V requirements outlined in Sec. &&&.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 197 of 515 (2) Documentation that the generation has not been submitted for crediting under any other federal or state plan, i ncluding to another rate

- based credit tracking system. This can be shown through a finding from a third

- party verifier that meets federal plan requirements. (3) Documentation that the MWh resulted from RE or incremental nuclear capacity eligible for credit ing under the federal plan requirements and in accordance with final EG s . This documentation should note if the MWh are from an RE project located in a state with a mass - based state plan , and show if the generation is approved to be eligible for ERC issuance under the federal plan. See s ection III.A.2 IV.C.3 of this preamble for specifics on the required demonstration for this type of RE generation
. As discussed in that section, this option is proposed to not be availab le to incremental nuclear capacity located in a state with a mass

- based plan
. (4) This application must include a verification report from a n independent third

- party verifier , submitted after the verifier ’s review and approval of all components of the appl ication. the eligibility application, as is reflected in EM&V requirements for the final guidelines, and specified as part of proposed federal plan EM&V requirements described below and included in detail in the proposed model rule
. If the application meets these requirements, pursuant to review by EPA or its designated agent, ERCs will be issued to the provider by EPA through the federal plan credit tracking system the EPA or its designated agent, ERCs will be issued to the provider b y the EPA through the Allowance Trac king and Compliance System (ATCS). The specific steps of the process by which an eligible resource seeks ERCs, and by which an affected EGU may use ERCs in its compliance demonstration are laid out in the proposed model rule. One of the steps requires the proponent***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 198 of 515 to register for a general account in the EPA tracking system where the ERCs would be recorded. See 40 CFR 62.16515 for the requirements to establish a general account. While EPA is proposing to allow eligible r esources to use a general account to receive any ERCs issued under this section, the EPA requests comment on extending the designated representative provisions in 40 CFR 62.16485 to eligible resources instead of the general account provisions. Requiring el igible resources to submit information similar to that collected in the certificate of representation in 40 CFR 62.16500 and to appoint a designated representative to act on behalf of all owners/operators for all projects requesting ERCs may improve the EM &V process by mak ing the eligible resources more accountable
. Because it is critical to the integrity of an ERC that it represents the actual MWh of energy generated or saved that it purports to represent, and as required in the EG s for state plans, the federal plan and model rule include provisions to address error correction (mechanisms to adjust the number of ERCs issued based on all form of errors, from clerical, to over

and under

- statements, to material inconsistency with rule provisions, to fraud, etc.). In addition, the federal plan and model rule include provisions that provide that, at any time for cause, the EPA may temporarily or permanently revoke the qualification status of eligible resources (from being issued***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 199 of 515 ERCs for at least the duration it does not meet the requirements for being issued ERCs) and independent verifiers (from providing verification services for at least the duration it does not meet the requirements of your state plan). For the federal plan, as discuss ed in s ection III.I of this preamble above , we propose to use the administrative appeals process set forth 40 CFR p art 78 to address party

- specific disputes concerning the issuance and/or validity of ERCs. States may adopt a similar procedural and substant ive process at the state level to enable them to rescind or withhold approval of specific credits. We request comment on the content of each of these provisions in the model rule, and specifically seek comment on whether the model rule should include diffe rent or additional details related to either procedure or substance for error correction and the revocation of the qualification status of an eligible resource or independent verifier. The agency is proposing that ERC issuance eligibility applications will be accepted after starting before the beginning of the first compliance period , as soon as the agency is able to establish (January 1, 2022) , through an application process , and the agency will establish and administer (unless delegated or taken over through a partial state plan) , and that applications will be accepted on a periodic a n annual basis , either quarterly or semi

- annually.
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 200 of 515 These applications will be accepted through th e entirety of all compliance periods. The EPA will review and approve eligibility application application s , and may designate an agent to coordinate and assist with credit issuance ERC eligibility applications. The EPA is proposing that ERC issuance it will issue ERC s for each compliance a given year will be available a maximum of no later than 6 months after the end of the relevant year , to allow for . This amount of time may be necessary EM&V documentation
. to accommodate the ERC issuance process , incl uding necessary EM&V. The overall proposed schedule for trading and true

- up has been constructed to allow for this period of time for EM&V after the performance period. The EPA proposes that certain pre

- compliance measures are eligible for crediting reduct ions during compliance , in accordance with what is allowable under the final emissions guidelines (Sec. &&&)
. Specifically, RE capacity installed after 2012 is eligible for ERC issuance for all of its generation during the performance periods 2022

- 2030
. This corresponds with treatment in the final emission guidelines, and ensures access to the RE generation assumed in CO 2 emission performance rates and goals. period. Additionally, affected EGUs in jurisdictions subject to the federal plan will be able to use rate

- based ERCs or mass

-***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 201 of 515 based allowances available from the clean energy investment pool, which rewards early action on implementing RE and demand

- side EE. The clean energy investment pool is specified in the final guidelines (see Sec.&&&). For purp oses of the proposed rate

- based federal plan, the EPA proposes to implement the Clean Energy Incentive Program (CEIP) on behalf of a state by issuing early action ERCs for eligible actions located in or benefitting that st ate that are implemented after Sep tember 6, 2018 and that generate zero

emitting MWh or reduce energy demand in 2020 and/or 2021. 75 The EPA intends to implement the program in a way that maintains the stringency of the rate

- based emission standards for affected EGUs in the compliance period s established in this rule. For the purposes of the rate

- based federal plan, the EPA is proposing to award early action ERCs to two types of eligible projects, as listed below. The rationale for including these projects is included in section VIII.B.2 of t he final EGs.

75 As discussed in section VIII.B.2 of the final emission guidelines, in the case of a state that submits a final state plan including requirements for the state’s participation in the CEIP, eligible RE projects may commence construction, and eligible EE projects may commence implementation, following the date of submission of a final state plan to the EPA. These projects must be implemented in or benefit the state that submitted the final state plan to the EPA , and may receive incentives for the zero

- emitting MWh they generate or the end

use energy savings they achieve during 2020 and/or 2021
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• RE investments that generate metered MWh from any type of wind or solar resources; and

• Demand

- side EE programs and measures implemented in low

income communities that result in quantified and verified electric ity savings (MWh). The EPA proposes the following framework to implement the CEIP in the rate

- based federal plan. First, the EPA proposes to implement a mechanism for issuing early action ERCs for eligible RE porjects that commence construction and eligeible EE projects that commence implementation after September 6, 2018 and that generate zero

- emitting MWh or reduce end

- use energy demand during 2020 and/or 2021. These projects must be located in or benefit the state on whose behalf the EPA is implementing the federal plan. T he EPA proposes to design this mechanism in a manner that would have no impact on the aggregate emission performance of sources required to meet rate

- based emission standards during the compliance periods. The EPA requests comment on the structure of this mechanism, which could include adjusting the stringency of the emission standards during the compliance periods to account for the issuance of early action ERCs for MWh generated or avoided in 2020 and/or 2021. For example, during the interim performance p eriod, a number of ERCs could be retired in an amount equivalent to the number of early action ERCs that were awarded for MWh generated or avoided in 2020 and/or 2021. As another option, the EPA, or a state under the model trading rule, could adjust their targets to achieve***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 203 of 515 the same stringency, taking into account the additional borrowed ERCs. The EPA requests comments on all potential methods to adjust state targets, including modeling

- based approaches, and on what information the state must present to dem onstrate that the new targets preserve the needed stringency. More generally, the EPA requests comments on these ideas, as well as on alternatives for maintaining the stringency of a rate

- based plan implementing the CEIP so as to have no impact on the aggr egate emission performance of sources required to meet rate

- based emission standards during the compliance periods. Second, the agency proposes to create an account of “matching” ERCs for each state participating in the CEIP

– regardless of whether a state is implementing a state plan or the agency is implementing a federal plan on its behalf. This distribution would reflect each state’s pro rata share

– based on the amount of the reductions from 2012 levels the affected EGUs in the state are required to ac hieve relative to those in the other participating states

– of a federal pool of additional ERCs, which would be limited to the equivalent of 300 million short tons of CO 2 emissions. Thus, states whose EGUs have greater reduction obligations will be eligib le to secure a larger proportion of the federal pool upon demonstration of quantified and verified MWh of RE generation or demand side

- EE savings from eligible projects realized in 2020 and/or 2021. The EPA intends***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 204 of 515 that a portion of these matching ERCs wou ld be reserved for eligible wind and solar projects, and a portion would be reserved for eligible EE projects implemented in low

- income communities. The agency recognizes that there have been historic economic, logistical and information barriers to implem enting EE programs in these communities, and therefore believes it is appropriate to reserve a portion of the federal pool to incentivize investment in these programs. The EPA is requesting comment on the size of reserve of matching ERCs for eligible low

- i ncome EE programs as well as for eligible wind and solar projects. The EPA is proposing that unused ERCs in either reserve would be redistributed among participating states. This redistribution could be executed according to the pro

- rata method discussed a bove. Alternatively, unused matching EE or RE ERCs could be swept back into a federal pool and distributed to project providers on a first

- come, first served basis. EPA requests comment on these ideas as well as alternative proposals regarding the method f or redistributing matching ERCs, as well as the appropriate timing for such a redistribution. Following the effective date of a rate

- based federal plan for a state, the agency will create an account of matching ERCs for the state that reflects the pro rata share of the 300 million short ton CO 2 emissions

- equivalent matching poolthat the state is eligible to receive. Any matching ERCs that remain***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 205 of 515 undistributed after September 6, 2018 will be distributed to those states with approved state plans that include requirements for CEIP participation, as well as to those states on whose behalf EPA is implementing a federal plan. These ERCs will be distributed according to the pro rata method outlined above. Unused matching ERCs that remain in the accounts of states
p articipating in the CEIP on January 1, 2023, will be retired by the EPA. 7. Independent Verifiers The EPA has determined in the final EGs that independent verification requirements are necessary to ensure the integrity of any rate

- based emission trading program, given the types of eligible measures that may generate ERCs and the broad geographic locations in which those measures may occur. Inclusion of an independent verification component provides technical support for the EPA in the co ntext of the proposed federal plan, and the states in the context of their plans, to ensure that eligibility applications and monitoring and verification reports are appropriately reviewed prior to issuance of ERCs. Inclusion of an independent verification component is also consistent with similar approaches required by state PUCs for the review of demand

- side EE program results and GHG offset provisions included in state GHG emission budget trading programs.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 206 of 515 The remainder of this section and the related la nguage in the proposed model rule provide the proposed basis by which the EPA intends to evaluate the independence of the verifiers that it uses to provide verification reports pursuant to the federal plan. The qualifications described here and in the mode l rule would be presumptively approveable in the context of a state plan. As a starting point, an i ndependent verifier must have the
necessary technical qualifications to provide verification services for the subject in question, as well as fulfill certain codes of conduct i n providing verification services. Only verifiers approved or “accredited” by the EPA may provide verification services related to ERC issuance for t he federal plan , in the same way that only verifiers approved by a state may be eligible to perform verification services pursuant to a state plan
. 76 In addition, v erifiers must have sufficient knowledge of the rate

- based emission trading program rules, te chnical expertise, and knowledge of auditing, accounting, and information management practices , in order to perform

76 In this section, the term “verifier” is used interchangeably to refer to both a “verification body” ( i.e ., a verification company or organization) and a “verifier,” which is an individual that is a principal or employee of a verification body.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 207 of 515 verifcation services related to the Clean Power Plan . Accredited verifiers must be independent. Accredited verifiers may not provide verific ation services for any eligible resource for which they have a financial, management, or other interest. 77 Such relationships constitute a conflict of interest (COI). COI situations may also arise as a result of personal relationships among individuals repr esenting an ERC provider and an accredited verifier. A verification report will not be accepted as part of an eligibility application or M&V report where the accredited verification body or any individual verifier has a COI. Accredited verification bodies must have management protocols in place to identify and remedy any COI prior to provision of verification services. T hat the proposed federal plan and model

77 Accredite d verification bodies and individual verifiers may not have any direct or indirect organizational or personal relationships with an ERC provider that would impact their impartiality in assessing the validity and accuracy of the information in an eligibilit y application or M&V report. In addition to this general requirement, the following specific requirements also apply. Accredited verifiers must have no direct or indirect financial interest in, or other financial relationships with, an ERC provider or any related program or project that seeks issuance of ERCs. Accredited verifiers must have no relationship with the implementer of a program or project that seeks the issuance of ERCs, or any related ERC provider, that would represent a COI. Accredited verifie rs must have no role in the development and implementation of a program or project that seeks issuance of ERCs, beyond the provision of verification services. Accredited verifiers must not be compensated, directly or indirectly, in relation to the quantifi ed and verified MWh in an M&V report or on the basis of program or project approval, ERC issuance, or the number of ERCs issued. Accredited verifiers may not hold ERCs, or other financial derivatives related to ERCs, or have a financial relationship with o ther parties that hold ERCs or other related financial derivatives. Verification reports must include an attestation by the accredited verifier that it assessed potential COI related to an ERC provider and adequately addressed any identified COI. The EPA r equests comment the potential for payments to be channeled through the EPA as fees.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 208 of 515 rule provide that failure of an accredited verifier to identify and adequately address any COI prio r to provision of verification services is grounds for revocation of accreditation. The EPA will perform periodic reviews of accredited verifiers, to ensure that verifiers are maintaining necessary technical and professional qualifications and are meeting program requirements for provision of verification services. The EPA may recognize, in part, accreditation by an outside organization where such outside accreditation demonstrates that federal plan requirements are met. 78 The EPA requests comment on the pro posed necessary requirements for an independe n t verifier to perform verification services in connection with the federal plan , including those requirements specifically detailed in this section of the preamble and the related language in the prop o sed model rule , and including whether there are any requirements that are not included in this
prop os a l that should be included in the final rule
. We further request comment on the level of detail that we should include in the final model rule regarding all requirements for indepenent verifiers, and all aspects of verification.

78 An example is American National Standards Institute (ANSI) accreditation under ISO 14065:2013 for GHG validation and verification bodies. More information is available a t https://www.ansica.org/wwwversion2/outside/GHGgeneral.asp
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 209 of 515 8. Evaluation, Measurement, and Verification (EM&V) Plans, Monitoring an d Verification (M&V) Reports, and Verification Reports The EPA is proposing that issuance of ERCs to credit eligible measures requires the implementation and documentation of sufficient EM&V 79 . Such EM&V requirements, which reflect and are generally consistent with prevailing industry

- standard practices, are specified in the final emissions guidelines (see Sec. VII.&&&). The EPA is proposing that the EM&V required for issuance of ERCs under the federal plan meet the requirements specified in the final guidelines, with the following additional proposed requirements and specification of final emission guideline requirements. Section VIII.G.5.f of the final guidelines provides specific requirements for the provision of RE data as part of an EM&V demonstra tion, and all those requirements will need to be satisfied under a federal plan. The following proposed federal plan requirements are drawn from that section. P roposed eligible measures for ERC issuance must all have the capacity to provide

79 EM&V is defined here as the set of procedures, methods, and analytic approaches used to quantify the MWh from RE and demand

side EE , and thereby ensure that the resulting savings and generation are quantifiable and verifiable. In this proposal, we are proposing EM&V for the eligible RE, and taking comment on EM&V for demand

- side EE and any other measures that could be eligible.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 210 of 515 data from a rev enue quality meter that meets the applicable ANSI
C

- 12 standard or equivalent, which is the typical requirement for settlements with RTO and other control

- area operators. These data can then be submitted to the federal plan tracking system.
In t his proposa l we are requesting This section identifies and discusses the EM&V approaches used to quantify and verify MWh from RE, demand

- side EE, and other eligible measures used to generate ERCs or otherwise adjust an emission rate. 80 Only a subset of the potentially creditable ERC resources discussed in this section are actually being proposed as part of the federal plan. The remainder, and the ir associated requirements, are provided as part of the proposed model trading rule. Thus, a ll provisions of this subsection relating to such

resources are presented only for the purpose of comment in the context of the federal plan , but are actually proposed for inclusion in the model trading rule. The ERC resources proposed in the federal plan must meet the following criteria: 1) they are in the following categories of measures: on

- shore wind, solar, geothermal power, hydropower, new nuclear units and capacity uprates at existing nuclear units, and 2) they can

80 EM&V is defined here as the set of procedures, methods, and analyt ic approaches used to quantify the MWh from RE, demand

- side EE, and other eligible measures and thereby ensure that the resulting savings and generation are quantifiable and verifiable. In this proposal, we are proposing EM&V for the eligible RE, and takin g comment on EM&V for demand

side EE and any other measures that could be eligible.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 211 of 515 provide quantified generation data from a revenue quality meter
. The language pertaining to all other measures (e.g., demand

- sid e EE) is proposed only for the model rule. While they are currently being proposed as part of the model rule and not the federal plan , the EPA requests comment on the inclusion of other
RE measure s and , demand

- side EE measures , and any other measures that may be eligible under the final guidelines as eligible measures under the federal rule. EM&V requirements for such

measures are specified in detail in the final guidelines preamble Sec. VIII.G.5. plan. For commenters stakeholders that are submitting comments on the inclusion of such additional measures, the EPA requests comments comment on how the EPA could implement across applicable jurisdictions a rigorous, straightforward , and widely demonstrated EM&V methodology set of
EM&V methods, procedures, and approaches that could be implemented in the time frame allowed by the federal plan and that also meets meet the requirements outlined in the final guidelines. To the extent proposed for inclusion in the model trading rule, w e also invite comment on these requirements in the context of state implementation as part of a proposed model trading rule for states to use. state plan
. Thus, c ommenters on this aspect of the proposal should consider whether and how these provisions could be implemented at the state level. The EGs set minimum requirements for rate

- based programs, including***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 212 of 515 ERC EM&V. Thus comments Comments that suggest an approach not authorized by the EGs may will likely be considered out of out side the scope of this action proposed rule
. Additionally, with respect to EM&V , the EPA describes certain established industry best

- practice methods, procedures, and appraoches that would be presumptively approvable if include d in state plans. States wishing to th at extent. adopt the model rule must submit these methods, procedures, and approaches as specified, or may submit alternative EM&V that is functionally equivalent to the industry best

- practices described as presumptively approvable. 81 The final EGs provide requirements for independent verifiers , including standards for accreditation and eliminating conflict of interest (see Sec. VIII.&&&). The EPA request comment on the specific requirements that third party verifiers should meet prior to participating in th e federal plan ERC issuance process. As discussed in section IV.C.3 of this preamble , quantified and verified MWh of RE generation and other means of generating ERCs may be used to adjust a CO 2 emission rate when demonstrating

81 The EPA recognizes that EM&V is routinely evolving to reflect changes in markets, technologies and data availability, and expects to update its EM& V guidance over time. Therefore the agency expects that alternative quantification approaches will emerge that can be approved for use, provided that such approaches are functionally equivalent to the provisions for EM&V outlined in this section.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 213 of 515 compliance with the EG s . Providers other than affected EGUs who seek to earn ERCs must develop EM&V plans outlining how they will quantify and verify the result ing MWh from their efforts. These providers must then submit these EM&V plans as part of their application to the Adminis trator for project approval. 82

a. Overall A pproach and Measure

- S peci fic R equirements
. The proposed Clean Power Plan stated that the EPA would establish
EM& V requirements and procedures to help states, sources, and resource providers quantify and verify MWh savings and generation resulting from zero

- emitting RE and demand

- side EE efforts. This federal plan proposes those requirements that the EPA committed to establish. The Clean Power Plan proposal and associated “State Plans Considerations” TSD 83 suggested that such EM&V requirements would leverage existing industry practices, protocols, and tracking mechanisms currently utilized by the majority of states imp lementing RE and demand

- side EE. The EPA further noted that many state regulatory bodies and other entities already have significant EM&V infrastructure in place and have been applying, refining, and enhancing their evaluation and quality assurance approac hes for over 30 years, particularly

82 A full discussion of applicable requirements for the establishment and functioning of the rate

- based trading system is provided above, in section I V.D of this preamble. 83 See discussion beginning on p. 34 of the State Plan Considerations TSD for the Clean Power Plan Proposed Rule: http://www2.epa.gov/carbon

- pollution

standards/clean

- power - plan

- proposed

- rule

- state

- plan

- considerations
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 214 of 515 with regard to the quantification and verification of energy savings resulting from utility

- administered EE programs. The EPA also observed that the majority of RE generation is typically quantified and verified using re adily available, reliable, and transparent methods such as direct metering of MWh. The EPA is proposing EM&V methods, procedures, and approaches , described herein, that are intended to be consistent with and leverage prevailing industry best

- practice s . In addition, the EPA’s proposed EM&V methods, procedures, and appro a ches reflect several overarching objectives and principles offered by states, private organizations, and the public during the comment period of the CPP EGs . One of these is the importance of balancing the accuracy and reliability of results with the associated costs of EM&V . Another objective for the EPA’s proposed EM&V is to avoid excessive interference with existing practices that are already robust, trans parent and effective
. Submittals
. Applicable submittals under a rate

- based emission trading program include eligibility applications (including EM&V plans) , monitoring and verification reports , and verfication reports . These submittals are described in se ction
VIII.K. 3.b of the final EGs preamble and in this model rule and federal plan . At the initiation of a program or project, ERC providers develop and submit to the state or the EPA,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 215 of 515 respectively, an EM& V plan that documents how requirements for quantification and verification will be addressed as EM&V is performed over the program or project period. After implementation has occurred, the ERC provider must submit periodic monitoring and verification (M&V) reports to document and describe how each of the requirements were applied. These reports must also specify the resulting MWh savings or generation values, as determined on a retrospective (ex

- post) or real

- time basis. MWh values may not be determined usi ng projections or other ex

- ante quantification approaches. Each EM&V plan submitted in support of an eligibility application must identify the eligible resource covered by the plan, and provide specific EM&V criteria that specify the manner in which the e nergy generated or saved by the eligible resource will be quantified, monitored and verified. The manner of quantification, monitoring and verification must meet the criteria outlined below and included in the proposed model rule, as applicable to the spec ific eligible resource. We take broad comment on each criteria specified below and in the proposed model rule, for each eligible resource. Specifically, we seek comment on the substantive content of the criteria , and we seek comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 216 of 515 rule, and whether the criteria should differ for each eligible

resource. Each M&V report submitted in support of the issuance of ERCs to a specific eligible r esource must include specific criteria described here and in the proposed model rule. For the first M&V report submitted, a key component is documentation that the electricity

- generating resources or electricity

- saving measures were installed or implemented consistent with the description in the approved eligibility application. Each following M&V report must then identify the time period cover ed by the M&V report, describe how the methods specified in the EM&V plan were applied during the reporting period, and document the quantify (in MWh) of energy generation and/or electricity savings quantified and verified for the period covered by the
M&V report. Any change in the energy generation or savings capability of the eligible resource during the period covered by the M&V report must also be included in the M&V report, along with the date on which the change occurred, and information sufficient to demonstrate whether the eligible resource continued to meet all eligibility requirements during the period covered by the M&V report. Any change should also be specified in the report. The EPA takes broad comment on each of these criteria, as described he re and in the proposed model rule. Specifically, we seek comment on the substantive content of the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 217 of 515 criteria, and we seek comment on the level detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible resource. Each verification report submitted by an independent verifier in support of the issuance of ERCs to a specific eligible resource must address the criteria described here and in the proposed rul e text . Each verification report must set forth the findings of the verifier, based on an assessment of all relevant requirements, information and data, including an assessment of any material misstatements or data discrepancies. Any verification report in cluded as part of an eligibility application must further describe the review conducted by the verifier and verify the following : the eligibility of the resource to be issued ERCs; that the eligible resource exists and has been, or will be, generating ener gy or saving electricity in the manner required; that the EM&V plan meets its requirements; and any other information required or that the verifier finds, in its professional opinion, is necessary to assess the accuracy of the subject of the verification r eport. Each verification report included as part of a M&V report must also describe the review conducted by the verifier and verify the following : the adequacy and validity of the information and data submitted to quantify eligible MWh of electric generati on***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 218 of 515 or electricity savings during the period covered by the report, as well as all supporting information and data identified in the EM&V plan and M&V report; evaluate whether all generation or savings data is within a technically feasible range for that
sp ecific eligible resource (determined through a quality assurance and quality control check of the data); that the M&V report meets its requirements; and any other information required or that the verifier finds, in its professional opinion, is necessary to assess the accuracy of the subject of the verification report. The EPA takes broad comment on each of these criteria, as described here and in the proposed model rule. Specifically, we seek comment on the substantive content of the criteria, and we seek c omment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model rule, and whether the criteria should differ for each eligible resource. For demand

- side EE, all EM&V plans that are developed f or purposes of adjusting an emission rate under this final rule are intended to leverage and closely resemble the plans already in routine use for a wide range of publicly or rate

- payer funded EE programs and energy service company (ESCO) projects. For RE, EM&V plans similarly leverage resources and approaches to MWh tracking for RE that are broadly applied in the state and regions. The existing reports and documentation from existing***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 219 of 515 tracking systems may serve as the substantive basis for a monitoring and verification report for RE. b. Renewable Energy EM&V Requirements
. This section describes the EM&V requirements associated with quantifying electricity generation from eligible RE and nuclear , and for documenting these requirements in EM&V plans and report s. Consistent with prevailing views expressed in public comments, the EPA’s requirements presume that the quantification of RE generation can leverage the infrastructure and documentation associated with the establishment of renewable energy certificate s (RECs) and registration of such certificates in REC registries. These registries typically include well

- established safeguards, documentation requirements, and procedures for registry operations intended to support the demonstration of compliance with sta te RPS policies. A key element of RPS compliance is that each RE generating unit must be uniquely identified and recorded in a registry to avoid the double counting of RECs. The primary metric for all RE is electricity generation, in units of MWh. Measured output must be derived either from (1) A revenue quality meter that meets the applicable ANSI C

- 12 standard or equivalent, which is the typical requirement for settlements with RTO and other control

- area operators; or (2) for customer

- sited generators tha t are interconnected behind the customer meter, measurement at the AC output of an inverter,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 220 of 515 adjusted to reflect the energy delivered into either the transmission or distribution grid at the generator bus bar. Further, a RE generating facility of 10 Kilowa tt capacity or less may estimate the facility’s output if the state where it is located explicitly allows estimates to be used and provides rules for when it will be allowed. In the latter case, calculations of system output must be based on the RE unit’s capacity, estimated capacity factors, and an assessment of the local conditions that affect generation levels. All such input parameters and assumptions must be clearly described and documented. For RE units that are managed by regional transmission operat ors or other control area operators, metered generation data should be electronically collected by the control area’s energy management system, verified through an energy accounting or settlements process, and reported by the control area operator to the R EC registry at least monthly. The EPA requests comment on this proposed requirement for quantifying RE generation for the purpose of ERC issuance. For RE units that do not go through a control area settlements process, metered data may be read and transmit ted to the ERC registry by an independent third party, or may be self

reported. Third

- party and self

- reported generation data must be reported on a n annual basis. All such data must be verified for reasonableness by the a gency, state or the REC registry.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 221 of 515 For reporting purposes, RE generation may be aggregated from multiple generators into a single MWh value for the group, provided the following requirements are met: each RE unit is uniquely identified in the federal tracking system, the nameplate capacity of each RE unit is less than 150 Kilowatt , the aggregated RE units collectively have nameplate generating capacities less than 1.0 MW, the units aggregated are located in the same state, the RE units being aggregated utilize the same technology/fuel type, and the RE unit’s generation data are based on the same metering or the same generation estimating software or algorithms. The EPA requests comment on how existing reporting systems can play a role in meeting EM&V requirements under the federal plan, parti cularly, in assuring that each MWh of RE generation is uniquely identified and recorded to avoid double counting. An additional criterion that applies to distributed RE units that directly serve on

- site end

- use electricity loads is that avoided transmissio n and distribution (T&D) system losses can be considered, as is commonly practiced with demand

- side EE. Such calculations must apply the requirements specified for demand

- side EE as described below. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection, includuing the app ropriateness of their use for each***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 222 of 515 type of RE resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Clean P ower Plan compliance.
For RE resources with a nameplate capacity of 10 Kilowatt or more and for RE resources with a nameplate capacity of less than 10 Kilowatt for which metered data are available, we take comment on the appropriateness of the requirement to use a revenue quality meter for monitoring generation, and we take comment on the definition of revenue quality meter. We take comment on the appropriateness of other types of meters for monitoring generation. We take comment on whether 10 Kilowatt is the appropriate threshold, under which an eligible resource can be issued ERCs for generation based on data other than metered generation, and if not, what would be the appropriate threshold.
For RE resources of all sizes and means of monitoring, we take comment on the appropriate requirements for allowing generation data to be aggregated, including comment on the provisions in the proposed model rule and any alternatives to them. We take comment on whether the all of the generating units have the same ess ential generation characteristics, in order for their data to be aggregated, and if so, what the appropriate content of the definition of “essential generation characteristics” ( e.g ., are essential generating characteristics determined on a resource by res ource basis, or can generation***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 223 of 515 from a group of wind turbines be aggregated with generation from a group of solar panels? We seek comment on the appropriate thresholds for the aggregated of individual units ( e.g ., nameplate capacity of less than 150 Kilowat t per unit and the units collectively do not exceed a total nameplate capacity of 1 MW when aggregated, as in the proposed model rule).
For non

- metered units of less than 10 Kilowatt , we take comment on whether the final model rule should specify the speci fic estimating software or algorithms by which generation data should be measured, and if so, we take broad comment on the appropriate estimating software or algorithms and/or the appropriate characteristics for such estimating software or algorithms.
We r equest comment on any other requirements that should be included in the final model rule regarding EM&V of RE resources. For all energy generating resources (such as RE, but also including applicable resources requiring EM&V described below), we take comment on the appropriate place of measurement of the generation, including comment on whether measurement should be at the bus bar or at a different location (or in the case of meter on units of less than 10 Kilowatt , at the AC output of the inverter or elsewhere), whether measurement should be before or after parasitic load (and how to separate out parasitic load). In addition, for all energy generating resources, we take***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 224 of 515 comment on whether generation data should go through a control area settlement proc ess prior to issuance of ERCs, and if so, what level of specificity with respect to that process we should include in the final model rule. If not, or if the unit does not go through a control areas settlement process, we take comment on how the data colle ction should be specified in the final model rule. Finally, we take comment on the frequency with which data should be collected, for all energy generating resources, of all sizes.

c. Nuclear EM&V Requirements
. The EM&V requirements associated with quantif ying electricity generation from eligible nuclear, and for documenting these requirements in EM&V plans and reports are the same as the requirements for RE discussed in the preceding section. The EPA requests comment on all metering, measurement, verifica tion, and other requirements included in this subsection, includuing the appropriateness of their use for each type of nuclear energy resource (including the relvant size and distribution of such resource) that qualifies for issuance of ERCs for use in Cle an Power Plan compliance. We take comment on whether nuclear energy resources should be subject to the same EM&V requirements as RE resources, and if not, we take comment on to which EM&V requirements nuclear energy resources sho uld be subject.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 225 of 515 d. Non

- A ffected Combined Heat and Power EM&V Requirements
. In additon to the CHP specific EM&V requirements discussed below and in the associated provisions in the model rule, all CHP must follow the requirements for RE discussed in the preceding section, includin g metering requirements, special treatment for units of less than 10 Kilowatt , and how to account for T&D losses. In order to determine the incremental CO 2 emission rate, a CHP unit would monitor requirements for CO 2 emissions and energy output. 84 The moni toring requirements are standard methods currently in use and the requirements would depend on the size of the CHP units and the fuel used in the unit.
Non

- affected CHP facilities 85 with electric generating capacity greater than 25 MW would follow the same monitoring and reporting protocols for CO 2 emissions and energy output as are required for affected EGU CHP units. These requirements are discussed in section IV . D . 13 of this preamble
. For non

- affected CHP facilities with electric generating capacity less than or equal to 25 MW, which use only natural gas and/or distillate

84 Where a CHP unit uses biomass fuel, it must report both total CO 2 emissions and biogenic CO 2 emissions. Proposed requireme nts for reporting biogenic CO 2 emissions are discussed below in the section titled EM&V requirements that apply to biomass RE facilities
. 85 A CHP facility may consist of one or more electric generators.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 226 of 515 fuel oil, the low mass emission unit CO 2 emission monitoring and reporting methodology outlined in 40 CFR part 75 is acceptable. The EPA requests comment on all metering, measurement, verification, and other requirements included in this subsection with respect to CHP, including the appropriateness of their use for CHP (including with respect to the size of the CHP resource). We take comment on whether a CHP unit should be subject to the same EM&V requirements as RE resources, and we take comment on any additional EM&V requirements to which CHP units should be subject. Specifically, we take comment on specifying in the final model rule that if a CHP unit has an electric generating capacity greater than 25 MW, its EM&V plan must specify that it will meet the requirements that apply to an affected EGU under 40 CFR 62.16540. We also take comment on specifying in the final model rule that if a CHP unit has an electric generating capacity less than or equal to 25 MW, the EM&V plan must specify that it will meet the low mass emission unit CO 2 emission monitoring and reporting methodology in 40 CFR part 75. We take comment on any alternatives to these
measurement methodologies that should be specified in the final model rule. We take comment on any other requirements that should be included in the final model rule regarding EM&V of CHP.***E.O. 12866 Review

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e. B iomass EM&V R equirements
. A state plan that is adopting the
rate

- based mod el rule must propose EM&V requirements for monitoring and reporting biogenic CO 2 emissions from the use of qualified biomass at RE facilities that are eligible for adjusting a CO 2 emission rate. If a state proposes to use the monitoring and reporting requirements for biogenic CO 2 emissions in 40 CFR part 98 ( 40 CFR 98.3(c), 98.36(b)

- (d), 98.43(b), and 98.46) in its plan submission, those requirements are presumptively approvable. An EM&V plan that addresses biomass RE must follow the requirements for monitoring and reporting biogenic CO 2 emissions from the facility that were approved by the EPA in connection with the specific state plan. The EPA requests comment on all metering, me asurement, verification, and other requirements included in this subsection with respect to biomass, including the appropriateness of their use for qualif ied biomass. We take broad comment on the types of qualifying biomass feedstocks that should be specif ied in the final model rule, if any. We take comment on the methods that we should specify in the final model rule for the measurement of the associated biogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the final mod el rule related to qualfi ed biomass. We take comment on any other requirements that should be included in the final model rule***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 228 of 515 regarding EM&V for qualif ied biomass
. Detailed discussion on the role of qualif ied biomass feedstocks can be found in section IV.C.3 of this preamble
. f. Waste

- to

- Energy EM&V R equirements
. A state plan that is adopting the rate

- based model rule must propose EM&V requirements for monitoring and reporting biogenic CO 2 emissions from waste

- to

- energy facilities that are eligible for adjusting
a CO 2 emission rate. If a state proposes to include the monitoring and reporting requirements for biogenic CO 2 emissions in 40 CFR part 98 ( 40 CFR 98.3(c), 98.36(b)

- (d), 98.43(b), a nd 98.46) in its plan submission, those requirements are presumptively approvable. The EPA may approve other requirements of similar rigor, at its discretion. An EM&V plan that addresses the biogenic CO 2 emissions from a waste

- to

- energy facility must follo w the requirements for monitoring and reporting biogenic CO 2 emissions from the facility that were approved by the EPA in connection with the specific state plan. As discussed in the final EGs (see section VIII.K.1 of the final EGs ), only the portion of e lectric generation at a waste

to

- energy facility that is due to the biogenic content of the MSW may be used to generate ERCs or counted by a state towards its achievement of its obligations pursuant to this regulation. The EPA requests comment on all mete ring, measurement, verification, and other requirements included in this subsection***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 229 of 515 with respect to WTE, including the appropriateness of their use for WTE. We take comment on whether a waste

- to

- energy resource should be subject to the same EM&V as RE reso urces, and we take comment on any additional EM&V requirements to which waste

- to

energy resources should be subject, including comment on any specific methods for determining the specific portion of the total net energy output from the resource that is rel ated to the biogenic portion of the waste that the EPA should include in the final model rule.
g. Demand

- Side Energy Efficiency EM&V Provisions
. The following section proposes EM&V provisions that will be presumptively approvable if included in state regulations governing how EE is to be quantified by EE providers and verified by independent entities acting on behalf of the state. As noted above t hes e proposed provisions apply to all demand

- side EE used to adjust an emission rate if a state adopts the model rule. The EPA is soliciting comment on the incorporation of EE for the federal plan and by extension the EM&V associated with it
. For all demand

- side EE used to generate ERCs , the EPA is proposing that the metric is MWh of electricity savings must be quantified on an ex

- post or real

- time basis and defined as a reduction in facility

- or premises

- level electricity consumption due to a n EE program , project , or measure . (1) Common Practice Baseline
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 230 of 515 Based o n public input and assessments of industry best

p ractice protocols and procedure s, the EPA is proposing that it is presumptively approvable to quantify EE saving s as the difference between actual metered electricity usage after an EE program, project, or measure is implemented, and a “common practice baseline” (CPB). A CPB is the equipment that would most frequently be installed at the time an existing piece of equi pment fails or is replaced at the end of its effective useful life

– or that a typical consumer or building owner would have continued using for the remainder of the equipment's effective useful life

– in a given circumstance (i.e., a given building type, EE program type or delivery mechanism, and geographic region) at the time of EE implementation. It defines what would commonly have happened in the absence of the EE program, project, or measure
. The applicable CPB depends on a number of factors, such as characteristics of the EE program, project, or measure, the mechanism by which electricity customers are engaged , local consumer and market characteristics, and the applicable building energy codes and product standards (C&S), including the C&S compliance rate. Examples of appropriate CPBs to apply in specific circumstances, which may be presumptively approvable , can be found in the EPA’s EM&V guidance. EE providers must document the selected CPB in their EM&V plans, along with clear***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 231 of 515 documentation and discu ssion of the rationale, applicability, and relevant data sources, protocols, and other supporting information. Monitoring and verification reports must refer to the EM&V plan and confirm that the CPB was appropriately applied. (2) M etho ds U sed to Q uantify S avings from Energy Efficiency Programs and P rojects
. This section proposes criteria that are presumptively approvable for the general types of EM&V methods that EE providers may use to quantify the MWh savings from demand

- side EE programs, projects, and measures. During the CPP EG’s public comment period, the EPA received input indicating that state PUCs typically allow utilities and other EE providers to use a range of EM&V metho ds that reflect applicable circumstances and

on - the

- ground conditions (versus mandating which methods must be used in a particular situation). Consistent with this approach, the EPA is proposing to offer flexibility for EE providers to select from three br oad categories of EM&V methods to determine savings. These categories include project

- based M&V, deemed savings, and comparison group approaches such as randomized control trials (RCT). Regardless of the approach selected, the EPA is proposing that annual savings values must be quantified using these EM&V methods at specified time intervals (in years) on a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 232 of 515 recurring basis over the effective useful life of the EE project or measure in order to ensure accurate and reliable savings values. To be p resumptivey approable , the EPA is proposing that EE providers must apply the above methods at a minimum of 4

- year intervals for building energy codes and product standards; every 1 , 2 , or 3 years for publicly

- or utility

- administered EE programs, depending on the program type, magnitude of savings, and experience with the program; and annually for large individual commercial and industrial projects , unless the EE provider can credibly demonstrate why this is not possible and how the accuracy and reliability of savings values will be maintained
. The EPA is further proposing that, to be presumptively approvable , the selected method, associated assumptions, and data sources must be identified and described in EM&V plans. For comparison group approaches, the EPA is propsing that states and EE providers can refer to the EPA’s draft EM&V guidance for a discussion of industry best

- practice protocols and guidelines
. Where feasible, the EPA is proposing to encourage the use of RCT methods, which determine savings on t he basis of energy consumption differences between a treatment group and a comparison group, and therefore increase the reliability of results.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 233 of 515 As noted above, an alternative to comparison group methods is the use of deemed savings values, which establish pre determined annual electricity savings values for specific EE

measures. The EPA is proposing that the use of deemed savings values will be presumptively approvable if those values (a) are documented in a publicly available database (also known as a Technical Reference Manual) that is accessible on a public W eb site, or is otherwise readily accessible; (b) specify the conditions for which each deemed value can be applied, including but not limited to climate zone, building type, and EE implementation mechanism; and (c) are updated at a minimum of every 3 years to reflect the per

- measure MWh savings documented in ex

- post EM&V studies apply M&V or comparison group methods. For M&V methods to be presumptively approvable , the EPA is proposing is that industry best

- practice protocols and/or guidelines must be followed. Examples of acceptable best

practice protocols and guidelines are provided in the EPA's EM&V guidance. EE providers can consult t he EM&V guidance to assess the applicability of these technical resources to the EE programs and projects generating savings, and must document how one or more best

- practice protocols or guidelines will be appropriately applied in EM&V plans (along with cl ear documentation and discussion of the rationale, applicability, and relevant data sources, and other supporting information).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 234 of 5 15 The EPA is also proposing that monitoring and verification reports must refer to the EM&V plan and confirm that the relevant M&V protocol or guideline was properly applied. (3) Quantifying S avings
. Regardless of the approach used to quantify and verify MWh savings, the EPA is proposing that EM&V plans must describe how they will address the following provisions :

• How major changes in independent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be accounted for
. The EPA is proposing that t he effects of these changes must be calculated using in dustry best

- practices such as real

- time conditions or normalized conditions that are reasonably expected to occur throughout the lifetime of the EE project or measure.

• How the initial installation of EE will be verified for EE program categories that invo lve the installation of identifiable measures ( e.g ., most utility consumer - funded EE programs and project

- based EE are evaluated site

- by

site). The EPA is proposing that v erification is required within the first year of program implementation and that a ll verification activities must be performed using industry best

- practice techniques ( e.g ., phone or mail surveys, document review, site inspections, spot or short

term metering). For projects implemented as part of a larger program, the EPA is proposing that verification can be performed using a sample of projects to represent the full program population.

• How avoided T&D system losses 86 will be quantified and applied to EE savings determined at the customer facility or premises
. The EPA is proposing that d ema nd

- side EE programs (other than T&D efficiency measures such as CVR

86 T&D losses are defined as the difference between t he quantified EGU generation required to serve a customer’s load (measured at the EGU bus bar) and the customer’s actual electricity consumption (measured at the customer meter).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 235 of 515 and volt/VAR optimization 87 ) may adjust reported savings by using a T&D adder . If such an adder is applied, the presumptively approvable appro a ch is to use the smaller of 6 percent or the c alculated statewide annual average T&D loss rate (expressed as a percentage) calculated using the most recent data published by the U.S. EIA State Electricity Profile. 88

• How the duration of EE program or project electricity savings will be determined. This must be determined using industry best

- practice protocols and procedures involving annual verification assessments, industry

- standard persistence studies, deemed estimat es of effective useful life (EUL), or a combination of all three.

• How the accuracy and reliability of quantifying MWh savings values will be assessed, and the rigor 89 of the methods used to control the types of bias or error inherent to the applied EM&V me thods. Sampling of populations is appropriate, provided that the quantified MWh derived from sampling have at least 9 0 percent confidence intervals whose end points are no more than +/

- 10 percent of the estimate.

• How double counting will be avoided throug h the use of tracking and accounting procedures to ensure that the same MWh of electricity savings is not claimed more than one time (for example, two EGUs claiming savings from the same lighting retrofit). The types of double counting that may arise are d iscussed in the EPA’s draft EM&V guidance. (4) Use of Energy Efficiency EM&V P rotocols
.

87 More information about these technologies is in section VIII.F.1 of the fin al EGs
. 88 Estimated losses in MWh, total electric supply, and direct electricity use values are available in the U.S. EIA’s State Electricity Profiles. See table on Supply and Disposition of Electricity (currently Table 10). Direct electricity use refers t o the electricity generated at facilities that is not put onto the electricity grid, and therefore does not contribute to T&D losses. 89 Rigor refers to the level of effort expended to minimize uncertainty from factors such as sampling error and bias. The h igher the level of rigor, the more confident one is that the results of the EM&V activities are both accurate and precise.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 236 of 515 In the CPP EG’s public comments, the EPA heard that EM&V protocols for demand

- side EE are currently in wide use, and that they should be continued and encouraged. The agency agrees with this observation and is therefore proposing the application of industry best

- practice protocols and procedures for demand

- side
EE. In particular, the EPA is proposing that, to be presumptively approvable , EM&V plans must specify the use of best

- practice protocols and procedures , and must also include a clear description and documentation of how the relevant protocols and procedures will be applied
. EM&V reports must include documentation of how such protocols and procedures were actually applied. EE providers can refer to the EPA’s EM&V guidance document for information about protocols that are considered “industry best

- practice protocols and procedures .” (5) Eligible Demand

- S ide E nergy E fficiency Programs and
P rojects. There has been stak eholder interest expressed through the CPP EGs rulemaking process in allowing states to issue ERCs for quantified and verified MWh savings from DS

- EE under state plans. Consistent with these perspectives, the EPA is proposing that any demand

- side EE progra m , p roject , or measure that result s in MWh savings may be potentially eligible to generate ERCs, including under this proposed model trading rule, provided that they meet the presumptively approvable provisions for***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 237 of 515 eligibility described in section IV.C.3 of this preamble , and that supporting EM&V is rigorous, transparent, credible, complete and fulfills the requirements provided in the EG s and the state plan. Examples of potentially eligible demand

- side EE program and project types include:

• P ublicly or utility

- administered EE programs , including those implemented in low

- income residences and facilities
. • Project

- based EE evaluated site

- by

- site, for example those implemented by ESCOs at commercial buildings and industrial facilities
. • State and local govern ment building energy code and compliance programs
. • State and local government incremental product energy standards
. The EPA’s EM&V guidance contains supplemental information about applicable best

- practice protocols, methods, and other key considerations fo r quantifying and verifying savings from the above

- listed EE activities in an accurate and reliable manner. The agency also recognizes that the programs and policies listed above will evolve and change over the rule period, as new technologies emerge and e fficiency improves. The agency also expects that new EE program types will emerge and expand throughout the rule period, and that MWh savings resulting from any such programs can similarly be considered if they meet the requirements of the EG s . (6) Requests for Comment on Energy Efficiency EM&V
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 238 of 515 We take broad comment on each EE EM&V criteri on described herein and in the proposed rule text , for each type of EE activity, project, program, or measure. Specifically, we seek comment on the substantive con tent of the criteria, and we seek comment on the level detail provided regarding these criteria and whether more or less detail (and what detail) should be included in the final model rule. In addition, we seek comment on whether some of the EE EM&V criter ia (and if so, which criteria) included in the draft guidance document released simultaneously with this proposed rulemaking should instead be included in the final model rule, instead of in guidance. Similarly, we seek comment on whether some of the EE EM &V criteria (and if so, which criteria) included in the proposed model rule should instead be addressed in the final EM&V guidance. More generally, we seek comment on what EE criteria the EPA should described in guidance versus what criteria the EPA should specify in the final model, whether or not those criteria are already included in the draft guidance or draft model rule. We take broad comment on the appropriate EE EM&V criteria for quantifying the electricity savings from every type of EE program, proj ect, or measure . We take broad comment on what constitute EE best

- practice protocols and procedures for every type of EE program, project, or measure.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 239 of 515 We take broad comment on whether, when , and how common practice baselines should and should not be used i n calculating electricity savings from EE activities, projects, programs, and measures, including comment on which common practice baselines should be used in which circumstances. We also take comment on whether some alternative metric should be used in li eu of the common practice baseline and, if so, what that metric should be. We take broad comment on the appropriateness of quantifying electricity savings by applying one or more of the following methods and comment on all aspects of each method: project

- based measurement and verification (PB

- MV), comparison group approaches, or deemed savings. We take further comment on circumstances in which it is appropriate (or inappropriate) to use each of these methods , including when it is appropriate to use random control trials (RCT) and quasi

- experimental methods, and the circumstances in which they can be encouraged and applied in practice ( e.g ., when a suitable control or comparision group can be identified and applied in a cost

effective manner ). In addition, we take comment on whether the general suitability and applicaton of quantification methods, such as RCT, quasi

- experimental techniques or other comparison group approaches when they are available at reasonable cost for purposes of quantifyin g MWh savings for particular EE programs, projects, or measures.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 240 of 515 If deemed savings are to be used in quantifying electricity savings from an EE program, project, or measure, we take comment

on the appropriate characteristics and presumptively approvable
pr ovisions for their us e in generating qualifying ERCs , including the basis and frequency for their determination , and the appropriateness of their application to particular EE programs, projects or measures in particular states or regions
. We further take c omment on the presumptively approvable provision for public access and input to the development of the TRMs used to house the applicable deemed savings values. We take comment on the minimum and maximum intervals (in years) over which electricity savings must be quantified, including those time intervals specified in the proposed model rule, and we take comment on any factors that must be taken into consideration when determining the appropriate time interval for specific EE programs, project s , or measure s . Because many states have different EE programs in place today, and we would expect them to leverage these programs if they incorporated EE into a rate

- based trading scheme with ERCs, it is theoretically possible that an ERC could be issued in one state that would not have been issued in another, even if both states have rate

- based programs in place that meet all of the EG s . The EPA takes comment on what criteria it should include in the final model rule, and what level of details with respect to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 241 of 515 those criteria that it should include, in order to ensure that an ERC issued for an EE program, project, or me asure in one state reflects the same MWh of energy or electricity saved in another state. We further take comment on whether there are provisions that the EPA should include in the final model rule that would prevent an entity seeking to be issued an ERC ( whether from EE or energy generation) from forum shopping, in an effort to find a state with standards for ERC issuance that it deems more lenient or less burdensome than those in another
state. We take comment on how to appropriately consider factors that affect energy savings in the quantification and verification process, including those identified in the proposed model rule, and we take comment on whether these factors should be addressed in every plan or just certain types of plans. Such factors may in clude the effect of changes in independent factors , effective useful life (and its basis), and interactive effects of EE programs, projects, and measures
. We take comment on the circumstances and frequency in which savings verification must occur to ensure that EE measures have been installed, are functioning, and have the potential to save
energy. We take comment on the appropriate steps for avoiding double counting, and how such steps should be documented in an***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 242 of 515 EM&V plan. In particular, w e take comment on the circumstances and conditions in which double counting is most likely to occur ( including those identified in this section), and the presumptively approvable provisions that must be adopted in state plans for avoiding and mitigating double counting. We take comment on the appropriate means by which an EM&V plan can ensure the accuracy and reliability of electricity savings estimates , including the necessary rigor of the method s selected to evaluate the electricity savings, the methods used to control all relevant types of bias and to minimize the potential for systematic and random error, and the potential effects of such bias and error. We further take comment on the presumptively approvable provision that samples taken to quantify EE program savings must achieve 90/10 confidence and precision. We take comment on the presumptively approvable approach to quantifying the electricity savings that result from avoiding a transmission and distribution system loss, including the provisions in the proposed mo del rule, which specify that each EM&V plan must quantify the transmission and distribution loss based on the lesser of 6 percent of the site

- level electricity comsumption measured at the end use meter or the statewide annual average transmission and distr ibution loss rate (expressed as a percentage) from the most recent year that is***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 243 of 515 published in the U
. S . EIA State Electricity Profile. We take comment on the appropriateness of including a restriction in the final model rule that no other transmission and di stribution loss factors may be used in calculating the electricity savings. We take comment on any additional criteria that we should include in the final model rule regarding EE EM&V. h. Skill Certification S tandards
. Using a skilled workforce to implement demand

- side EE and RE projects and other measures intended to reduce CO 2 emissions , and to evaluate, measure and verify the savings associated with EE projects or the additional generation from performance improvement s at existing EGU’s are both important. Several commenters pointed out that skill certification standards can help to assure quality and credibility of demand

- side EE,RE and other carbon emission reduction projects. The EPA also recognizes that a skilled

w orkforce performing the EM&V is important to substantiate the authenticity of emissions reductions. The EPA agrees that in conjunction with other EM&V measures discussed in this section, and in the context of the model trading rules although this is not an aspect needed for presumptive approvability , states are encouraged to include in their plan a description of how states will ensure that workers installing demand side EE and RE projects, or other measures intended to reduce CO 2 emissions, as well as work ers who perform***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 244 of 515 the EM&V of demand side EE and existing EGU performance will be certified by a third party entity that:

• Develops a training or competency based program aligned with a job task analysis and/or certification scheme;

• Engages with subject matt er experts in the development of the job task analysis and/or certification schemes that represent appropriate qualifications, categories of the jobs, and levels of experience;

• Has clearly documented the process used to develop the job task analysis and/or certification schemes, covering such elements as the job description, knowledge, skills, and abilities;

• Has pursued third

- party accreditation aligned with consensus - based standards, for example ISO/IEC 17024 or IREC 14732. Examples of such entities inclu de: parties aligned with the DOE ’s Better Building Workforce Guidelines and validated by a third party accrediting body recognized by DOE; or parties aligned with an apprenticeship program that is registered with the federal Department of Labor (DOL), Offi ce of Apprenticeship; or with a state apprenticeship program approved by the DOL, or by another skill certification validated by a third party accrediting body can help to substantiate the authenticity of emission reductions due to demand

- side EE and RE an d other carbon emission reduction measures. 9. ERC Transfers and Trading All affected EGUs that may be subject to this proposed federal plan would be required to be a part of the allowance tracking and compliance system (ATCS) that the EPA runs,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 245 of 515 although the affected EGUs that are regulated under the rate

based federal plan wou ld use ERCs as a compliance instrument, not allowances. To register to participate in the ATCS an affected EGU must submit designated representative information. More information on the designated representatives is described below above in section IV. E D .1 of this preamble &&& . . Non

- EGUs who wish to participate ( e.g ., RE sources) may submit registration criteria to participate in the ATCS. The ATCS will allow the trading and holding of ERCs that qualify for CPP compliance in a system that also will be used t o determine compliance. Quarterly, an affected EGU under the federal plan must submit information and data consistent with p art 75
. 90 These quarterly submission dates are the 30 th of April, July, October and January corresponding with the quarterly data end ing the month previous the submission deadline ( e.g ., an April 30, 2024 submission would include data from January through March of 2024). The data that are posted online would be publicly available.
Non

- EGU ERC generating sources are required to submit
g eneration data annually (see &&& s ection IV
. F C.3 of this preamble for a comprehensive discussion of non

- EGU ERC generating sources). The data must follow the EM&V procedures

90 See section IV.D.11 of this preamble for more information.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 246 of 515 delineated in s ection IV. F.4 D . 8 of this preamble. Because of the required rigor of the EM&V process, the EPA provides a time frame of January 1 to [&&& June 1 ] of the year that follows the data’s inception to complete all EM&V processes ( e.g , 2024 RE data must go through the EM&V proces s and be submitted to the EPA no later than &&& June 1, 2025). After receiving all emission and generation data from ERC generating sources and affected EGUs, the EPA will issue ERCs through a NODA as described in section IV. E.4 in D . 6 of this preamble. The EPA is proposing to issue ERCs annually. ERCs are acquired and traded throughout the compliance period. An affected EGU is responsible to hold sufficient ERCs that qualify for CPP compliance in its ATCS compliance account by November 1 at midnight of the year following the conclusion of the compliance period
. 91 The process for transferring ERCs from one account to another is quite simple. A transfer would be submitted providing, in a format prescribed by the agency , the account numbers of the accounts invo lved, the serial numbers of the ERCs involved, and the name and signature of the transferring authorized account representative or alternate. If the transfer form containing all the required information were submitted to the EPA and, when the Administrator attempted to record the

91 This true

- up process is further described in section IV.D.8 of this p reamble.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 247 of 515 transfer, the transferor account included the ERCs identified in the form, the Administrator would record the transfer by moving the ERCs from the transferor account to the transferee account within 5 business days of the receipt o f the transfer form. 10. Compliance with Emissions Standards Once the compliance period has ended, affected EGUs would have a window of opportunity to evaluate their reported emissions and obtain any ERCs that they might need to cover their emissions during the compliance period. The agency proposes to require sourc es to demonstrate compliance, i.e ., ERC
true

- up, on November 1 of the year after the last year in the compliance period. For example, if the first compliance period comprises the three years 2022, 2023, and 2024, then the ERC transfer deadline 92 for that fi rst compliance period (after which point the EPA would evaluate compliance) would be on November 1, 2025. The agency also requests comment on an earlier allowance ERC transfer deadline, such as June 1 or March 1, of the year after the last year in the compl iance period. Each ERC issued in the proposed rate

- based trading program would, if applied, be averaged into the compliance rate as one MWh of energy with zero CO 2 emissions deemed associated with it for the

92 The “ERC transfer deadline” is the deadline for transferring allowances that can be used for compliance in the previous compliance period to a source’s compliance account.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 248 of 515 compliance period that includes the year for whi ch the ERC was issued or be averaged into a later compliance period. Consequently, each affected EGU would need, as of the ERC transfer deadline, to have in its compliance account enough ERCs usable for its compliance obligations for the compliance period. The authorized account representative could identify specific ERCs to be applied, but, in the absence of such identification or in the case of a partial identification, the Administrator would deduct on a first

- in, first

- out basis. The ERCs that are used to meet compliance obligations are moved from the compliance account to the EPA’s retirement account. This account available for the public to view. The EPA promotes transparency throughout the entire process. ERC s that are deducted for compliance will remain in the system in an EPA account, which ensures they will not be used again. The EPA will use the submitted generation, CO 2 emissions and ERCs in the affected EGU’s compliance account to calculate an average emission rate for the EGU. It is the respo nsibility of an affected EGU to calculate the number of ERCs that will need to be held in a compliance account to meet the EGU’s compliance obligations. The method for determining the quantity of ERCs needed to meet compliance obligations has been discusse d previously in an example. To reiterate the process, the affected EGU would need to solve for the number of zero

- emitting MWh***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 249 of 515 ( i.e ., ERCs) that would need to be added to the total MWh of the EGU to make the adjusted emission rate equal to the emission
sta ndard. AAAAAAAA AA EEEE = MM oo CC 2 ( llllll ) GGGGGGGGGGGGGGGG GG ( MMMM h ) + MMMM h EEEEEE Adjusted Emission Rate = Mass of CO2 emitted ( lbs ) Generation ( MWh ) + MWh ERCs This equation can be rearranged to:
MMMM h EEEEEE = MM oo CC 2 ( llllll ) AAAAAAAA AA EEEE ( llllll MMMM h ) − GGGGGGGGGGGGGGGG GG ( MMMM h )

MWh ERCs = ass of CO2 emitted ( lbs ) Adjusted Emission Rate ( lbs MWh ) − Generation ( MWh ) If an affected EGU fails to hold sufficient ERCs to comply with its emission standard then , upon notification of the deficiency, the owners and operators of the affected EGU must provide, for deduction by the Administrator, two ERCs as soon as available for every ERC that the owners and operators failed to hold as required to cover emissions, in addition to the ERCs owed for compliance in that next period. The owed ERCs will be deducted from the EGU’s compliance account as soon as they are available in this account; the Administrator will not wait until the next true

- up date to make this deduction. The two ERCs owed for each ERC needed for compliance is in addition to any other recourse provided in s ections 113 (a )

– ( )

– ( h) or s ection 304 of the Clean Air Act C AA . This requirement to su rrender two times the ERCs needed to make up the shortfall for the prior period is***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 250 of 515 an ongoing obligation until compliance is achieved, and there is an ongoing obligation to comply in the current period. Failure to surrender these replacement ERCs is an add itional violation that may be subject to federal enforcement. The EPA solicits comment on sources owing two ERCs to make up for each insufficient ERC in previous compliance periods and whether two for one is the proper make

- up rate or whether there should be a stricter or a more lenient ratio. The EPA believes that it is important to include a requirement for an automatic deduction of ERCs. The deduction of one ERC per ERC that the owners and operators failed to hold would offset this failure. The deductio n of another ERC per ERC that the owners and operators failed to hold provides a strong incentive for compliance with the ERC

- holding requirement by ensuring that non

- compliance would be a significantly more expensive option than compliance. This is consis tent with other existing trading programs
. 11. Other ERC Tracking and Compliance Operations Provisions These sections also would provide that the Administrator could, at his or her discretion and on his or her own motion and consistent with existing federal trading programs , correct any type of error that he or she finds in an account in the ATCS . In addition, the Administrator could review any submission under the rate

- based trading program, make adjustments to the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 251 of 515 infor mation in the submission, and deduct or transfer ERCs based on such adjusted information. These provisions are a standard part of other trading programs administered by the EPA including the Acid Rain Program ARP and Cross State Air Pollution Rule ( see , e.g ., 40 CFR 72.96, 73.37, 97.427, and 97.428). The EPA solicits comment on potential alternatives for error correction that is simpler or more efficient. 12. Banking of ERCs The EPA is allowing proposing to allow unlimited banking or ERCs within and between the interim and final compliance periods. This means that if an affected EGU has more ERCs than are necessary during true

- up, it may save ( i.e ., bank) those ERCs for application during a future co mpliance period . The EPA requests comment on whether there should be a quantitative limit

or cap on the number of ERCs that can be banked. The EPA also requests comment on whether an ERC should be eligible to be banked between the interim and final compliance periods. Th e EPA is also proposing that ERCs will not expire after any duration of time. Other trading rules that the EPA has instituted (e.g., CSAPR) do not have expiration on the tradable properties. The EPA requests comment on the shelf

- life of an ERC. ERC “borrowing” is a flexibility that the EPA is not proposing, but is soliciting comment on. ERC borrowing is the concept that an affected EGU may use an ERC that the EGU will***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 252 of 515 acquire in a future compliance period to meet its current compliance obligation s. The EPA requests comment on a methodology that would allow ERC borrowing while maintaining the integrity of the compliance obligations. The EPA also has reservations due to the fact that future ERC generation is not guaranteed. 13. Emissions Monitoring and Reporting The EPA would require that ERC emission and generation data be reported to the EPA quarterly starting on April 30, 2022, and continuing every three 3 months thereafter ( i.e ., the 30th of April, July, October, and January). The EPA proposes that affected EGUs subject to the rate

- based federal plan trading program would monitor and report CO 2 emissions in accordance with 40 CFR part 75. The EPA is proposing to require affected EGUs in all states covered by the rate

- based federal plan trading
p rogram to monitor and report CO 2 emissions by and output data by January 1, 2022. Quarterly reporting would be required, with each quarterly report due to the Administrator 30 days after the last day in the quarter. The reporting would be in accordance wit h Part 40 CFR 75.60. The use of 40 CFR p art 75 certified monitoring methodologies would be required. Many affected EGUs that might be covered by the proposed federal plan s will generally have no changes to their monitoring and reporting requirements and wil l continue to monitor and submit reports***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 253 of 515 under 40 CFR p art 75 as they have under existing programs. The EPA anticipates fewer than 50 (approximately 10 of these affected EGUs are coal fired with the remainder being gas and oil fired that will qualify for a n excepted monitoring methodology) affected EGUs, that would not otherwise be subject to the Acid Rain Program ARP , will have to purchase and install additional continuous emissions monitoring system ( CEMS ) and data handling systems or upgrade existing equipment in order to meet the monitoring and reporting requirements of this program. Several of the affected EGUs not otherwise subject to the Acid Rain Program ARP are subject to the Mercury and Air Toxics St andards ( MATS ) program and therefore will have already installed stack flow rate and/or CO 2 monitors in order to comply with the MATS rule which are also necessary to comply with this rule. The CEMS used to comply and report data for MATS will be used for this rule to generate and report CO 2 emissions data without having to install duplicative monitors. The same CO 2 and stack gas flow rate monitored data used in conjunction with Hg mercury and other CEMS to calculate a toxic pollutant emission rate may be us ed to calculate a CO 2 mass or CO 2 emission rate for this program. RGGI, The Regional Greenhouse Gas Initiative ( RGGI ) , ARP, MATS and this rule all refer to CEMS installed and certified in accordance with 40 CFR part 75. RGGI and ARP currently require the re porting of CO 2 mass emissions on an***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 254 of 515 hourly basis and cumulative totals at the end of each calendar quarter. The same monitors and data collected may be used for multiple purposes for RGGI, ARP, MATS and this rule. Relying on the same monitors that are cert ified and quality ensured in accordance with 40 CFR part 75 ensures cost efficient, consistent, and accurate data that may be used for different purposes for multiple regulatory programs. The majority of the affected EGUs covered by this rule are already affected by the Acid Rain and / or Regional Greenhouse Gas Initiative RGGI programs and will have minimal additional monitoring and reporting requirements. The EPA also requests comment on requiring monitoring and reporting of CO 2 mass and net generation for the year before the initial compliance period begins, i.e ., to commence January 1, 2021. Only the monitoring and reporting would be required in 2021

— compliance with the requirement to hold allowances an enforceable emission standard would commence on the compliance period schedule that is detailed in section IV. III.D of this preamble
. E. 3. Federal Plan and State Plan Interactions 1. Interstate Trading The EPA proposes that all affected EGUs within states that are covered by the federal plan , if a rate

- based federal plan is***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 255 of 515 finalized for two or more states, would be allowed to trade with one another since there will be an assured commonality in the ERC currency and criteria surrounding the trading program. In addition, the EPA proposes, consistent w ith the provision for

“ presumptively approvable ready

- for

- interstate

- trading ” plans in the EGs that affected EGUs located in states with approved ready

- for

- interstate

- trading state plans using the sub

categorized uniform rate standards, and a common credit currency ( i.e ., ERCs representing one zero

- emitting MWh) may trade with affected EGUs operating under the federal trading program established in this federal plan.
Rate

- based EGUs subject to the federal plan and rate

- based EGUs in presumptively approvable ready

- for

- interstate

- trading state plans will be able to trade ERCs seamlessly across jurisdictional borders because of the assurances of being presumptively approvable
. Presumptively approvable Ready

- for

interstate

- trading states must submit information th at lists all affected EGUs and the EGU type to the Administrator to be able to trade within the federal trading program. To be able to trade in the federal trading program an affected EGU that is subject
to a presumptively approvable ready

- for

- interstate

- tr ading state plan must: (1) C ertify and authorize a designated representative
per s ection IV. E D .1 of this preamble; and (2) register a general account in the federal trading program, ATCS, in order to have a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 256 of 515 means of transferring ERCs with entities operating in the federal trading program. An affected EGU under a state plan will not register a compl iance account in the federal system because it will not be demonstrating compliance under the federal plan. Compliance will be achieved in the EGU’s corresponding state plan. Affected EGUs under a state plan have the ability to acquire ERCs through the fed eral trading program. These ERCs will be stored in the EGU’s general account in the federal trading program. To use these ERCs for compliance purposes, the ERCs must be transferred to the EGU’s compliance account in the state’s program. The EPA proposes to provide software to states to maintain a state’s compliance and tracking program. A state’s program will have the capability to interact with the federal trading program and software, ATCS, for transferring ERCs if the state is presumptively approvable
. re ady

- for

- interstate

- trading
. A state’s program can be tailored to meet its needs while still providing a platform for a state to be transferring ERCs between the state’s system and the federal trading program. ERCs can flow between a state system and the fe deral trading program bilaterally. The EPA acknowledges that states may have additional criteria for generating ERCs that are not outlined as part of the federal plan, but because the EPA will have vetted these criteria through a state plan approval these ERCs will be able to be traded within the federal trading program.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 257 of 515 The EPA requests comment on a broader approach that would allow all affected EGUs that are located in states with approved
rate

- based state plans to participat e in the federal plan trading program . In other words, this would extend federal

- plan linkage to rate

- based programs that are not set up to be

“ presumptively approvable ,” or which use a set of emission rates for affected EGUs that are different from the national uniform subcategorized rates. We request comment specifically on what conditions or requirements would be needed in these cases in order to participate in the federal plan trading program in a way that is administratively feasible and maintains the integrity of all of the linke d programs . Although the agency has serious concerns about the administrative complexity of this approach, we also request comment on the feasibility and potential mechanism of allowing EGUs in states with approved

mass - based state plans to participate in a federal rate

- based trading plan. 2. Treatment of States Entering or Exiting the Trading Program. The EPA proposes that a rate

- based trading federal plan may be replaced by a state plan for a future compliance period. The EPA is proposing that a state must transition to a state plan at the conclustion conclusion of a federal plan compliance period. The EPA requests comment on whether there are reasons that a state should be allowed to transition from a federal plan to a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 258 of 515 state plan in the middle of a compliance period and if so what requirements should be put in place to do so while ensuring the integrity of both the federal plan and the state plan and while enabling the affected EGUs covered by the plans to understand and meet their compliance requirements. If a state subject to the federal plan transitions to a state plan, any affected EGU impacted by the change remains responsible for meeting any outstanding obligations under the federal plan. To make the transition to a state plan, a state must have an approved state plan as laid out in the CPP preamble section section s VIII.D and
VIII.E of the final EGs
. **V. Mass**  **- based Implementation Approach** 
A. Trading P rogram O verview In addition to the rate

- based implementation approach discussed above, the EPA is proposing a mass

- based implementation approach for the federal plan
. As with the rate

based approach, this proposed federal plan is also a proposed model trading rule that states can adopt. The mass

- based approach that the agency proposes to implement is a mass

- based trading program ( i.e ., an emissions budget trading program , also referred to as an “allowance system” ). This section provides a brief overview of the proposed mass

- based trading program. The next sections describe the various elements of the proposed trading program in further detail.***E.O. 12866 Review

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A mass

- based trading program establishes an “ aggregate emissions limit ” that specifies the maximum amount of emissions authorized from affected EGUs included in the program, and creates allowances that authorize a specific quantity of emissions. The total number of allowances created are equal to, and constitute, the emissions budget or the aggregated emissions limit expressed in terms of metric short tons of emissions
. T he EPA is proposing that allowances be issued in metric short tons for the federal plan , and also requesting comment on the issuance of allowances in short tons
. Each facility with affected EGU s in the program must surrender allowances equal in number to the quantity of the emissions of its affected EGUs during the compliance period. A facility with affected EGU s may buy allowances from, or transfer or sell allowances to, other affected EGUs or other entities that participate in the market. A mass

- based trading program provides sources with great flexibility in choosing compliance strategies. In the proposed mass

- based trading program for the federal plan, the aggregate emissions limit for a state is its statewide

mass - based emission goal (or “mass goal”) as finalized in the Clean Power Plan EGs. The proposed approach to linking states for interstate allowance trad ing is detailed in section III.A.1 of this preamble ; i n an interstate trading program the aggregate***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 260 of 515 emissions limit is the sum of the mass goals for the covered
states. The EPA believes that a broad trading region provides greater opportunities for cost

- e ffective implementation of controls compared to a smaller region. Therefore , the agency proposes that a n affected EGU in any state covered by the proposed mass

- based trading federal plan may use for compliance an allowance distributed in any other state co vered by the mass based trading federal plan
. The EPA also proposes to provide for allowance trading between affected EGUs and other entities in
states with approved mass

- based

- trading state plans that meet the conditions specified in section III.A.1 of th is preamble , above ) , and affected EGUs and other entities in any state covered by the federal plan mass

- based trading program
. A mass

- based trading program can provide environmental certainty at lower cost than other policy mechanisms , because it assures the specified emissions outcome while maximizing compliance flexibility available to individual affected EGUs
. Further, allowance banking in such a program creates an incentive to make reductions earlier than required. M ass - based tradi ng programs are relatively simple to operate , which reduces administrative time and cost . Additionally, to inform the mass

based trading approach proposed here, the EPA draws upon more than two decades of experience implementing federally

-***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 261 of 515 administered mass - based emissions budget trading programs including the Acid Rain Program ARP SO 2 trading program, the NO X Budget Trading Program, the Clean Air Interstate Rule CAIR , and the Cross

- S tate Air Pollution Rule CSAPR . In the proposed mass

- based trading program federal plans, the emissions limit s in each state would be the mass goals that the EPA promulgated in the Clean Power Plan EGs (if there is interstate trading then the sum of the mass goals for the states in the trading program would constitute the aggrega te emissions limit) . The total amount of allowances distribute d in each state for each year would sum to the state’s mass goal for that year
. As detailed in section V.E of this preamble , t he EPA is proposing that a state covered by the federal plan can det ermine its own approach to distribute allowances , and believes that state allocation has important merits . The EPA would distribute allowances in a state if the state does not choose to do so , as detailed below
. Each allowance would authorize the emission of one metric short ton of CO 2 during the compliance period applicable to the allowance’s vintage year or a later compliance period
. The proposed approach to distribute allowances, including two three types of allo wance set

- asides, is discussed in section V.D
. , of this preamble , below.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 262 of 515 After each compliance period , a n affected EGU would surrender for compliance an amount of allowances equal to its emissions d uring the course of the compliance period . See section [&& & V.C ] of this preamble for the proposed length of the multi

- year compliance period s .. . Allowances could be transferred , bought, sold, or banked (carried over for future use) and any party could participate in the allowance market. The EPA is not proposing allowance “borrowing” ( i.e ., the bringing forward of future

- period allowances for use in an earlier period) ; the multi

- year compliance periods inherently provide the flexibility to schedule relatively greater emission reductions for later years within eac h period, as discussed further in section V .C . of this preamble
. In the proposed mass

based trading program, t he emission standard applied to individual affected EGUs is the requirement to surrender emission allowances equal to reported emissions for each compliance period
. The EPA also proposes that a state may choose to replace the federal

- plan allowance

- distribution provisions with its own allowance

- distribution provisions ( i.e ., to determine the distribution of allowances for its EGUs or other entities) using

a state allowance

- distribution methodology . State allowance distribution can have important advantages, because it allows a state to design and shape allowance allocation to its specific***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 263 of 515 goals and characteristics, and because states m ay have additional flexibility on allocation approaches , including auctions . See section V.E of this preamble for further discussion of the proposed approach for state

- determined allowance

- distribution methodologies. This proposed requirement to hold and s urrender allowance s equal to emissions for each compliance period would apply to all reported emissions from a facility’s affected EGU s including any emissions from co - fired biomass
. if biomass is included as an eligible measure
. Section &&& IV. F C.3 of this preamble discusses an approach on which the EPA requests comment on the inclusion of biomass as an eligible measure and on a proposed option where the agency would identify qualifying biomass and provide a methodology for the treatment of biomass (i.e., to assign zero

or partial emissions to qualifying qualif ied biomass ) , feedstocks (i.e., biomass feedstocks that are demonstrated to be a method to control increases of CO 2 levels in the atmosphere) and potential methods for demonstrating compliance , and thu s reduce the mass emissions attributed to a biomass co

- fir ed affected EGU. If the EPA took such an approach, then for purposes of compliance with the proposed mass

- based federal plan trading program, the affected EGU would need to hold allowances equal to its emissions after reflecting less the zero or partial emissions attributed to the co

- fired qualified biomass ; such an approach***E.O. 12866 Review

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on this approach.
B. Statewide Mass

- b ased Emissions G oals In the Clean Power Plan EGs the EPA established statewide

mass - based emission goals (“mass goals”) for all states that are equivalent to the rate

- based goals. As discussed in section V.C of this preamble , below, the EPA proposes to implement the mass based trading program with multi

- year compliance periods that are consistent with the compliance timing provisions in the Clean Power Plan EGs , i.e ., two three 3

- year compliance periods followed by a two 2

- year compliance period in the Interim P eriod, and succ essive two 2

- year periods in the Final P eriod. In the Clean Power Plan EGs, t he EPA established mass goals for all
states for this pattern of compliance period s . The EPA proposes to use those mass goals promulgated in the Clean Power Plan EG s as the mass limits ( i.e ., emissions budgets) for any state covered by the mass

- based trading program ( or, if implementing interstate trading, then the EPA would use the sum of a covered group of states’ mass go als as the aggregate mass limit) . The EPA is not opening for comment the determination s , made in the Clean Power P lan EGs, of each state’s mass goals . The mass goals are provided for convenience in Table

___ 8 of this preamble
.***E.O. 12866 Review

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**___ 8**  **. Statewide**  **Mass -**  **Based Emission**  **Goals (“**  **Mass Goals**  **”) (**  **Short T ons)** 

**State Interim period**  **Final period**  **Step 1 2022**  **- 2024**  **Step 2 2025**  **- 2027**  **Step 3 2028**  **- 2029**  **2030 -**  **2031 and**  **thereafter** Alabama 66,164,470 60,918,973 58,215,989 56,880,474 Arizona 35,189,232 32,371,942 30,906,226 30,170,750 Arkansas 36,032,671 32,953,521 31,253,744 30,322,632 California 53,500,107 50,080,840 48,736,877 48,410,120 Colorado 35,785,322 32,654,483 30,891,824 29,900,397 Connecticut 7,555,787 7,108,466 6,955,080 6,941,523 Delaware 5,348,363 4,963,102 4,784,280 4,711,825 Florida 119,380,477 110,754,683 106,736,177 105,094,704 Georgia 54,257,931 49,855,082 47,534,817 46,346,846 Idaho 1,615,518 1,522,826 1,493,052 1,492,856 Illinois 80,396,108 73,124,936 68,921,937 66,477,157 Indiana 92,010,787 83,700,336 78,901,574 76,113,835 Iowa 30,408,352 27,615,429 25,981,975 25,018,136 Kansas 26,763,719 24,295,773 22,848,095 21,990,826 Kentucky 76,757,356 69,698,851 65,566,898 63,126,121 Lands of the Fort Mojave Tribe 636,876 600,334 588,596 588,519
Lands of the Navajo Nation 26,449,393 23,999,556 22,557,749 21,700,587 Lands of the Uintah and Ouray Reservation 2,758,744 2,503,220 2,352,835 2,263,431 Louisiana 42,035,202 38,461,163 36,496,707 35,427,023 Maine 2,251,173 2,119,865 2,076,179 2,073,942 Maryland 17,447,354 15,842,485 14,902,826 14,347,628 Massachusetts 13,360,735 12,511,985 12,181,628 12,104,747 Michigan 56,854,256 51,893,556 49,106,884 47,544,064 Minnesota 27,303,150 24,868,570 23,476,788 22,678,368 Mississippi 28,940,675 26,790,683 25,756,215 25,304,337 Missouri 67,312,915 61,158,279 57,570,942 55,462,884 Montana 13,776,601 12,500,563 11,749,574 11,303,107 Nebraska 22,246,365 20,192,820 18,987,285 18,272,739***E.O. 12866 Review

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Nevada 15,076,534 14,072,636 13,652,612 13,523,584 New Hampshire 4,461,569 4,162,981 4,037,142 3,997,579 New Jersey 18,241,502 17,107,548 16,681,949 16,599,745 New Mexico 14,789,981 13,514,670 12,805,266 12,412,602 New York 35,493,488 32,932,763 31,741,940 31,257,429 North Carolina 60,975,831 55,749,239 52,856,495 51,266,234 North Dakota 25,453,173 23,095,610 21,708,108 20,883,232 Ohio 88,512,313 80,704,944 76,280,168 73,769,806 Oklahoma 47,577,611 43,665,021 41,577,379 40,488,199 Oregon 9,097,720 8,477,658 8,209,589 8,118,654 Pennsylvania 106,082,757 97,204,723 92,392,088 89,822,308 Rhode Island 3,811,632 3,592,937 3,522,686 3,522,225 South Carolina 31,025,518 28,336,836 26,834,962 25,998,968 South Dakota 4,231,184 3,862,401 3,655,422 3,539,481 Tennessee 34,118,301 31,079,178 29,343,221 28,348,396 Texas 221,613,296 203,728,060 194,351,330 189,588,842 Utah 28,479,805 25,981,970 24,572,858 23,778,193 Virginia 31,290,209 28,990,999 27,898,475 27,433,111 Washington 12,395,697 11,441,137 10,963,576 10,739,172 West Virginia 62,557,024 56,762,771 53,352,666 51,325,342 Wisconsin 33,505,657 30,571,326 28,917,949 27,986,988 Wyoming 38,528,498 34,967,826 32,875,725 31,634,412 **(metric tons)**

C. Compliance T iming and Allowance Banking The EPA proposes to evaluate compliance ( i.e ., compare emissions from affected EGUs to allowances held by facilities ) in multi

- year periods . A multi

- year compliance period provides greater flexibility to affected EGUs and reduces administrative burden, compared to a single

- year compliance period . The EPA seeks to strike a reasonable balance between providing***E.O. 12866 Review

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. The compliance periods in the proposed mass

- based trading program would be the same as p romulgated in the Clean Power Plan EGs, i.e ., the I nterim P eriod would be divided into three compliance periods: a three 3

- year compliance period (2022 through 2024), a second three 3

- year compliance period (2025 through 2027), and then a two 2

- year complianc e period (2028 and 2029) , for the Interim P eriod
. As in the EGs, the F inal P eriod would be divided into successive two 2

- year compliance periods commencing in 2030
. The EPA would evaluate compliance only after the end of a compliance period in the mass

- based trading federal plan , e.g ., if a compliance period is three 3 years long, the agency would evaluate compliance only after the end of the third year in the period. The EPA is not reopening for comment the compliance periods promulgated in the Clean Power Plan EGs. Some existing greenhouse gas GHG mass - based trading programs ( i.e ., emissions budget trading programs) use m ulti

- year compliance periods
. T he Regional Greenhouse Gas Initiative ( T he RGGI ) uses three 3

- year compliance period s, along with interim intervening compliance period s requirements . The RGGI interim intervening compliance period is a requirement for is that

sources to must hold allowances to cover 50 percent of emissions for the first two calendar years of each three 3

- year compliance***E.O. 12866 Review

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- year compliance period sources must hold allowances to cover 100 percent of emissions for the period and allowances already deducted for the interim period intervening requirement are subtracted from the three 3

- y ear obligation
. 93 The California Air Resources Board (CARB) Cap

and

- Trade Program also use s three 3

- year compliance periods , along with interim intervening compliance periods requirements
. The CARB interim compliance period e valuates intervening requirement is to e valuate compliance on 30 percent of each
source’s previous year’s emissions every year, and evaluat es evaluat e compliance for the remainder of emissions
every three 3 year s. 94 The EPA proposes to evaluate compliance after each multi

- year compliance period and is not proposing to implement intervening compliance requirements such as those in the RGGI or CARB programs, however , the agency requests comment on the inclusion of such requirements. The EPA recognizes that the compliance periods provided for in this rulemaking are longer than those historically and typically specified in CAA rulemakings. As reflected in long

standing CAA precedent, “[t]he time over which [the compliance

93 RGGI, Summary of RGGI Model Rule changes: February 2013. http:// www.rggi.org/docs/ProgramReview/_FinalProgramReviewMaterials/Model_Rul e_Summary.pdf Accessed June 9, 2015. 94 Overview of ARB Emissions Trading Program. http:// www.arb.ca.gov/cc/capandtrade/guidance/cap_trade_overview.pdf
. Accessed June 9, 2015.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 269 of 515 standards] extend should be as short term as possible and should generally not exceed one month.” See e.g ., June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 Guidance on Enforceability Requirements for Limiting Potential to Emit through SIP and §112 Rules and General Permits. The EPA determined that the longer co mpliance periods provided for in this rulemaking are acceptable in the context of this specific rulemaking because of the unique characteristics of this rulemaking, including that CO 2 is long

lived in the atmosphere, and this rulemaking is focused on perfo rmance standards related to those long

- term impacts. The EPA proposes that allowances may be banked for use in any future compliance period , with no restriction on the use of banked allowances, including from the I nterim P eriod (2022 through 2029) into the F inal P eriod (2030 and thereafter). The agency requests comment on the proposal to provide for unlimited allowance banking including the banking of I nterim

- P eriod allowances for use during the F inal P eriod. Allowance “borrowing” is a type of timing flexib ility wherein allowances from a future compliance period may be “brought forward” and used for compliance in an earlier compliance period (thus reducing the amount of allowances available for the future period) . The EPA notes that the proposed multi

- year c ompliance periods inherently provide the***E.O. 12866 Review

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years of a given compliance period by using allowance s from future years within each compliance period ( e.g ., if the first compliance period covers years 2 022 through 2024, a vintage 2024 allowance could be used to cover a ton emitted in 2022). The EPA is not proposing to allow allowance borrowing across compliance periods in the mass

- based trading federal plans ; h owever the agency is requesting comment on the use of borrowing across compliance periods
. A llowance borrowing across compliance periods would increase the complexity of the proposed mass - based trading
program and reduce the flexibility for states to replace the federal plan with an approved state plan . First, in order for borrowing to occur , the EPA would have to make allowances from future compliance periods available early so that sources could use these future allowances in earlier compliance period s. T he EPA proposes to record allowances in sou rce accounts for one compliance period at a time in order to maxim ize the opportunities for a state to replace the federal plan (or replace the allowance

- distribution provisions of the federal plan) with a n approved state plan (or approved state allowance

distribution methodology )
. The EPA proposes to allow a state to replace the mass

- based trading federal plan (or the federal

- plan allowance

- distribution provisions ) with a state plan (or state***E.O. 12866 Review

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- distribution methodology ) for a compliance period for which the agency has not yet recorded allowances in source
accounts . Recording allowances for multiple compliance periods
at once

– in order to make future

- period allowances available for borrowing

– would therefore l imit th ese opportunities for
state s to take over implementation (or implementation of the allowance

- distribution ). If allowance borrowing from a future compliance period were allowed , and the EPA provided the opportunity for a state to replace the federal plan for a year for which allowanc es had already been borrowed and retired for compliance in an earlier period, th os e borrowed allowances would constitute additional emissions beyond the levels specified in the Clean Power Plan EGs. In that event , the EPA would then need to address whether and how to remove allowances from circulation to prevent inflation of the allowable emissions at affected EGUs in the remaining states subject to the federal plans (to “repay” the borrowed allowances)
. To avoid disruption to sources already subject to the mass - based trading federal plan , the EPA is not proposing to allow allowance borrowing across compliance periods
. Although not proposing to provide for allowance borrowing across compliance periods , the agency requests comment on the potential inclusion of allowance borrowing in the proposed mass

-***E.O. 12866 Review

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distribution provisions in the mass

- based trading federal plan), how to address removing the extra allowances from circulation that would result if borrowed allowances originate in a state that subsequently withdraws from th e mass - based trading program , and on other complexities that borrowing across compliance periods would introduce
. The agency proposes to require sources to demonstrate compliance, i.e ., allowance true

- up, on November May 1 of the year after the last year in the compliance period . For example, if the first compliance period comprises the three years 2022 , 2023, and 2024, then the allowance transfer deadline 95 for that first compliance period (after which point the EPA would

e valuate compliance ) would be on November May 1 , 202 5
. The agency also requests comment on an earlier or later allowance transfer deadline , such as June 1 or March 1, of the year after the last year in the compliance period
.

95 The “allow ance transfer deadline” is the deadline for transferring allowances that can be used for compliance in the previous compliance period to a source’s compliance account. For further information see section V.G of this preamble.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 273 of 515 The EPA proposes to evaluate compliance ( i.e ., allowance
true

- up) at the facility level , not at the individual unit affected

- EGU leve l
. , in the mass

- based trading program
. Facility

- level compliance eases may ease implementation compared
to unit

- level compliance ; each facility has a single compliance account in which to hold allowances to cover emissions from all its affected EGUs rather than having individual unit

- level compliance accounts . Fe wer accounts makes may make it easier for the designated representat ive s to manage their allowances. This also eliminat es the potential for a facility that held sufficient allowances to mistakenly hold them in the wrong unit

level compliance accounts , which puts the unit out of compliance. T he EPA has adopted facility

- level compliance in previous emissions budget

- trading programs including the Acid Rain Program ARP (70 FR 25162 ) , Clean Air Interstate Rule the CAIR (70 FR 25162) , and Cross

- state Air Pollution Rule the CSAPR (76 FR 48208)
. The EPA would continue to track unit

- level emissions

– while evaluating compliance at the facility level

– allowing us to track increases and decreases of pollutants at individual
EGUs.
D. Initial Distribution of A llowances Establishing a mass

- based trading progr am requires that policymakers establish an approach for the initial distribution of allowances, historically referred to as “allowance***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 274 of 515 allocation.” The EPA believes that states may be well positioned to design their own allowance distribution approach beca use they

can take into account a wide range of considerations and tailor decisions to the particular characteristics and preferences of their state. We are proposing The EPA proposes that states have the flexibility to determine their own approach for distributing allowances in the federal plan , through a process that is detailed in section V.E of this preamble
. The EPA believes that

s tates should have the opportunity to make decisions about allowance distribution an d that they may have additional flexibility on approaches , including allowance auctions
. The EPA is also proposing an allocation approach that we intend to use i n the event we implement the federal plan in a state that does not choose to determine its own allowance

- distribution approach
. The EPA is requesting comment on all of these, and any other, approach approach es to distribute allowances. The initial allowance allocation approach that is based on historic al data does not affect the environmental results of the
program or generation patterns ; regardless of the manner in which allowances are initially distributed, the finite total number of allowances limits allowable emissions across all affected EGUs . Allowance allocations also are not intended to prescrib e or suggest any unit

- level compliance requirements n or do they limit unit

- level operational flexibility, because a***E.O. 12866 Review

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mass - based trading program provides operators of affected EGUs with the flexibility to buy, sell, or bank allowances. Allowance all ocation is simply a procedure by which allowances are distributed into the marketplace so that they may be available for affected EGUs to acquire as desired to authorize emissions under the program. However, because these allowances are finite in number an d thus a limited resource, they have value, and as a result, initial allowance allocations may raise issues of equity
among recipients. Thus the agency recognizes that its choice of allocation methodology is important from the perspective of distributional effects , and the importance of selecting an approach that is fair and reasonable in light of this consideration and the overall purpose of CAA section 111 informs the agency’s thinking in this proposal. We also invite comment on these considerations, and on any other factors or considerations which
commenters believe should inform the allocation method.
T he EPA believes that the most reasonable basis for an initial allowance allocation procedure is an approach that uses historical data reported by the affe cted EGUs subject to the requirement to hold allowances under this program. This approach relies on known data rather than future projections . The EPA believes this approach is preferable because any approach tied to future indicators ( e.g ., the expected f uture EGU

- level***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 276 of 515 pattern of emissions or the ultimate use of allowances) would depend on future outcomes that the EPA cannot project with perfect certainty in advance
. Basing allocation on historic historic al data is also consistent with the EPA’s approach t o initial allowance allocation under previously established mass - based trading programs. The EPA proposes to allocate most CO 2 emission allowances to existing affected EGUs in each state covered by a final mass

based trading federal plan , with set

- aside s for a percentage portion of allowances (discussed in more detail below) . For each compliance period , the agency would distribute CO 2 allowances in each covered state in the amount of the state’s CO 2 “ mass goal ” ( i.e ., the state’s CO 2 statewide mass

- based emission goal as promulgated in the Clean Power Plan EGs) for that compliance period . For example, if a compliance period is three 3 years long, the EPA would aggregate and distribute allowances for all three 3 years at the same time
. T he agency is not proposing to allocate allowances to new EGUs , which do not have a compliance obligation under this proposed federal plan
. Within each covered state , F or each year of the program, the agency proposes to allocate &&& 98 percent most of the allowances
to affected EGUs . Of this 98 percent that EPA proposes to allocate directly to affected EGUs , the agency proposes to allocate most of the allowances using a historic

- generation***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 277 of 515 based approach and to distribute a percentage (the percent age varies by state, as . The EPA is also proposing three set

- asides of allowances, which are detailed in section V.D.3) using an updating output

- based allowance set

- aside , . As explained below, this proposed updating output

- based set

- aside is intended to prevent or mitigate potential emissions leakage to new fossil

fueled units not covered by the mass

- based plan. The EPA
proposes to distribute the remaining &&& two percent of allowances to a set

- aside pool of allowances for renewable energy projects , as des cribed below. Although the EPA cannot anticipate the future EGU

- level pattern of emissions, it is possible to consider potential future emission patterns at the source category sub category level. In develop ing the Clean Power Plan EGs, the agency conducted analysis of emission reduction potential in the two affected EGU source categories sub categories , i.e ., electric utility steam generating unit s (steam generating unit s) and NGCC units. With that analysis as a basis, the EPA is requesting comment on an alternative allocation approach that would first divide the total number of allowances from each state’s mass goal by source category into source sub categor ies based on analysis done in developing the source catego ry - specific CO 2 emissions performance rates promulgated in the EGs and then allocate to affected EGUs within each category based on shares***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 278 of 515 of historic generation. This alternative is described later in this section. The EPA recognizes that states may prefe r different approaches to distribute CO 2 allowances from the EPA’s approach and that there may be advantages in having states tailor and apply their own allocation approach . Therefore, the agency is proposing that a state may choose to replace the federal

- plan allowance

- distribution provisions with its own allowance

distribution provisions , using any approach to distribute allowances that the state chooses, including methods that the EPA is not proposing here , provided that the state’s approach addr esses emissions leakage as detailed in section V.E
. and includes a Clean Energy Incentive Program . The proposed requirements for addressing leakage , as well as how the EPA proposes to implement the C lean E nergy I ncentive Program for the

mass - based federal plan, are detailed in sections V.E and V.D.4 of this preamble , respectively. 96 . The EPA proposes that a state could choose its own method for distribut ing allowances for any compliance period including the first period th at would commence in 2022. The proposed process for a state to replace federal

-

96 As detailed in section V.E i n this preamble, a state that chooses to determine its own allowance

- distribution approach under the proposed federal plan may do so through its allocation strategy (such as the set

- aside approaches in section V.D.3) or may make a justification regarding l eakage as detailed in section V.E.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 279 of 515 plan allowance

- distribution provisions with its own allowance

distribution provisions is detailed in section V.E of this preamble
. The following sections discuss and request comment on the EPA’s proposed approach to allocate CO 2 allowances to affected EGUs based on shares of historic generation , the proposed timing of allowance recordation, two three proposed allowance set

asides, allocations to units that change status , and the proposed approach for states to replace federal

- plan allocation provisions with their own allowance

- distribution approaches. In addition, we request comment on alternative allowance distribution approaches

– such as auctioning or allocations to l oad

- serving entities

– that the EPA or states might adopt. The EPA requests comment on all of these aspects of allowance distribution
. 1. Proposed Allocation A pproach and Alternatives The EPA proposes to allocate most of the CO 2 allowances in the mass

- based trading program to affected EGUs based on historic generation (output) data , while setting . The EPA also
proposes three allowance set

- asides. The first would set aside a percentage portion of allowances in each state from the f irst compliance period only; this set

- aside is for a proposed Clean Energy Incentive Program that is detailed in section V.D.4 of this preamble . The second would set aside a portion of***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 280 of 515 allowances in each compliance period except for the first period ; the EPA proposes to be allocated distribute allowances from this set

- aside to affected EGUs via an updating output

based set

- aside (the size of the set

- aside would vary by state) , and setting aside two approach as detailed in section V.D.3 of this preamble ) . Th e third would set aside 5 percent of allowances in each state , in all compliance periods, to be distributed to RE projects as detailed in section V.D.3 of this preamble . In summary, the proposed set

- asides include: (1) Clean Energy Incentive Program. This set

- aside would be of first compliance period allowances only. (2) Output

- based allocation set

- aside. This set

- aside would start in the second compliance period and continue for each compliance period. (3) Renewabl e energy projects
. In the first compliance year, the EPA would allocate &&& 98 percent of allowances using the historic

- data based approach (i.e., all except two percent for the RE set

- aside in each state ) , because the EPA does not propose to include the output

- based set

- aside in the first compliance period. The EPA proposes to include the output

- based set

- aside starting with the second compliance period. The EPA proposes that the size (number of allowances) of a state’s output

- based set

aside would re main the same across each compliance period ; the set

- aside share would increase relative to the total allowances in a state as the mass goals decrease with the steps in the Interim Period
. The proposed set

- asides are detailed in section V.D.3
. This set

- asi de would be implemented in all compliance periods
. This section describe s the proposed historic

- generation

based approach that the agency would use to allocate all allowances except for the set

- aside allowances. The EPA is***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 281 of 515 proposing affected

- EGU

- level allo cations (based on available data) in every state. Further detail on this proposed allocation approach is provided in the Allowance Allocation Proposed Rule TSD in the docket. The affected

- EGU

- level allocations resulting from this proposed historic

- generati on - based approach are provided in the docket in an appendix to the TSD
. The agency requests comment on the proposed historic

- generation based allocation approach and on other allocation approaches. The EPA proposes to allocate the historic

- generation

- based portion of the allowances ( i.e ., the mass goal minus the two
set

- asides 97 ) to individual affected EGUs based on each affected EGU’s share of the state’s historic generation , using a 2010 through 2012 data
. The calculation steps for th is proposed historic

- generation

– based allocation approach are as follows: (1) For each unit in the list of likely affected EGUs in each state , identify annual net generation values for the historic period of 2010 through 2012 ( reflecting affected

- EGU

- specific generation assumptions incorporated in the data adjustments , e.g ., assumed capacity factor for “under construction” units ) . For a year for which an affected EGU has no generation data ( e.g ., a year before the year when a unit started operating), assign the affected EGU a value of zero. 98 (See step 2, below, for how zero

97 In the first compliance period this would be the mass goal minus the Clean Energy Incentive Program set

- aside and the RE set

- aside. In all other compliance periods this would be the mass goal minus the output

- based allo cation set

- aside and the RE set

- aside. 98 The EPA proposes that for affected EGUs that were under construction and began operation during 2012 or after 2012 (and thus don’t have a full year of generation data from the 2010 through 2012 period), the allocati on***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 282 of 515 values would be treated in the calculations.) The EPA proposes to use a three 3

- year historic period ( i.e ., 2010 through 2012) to reflect unit

- level operations over time. In the Clean Power Plan EGs, the EPA identified a reasonable basis for using aggregate data at the regional level largely based on the most recent data year (in that case, 2012) to inform the establishment of category

- wide emission guidelines EGs (as oppose d to individual, unit

- specific parameters). As a distinct matter, in this context the EPA is considering data at the unit level to inform unit

specific initial allowance allocations; notwithstanding that these allowance allocations do not impose any unit

- l evel compliance requirements in and of themselves, the EPA finds it reasonable to consider a multi

- year data period to inform unit

- level initial allocations in order to consider a broader range of unit

- specific operations over time. (2) Determine each affe cted EGU’s average generation value by averaging all (non

- zero) 2010 through 2012 annual generation values for the unit. The proposed approach would use only non

- zero values in calculating a unit’s average generation. For example, if generation data for a unit were available for only 2011 and 2012 then the EPA would only use the 2011 and 2012 values to determine the unit’s unadjusted average generation value. The EPA included generation from all units in the historic data set in the proposed allowance calcu lations and calculated allowances for all such units; the agency requests comment on the treatment of generation from and allocations to units that operated in the historic data set but retire before the start of the program. (3) In each state , sum the av erage generation values from all affected EGUs to obtain that state’s “total average historic generation.” (4) Divide each affected EGU’s average generation value by the state’s total average historic generation to determine that affected EGU’s share of the state’s total average historic generation.

calculations be based on the same 2012 generation estimate as the agency used in the Clean Power Plan EGs for the goal

- setting calculations. That is, the EPA proposes to estimate 2012 generation for such units based on a unit’s net summer capacity and a ssuming a 55 percent capacity factor for gas units and a 60 percent capacity factor for steam units.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 283 of 515 (5) Multiply each affected EGU’s share of the state’s total
average historic generation by the historic

- generation

allocation portion of the state’s mass goal ( i.e ., the state’s

mass goal minus the se t

- aside for output

- based allocations, and minus the set

- aside for renewable energy projects asides ) to determine that affected EGU’s allocation
. For the first compliance period, the historic

- generation

allocation portion of the state’s mass goal would comprise the mass goal minus on ly the set

- aside for renewable energy, as the output

- based set

- aside would not commence until the second compliance period.
The agency believes that this propose d historic

- generation

based allocation approach is a reasonable approach for several
reasons:

• The agency believes that the proposed historic

- generation

based approach maximizes transparency and clarity of allowance allocations. The EPA has placed in the docket the historic generation data and the calculations used to determine the proposed affected

- EGU

- level allocations. The agency also placed the proposed affected

- EGU

- level allocations, resulting from these calculations, into the docket. These calculations can be relatively easily replicated.

• To calculate allocations, the EPA proposes to use historic affected

- EGU

- level net generation data compiled using a methodology similar to the Emissions & Generation Resource Integrated Database (eGRID) methodology. The proposed calculation approach is described further below and i n the Allowance Allocation Proposed Rule TSD in the docket. The historic

- data methodology is described in the [&&&reference to Baseline CO 2 Emission Performance Rate and Goal***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 284 of 515 Computation TSD from final EGs]. for CPP Final Rule
. The majority of the generation

- unit

- level data in this approach are from reports that emissions sources submit to the EPA under 40 CFR p art 75 and to the Energy Information Administration ( EIA ) on forms EIA

- 860 and EIA

- 923. The EPA believes these are the best data available to the agen cy at the time of this proposed rule for calculating affected

EGU

- level allocations.

• Allocating based on historic data (as opposed to data not yet reported) allows for the distribution of allowances prior to the start of the program, which can facilitat e c ompliance planning. The proposed approach is transparent, based on reliable data, and, like the approaches used in the NO X SIP Call, Acid Rain Program, and Cross

- S tate Air Pollution Rule the ARP , and CSAPR , based on historic data. For all these reasons, the agency believes that it is appropriate to use a historic

- generation

based allocation methodology in this proposed rule. The EPA also requests comment on a historic

- data approach based on historic emissions. The proposed historic

- data

- based allocations app roach would not generally affect the ultimate pattern of generation across individual power plants, as compared to other methods of allocation. The combination of plants, and their contributing generation, that will be used to meet a particular demand for electric power will be based on the relative efficiency (cost of production) of available plants. The relevant measure of this efficiency is the marginal cost of generation, which for a particular power plant would be the sum of the cost of***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 285 of 515 additional fuel to generate an additional MWh, additional maintenance costs to increase output by an additional MWh, and costs associated with the additional emissions that result from generating an additional MWh. In a mass

- based trading program, additional emissions mu st be covered by additional allowances , so the cost of emitting is the price of the allowances that must be consumed to authorize those emissions . The se emissions

related costs of electricity production are the same regardless of whether the allowances use d to cover those emissions were initially allocated to the user or whether they were acquired subsequent ly in the marketplace. The same concept applies to any other cost of electricity production. For example, a coal

- fired electric generating unit EGUs oper ator would account for the cost of consuming coal to produce generation whether or not the coal was discovered already on

- site, given to the unit at “no charge”, or purchased from the marketplace; in all cases, the combustion of that coal consumes its valu e ( i.e ., it can no longer be sold). Similarly, the approach taken to distribute allowances does not affect the cost accounting for emissions at units because the use of any tradable allowance has an opportunity cost

– a firm loses the opportunity of selling an unneeded allowance when it emits an additional ton. Because a firm loses the opportunity of selling an unneeded allowance when it emits an addit ional ton, even the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 286 of 515 emission of a ton covered by a “free” allowance causes the generator to incur the cost of emissions based on th e market price of allowances the owner must forgo by emitting that ton and using that allowance. The proposed historic

- data based allocation approach would not be expected to have any effect on freely competitive electricity markets , because the marginal cost of emitting under the mass

- based trading program is determined by the level of the overarching mass goals and is not aff ected by the distribution of the underlying allowances. This marginal cost of emitting is what will inform prices, outputs, and competition among power plants. While cost

- of

- service markets are structured differently from competitive markets, the regulated utility still makes the dispatch decision on the basis of marginal costs among the units in its fleet, which is not affected by the amount of allowances that any particular unit in that fleet was initially allocated (assuming a competitive allowance marke t)
. The EPA recognizes that some stakeholders are concerned about the potential future distribution of emissions at the facility level, and possible effects on communities. However, for the reasons discussed in the above paragraphs, allowance allocations t hat do not change based on future activity (such as allocations under the proposed historic

- generation based approach) do not affect the distribution of emissions under the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 287 of 515 program. This proposed rule is expected to achieve significant emission reductions across the electric power sector; see section IX of this preamble for discussion of anticipated broad benefits to communities. In addition to the proposed historic

- data

- based allocations approach, the EPA also requests comment on other allocation approache s. One alternative approach on which the agency requests comment is similar to the proposed approach in that it allocates allowances based on historic generation . Ho wever, this alternative approach would divide the total number of allowances from a state’s mass goal (minus the set

- asides) by into affected EGU source categor ies

– based on analysis done in developing the

source category

- specific CO 2 emissions performance rates promulgated in the Clean Power Plan EGs

– before determining unit

- level alloc ations
. The EPA requests comment on this alternative approach because dividing the allowances in a state by source category in this manner may result in an initial distribution of allowances that would be closer at the source category level to the future category

- level pattern of emissions , and thus to allowances ultimately used, than the proposed approach. To the extent that this category

- level divi sion of allowances is a reasonable proxy for the future category

- level emissions pattern under the program , this approach may reduce wealth transfer between parties that occurs***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 288 of 515 as a consequence of a less

- anticipatory initial allocation procedure. The EPA cannot observe in advance the future affected

- EGU

- level pattern of emissions.
In this alternative approach, f or each state t he EPA would multiply historic steam

- generating

- unit generation by the steam

generating

- unit source category

- specific CO 2 emissions performance rate , and multiply historic NGCC

- unit generation by the NGCC

- unit source category

- specific CO 2 emissions performance
rate . The EPA promulgated would do th ese calculation s for each of the compliance periods in the Interim Period using the glide path interim performance rates , and for the Final Period using the final performance rates. These performan ce rates are shown in Table 6 in section IV.B of this preamble , above
. The EPA established the source category

- specific CO 2 emissions performance rates in the Clean Power Plan EGs [&&& cite to (see section VI of the final EGs ] ; ) ; these rates are not within the scope of this proposed federal plan rulemaking. Next, for each compliance period t he EPA would split the total number of allowances from the state’s mass goal (minus the set

- asides) by into affected

- EGU source category categories in proportion to the values resulting from the above calculation. The EPA would then allocate the steam

– generating

- unit portion of the allowances to individual steam generating units SGU s using the same historic

- generation based approach describe d above, and***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 289 of 515 would also allocate the NGCC

- unit portion of the allowances to individual NGCC units using the historic

- generation based approach. are The EPA notes that there are multiple approaches that policymakers may use to distribute allowances , beyond the proposed or alternative allocation approaches we included in this proposed rule
. Examples of o ther allocation approaches include allocating based on historic heat input (fuel) or historic emissions data , rathe r than historic generation data
. T h e choice to use historic data for allocati o n ( e.g ., generation, heat input, or emissions) means that the distribution of allowance value will be based on past behavior. For example, allocations based on historic emissions would benefit those that have hist orically been the large st emitters, whereas allocations based on historic heat input or generation (output) would benefit those that have historically used the most fuel or generated the most electricity
. 99 Alternatively , allocations could be distributed based on projected or observed future activity ( e.g ., generation, heat input, or emissions ); for the reasons stated above in the description of the historic

generation

- based allocation approach, the EPA believes the
appro ach is reasonable. )
.

99 Tools of the Trade, A Guide to Designing and Operating a Cap and Trade Program for Pollution Control, EPA, 2003.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 290 of 515 The proposed and alternative allocation approaches would determine most of the allocations be fore the start of the
program . Other potential allocation approaches w ould change allocations for future compliance periods based on future activity

– referred to as “updating” allocations . This proposed rule includes an updating

- allocation component , as we are proposing to set

- aside a portion of the allowances in each
state for distribution using an updating output

- based approach as detailed in section V.D.3 of this preamble . The EPA requests comment on the use of other updating allocation approaches. Another allowance allocation approach that could minimize the difference between the initial allowance allocation and the ultimate distributional pattern of allowance use for compliance is to conduct an auction, a process whose express intent is to align t he allocation of a scarce good (in this case, the limited authorization to emit CO 2 ) with the parties most willing to pay for its use. Many ascribe benefits, in terms of economic efficiency, to the use of auctioning as a means of allocating allowances. The EPA notes that some state s (e.g., RGGI participating states) have used auctions to distribute allowances and have used auction revenues for a variety of purposes, including the implementation of demand

- side energy efficiency EE measures intended to help re duce electricity rate impacts and overall program costs, as well as targeted***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 291 of 515 investments in overburdened low

- income communities
. The EPA believes that if it conducted allowance auctions, any revenue from such auctions received by the agency must be deposite d in the U.S. Treasury under federal law. 100 As a result, the EPA notes that states implementin g state plans may have greater flexibility than the federal government would to direct auction funds for particular activities. The agency requests comment on the idea of auctioning all, or a portion of, each state ’s allowances in the proposed federal plan, on how much of each
state ’s allowances to auction if not the entire amount, on the frequency ( e.g ., yearly or every few years) , design of auctions ( e.g ., spot or advance ; first, second

- price or other ) and who may participate in the auction
. The EPA requests One comment on an alternative approach, which is allocating [ &&& ]% a portion of the allowances to load

serving entities (LSEs) rather than to affected EGUs
. LSEs are the entities responsible for delivering power to retail

consumers. LSEs include entities that are investor

- owned, publicly owned, owned by rural electric cooperatives, as well as other entities.

100 The EPA believes authority to conduct auctions is located in CAA section 111 alone, as well as by its reference to CAA section 110(c) FIPs. The statutory definition of a FIP authorizes “techniques (including economic incentives, such as marketable permits or auctions of emissions allowances).” 42 U.S.C. 7602(y).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 292 of 515 Allocation to LSEs ca n help mitigate bill impacts on electricity consumers when applied in concert with certain additional design features. In particular, if LSEs commit and/or are required to pass through to ratepayers the value from their selling of the allocated allowances as condition of receiving an allocation of allowances , this approach can mitigate the impact of electricity bill increases on consumers that might otherwise result from application of the federal plan
. As described in the Allowance Allocation TSD, t his type of approach can also help to avoid or mitigate the potential for windfall profits for affected EGUs
. Economic theory indicates that direct allocation to generators could result in profits to generators that, despite receiving allowances free of ch arge, include in the price of a marginal unit of electricity sold some or all of the opportunity cost of having to surrender an allowance (which has an economic value) to cover emissions associated with producing that marginal unit of electricity
. The EPA could apply this approach by conditioning the receipt of allowances by LSEs on the pass through to consumers of any allowance value
. In addition, most LSEs are regulated by state public utility commissions that would have authority to ensure that the value of allowances directly allocated to LSEs be passed through to ratepayers. Other LSEs that are publicly owned or are electric***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 293 of 515 cooperatives have governing structures that could ensure that allowance value be passed through to ratepayers. if necessary
. The EPA requests comment on the design and utility of allocating allowances to LSEs to help mitigate electricity price impacts. In particular, the EPA requests comment on options to establish conditions requiring pass through of allowance value and verificati on of such pass

- through, whether it would be appropriate to identify any conditions related to equitable distribution of allowance value among ratepayer categories, as well as the EPA’s legal authority to apply any such conditions. Some existing mass

- base d GHG emission programs allocate allowances to load

- serving entities. For example, California’s GHG emissions program allocates allowances for free to distribution utilities on behalf of electricity ratepayers, with the goal of protecting electricity ratepayers . 101 California’s regulations stipulate a uction proceeds and allowance value obtained by an electrical distribution utility from these direct allocations “ shall be used exclusively for the benefit of retail ratepayers of each electrical distributio n utility
... and may not be used for the benefit of entities or persons other than such ratepayers. ” 102 Each distribution utility that receives an allowance allocation must submit an annual report describing how

101 17 CCR § 95892
. 102 Id.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 294 of 515 they complied with this provision in the ir disposi tion of any auction proceeds and allowance value received for the prior calendar year. The EPA requests comment on the additional design aspects of any potential allocation to LSEs , including but not limited to the following questions
. : I n particular, wha t metric should provide the basis for LSE allocation , e.g . : . , electricity demand served by the LSE , population served by the LSE, emissions associated with generation serving the LSE, or some other metric. If emissions are used as the basis for such allocation, what approach should be taken: on a historic basis or a continually updated basis, on the basis of estim ated emissions for the relevant region or some other basis, and using what data to calculate such emissions. Finally, Also, the EPA requests comment on the form by which LSEs may distribute the allowance value to rate

- payers, e.g . as a fixed amount, through reduced rates, etc. Finally, the EPA requests comment on what share of the total number of allowances should be distributed to LSEs and what monitoring and reporting requirements may be necessary to support an effective program. The EPA recognizes that al location to LSEs , by reducing rate impacts, could reduce incentives for socially efficient demand response, including potential investment in energy efficiency. The EPA solicits comment on the magnitude of this***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 295 of 515 effect, relative to alternative allocation options, and design options that could help mitigate this effect
. The EPA requests comment on the proposed historic

generation based allocation approach, the alternative approach that divides total allowances from a mass goal by into source category subcateg ories before allocating to individual affected EGUs within each source category based on historic generation, and on the other alternative approaches described in this section
. The The EPA also requests comment on allocating allowances to all generation in a state (including non

- emitting generation) using a historic

- generation based approach. The agency also requests comment on the two proposed allowances allowance set

- asides, which a re detailed below. The agency requests comment on allocation approaches that may minimize the impact of this proposed rule on small entities. The EPA also requests comment on any other approaches to distribute allowances
. Finally, T he agency notes that we propose to provide that any state may choose to replace the federal

- plan allocation provisions with an allocation approach of its choosing as discussed below. Finally, with regard to alternative allocation methodologies (either those specifically mentioned in this proposal or other allocation methodologies), the EPA requests comment on how those alternatives would satisfy the requirement that in a mass

- based program where new sources are not included***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 296 of 515 as part of the program, the allocation methodology must a ddress leakage to new fossil fuel

- fired sources. 2. Timing of Allowance Recordation The proposed historic

- data

- based allocation approach

– which the EPA proposes to use to allocate all of the allowances in each state except for the two set

- asides aside allowances

– is

a one - time determination that is not updated. The allocations resulting from this approach would be determined prior to the start of the program. The EPA proposes to record the historic

data based allowances for each compliance period in so urce accounts prior to the start of each compliance period , and to record allowances for one compliance period at a time. Recording allowances prior to the start of a compliance period provides certainty to affected EGUs of their allocations in advance of when the allowances are needed for compliance and can facilitate long

- term planning. Recording allowances for one compliance period at a time provides flexibility for a state to replace the federal plan with its own plan in a timely way. As discussed in

se ction V.F of this preamble , the EPA proposes to allow a state to replace the federal plan with its own approved state plan , for a compliance period for which allowances have not yet been recorded (the proposed schedule for allowance recordation is detailed below ) )
. T he EPA also proposes that a state could choose to replace the federal

- plan allocations to its affected***E.O. 12866 Review

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a compliance per iod for which allowances have not yet been recorded as detailed in section V.E of this preamble
. The agency proposes to record allowances for the mass

- based trading program in accounts of affected EGUs seven 7 months prior to the start of each compliance period . For example, if compliance periods are three 3 years long and the first compliance period comprises the years 2022, 2023, and 2024, the EPA would record allowances for 2022, 2023, and 2024 by June1 June 1 , 2021
. The EPA requests comment on the propos ed approach of recording allowances seven 7 months prior to the start of each compliance period , and on an alternative of recording allowances 13 months prior to the start of each compliance period
. See section V.D.3 of this preamble for timing of recordation of allowances from the proposed set

- asides. 3. Allowance Set

- asides to Address Leakage to New Sources In addition to the general allocation method proposed above, the EPA is proposing two additional components of allowance allocat ion under a mass - based federal plan. These two
set

- asides are being proposed to satisfy the requirement in the final guidelines that mass

- based plan s demonstrate that they***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 298 of 5 15 have addressed the risk of leakage to new unaffected units, as specified below. 103 The final emission guideline outline concerns regarding EGs specify the concern of leakage, which is defined in section VII.D of the final EGs preamble as the potential of an alternative form of implementation of the BSER ( e.g ., the rate

based and mass

- based state g oals) to create a larger incentive for affected EGUs to shift generation to new fossil fuel

- fired EGUs relative to what would occur when the implementation of the BSER took the form of standards of performance incorporating the subcategory

- specific emissio n performance rates representing the BSER. The final EGs specified as the risk of increased that mass

based plan approaches must address leakage, because the form of the mass goals may ultimately impact the relative incentives to generate and emit at affect ed EGUs as opposed to shifting generation to new sources, with potential implications for whether the mass goal implements or is consistent with the BSER and overall emissions that can be caused when generation shifts over time from affected EGUs unde r the rule to unaffected EGUs (see Sec.VII.C). The final guidelines also acknowledge that there the sector . These circumstances are shifts in generation across affected sources that could lead to greater or lesser

103 The EPA is also proposing a third set

- aside, for a Clean Energy Incentive Program, which is detailed in section V.D.4 of this preamble , below.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 299 of 515 emissions , and in fact the rule is premised on t he shifting of emissions from higher

- emitting to lower

- emitting affected EGUs. The final guidelines also specify requirements for the implementation of rate

- based and mass

- based plans that minimize the risk of increased emissions from these generation shi fts across affected sources
. However, there is still a key concern that under mass

- based plans, generation may move from existing affect ed EGUs to new sources that are not affected by the final guidelines. This risk is not much less likely to be present for existing EGUs under a rate

- based plan , because approach, where the form of the goal ensures sufficient incentive to affected existing EGUs to generate and thus avoid leakage, similar to the CO 2 emission performance rates and rate

- based goals provide a n incentive for low

- emitting existing sources to maximize their utilization, and flexibilities under rate

- based plans enable those unit to increase utilization by allowing those units to increase their emissions under the rate. This characteristic of rate

- based plans also minimizes the concern of leakage from mass

- based existing EGUs to existing EGUs in neighboring rate

- based states, because the lower

- emitting units in rate

- based states will already be incented to maximize their utilization, and thus will

n ot have as much opportunity to increase their output to replace generation from existing units in mass

- based states. But new***E.O. 12866 Review

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- based and mass

- based states are more likely to have the opportunity to increase their utilization in order to replace generation from . By requiring mass - based plan components that address leakage, the final EGs ensure that mass based existing sources, and the mass

- based a ffected EGUs w on’t have the incentive to maximize utilization and they don’t have the oppo rtunit y to increase their emissions in the same way as rate

- based existing EGUs . Therefore, leakage to new sources is a unique risk for mass

- based plans and must be addressed in order to assure equivalency between goals are equivalent to the CO 2 emission performance rates (as well as rate

- based goals) and

mass - based goals. The final guidelines require that jurisdictions implementing a mass

- based option make a demonstration that leakage has been addressed in their plan (See Sec. and are thus
an equ ivalent expression of the BSER
. Section VII.D of the final EGs details the requirement for addressing leakage and why it is needed, and section VIII. L) . The J of the final EGs specifies options for making that demonstration include creating a mass limit tha t opts in new sources, implementing allocation strategies that address leakage, or justify why leakage is not a concern for the jurisdiction because of existing policy or unique characteristics. mass - based state plan components that address leakage. We are proposing , as part of the mass

- based***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 301 of 515 approach under the federal plan and model rule, to implement allowance allocation approaches to address leakage through the use of allocations strateg ies , specifically the use of a combination of through establishing an output

- based allocation
set

- aside and a set

- aside that encourages the installation of
RE. In the section below, the EPA discusses why we have chosen
set

- aside allocation strategies as the approach to address leakage. Set

- asides can be used to target and refine allowance allocation in order to achieve beneficial outcomes, for example ensuring program integrity and mitigating costs. As noted in the EG, i f a state were to adopt allowance set

- aside provisions exactly as they are outlined in th is model rule once it is finalized , the requirement for that state plan to address leakage would be considered presumptively approvable. Section VIII.J of the final EGs provides a discussion of how set

- asides can effectively address leakage in a mass

- based plan approac h. That section of the final EGs also describes why
t he allowance allocation alternative for addressing leakage must be chosen for the federal plan and model rule proposal instead of the option to regulate new non

- affected fossil fuel

- fired
EGUs . This is b ecause the EPA does not have authority to extend regulation of and federal enforceability to new fossil fuel

-***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 302 of 515 fired sources under CAA section 111(d), and therefore we cannot include new sources under a federal mass

- based plan approach
. The set

- asides we are proposing

– described in detail below

- would establish a pool of allowances that would be allocated to affected EGUS or other entities , and would be allocated based
upon different criteria in order to support particular program goals designed to address l eakage
. These set

- asides are essentially a type of “economic incentive” authorized by the CAA as a means of pollution prevention and control, and the expected benefits of this particular type of economic incentive to address leakage make it appropriate here. 104 The EPA believes these set

- aside programs are both authorized and consistent with the purpose of the Clean Power Plan under CAA section 111(d) and the specific requirements specified in the final guidelines . They do not have the effect of increasing the stringency of the federal plan , because the overall budget of allowances (representing allowable emissions) remains the same.
T he EPA is aware of the successful use of set

- asides and similar programs in other emissions trading programs. The following are examples of set

- asides and similar programs used

104 In designing a federal plan under CAA section 111(d), the EPA recognizes its authority as being, in some sense, the same as that available under CAA section 110(c), where the use of economic incentives is authorized. See 42 USC 7602(y) (authorizing use of “economic incentives” in FIPs).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 303 of 515 in other federal air quality rules, and in state

- based GHG regulat ory programs . The EPA has previously established set

- asides of emissions allowances in FIPs under CAA section 110 of the Clean Air Act.
. For example, in the Cross State Air Pollution Rule ( CSAPR ), , the EPA used a 5 percent set

- aside for new units, because we believed it was “important to have a small new unit set

- aside in each state to cover new units within the budget that was set aside i n order to address the state’s significant contribution and interference with maintenance.” (75 FR 45310; Aug. 2, 2010). This was important, in the EPA’s view, because it allowed for growth in the electric utility sector consistent with the EPA’s modeling, where new units showed up in the modeling output as surrogate facilities representing potential new EGUs that come online in future years in response to demand increases or other market drivers. 105 As between a choice of requiring these new units to purchas e their allowance on the open market, versus being treated in the same manner as existing

– and generally understood to be less efficient and more polluting

– units, i.e ., by being eligible to receive a free a n initial allowance allocation out of the new un it set

- aside, the EPA chose the latter.

105 See also EPA, Allowance Allocation Final Rule TSD, EPA

- HQ

- OAR

- 2009

- 0491, at 3

- 4 (June 2011).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 304 of 515 As part of the Acid Rain Program ARP under Title IV of the 1990 CAA Amendments, Congress established a “conservation and renewable energy reserve” account. CAA section 404(f), 42 U.S.C. 7651 c (f). This is in essence a set

- aside account of SO 2 allowances which the regulated utilities could earn by undertaking “qualified energy conservation measures” and “qualified renewable energy” projects. The size of the reserve was set at 300,000 allowances, and utilities could earn one SO 2 allowance for every 500 MWh of energy saved through DS

- EE savings or RE generation. In the first years of the program, utilities received bonus allowances equivalent to close to 3,000 tons of avoided SO 2 emissions, while achieving co

- benefits from reductions in other pollutants, and, in the words of one industry representative, “creating a culture change where utilities are looking for opportunities everywhere.” 106 The
reserve program was nonetheless undersubscribed, and the EPA and other parties hav e learned from this case and made adjustments to similar programs to promote participation. This can be done through using alternate strategies for the MWh

- to

- allowance ratio, such as the pro rata distribution strategy proposed as part of the RE set

- aside. This proposal also tries seeks to

106 U.S. EPA, Acid Rain Program, Conservation and Renewable Energy Reserve, EPA 430

- R

- 94

- 010 (Nov. 1994).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 305 of 515 minimize the administrative burden associated with participation in the th is rule’s proposed set

- aside aside s . In the NO X SIP Call, the EPA encouraged states to “consider including energy efficiency and renewables as a strategy in meeting their [emission] budgets. One way to achieve this goal is including a provision with a state’s NO x Budget Trading Rule that allocates a portion of a state’s trading program budget to implementers of energy efficiency and renewable energ y projects that reduce energy

- related NO x emissions during the ozone
season.” See 63 FR 57356, 57438 (Oct. 27, 1998). A number of states created RE and demand

- side EE set

- asides in their SIPs in response, and later, for the implementation of CAIR. A “round table” meeting with 25 states in 2006 indicated that states that had established these programs were generally having success with them, and provided a forum for exchanges of ideas on how to handle a variety of implementation issues, such as

over - and unde r - subscription, application issues, compliance and verification, the appropriate size of a set

- aside account, how to garner public input on which projects are selected, and other issues. 107 In general, the EPA believes its experience and those

107 U.S. EPA, State Clean Energy

- Environment Technical Forum Roundtable on State NOx Allowance EE/RE Set Aside Programs, Call Summary (June 6, 2006), available at http:// www.epa.gov/statelocalclimate/documents/pdf/summary_paper_nox_allowanc e_6

- 6

- 2006.pdf
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 306 of 515 of the states with these set

- aside programs support the view that they are an effective means to spur clean energy projects , which in turn we believe can help to reduce the risk of leakage in this instance
. 108 Below, the EPA describes two potential allowance set

asides. First, the EPA proposes a set

- aside for allowances distributed to existing NGCC units based on output ( i.e ., output

- based allocation ) to mitigate emission leakage to new

sources , with the ancillary advantag e of further addressing the potential for the risk of increased emissions due to movement of generation to existing sources in neighboring states that adopt
rate

- based approaches , though the risk of that is minimized by the incentives present under a rate

- based plan
. . Second, the EPA proposes a set

- aside for electricity generation from qualifying renewables
. This set

- aside also addresses the potential for leakage to new sources, as increased RE capacity can serve electricity demand in place of new sources
. The EPA also

108 The agency has extensi ve experience in the design and establishment of set

- aside programs. See, e.g., Guidance on Establishing an Energy Efficiency and Renewable Energy (EE/RE) Set

- Aside in the NOx Budget Trading Program (March 1999), available at http:// www.epa.gov/statelocalc limate/documents/pdf/ee

- re_set

- asides_vol1.pdf ; Creating an EE and RE Set

- aside in the NOx Budget Trading Program: Designing the Administrative and Quantitative Elements (April 2000), available at http:// www.epa.gov/statelocalclimate/documents/pdf/ee

- re_se t

- asides_vol2.pdf ; Creating an EE and RE Set

- aside in the NOx Budget Trading Program: Evaluation, Measurement, and Verification of Electricity Savings for Determining Emission Reductions from Energy Efficiency and Renewable Energy Actions (July 2007), avai lable at http:// www.epa.gov/statelocalclimate/documents/pdf/ee

- re_set

- asides_vol3.pdf
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 307 of 515 solicits comment on other set

- aside options that could support the goals of the program address leakage , including a set

- aside that provides an incentive for demand

- side EE
. The EPA seeks comment on all aspects of the set

- aside options specifie d in this section. This includes the inclusion of a set

- aside, the method for allocation of allowances to set

- asides, the size of the set

- asides, the requirements for the process of distribution, eligibility requirements for receiving set

- aside allowances, the proposed process for redistribution of undistributed allowances from each set

- aside , and any other appropriate set

- asides
.
a. Set

- asides for Output

- based Allocation The EPA is proposing a set

- aside approach referred to as output

- based allocation , which provides targeted allocations of a limited portion of allowances to existing NGCC units as a means of mitigating emissions leakage to new units or existing units covered by a rate

- based plan in a neighboring state
. . The
EPA believes that this propo sed set

- aside would help ensure the environmental integrity of a mass

- based plan , and could potentially reduce costs , and address incentives for generation to shift away from EGUs covered under mass

- based plans to new unaffected EGUs . We seek comment on all aspects of this proposal and its underlying rationale
. Under the output

- based allocation approach we are***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 308 of 515 proposing , some beginning with the second compliance period, a portion of the total allowances within each mass - based federal plan state are would be allocated to existing NGCC units based, in part, on their level of electricity generation in a recent period. T he allocation to an eligible EGU is not fixed, but instead depend on its generation
. the previous compliance period.
E ach eligible EGU may would get a larger allowance allocation from this set

- aside if it generates more , such that owner/operators of eligible EGUs will have an incentive to generate more in order to receive more allowances , making them more competitive than they would be without the set

- aside.
. Because the total number of allowances is limited, this allocation approach will not exceed the overall emission goal ; . I nstead, it merely modifies the distribution of allowance s in a manner designed to mitigate emission leakage
. O utput

- based allocation provides an incentive for eligible
EGUs in mass

- based states to increase their generation in order to increase their allocation of allowances. This incentive helps align the generation incentives for eligible EGUs in mass

- based
state s with analogous EGUs covered by emission rate limits , new emitting EGUs that are not subject to a mass - based limit , mitigating emissions leakage
. The EPA also solicits comment on another potential ancillary benefit of this set

- aside: mitigat ing electricity price impacts associated with the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 309 of 515 proposed f ederal p lan. O utput

- based allocation lower s the marginal production cost of eligible EGUs . Therefore, if the se EGUs influence electricity prices, the reduction in their production costs will place do wnward pressure on the electricity price. In the specific situation where eligible EGUs are in
cost

- of

- service regions, the effect on electricity prices would depend on the relative cost of producing electricity from these EGUs relative to the cost of procuring power from EGUs subject
to emission rate standards
. It is important that output

- based allocation approach be designed to avoid unintended consequences. In particular, the design should reflect the fact that its appl ication may reduce the incentives to invest in new zero - or low

- emitting generation as a result of the downward pressure it may place on electricity prices. Furthermore, providing too strong a generation incentive to affected EGUs eligible for the set

- aside could increase total electricity production costs. Specifically, if applied too strongly , output

- based allocation can go beyond the alignment of incentives across similar EGUs and lead to undesirable differences in incentives in the other direction. For example, if eligible affected EGUs receive too a large number of allowances for each MWh of generation this could incentivize generati on that is high cost, exclusive of the cost associated***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 310 of 515 with obtaining the mass

- based emission limit, and disincentiviz e low er - cost generation subject to emission rate standards . This could raise the total cost of achieving overall emission levels with rela tively little environmental benefit . The output

- based allocation set

- aside should be designed to address these economic concerns. The EPA accordingly solicits is inviting comment on key parameters for the appropriate design of the output

- based allocation approach used for this proposed set

- aside. Key parameters to be identified under the output

- based allocation approach include which affected EGUs receive the allocation, t he vintage for allowances timing of the set

- aside’s allocation procedure , the allocation rate(s ) , and the size of the set

aside
. The EPA solicits also invites comment on what other key parameters may be relevant for design of an appropriate output

based set

- aside. The EPA first solicits comment on which EGUs should be eligible to receive output

- based allocation from the set

- aside. The EPA proposes that only NGCC unit s subject to the fin al emissions guidelines EGs receive output

- based allocation from the
set

- aside , subject t o limitations described below . The EPA recognizes that performance of output

- based allocation may be improved by targeting which units receive this additional incentive . In particular, this approach can most effectively***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 311 of 515 address emission leakage if targeted to those affected EGUs subject to a mass goal that face the greatest difference in their incentive to generate relative to otherwise similar EGUs that are not subject to emission rate standards. a mass goal
. As noted in the discussion of the allocation rate below, new combustion turbines (i.e., NGCC units and simple cycle combustion turbines) would be expected to generate more absent this set

- aside. Therefore, t h e difference in generation incentives between affected stationary combustion turbines under subject to a mass - based implementation goal and otherwise similar new stationary combustion turbines that are not subject
to the 111(b) standards a mass goal is likel y one of the most salient deviations in production incentives to address. As discussed further below, under this proposal other affected EGUs , and EGUs not subject to the emissions guidelines, would not receive output

- based allocations from this set

- aside
. Below we also take comment on whether sources other than combustion turbines sources subject to the emissions guidelines should be eligible for output

- based allocations under this set

aside
. The EPA also proposes that this approach be targeted towards ma rginal generation by providing allocations under this
set

- aside only to eligible EGUs that exceed a certain average capacity factor over the compliance period
. T he allocation rate***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 312 of 515 would only apply above a particular average capacity factor because it is intended to incentivize marginal generation and not generation that would have otherwise occurred absent the output

- based allocation from the set

- aside . Under this approach, eligible affected EGUs would receive no allowances f rom this
set

- aside below this average capacity factor ( although all affected EGUs will still receive allowances through the default allocation approach and any applicable set

- aside ) . This approach avoids incentivizing production at lower levels of generati on from an eligible source , and therefore avoids discouraging a relatively inefficient or infrequently used EGU from retiring. 109 The EPA proposes that each EGU for the set

- aside receiv e output

based allocation at the allocation rate only if its average capa city factor in the compliance period is above 50 percent on
a net

- basis [&&& check net] . Furthermore, we propose that each eligible EGU receives allowances at the allocation rate for all generation above a n average capacity factor of 50 percent . That is, t here would be no “maximum” average capacity factor above which output

- based allocations are not earned by an EGU eligible

109 As discussed below, if a source would no longer receive allowance allocations after it retires it would be discouraged from retiring, which may increase total production costs. The logic for not providing output

- based allocations to sources with low capacity

- factors is the s ame, although the strength of the incentive to not retire is lower for output

- based allocation than it is when the entire allocation to the source may be forfeit through retirement.***E.O. 12866 Review

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. 110 This is to maintain the marginal incentive to generate from the affected EGU. (The total number of allowances availa ble in the set

- aside is limited, however, as described below.) Next, the EPA solicits comment on selection of a source of allowances that is a specific vintage for allocation
. This key parameter determines which compliance period’s allocation is distributed based , in part, on current period generation. Alternatives include the current compliance period’s allocation, which is the period in which the eligible generation occurs, and a future compliance period’s allocation. If allowances are allocated from a future period’s allocation, affected EGUs can receive additional allowances in a given future period, based on their additional generation in the current compliance period. Both approaches create an incentive to increase generation in the current c ompliance period to secure additional allowances ; the difference is in when those allowances may be used. Allocating current compliance period allowances based on current year generation may create uncertainty in that affected EGUs may not know if they wil l be allocated sufficient allowances to cover their emissions or will have to buy allowances , because their total allocation will not be fixed

110 Effectively, the allocation rate of output

- based allocation is zero up u ntil this average capacity factor.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 314 of 515 until the end of the period when their cumulative generation is known. Therefore, a n advantage of allocating allo wances from a future compliance period is that affected EGUs will know ex

- ante how many allowances they will be allocated in a given period. However, if there is an expectation that the federal plan will be replaced by a state plan in the future compliance period, the incentive to respond to output

- based allocations is potentially diminished. The longer the lag between the eligible generation and the output

- based allocation, the greater the potential for uncertainty to lower the incentive associat ed with output

- based allocation. At the same time , the ultimate effect of output

based allocation timing will also depend on expectations about future allowance prices relative to current prices and the degree to which the banking of allowances is permitte d. Weighing these observations, the EPA specifically proposes allocating allowances based on generation from eligible EGUs in the preceding compliance period. In the first compliance period of the federal plan, allowances allocated to affected EGUs would be distributed per the historic

- generation

- based approach described above (with no further adjustment)
. The EPA also requests comment on other approaches to selecting a vintage (or vintages) for allocating allowances for an output

- based allocation set

- aside.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 315 of 515 Further , w e request The EPA also requests comment on extending output

- based allocation from this set

- aside to affected SGU s. Output

- based allocation for SGU s may increase generation subject to the mass limit, leading to reduced generation and emissions from new emitting sources. However, the EPA does not propose this approach because it is not as effective as output

- based allocation to NGCC units. This is bec ause output

- based allocation to SGU s would incentivize generation from relatively high

- emitting EGUs, which would likely increase allowance prices as other emission reductions are made to respect the overarching mass limit. This approach would thus strongl y counteract the intended effect of lowering the production cost from sources subject to the proposed mass

based federal plan (compared to emitting sources not subject to the plan). The EPA also requests comment on extending output

based allocation from th is set

- aside to zero

- emitting generators (including both renewable and nuclear generation ), and how the design of the OBA set

- aside for such generators would differ relative to the NGCC approach (e.g., the amount of allowances earned per MWh, the capacity

- factor threshold, the size of the total set

- aside). The EPA also proposes that this approach be targeted towards marginal generation that may not have otherwise occurred absent this set

- aside, by providing allocations under this set

-***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 316 of 515 aside only to eligible EGUs that exceed a 50 percent capacity factor on a net basis over the compliance period , and only for the portion of their generation that exceeds that capacity factor
. 111 The EPA also solicits comment on the timing of the OBA set

aside’s allocation procedure, which involves the relationship between the time at which eligible generation occurs and the vintage year(s) of the allowances allocated from this set

- aside to recognize that generation
. The EPA is propos ing a lagged accounting procedure for this set

- aside, where eligible generation that occurs during a given compliance period would receive allowances through this set

- aside taken from vintage years in the subsequent compliance period. In keeping with this lagged accounting procedure, the EPA is proposing not to reserve any allowances of vintage years during the first compliance period (2022

- 2024) for allocation through this set

- aside; eligible generation that occurs during the first compliance period would be recognized through this set

- aside with allowances of vintage years from the second compliance period (2025

- 2027). The EPA is proposing this lagged accounting procedure because the amount and location of eligible generation in any

111 Effectively, the allocation rate (defined below) of output

- based allocation is zero up until this average capacity factor.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 317 of 515 given compliance period remains uncertain until the compliance period has ended and the relevant data has been reported and verified. Without this lagged accounting procedure, the EPA would have to withhold a n amount of allowances for this set

aside from certain vintage years ev en as the corresponding compliance period was already underway. Given the size of this proposed OBA set

- aside in certain states, the EPA believes it would be more advantage ous for affected EGUs to know in advance how many allowances they will be allocated in a given period , inclusive of allowances allocated through this OBA set

- aside
. 112 The EPA request s comment on options for the allocation rate under this approach. The allocation rate is the emissions

equivalent number of allowances , in an amount equal to a specific amount of emissions, that the affected EGU receives per

one net MWh of generation eligible for the set

- aside
. In particular, we request comment on setting The EPA propose s to set the allocation rate equal to the emission rate standard (on a
net

- basis) for new stationary combustion turbines NGCC units under 111(b), in order to align the generation incentives across
EGUs eligible for the set

- aside and the type of new emitting

source that would generate more absent this set

- aside [ &&& REF].
.

112 The EPA recognizes that under this lagged accounting procedure, if the federal plan is repl aced by a state plan in a future compliance period, the incentive to create eligible generation in the last compliance period subject to the federal plan is potentially diminished.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 318 of 515 Specifica lly, an additional MWh of eligible generation would earn the affected EGU allowances equal to the level of emissions permitted per MWh of net generation under the 111(b) new source standard , which is &&&___lb/MWh

- net . 1,030 lb s /MWh

- net (Carbon Pollution Standards for new, modified, and reconstructed EGUs). The EPA requests comments on other values for the allocation
rate . F or example the allocation rate may be the expected net emissions rate of newly constructed NGCC units, the historic average emissions rate from NGCC units, or the NGCC or fossil
steam source category

- specific emissions performance rates promulgated in the Clean Power Plan EGs ( see section VI of the final EGs )
. The EPA proposes to calculate allocations to NGCC units fro m the output

- based set

- aside using data from the preceding compliance period. For example, the EPA would calculate set

aside allowances for the second compliance period (2025 through 2027) based on data from 2022 through 2024. Each NGCC

- unit affected EGU with an average capacity factor above 50 percent in the preceding compliance period would earn set

- aside allowances. The EPA proposes to calculate a n NGCC unit’s capacity factor based on the previous compliance period’s net generation and the net summer capacity of the unit. The EPA is proposing to require affected EGUs to report net generation to the agency (see section V.H for proposed monitoring and reporting***E.O. 12866 Review

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. 113 The EPA proposes to use net summer capacity as reported to EIA . In the altern ative, the EPA proposes to require that NGCC units report net summer capacity directly to EPA; we would add EGU

- level net summer capacity the EPA by adding it as a required data field in the certificate of registration that a unit’s owner / or operator would submit to the agency per the procedure detailed in (see section V. G. H of this preamble )
. The
EPA requests comment on notes that the relative efficiency of obtaining EIA net summer capacity from data is r eported to EIA or of adding net summer capacity as a required at the generator level ; if we add this data field on point to the certificate of registration it would be reported at the affected

- EGU level , which would facilitate calculation of capacity factors
. The EPA also requests comment on whet her the “maximum load value,” which is a parameter that EGUs report to the EPA in the ir monitoring plans, is a reasonable proxy for EGU

- level net summer capacity for these calculations
. The EPA also requests comment on an alternative approach of basing the capacity

- factor calculation on nameplate capacity instead of net summer capacity , or other approaches to the calculation
. After identifying The EPA proposes to determine the size of

113 See section V.H of this preamble for proposed monitoring and reporting re quirements. The EPA proposes to make the reported generation data available to the public on the agency’s Web site.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 320 of 515 the output

- based set

- aside once, before the start of the program, and not to change the size thereafter. The EPA proposes to determine the size of the set

- aside assuming that it would incentivize existing NGCC unit s with average to increase utilization to a 60 percent capacity factor above 50
. The assumed 60 percent capacity factor offers a way to limit the EPA would then calculate s ize of this set

- aside, which allows the
amount remainder of the allowances these affected EGUs would receive from the output

- based set

- aside as the unit’s net generation in the preceding a given compliance period multiplied by the 111 (b) rate standard for NGCC units of &&&__lb/MWh

- net. (The proposed to be allocated through the his toric

- generation approach to determine the size of the set

- aside is (as detailed below.) The EPA proposes to provide notice of the capacity and generation data used, above) and the resulting allocations, by August 1 of the first year in each compliance period, e.g., by August 1, 2025 for the compliance period that commences in 2025. The agency proposes to provide 30 days for comment on the data and allocations, until August 31, and to provide notice of the final set

- aside allocations by November 1 of the same year and record the allocations in the source accounts at that time. The EPA requests comment on other approaches to providing notice of the data and allocations.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 321 of 515 The EPA requests comment on the proposed approach to calculate output

- based set

- aside allocations. Further details of the proposed approach are in the Allowance Allocation Proposed Rule TSD in the docket. The EPA proposes a particular size of the set

- aside that is based on the total allocation, the allocation rate, the capacity factor above which eligible generation may receive the output

based allocations, and an average capacity factor across all sources potentially eligible for allowances from the set

- aside
. In particular, EPA proposes that the share of the total used for the set

- aside be equal to the allocation rate , multiplied by the amount of potential generation from all EGUs eligible for the set aside in the state above a n average capacity factor of 50 percent and below a n average capacity factor of 70 percent , based on 2014 data othe r proposed set

- asides ( as detailed below
. 114 The 50 percent average capacity factor is the capacity factor above which eligible generation may receive the output

based allocations. The 70 percent capacity factor limits the

s ize of this set

- aside, which increases the share of the allowances allocated based on historic

- generation [&&& sec tion V.D.1 ] . Maintaining a large share of allowances allocated based on historic generation provides all EGUs subject to the mass

-

114 The capacity eligible for the set

- aside would be determined from data provided at the end of the previous compliance period.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 322 of 515 based plan certainty in their allowance allocation
. )
. Furthermore , limiting the size of the set

- aside avoid s the risk of incentivizing too much generation from eligible sources , as discussed further in the Allowance Allocation Proposed Rule TSD
. The EPA proposes to determine the size of the output

- based
set

- aside for each state using 2012 baseline data reported to EIA for from the year 2014. Clean Power Plan EGs
. 115 The EPA would calculate the size of the set

- aside as the su m of net generation from N G CC

- unit affected EGUs that operated above 50 10 percent and below 70 percent of the NGCC capacity factor in 2014 the
state 116 multiplied by the 111(b) hours in a year multiplied by the allocation rate standard for the set

- aside. The EPA takes comment on the proposed capacity data used as the basis for determining the size of the output

- based set

- aside, and alternative sources of capacity data that may be used for NGCC units of &&&___ lb/MWh

- net. determining its size
. The set

- asid es resulting from this proposed approach are shown in Table &&&. 9 of this preamble
. The set

- asides in the table would apply to every compliance period except for the first compliance period for which there would be no output

- based

115 CO 2 Emis sion Performance Rate and Goal Computation TSD for the CPP Final Rule. 116 The sum of net summer capacity for affected NGCC units in the 2012 baseline for the Clean Power Plan EGs (CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule ).***E.O. 12866 Review

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set

- aside. Although the s ize of the set

- aside would remain the same for each compliance period , as the mass goals decrease with each step in the Interim Period and to the Final Period, the
set

- asides would constitute an increasing share of a state’s mass goal. The Allowance Allocation Proposed Rule TSD further detail s the proposed approach to determine the size of the set

aside. The EPA requests comment on a potential limit for the size of the set

- aside in a compliance period based on a percentage of the state’s total allowan ces for the compliance period. Table **&&&.** 9
. Proposed Size of Output

- Based Set

- Aside **(Metric Tons)**
**The EPA proposes to determine for**  **the size of the output**  **- based**  **set -**  **aside once ,**  **before the start of the program, and not**  **to change the size. The EPA also**  **requests comment on upd ating the**  **size of the set -**  **aside once**  **after the start of the Final Second**  **Compliance Period**  **using data from 2030 or another year, and also seeks comment on upd**  **ating the size of the set -**  **aside more than**  **once after 2030, for example every six or eight years.**  **If the EPA updated the size of the set**  **- aside, we would provide notice**  **of the data upon which**  **we intended to rely and opportunity for**  **comment ; the EPA requests comment on this approach.**  **and Later**  **( Short**  **Tons)**

**State Allowances in output**  **** **b ased set**  **- aside**  Alabama 4,185,496 Arizona 4,197,813 Arkansas 2,102,538 California 8,458,604 Colorado 1,348,187 Connecticut 1,090,811 Delaware 649,190 Florida 12,102,688***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 324 of 515 Georgia 3,563,104 Idaho 246,638 Illinois 1,598,615 Indiana 1,106,150 Iowa 492,510 Kansas 62,257 Kentucky 288,730 Lands of the Fort Mojave Tribe 248,127 Lands of the Navajo Nation 0 Lands of the Uintah and Ouray Reservation 0 Louisiana 2,207,879 Maine 563,925 Maryland 103,762 Massachusetts 2,439,991 Michigan 2,105,786 Minnesota 909,724 Mississippi 3,132,671 Missouri 815,210 Montana 0 Nebraska 144,635 Nevada 2,326,529 New Hampshire 542,721 New Jersey 3,413,100 New Mexico 627,085 New York 3,815,381 North Carolina 2,120,178 North Dakota 0 Ohio 1,757,326 Oklahoma 3,121,167 Oregon 1,291,027 Pennsylvania 4,392,931 Rhode Island 778,307 South Carolina 1,029,366 South Dakota 130,831 Tennessee 632,949 Texas 15,990,657 Utah 825,586 Virginia 3,011,811 Washington 1,383,060 West Virginia 0 Wisconsin 1,181,175***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 325 of 515 Wyoming 45,114 Given the proposed limit on the total size of the set

aside, and the amount of potential generation eligible for the
set

- aside, there may be fewer allowances available in the set

aside than can be earned at the allocation rate . The EPA proposes that, i f the amount of total generation eligible for the set

- aside multiplied by the allocation rate exceeds the size of this set

- aside , then the allowances in this set

- aside would be allocated to eligible generation on a pro - rata basis. We propose The EPA propose s that if the number of allowances allocated from the set

- aside is less than the size of this set

- aside , then the remaining allowances would be distributed to all affected EGUs using the historic

- generation based

- approach described above
. The EPA also requests comment on extending output

- based allocation from this set aside to affected utility boiler
. Output

- based allocation for steam generating units may increase generation subject to the mass, leading to reduced generation from new emitting sources. However, the EPA does not propose this approach because it is not as effectiv e as output

- based allocation . This is because output

- based allocation to utility would incentivize generation from relatively high

- emitting EGUs, thereby leading to high allowance prices, which then counteract s the effect of lowering the cost of production of sources subject***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 326 of 515 to the proposed mass

- based plan. 117 The EPA solicits comment on the general merits of the proposed set

- aside and the output

- based allocation used under this set

- aside . In addition, the agency solicits comment on how such an approach could be targeted to improve implementation of the proposed mass

- based trading federal plans and improve overall environmental and econ omic performance. In particular, the EPA solicits comment on which affected EGUs should receive
any output

- based allocation, the proper allocation rate(s), the total size of the set

- aside , and from which compliance period’s total allowances the set

- aside should be drawn. The EPA proposes to provide notice of the capacity and generation data used to calculate allocations from the set

aside, and the resulting allocations, by August 1 of the first year in each compliance period, e.g ., by August 1, 2025 for the compliance period that commences in 2025 (and based on the data from the prior compliance period). The agency proposes to provide 30 days for comment on the data and allocations, until August 31 , and to provide notice of the final set

- aside allocations by November 1 of the same year and record the allocations in the source accounts at that time. The EPA

117 This effect on the allowance price is also present when output

- based allocation is limited to NGCC units, but because NGCC units have a lower emissions rate the effect is not as strong.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 327 of 515 requests comment on other approaches to providing notice of the data and allocations. The EPA requests comment on all aspects of the proposed approach t o calculate output

- based set

- aside allocations. Further details are in the Allowance Allocation Proposed Rule TSD in the docket. b. Set

- asides for Renewable Energy Projects The EPA proposes to provide a set

- aside of allowances for distribution to renewabl e energy ( RE ) in each state covered by the proposed mass

- based federal plan as part of , and is also proposed for the mass

- based trading program , , if it is finalized model rule . The agency is also taking comment on whether distribution should extend to demand

- side energy efficiency (DS

- EE) and combined heat and power ( CHP ) projects. Under this program, the EPA would reserve a percentage of each
state’s allowances (i.e., a percen tage of its mass) in in a set

aside account for each state . Developers of RE projects could apply to receive set

- aside allowances based on the projected generation from eligible RE capacity. Such a program will serve to facilitate source compliance with th e emission guidelines . First, the This set

- aside may is expected to address leakage concerns regarding leakage by lowering the marginal cost of production of the incented clean energy technologies within the state. All else being equal, this***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 328 of 515 lowers the cost of generation in the state, and thus can avoid leakage of generation to another state. By lowering the cost of generation, it may also lower its price for electrical consumers, depending on how much the increased cost of allowance for affected EGUs is ref lected in electricity costs. This will make RE more competitive against new sources, reducing the potential for leakage to new sources. While the proposed set

asides would provide additional incentive for the creation of additional RE capacity, it should al so be noted that t he proposed mass

- based trading program itself would provide incentive for new and existing low and zero

- emitting generation. The EPA is aware of at least one existing program that supports deployment of RE and demand

- side EE using In the proceeds from the auction of tradable CO 2 allowances

– the Regional Greenhouse Gas Initiative (RGGI). RGGI adopted an allocation approach in which states could invest auction proceeds to support DS

- EE and RE deployment programs. It was recognized that such investment is a means to reduce the potential for emission leakage from a carbon cap

- and

- trade system in the United States (in RGGI’s case, to sources located outside the RGGI states) . As will likely be similar to context of the proposed federal plan here , RGGI only covers a subset of states. The RGGI staff proposal recognized that reduced electricity demand can reduce the potential for emissions***E.O. 12866 Review

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participating state, by reducing the demand for fossil fuel

fired electric generation, which in turn reduces the demand for
CO 2 allowances, and thus reduces allowance prices within the RGGI market. 118 Under the RGGI program, more than 90 percent of CO 2 allowances are distributed through auction, and more than 60
per cent of cumulative investment of auction proceeds has been directed to DS

- EE. 119 While not a set

- aside program per se, the basic concept is similar in that RGGI uses the proceeds from the auction of emission allowances to fund programs for DS

- EE and RE that are both complementary with the overall purpose of the program (to reduce CO 2 emissions), and which also assist in ameliorating the leakage concern. The , t he EPA is proposing that it would create a unique set

- aside would be created for each state covered by a

mass - based federal plan. Under a model rule, the state would create this set

- aside
. The allowances in each set

- aside would be reserved from each vintage of the assigned mass goal to that state prior to allocation of allowances to sources. The EPA is

118 RGGI, Potential Emissions Leakage and the Regional Greenhouse G as Initiative (RGGI), Final Report (March 2008), available at http://www.rggi.org/docs/20080331leakage.pdf.
119 RGGI, “Second Control Period CO 2 Allowance Allocation,” March 25, 2015. Available at http://www.rggi.org/docs/CO2AuctionsTrackingOffsets/Allocation/SCP_Allowance

Allocation.pdf
. RGGI, Investment of RGGI Proceeds through 2013, April 2015. Available at http://www.rggi.org/docs/ProceedsRepo rt/Investment

- RGGI

Proceeds

- Through

- 2013.pdf.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 330 of 515 proposing that five 5 percent of allowances will be reserved from the allocation for each state for the purpose of the set

- aside. We are also requesting comment on options for a percentage of allowances to be reserved ranging from 1

- to 10 percent of total allowances in each state . The proposed percentage has been determined to provide a meaningful additional incentive for RE activities in each state, while assuring that the vast majority of allowances are freely allocated to affected EGUs . The EPA

ma de this conclusion based upon determining an appropriate volume of set

- aside resources that, at a range of possible allowance prices, are projected to incent the development of additional RE projects
. The analysis is provided in the docket as part of the Allocations Allowance Allocation Proposed Rule TSD . We note that, under the proposed framework, these allowances would be available to affected EGUs either in the marketplace or through subsequent distribution of unclaimed set

aside allowances, and thus the provision of these set

- asides do es not affect the overall stringency of the program.
In Sec. &&& section V.D. 4 5 of this preamble , below , the EPA is proposing that the size of the RE set

- asides may grow over time as certain units shift out of the program. It is the agency’s intention that state s electing to submit a state allowance

- distribution methodology under the We are proposing , as part of the mass

- based federal plan will have***E.O. 12866 Review

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- distribution method, and thus may determine whether to include a set

- aside and how such a set

- aside will be distributed if they choose to submit a state allowance

- distribution methodology. The allowance distribution methodology must still contain an allocation strategy to address leak age, unless the jurisdiction can make the justification that leakage is already addressed by existing policy or by unique characteristics of the jurisdiction. We are proposing model rule, that a project is eligible to receive set

- aside allowances if it is R E that meets the eligibility requirements for rate

- based ERC issuance as specified in section IV.C of this proposal Sec. &&& preamble and section VIII .K of the final guidelines Sec. VIII. &&& . EGs . This includes, for example, the requirement that only capacity incremental to 2012 is eligible for the set

- aside. The agency is requesting comment on an additional potential condition that would limit eligibility to project providers that are also the owners or operators of affected EGUs . This approach has
pr ecedent in the eligibility requirements for the Acid Rain Program ARP set

- aside, and assures that would limit the entities eligible to receive set

- aside allowances are to those that are subject to the federal plan. The EPA is proposing that eligible RE capacity must meet the following conditions regarding geographic eligibility
. for***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 332 of 515 both the federal plan and model rule
. Eligible RE projects must be located in the mass

- based state for which the set

- aside has been designated. The agency invites comment on whether capacity outside the state should be recognized, and how that could be implemented. The EPA also proposes that the actions resulting generation for which an entity receives allowances from the set

- aside would not be eligible to be counted as credits for ERC issuance in rate

- based states. As specified in section IV. F.2 C of this preamble , the EPA is proposing that the same RE measures are eligible to receive
set

- aside allowances under a mass

- based federal plan as would be eligible for ERC issuance under a rate

- based federal plan
. and the model rule
. Specificall y, the following RE measures are eligible: on - shore wind, solar photovoltaics (PV), concentrated solar power , geothermal power , and hydropower. The RE measure must also have the capacity to pr ovide data quantified by a

revenue - quality meter, as described in the eligibility requirements for rate

- based ERC Issuance in Sec.IV.F.2 above. All proposed aspects of the a requirement that is further discussed in section IV.D.8 of this preamble
. New nucl ear units and capacity uprates at existing nuclear units are not proposed to be eligible to receive set

- aside allowances , as we do not think a set

- aside used as an incentive f or incremental nuclear capacity is a useful way to address leakage to new sources***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 333 of 515 during the performance period, due to unique costs and development timelines for incremental nuclear power
. All other proposed aspects of the RE eligible measure types described in section IV. F.2 C of this preamble and the requests for comment included within that section also apply in the mass

- based set

aside context
. for both the proposed mass

- based federal plan and the proposed mass

- based model rule
. For example, we are requesting comment on the inclusion of other RE measures, incremental nuclear, demand

- side EE measures, CHP and any other technologies as eligible emission reduction measures beyond those mentioned here, as long as they meet the eligibi lity requirements outlined in the final EGs for rate

- based crediting, as eligible measures to receive set

- aside allowance s . We particularly request comment on how a set

- aside to provide an incentive from these particular measures will serve to address leak age to new sources. We also request comment on the implications of the inclusion of such technologies for the streamlined implementation of projection

- based EM&V requirements of the set

- aside specified below
. in a federal plan context across the applicable jurisdictions, while still maintaining necessary rigor
. We request comment on the appropriateness of the biomass eligibility options treatment requirements offered for comment in Sec. section IV. F.2 in a mass

- based set

- aside context. We also request comment on possible avenues to add new***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 334 of 515 technologies to this specified set of measures C.3 of this preamble in the context of a mass - based set

- asid e . We request comment on requirements for the treatment of CHP and WHP, in the context of the mass

- based set

- as ide
. We also request comment on appropriate processes through which , after the federal plan is finalized, the EPA and/or stakeholders could make a demonstration of the appropriateness of new measure types and the EPA could evaluate and approve the demonstr ation so that a new measure type can be considered eligible for the set

- aside
. To demonstrate that an RE project meets the requirements proposed above , in the context of a mass

- based federal plan , it is proposed that the project proponent must provide the following: documentation of the nature of the project and that it meets eligibility requirements, documentation that it will be located within the state in question, and a projection of expected annual megawatt

- hour MWh generation for an RE project. The EPA must approve the documentation of eligibility and the projection of megawatt

- hour s MWh before the project becomes eligible for a distribution of the set

- aside allowances. In addition, the proponent must register for a general account in the EPA tracking system where the allowances would be recorded. See 40 CFR 62.16320 for the requirements to establish a general account. While the EPA is proposing to allow eligible resource s to use a general account to receive any allowances allocated***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 335 of 515 under this section, the EPA requests comment on extending the designated representative provisions in 40 CFR 62.16290 to eligible resources instead of the general account provisions. Requiring eligible resources to submit information similar to that collected in the certificate of representation in 40 CFR 62.16305 and to appoint a designated representative to act on behalf of all owners/operators for all projects requesting allowances may be dep osited. improve the EM &V process by making the eligible resources more accountable. The EPA requests comment on what documentation would be required if other measure types were considered eligible to receive set

- aside allowances
. We propose that the same p rocess for approval of projects be applied in a model rule, with the state taking the approving role instead of EPA
. The EM&V requirements for the mass

- based set

- aside differ from those for rate

- based ERC issuance, particularly because it is based upon projections provided prior to generation rather metered data provided after the generation occurs
. (though we are proposing that the projections will be checked against ex

post metered data)
. The projection method enables the distribution of se t

- aside allowances prior to the relevant compliance year while during which the generation occurs
. The EPA feels this still provides sufficient rigor because the set

- aside does not affecting directly affect program stringency. The reason***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 336 of 515 that stringency is n ot affected is because of key differences between issuance of credits and distribution of set

- aside allowances. Under rate

- based implementation, each decision to recognize issue an ERC based on a quantification of RE with ERCs generation affects the ultimat e amount of allowable CO 2 emissions ; , because the number of ERCs is determined by the amount of MWhs approved as eligible for ERC issuance and the ERC does not exist until the issuance decision is made . Thus the amount of ERCs that are issued can affect the stringency of the rule. A s a result, the EPA has laid out specific requirements (including EM&V procedures) in the final CPP, and in this proposed federal plan and model rule , to assure the environmental reliability of measures qualifying for ERC
recog nition under rate

- based implementation. In contrast, any decision to recognize RE with set

- aside allowance allocations under a mass

- based approach does not affect the validity of the allowance itself and does not affect the CO 2 emissions outcome because th e ultimate amount of allowable CO 2 emissions is determined by the total number of allowances initially created (regardless of how they are distributed). As a result, while the EPA believes it is reasonable to consider a minimum set of qualifications for re cognizing RE through these allowance set

asides to assure that the RE generation that is incented is actually produced , the EPA does not believe the overall***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 337 of 515 integrity of mass

- based implementation is significantly affected by the robustness of whatever elig ibility requirements the EPA ultimately sets for RE recognition through allocation from these
set

- asides. This being said, the agency is proposing to require robust demonstrations of the eligibility and EM&V projections for RE generation submitted for the set

- aside, demonstrations that are based in the best practices of existing programs. This is necessary to assure the delivery of RE as a result of the
set

- aside. The EPA proposes that the projections of megawatt

- hours MWh provided will be the basis of the distribution of set

- aside allowances. A satisfactory demonstration of the future RE generation from an eligible project must use technically sound quantification methods that are reliable, replicable, and accompanied by u nderlying analytical assumptions and verifiable data sources used to demonstrate future performance. These methods, assumptions and data sources must be specified in documentation accompanying the projections. These projections and supporting documentation should all be provided in the set

aside project application, and that application must be approved by a third

- party verifier. The EPA invites comment on these proposed requirements for projections. We also take comment on whether set

- asides should be base d on distributed proportional to actual MWh provided by the installation in a prior year or***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 338 of 515 compliance period, or another form of historical generation data
. This type of allocation method could also be similar to the structure proposed for the OBA set

- asid e. We propose that the same projection

- based distribution basis be applied in a model rule, with the state taking the approving role instead of
EPA . The EPA is proposing the following process for distribution of RE set

- aside allowances. Starting prior to t he compliance period, and going forward through the compliance period , RE providers in each state will have an opportunity to apply to the EPA or a designated agent to be approved as eligible to receive
set

- aside allowances in their state. This application must include all the requirements outlined above, including projections of expected megawatt

- hours MWh of generation. The EPA is proposing to accept RE set

- aside project application s up to a deadline of June 1 in the year prior to the compliance year in question. year during which the RE generation occurs (the “generation year”)
. The EPA or its agent will review and approve the project as eligible and it will be entered into the pool of project s that will receive set

- asides in any compliance period
. If approved, the number of projected megawatt

- hours MWh in each compliance generation year will be the basis of the number of allowances the provider will receive , as an input to the methodology specif ied below . The providers will have an***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 339 of 515 opportunity to update projections for future compliance generation years, these projections must be received by June 1 of the year prior to the compliance generation year in question. On December 1 of the year prior to each year of the compliance period in question, the EPA is proposing to distribute allowances from the set

- aside to approved providers
. The agency is proposing to distribute set

- aside allowances to approved RE providers pro

- rata, with the number of allowan ces distributed to each provider according to the percentage of total approved RE MWHs MWh for that state that the approved MWHs from their project represent. This method is proposed because it treats all eligible RE projects equally in the distribution of
set

- aside allowance. It also inherently provides a more significant incentive in states with less eligible RE generation, but will become less significant as RE generation increases. We would also like to take comment on whether to restrict projects to a m aximum number of allowances they can receive per MWh of generation, such as 1 allowance per MWh
. After each compliance generation year, RE providers receiving allowances will have to provide an M&V report with the megawatt

- hours MWh of RE generation actually produced, to assure that they have met the projected level of generation. These M&V reports need to document that the generation wa s by an approved***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 340 of 515 project, and the report should be approved by a third party verifier. As discusse d in the rate

- based approach EM&V section above, these data should be readily available from existing metering. The EPA requests comment on the process for submitting actual generation M&V reports with actual generation
. If the project or program does not reach the megawatt

hours MWh projected in a particular compliance generation year, the unfulfilled megawatt

- hours MWh will be subtracted from that RE provider ’s MWhs MWh eligible for the set

- aside in the next compliance generation year, or multiple years if the deficit exceeds the MWhs projected for the upcoming year. If this deficit is greater than 10 % percent in a particular year, the provider will need to provide an explanation of the deficit and will be required to reevaluate their projections fo r future years. If such deficits continue through all three 3 years of the
any compliance performance period in which they participate , the provider will be disqualified from receiving future set

- asides for the following compliance period. We also take comment on whether a provider with continuing deficits should also be disqualified from receiving ERCs for some or all of the remaining performance periods. The agency requests comment on all of the specified aspects of this distribution proce ss. The EPA is proposing that once allowances have been distributed to all approved providers, any remaining allowances***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 341 of 515 in the set

- aside , such as set

- aside allowances designated for projects that no longer exist, will be redistributed to affected EGUs in t he state in a pro rata fashion on the same distribution basis as their initial allocations were made. It is proposed that this will occur immediately after the distribution of set

aside allowances to eligible RE providers on December 1 of the year prior to the compliance generation year in question. The EPA requests comment on this approach. We propose that the same distribution process as outlined above be applied in a model rule, with the state taking the approving role instead of EPA. The EPA is also seek ing comment , in the context of the proposed rate

- based federal plan and model rule, on whether a portion of this set

- aside should be targeted to RE projects that benefit low

- income communities. This benefit could be in the form of MWh provided to the low

- i ncome community, financial proceeds from the project primarily benefiting the low

- income community, or the project lowering utility costs of low

- income
rate

- payers. The EPA seeks comment on how a low

- income community should be defined as eligible under this set

- aside. We seek comment on how much of the set

- aside should be designated as targeted at low

- income communities. We also request comment on whether the methods of approval and distribution of allowances to projects that benefit low

- income communities should differ***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 342 of 515 from the methods that are proposed to apply to other RE projects. The EPA seeks comment , in the context of the proposed rate

based federal plan and model rule, on all aspects of this proposed RE allowance set

- aside program, including whether it should be included as part of a mass

- based federal plan, the structure of the set

- aside reserve, eligibility requirements for receiving set

- aside allowances, demonstration of eligibility, and the process for distribution of allowances. 4. Prov isions to Encourage Early Action For purposes of the proposed mass

- based federal plan, the EPA proposes to implement the Clean Energy Incentive Program (CEIP) on behalf of a state by issuing early action allowances for eligible actions located in or benefitting the state . Eligible projects must c ommence construction in the case of RE or commence operations in the case of low

- income EE after September 6, 2018 , and will receive incentives based on the

zero - emitting MWh they generate, or th e energy savings they achieve, during 2020 and/or 2021. 120 These early action allowances

120 As discussed in section VIII.B.2 of the final emission guidelines, in the case of a state that submits a final state plan including requirements for the state’s participation in the CEIP, eligible RE projects may commence construction, and eligible EE projects may commence implementation, following the date of submission of a final state plan to the EPA. These projects must be implemented in or benefit the state that***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 343 of 515 would be drawn from a third set

- aside of allowances from the general distribution methodology. The EPA believes it is reasonable to establish the total amount of the earl y action

- set aside in an amount equal to the pool of matching allowances. Thus, the EPA proposes that the total early action set

- aside would be of an amount equal to the pool of matching allowances: no more than 300 million CO 2 allowances, depending on how many states are subject to a federal plan. The EPA proposes to distribute the 300 million early action
set

- aside allowances among the states based upon the amount of the reductions from 2012 levels each state must achieve relative to that of the other pa rticipating states. The EPA proposes to calculate these values as each state’s proportional share of the total difference between the 2012 baseline and the 2030 mass goals. 121 See Table 10 of this preamble for the proposed set

asides for each state under the mass - based federal plan. The agency proposes to set aside 100 million early action allowances from each of the 3 years in the first compliance period (2022, 2023, and 2024) for a total of 300 million allowances to be set

submitted the final state plan to the EPA, and may receive awards for the zero

- emitting MWh they generate or the end

- use energy savings they achieve during 2020 and/or 2021.
121 The 2012 baseline is from the CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule. Where a state’ s relative share of the reductions from 2012 levels would yield a set

- aside of less than zero, the EPA proposes to assign such a state a set

- aside equal to one percent of the state’s 2030 mass goal and adjust the remaining state set

- asides accordingly.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 344 of 515 aside. While the table shows set

- a sides for every state, the EPA proposes to implement this set

- aside, according to the amounts listed in Table 10, only for those states for whom the EPA is implementing the mass

- based federal plan. The EPA also requests comment on other approaches for dete rmining the size of this
set

- aside in the mass

- based federal plan. For the purposes of the mass

- based federal plan, the EPA is proposing to award early action allowances to two types of eligible projects that are located in or benefit the state for which t he EPA is implementing a federal plan:

• RE investments that generate metered MWh from any type of wind or solar resources; and

• Demand

- side EE programs and measures implemented in low

income communities that result in quantified and verified electricity savings (MWh)
. Eligible RE projects must commence construction , and eligible EE projects must commence implementation, after September 6, 2018 for those states on whose behalf the EPA is implementing the federal plan . These projects will receive incentives for the MWh they generate or the end

- use energy demand reductions they achieve during 2020 and/or 2021. The EPA proposes the following framework to implement the CEIP in the mass

- based federal plan. First, the EPA proposes to
create a set

- aside of early a ction allowances for all federal

plan states, as described above. Second, the agency proposes to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 345 of 515 create an account of “matching” allowances for each state participating in the CEIP

– regardless of whether a state is implementing a state plan or the agency is implementing a federal plan on its behalf. This distribution would reflect each state’s pro rata share of a federal pool of additional ERCs

– based on the amount of the reductions from 2012 levels the affected EGUs in the state are required to achieve r elative to those in the other participating states 122
– which would be limited to the equivalent of 300 million short tons of CO 2 emissions. Thus, states whose EGUs have greater reduction obligations will be eligible to secure a larger proportion of the fede ral allocation upon demonstration of quantified and verified MWh of RE generation or demand side

- EE savings from eligible projects realized in 2020 and/or 2021. The EPA intends that a portion of these matching allowances would be reserved for eligible wind and solar projects, and a portion would be reserved for eligible EE projects implemented in low

- income communities. The agency recognizes that there have been historic economic, logistical and information barriers to implementing EE programs in these comm unities, and therefore believes it is appropriate to reserve a portion of the federal pool to incentivize investment in these programs. The EPA is requesting

122 T his is the same distribution method proposed above for the allocation of early action set

- aside allowances to mass

- based federal plan states.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 346 of 515 comment on the size of reserve of matching allowances for eligible low

- income EE programs as well as for eligible wind and solar projects. The EPA is proposing that unused allowances in either reserve would be redistributed among participating states. This redistribution could be executed according to the
pro - rata method discussed above. Alternatively, unused matching EE or RE allowances could be swept back into a federal pool and distributed to project providers on a first

- come, first served basis. EPA requests comment on these ideas as well as alternative proposals regarding the method for redistribut ing matching ERCs, as well as the appropriate timing for such a redistribution. Following the effective date of a federal plan for a state, the agency will create an account of matching allowances for the state that reflects the pro rata share of the 300 m illion short ton CO 2 emissions

- equivalent matching pool that the state is eligible to receive. Any matching allowances that remain undistributed after September 6, 2018 123 will be distributed to those states with approved state plans that include requirement s for CEIP participation, as well as to those states on whose behalf EPA is implementing a federal plan. These allowances will be distributed according to the pro rata method outlined above.

123 This may occur because not all states may elect to include requirements for CEIP participation in their state pl ans.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 347 of 515 Unused matching allowances that remain in the accounts of states participating in the CEIP on January 1, 2023, will be retired by the EPA. The EPA seeks comment on whether the number of matching allowances available to a state under the mass

- based federal plan should be limited to a number equal to the number of early

a ction allowances included in each federal plan state’s early action set

- aside. Third, for any state subject to a federal plan, the EPA proposes to award early action allowances and matching allowances to eligible projects as follows, based upon the quanti fied and verified MWh of generation or savings achieved by the projects in 2020 and/or 2021:

• For RE projects that generate metered MWh from any type of wind or solar resources: for every two MWh generated, the project will receive a number of allowances eq uivalent to one MWh from the state early action allowance set

- aside, and a number of matching allowances equivalent to one MWh from the EPA.

• For EE projects implemented in low

- income communities: for every two MWh in end

- use demand savings achieved, the pr oject will receive a number of allowances equivalent to two MWh from the state early action allowance set

- aside, and a number of matching allowances equivalent to two MWh from the EPA. The EPA will address implementation details of the CEIP in a subsequen t action. Allowances awarded by the EPA pursuant to the CEIP may be used for compliance by an affected EGU with its emission standards in any compliance period and are fully transferrable prior to such use. The EPA proposes to distribute***E.O. 12866 Review

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- aside allowances in a state

– after distribution to all eligible projects in the state

– to the affected EGUs in the state on a pro

- rata basis in proportion to the initial allocations made to those EGUs under the mass

based federal plan. As d iscussed in section V.E of this preamble, the EPA proposes to allow any state where a federal plan is being implemented to take responsibility for distributing allowances to affected sources. This will allow a state to tailor its allowance

- distribution app roach to the characteristics and preferences of the state. The EPA proposes that a state that chooses to replace the federal

- plan allocations with a state

determined approach must include a CEIP set

- aside, as authorized in section VIII.B.2 of the final EGs . The EPA intends that such a state would have the same flexibilities as a state implementing a full state plan with respect to implementation of the CEIP. That is, the state would not be required to implement
a set

- aside of the same size as proposed in Ta ble 10 of this preamble, but rather could choose how many of its allowances to
set

- aside for the CEIP. The EPA requests comment on all aspects of implementing the CEIP under a mass

- based federal plan approach, including (1) The size of the early action al lowance set

- aside; (2) the approach for distributing the early action allowance set

- aside among***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 349 of 515 states; (3) the timing of distribution of set

- aside and matching allowances; (4) the amount of allowances awarded per eligible MWh generated or avoided; (5) the criteria for eligible projects, including criteria for awards to EE projects implemented in low

- income communities; (6) the mechanism for reviewing project submittals and issuing early action allowances; (7) EM&V requirements for eligible projects; and, ( 8) the number of early action and matching allowances that should be awarded for each ton of emissions reduced from eligible generation or low

- income efficiency projects to ensure a robust response to the program. The EPA also seeks comment on how states, tribes and territories for whom goals have not yet been established in the final EGs may be able to participate in the CEIP in the future. The EPA also requests comment on the proposed approach of requiring states to implement this program as a condition of a state choosing to determine its own allocation approach via a partial state plan or a delegation of the federal plan. **Table 10. Proposed Clean Energy Incentive Program Early Action Allowance**  **Set -**  **Aside in the**  **Mass -**  **Based Federal Plan (Short Tons)**

**State Set**  **- Aside 2022**  **through 2024** Alabama 3,122,306 Arizona 1,719,618 Arkansas 2,187,230 California 218,846***E.O. 12866 Review

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Colorado 2,223,192 Connecticut 69,415 Delaware 138,392 Florida 3,230,248 Georgia 2,755,623 Idaho 14,929 Illinois 5,968,721 Indiana 5,754,076 Iowa 2,191,183 Kansas 2,115,630 Kentucky 4,952,862 Lands of the Fort Mojave Tribe 5,885 Lands of the Navajo Nation 1,623,066 Lands of the Uintah and Ouray Reservation 175,509 Louisiana 1,497,428 Maine 20,739 Maryland 972,775 Massachusetts 170,471 Michigan 3,727,861 Minnesota 2,002,903 Mississippi 357,307 Missouri 3,771,322 Montana 1,310,344 Nebraska 1,481,695 Nevada 336,288 New Hampshire 107,798 New Jersey 446,005 New Mexico 823,049 New York 557,771 North Carolina 2,674,590 North Dakota 2,150,635 Ohio 4,788,372 Oklahoma 2,067,006 Oregon 154,353 Pennsylvania 5,039,346 Rhode Island 35,674 South Carolina 1,652,802 South Dakota 264,207 Tennessee 2,178,084 Texas 10,400,192 Utah 1,401,189***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 351 of 515 Virginia 1,386,546 Washington 751,434 West Virginia 3,506,890 Wisconsin 2,393,870 Wyoming 3,104,324

5. Allocations to U nits that C hange S tatus Units that retire
. The EPA proposes that, if an affected EGU does not operate for two 2 consecutive calendar years, the unit would continue to receive allocations for a limited number of years after it ceases operation , after which the allo wances that would otherwise have been allocated to that unit , starting in the fifth year after the first year of non

- operation, would be allocated to the renewable energy RE set

- aside for the state in which the retired unit is located
. 124 In other words, the retired unit would continue to receive allocations for four
years after it ceases operation
. Continuing allocations to non

operating units for a period of time reduc es the incentive to keep a unit operating simply to avoid losing the allowance allocations for th at unit ( e.g ., a unit that would otherwise be retired due to age and inefficiency). On the other hand, non

operating units are no longer emitting and so do not need allowances. The EPA believes that the proposed approach of

124 This is similar to the approach taken in CSAPR of continuing allocations to retired units for four years and then allocating the allowances to a set

aside; in CSAPR the set

- aside is for new units.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 352 of 515 allocating allowances for a specified , but limited , period after a unit ceases operating is a reasonable middle ground approach. The proposed approach also all ows the renewable energy RE set

asides to grow over time. The agency requests comment on this approach. The EPA also requests comment on an alternative of distribut ing such allowances to the set

- aside for output

- based allocations, or to the remaining affected EGUs in the state in a pro - rata fashion (on the same distribution basis as the initial allocations were made) , instead of allocating such allowances to the state ’s renewable energy set

- aside
. The agency requests comment on a further alte rnative approach, which would be to continue allocations to the retired unit s . Units that are modified or reconstructed
. The EPA proposes that, if an affected EGU is modified or reconstructed such that it is no longer an affected EGU in the mass

- based trading federal plan, the allowances that would otherwise have been allocated to that unit, starting in the first year after the year the unit is modified or reconstructed, would be allocated to the renewable energy set

- aside for the state in which the unit is located [&&&will confirm this language based on final decision on treatment of modified/reconstructed units in EGs ]
. The EPA proposes to record allowances for each year of a multi

- year compliance period at once , 7 months prior to the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 353 of 515 start of each compliance period , as discussed above. The agency proposes that, if an affected EGU does not operate for 2 full calendar years, then starting with the next compliance period for which allowances have not yet be en recorded, the allowances that would otherwise have been allocated to the unit would be allocated to the RE set

- aside. As a result, the number of years of non

- operation for which a retired unit would receive allocations would var y depending on when a unit retire s . For example, if an affected EGU does not operate for the first two calendar years of a 3

- year compliance period , then starting with the next compliance period the allowances that would otherwise have been allocated to tha t unit would be allocated to the RE
set

- aside

— in other words the unit would receive allocations f or 3 years of non

- operation
. As a further example, if an affected EGU does not operate for both calendar years of a 2

- year compliance period, then starting w ith the compliance period after the next compliance period the allowances would be allocated to the RE set

- aside

— in other words the unit would receive allocations for 4 years of non

- operation. The agency requests comment on this approach for treatment of allocations to affected EGUs that retire, including on the number of years of non

- operation for which a unit would continue to receive allocations. The EPA also requests comment on an alternative of distribut ing such allowances to the set

- aside for***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 354 of 515 output

- based allocations, or to the remaining affected EGUs in the state in a pro - rata fashion (on the same distribution basis as the initial allocations were made) , instead of allocating such allowances to the state’s renewable energy RE set

- asi de
. The agency requests comment on a further alternative approach, which would be to continue allocations to the modified or reconstructed retired unit s . The EPA also requests comment on treatment of allocations to units that are in long

- term cold storage . Units that are modified or reconstructed
. Similar to the approach for an affected EGU that retires, the EPA proposes that, if a unit is modified or reconstructed such that it is no longer an affected EGU, then starting with the next compliance period for w hich allowances have not yet been recorded, the allowances that would otherwise have been allocated to the unit would be allocated to the RE set

- aside. The EPA requests comment on this proposed approach , including on the number of years for which a unit wo uld continue to receive allocations . The agency also requests comment on an alternative of distributing such allowances to the set

- aside for output

- based allocations, or to the remaining affected EGUs in the state in a pro

- rata fashion (on the same distribution basis as the initial allocations were made), instead of allocating such allowances to the state’s RE
set

- aside. The agency requests comment on a further alternative***E.O. 12866 Review

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D. State

- determined Allowance Distribution The EPA proposes to allow any state to replace the EPA

determined federal

- plan allowance

- distribution provisions in the

mass - based trading program with state

- developed allowance

distribution provisions. In this way, a state c ould choose how to distribute initial allowance allocations among its affected EGUs (and other entities). The EPA believes that this option may offer significant appeal, because it will a llow a state to tailor its allocation approach to the characteristics and preferences of the state. A state would be able to design its allocation approach to address its particular state priorities, whether they are protecting low

- income consumers, suppor ting local industries, or other goals. The EPA anticipates that a state would have great flexibility in its allowance distribution approach and could take advantage of allocation options discussed in this proposal as well as other allocation options a stat e might prefer. States could auction allowances and rebate the revenue to consumers, or allocate all allowances to load

- serving entities, while mandating that the value be passed through to vulnerable consumers. The EPA believes that this the state

- determin ed allocation approach offers significant advantages and solicits***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 356 of 515 comment on how to ease its application by states. This is similar to the approach taken in the Cross

- state Air Pollution Rule ( CSAPR ) and CAIR where the EPA adopted a rule rule s allowing states to submit state implementation plans ( SIPs ) with provisions replacing the allowance

- distribution provisions in the CSAPR or CAIR FIPs , respectively, while remaining in the CSAPR trading programs under the CSAPR those FIPs (76 FR 48208; Augu st 8, 2011 )
. , 71 FR 25328; April 28, 2006 )
. In both CSAPR and CAIR, some states have chosen to determine their own allocations under the FIPs. This form of SIP that can replace the allowance

- distribution provisions in CSAPR or CAIR is termed an “abbreviated SIP revision.” In this proposed mass

- based trading federal plan, t he EPA proposes that a state may choose to submit a “state allowance

- distribution methodology” (analogous to an abbreviated SIP revision ) to replace the federal

- pla n allowance

- distribution provisions with allowance

distribution provisions of its choosing. The mechanism the agency envisions is in the nature of a partial state plan or (for any future changes in a state’s allocation methodology) a partial state plan re vision. (We request comment below on the advantages and disadvantages of allowing a state to handle allocations via a delegation of federal plan authority.) In general, under the proposed approach, the procedural requirements states and the agency must***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 357 of 515 fol low, including public notice requirements, for the submission and approval of state plans, would be required here. The EPA intends to provide the states with substantial flexibility in choosing a pproach es to distribute their allowances in a state allowance

- distribution methodology. The
EPA proposes that a state may choose any approach , including auctions or other methods the EPA is not proposing here , provided the state’s approach addresses leakage
. and also implements the Clean Energy Incentive Program . The EPA is also requesting comment on any other appropriate constraints to impose on state allowa nce - distribution methodologies. The Clean Power Plan EGs require mass

- based state plans to include a demonstration that they have addressed the risk of leakage , and the EGs provide several options for doing so ( Clean Power Plan EGs, section see section s VII.D and VIII. L)
. J of the final EGs )
. One of the options provided in the EGs is to address leakage through an allowance distribution approach that provides incentive to counteract leakage
. In the mass

- based trading federal plan , t he EPA’s proposed approach to allocate allowances would addr ess leakage using two allowance set

- asides, one for output based allocation and one for renewable energy RE projec ts, as detailed in section V.D.3 of this preamble . The EPA believes that a state allowance

- distribution methodology, which would replace the federal

- plan allocation provisions , must also***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 358 of 515 address leakage. The EPA proposes that a state allowance

distribution methodology must address leakage by providing incentive to counteract leakage, e.g ., by including allowance
set

- asides like the output

- based allocation and RE set

- asides detailed in section V.D.3 of this preamble , or other allo cation approaches designed to counteract leakage
. The EPA requests comment on this proposed approach for addressing leakage in a state allowance

- distribution methodology and on any other approaches for doing so
. The EGs provide an additional option for sta te plans to address leakage, where a state would provide a demonstration that leakage will not occur (without implementing any of the strategies specified in the EGs) due to specified characteristics of the state ( Clean Power Plan EGs , section VIII. L J of the final EGs ) . In this federal plan proposal, t he EPA requests comment on an alternative option where a state that chooses to submit a state allowance

distribution methodology could provide a demonstration that leakage will not occur ( without implemen ting the allocation strategies specified here ) due to specifi c characteristics of the state ; the EPA proposes that such demonstration must meet the requirements in the final EGs, including support by credible analysis, for such a demonstration (see final E Gs section VII.D)
. The EPA notes that a state’s allowance

- distribution***E.O. 12866 Review

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- aside approaches that are not designed to counteract leakage
. The Clean Power Plan EGs established a Clean Energy Incentive Program ( section VIII of the final EGs). The EPA proposes that a state allowance

- distribution methodology, which would replace the federal

- plan allocation provisions, must also include a Clean Energy Incentive Program , as detailed in section V.D.4 of this preamble
. Under the pr oposed approach of providing for states to determined determine their allowance distribution approaches in the federal plan mass - based trading program, the affected EGUs in a state that submitted a state allowance

- distribution methodology , which the EPA app roved, would participate in the federal plan mass - based trading program, but with allowance distribution determined by the state instead of by the EPA. The EPA proposes that a state must submit to the Administrator tables specifying the unit

- level allowances in an electronic format specified by the Administrator and by the specified deadlines appli cable to each compliance period (see Table &&& 11 of this preamble for proposed submission deadlines). The EPA proposes that a s tate may submit a state allocation methodology for any compliance period , including the first compliance period , which would comprise the years 2022 , 2023 , and 2024 if the EPA finalizes a t hree

- year compliance period
. .***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 360 of 515 The EPA proposes that a state submitting a state allowance

distribution methodology to modify the federal plan allowance

distribution provisions must do so for all years within a compliance period ( e.g ., for all three 3 years in a t hree 3

- year compliance period ). The EPA proposes that, if the state’s allowance

distribution provisions meet certain requirements and the state allowance

- distribution methodology does not change any other provisions in the proposed mass

- based trading program, then the agency would likely approve the state allowance

- distribution methodology . In the state allowance distribution methodology , the state could distribute allowances to affected EGUs or other entities (such as renewable energy RE facilities) or could auction some or all of the all owances. The agency proposes that for EPA approval, the state allowance

- distribution meth o dology provisions would have to meet the following requirements. The provisions would have to address leakage as discussed above. T he provisions would have to provide that, for each year for which the state allowance

- distribution provisions would apply, the total amount of allowances distributed could not exceed the applicable mass goal for that state for that year . A state’s methodol ogy under this proposed approach could provide that the total amount of allowances distributed is less than the***E.O. 12866 Review

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. 125 The EPA proposes that a state’s allowance

- distribution provisions would replace the EPA’s allocation provisions completel y – a state would not have the option of implementing only a portion of its allocations ( e.g ., only set

- asides) and having the EPA implement the remainder of its allocations. Additionally, the EPA proposes that a state allowance

- distribution methodology wo uld have to must provide for allowances to be issued in metric tons if EPA finalizes the proposed approach of issuing federal plan allowances in metric tons; the EPA proposes that a state allowance

- distribution methodology would have to provide for allowances to be issued in short tons if the EPA finalizes the alternative of issuing federal plan allowances in short tons . The allocation (or auction) of allowances would be final and could not be subject to modification. Additionally , the
state’s provisions could not change any other provisions of the proposed mass

- based trad ing program with regard to the allowances ( e.g ., the deadlines for allocation recordation, or requirements for transfer or use of allowances) or any other aspect of such trading programs.

125 A state allowance

- distribution methodology under this proposed approach, which is analogous to an abbreviated SIP revision, could provide that the total amount of allowances distributed is less than the applicable mass goal, pursuant to the reserved authority to states to set emission standards more stri ngent than federal standards under CAA section 116.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 362 of 5 15 In order for a state allowance

- distribution methodology’s provisions to replace the EPA’s allowance

- distribution provisions for a given compliance period , a state would have to submit the state allowance

- distribution methodology by a deadline that would provide the agency sufficient time to review and approve it , and to submit the allowance table meeting the specified electronic format by a deadline that would provide sufficient time to record the unit

- by

- unit allowances in source
accounts . The EPA believes that about twelve 12 months

— starting from the date of rec eipt of a state allowance

- distribution methodology

— is sufficient to complete the agency’s review and approval process, which would have to provide an opportunity for public comment on the approval (or disapproval) action. Thus, the EPA proposes the follo wing deadlines, in Table &&& , 11 of this preamble , for submission to the agency of state allowance

distribution methodologies and unit

- level allowances , and for
EPA the EPA ’s recordation of allowances, for each compliance period
. The EPA would review and approve state allowance

distribution methodologies in the twelve 12 months between the proposed deadline for states to submit their methodologies and the proposed deadline for states to submit unit

- level allowance tables. The proposed deadline for submission of allowance tables is three 3 months before the proposed deadline for the agency to***E.O. 12866 Review

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**Table &&&.**  **11 .**  **Proposed Deadlines for Submission of**  **S tate**  **Allowance -**  **Distribution Methodologies**  **and Unit**  **- Level**  **Allowances and for**  **Recordation First**  **c ompliance**  **period for**  **which a**  **llowances**

**would be d**  **istributed Deadline for**  **s ubmittal of**  **s tate**  **a llowance**  **** **d istribution**  **m ethodologies**  **Deadline for s**  **ubmittal of**

**u nit**  **- level**  **a llowance**  **t able**  **Deadline for the**  **EPA to r**  **ecord a**  **llowances** 2022, 2023, 2024 March 1, 20 20 March 1, 202 1 June 1, 202 1 2025, 2026, 2027 March 1, 202 3 March 1, 202 4 June 1, 202 4 2028, 2029 March 1, 202 6 March 1, 202 7 June 1, 202 7 2030, 2031* March 1, 202 8 * March 1, 202 9 * June 1, 202 9 * *This pattern of deadlines would hold for successive two 2

- year compliance periods. The proposed deadlines for submission of state allowance

distribution methodologies are later than the state plan submission deadlines promulgated in the Clean Power Plan EGs. The agency anticipates that it can complete the approval process relatively quic kly for a state allowance

- distribution methodolog y due to its narrow scope. The agency proposes to record the EPA

- determined federal plan allocations only in the absence of an approved state plan or approved state allowance

- distribution methodology. The EPA proposes to record in source accounts allowances that are determined by any state as soon as feasible after approval of a state allowance

- distribution m ethodology and submission of the***E.O. 12866 Review

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- level allowance table, and not to wait until the allowance recordation deadline to do so. In section V.D.2 of this preamble , the EPA proposes the allowance recordation deadline seven 7 months prior to the start of the c ompliance period ( i.e ., June 1 of the prior year) and also requests comment on a recordation deadline thirteen 13 months prior to the start of the compliance period ( i.e ., December 1 of the year two 2 years before the compliance period starts). If the EPA adopted the earlier recordation deadline on which it requests comment or any other deadline , then we would adjust the deadlines for submission of state allowance

distribution methodologies and submission of unit

- level allowance tables accordingly. The EPA proposes that a state may not replace EPA

determined allocations for a compliance period for which federal plan allocations have already been recorded , for the same reasons that the agency proposes that a state may not replace a

mass - based trading federal plan by with a state plan for a future compliance period for which allowances have already been recorded, as discussed below in section V.F of this preamble
. The agency requests comment on the proposed approach to allow states to determine allocations via state allowance

distribution methodologies and replace the federal

- plan allowance

- distribution provisions. The EPA requests comment on***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 365 of 515 the proposed schedule for submitting state allowance distribution methodologies to the agenc y, for submitting the resulting unit

- level allowance tables to the agency, and for the agency to record allowances
. The EPA requests comment on its proposed approach of not replacing EPA

- determined allocations for a compliance period for which allowances h ave already been recorded. The agency also requests comment on an alternative approach where a state could notify the EPA of its intent to submit a state allowance

- distribution methodology in advance, in which case the agency would hold off on recording EP A

- determined allocations to allow more time for state

- determined allowances to be recorded, similar to the alternative timing approach discussed in section V.F of this preamble
. The EPA is also requesting comment on an alternative approach to p rovide the o pportunity for a state to determine its allowance

- distribution provisions in the federal plan mass

- based trading program. The alternative approach on which the agency requests comment is to provide for a partial delegation of the federal plan

– limited to the allowance

- distribution provisions

– to a state that wishes to determine its allowance

- distribution provisions. The EPA requests comment on the relative efficiency and ease of implementation of the t wo approach es ( the state allowance

- distribution methodology described above , or the partial delegation ) . The agency requests comment on whether the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 366 of 515 partial delegation approach would provide sufficient flexibility for a state to choose any method to distrib ute its allowances including approaches that the EPA is n o t proposing here. See further discussion of delegations in section VI in of this preamble.
E. Treatment of States Entering or Exiting the Trading P rogram If the EPA implements a mass

- based trading program federal plan for any state , the agency will work with a state that wishes to replace the federal plan with an approved state plan to provide a smooth transition. The EPA proposes that a mass

based trading federal plan could only be replaced by a state plan for a future compliance period for which allowances have not yet been recorded. For example, if a three 3

- year compliance period comprises 2022, 2023, and 2024, the EPA would record allowances in source ac counts for 2022, 2023, and 2024 prior to 2022. Once 2022, 2023, and 2024 allowances had been recorded, the first compliance period for which a state could replace the federal plan with its own plan would be for the period commencing in 2025. The EPA is pro posing this stipulation for the timing of replacing a federal plan with a state plan due to the need to avoid disruption to sources already subject to the

mass - based trading federal plan. Without this stipulation, a
state might withdraw from the mass

- based trading program in the middle of a compliance period even though allowances that***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 367 of 515 authorize emissions throughout that entire compliance period would already be in circulation. In that circumstance, the EPA would then need to address whether and how to remo ve those allowances from circulation to prevent inflation of the allowable emissions at affected EGUs in the remaining states subject to the federal plans beyond the levels specified in the Clean Power Plan EGs. The EPA believes it is more reasonable to

av oid this potential disruption by requiring that the replacement of a federal plan with a state plan be scheduled to coincide with the conclusion of the last compliance period for which allowances under the federal plan have already been recorded for that s tate. The EPA requests comment on other approaches to provide a smooth transition from federal

- plan implementation to implementation by state plans, and on its proposed approach of not replacing a federal plan for any compliance period for which allowances were already recorded. The agency requests comment on an alternative of providing for a state to give notice to the EPA of its intent to submit a state plan to replace the federal plan (or a state allowance

distribution methodology to replace federal

- plan allocations) , and for the agency to delay recording federal

- plan allocations for sources in that state until a later date than proposed . The EPA requests comment on whether this alternative would help smooth the transition from fed eral

- plan implementation to state

-***E.O. 12866 Review

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- off between recording allowances in a timely way and providing this increased timing flexibility.
F. Allowance T racking , C ompliance O perations , and P enalties The EPA proposes that the mass - based trading program use an allowance tracking and compliance system (ATCS) operated essentially the same way as the existing systems that are currently in use for Cross State Air Pollution Rule ( CSAPR ) and the Acid Rain Program ( ARP ) under Title IV
. Under the proposed

mass - based trading program, the CO 2 program would be a separate trading program maintained in the EPA’s existing data system. ATCS would be used to track the trading of CO 2 allowances held by covered affected EGUs in facility level compli ance accounts , as well as such allowances held by other entities or individuals. Specifically, ATCS would track the allocation of all CO 2 allowances, holdings of CO 2 allowances in compliance accounts ( i.e ., a fac ility level account for al l affected EGUs at the facility ) and general accounts ( i.e ., accounts for other entities such as companies and brokers), deduction of CO 2 allowances for compliance purposes, and transfers of allowances between accounts. The primary role of ATCS is t o provide an efficient, automated means for affected EGUs to comply, and for the EPA to determine whether affected EGUs are complying, with the emissions limitations and any other requirements of the***E.O. 12866 Review

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mass - based trading program. ATCS would also provide data to the allowance market and the public, including a record of ownership of allowances, dates of allowance allocations, allowance transfers, buyer and seller information, serial numbers of allowances transferred, emissions, and compliance information. This information would be publicly available on the EPA’s W eb site and in annual progress reports. 1. Designated Representatives and Alternate Designated Representatives Sections XX.XX through XX.XX would Th e EPA proposes to establish the procedures for certifying and authorizing the designated representative, and alternate designated representative, of the owners and operators of an affected EGU and for changing the designated representative and alternate designated representative. These sections would also describe the designated representative’s and alternate designated representative’s responsibilities and the process through which he or she could delegate to an agent the authority to make electronic submissions to the Administrator. Th ese provisions would be patterned after the provisions concerning designated representatives and alternates in prior EPA

- administered trading
programs. The designated representative would be the individual authorized to represent the owners and operators of each***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 370 of 515 affected EGU in matters pertaining to the mass

- based trading program. One alternate designated representative could also be selected to act on behalf of, and legally bind, the designated representative and thus the owners and operators. Because the actions of the designated representative and alternate would legally bind the owners and operators, the designated representative and alternate would have to submit a certificate of representation certifying that each was selected by an agreement binding on all such owners and operators and was authorized to act on their behalf. The designated representative and alternate would be authorized upon receipt by the Administrator of the certificate of representation. This document, in a format prescribed by th e Administrator, would include: specified identifying information for the affected EGU and for the designated representative and alternate; the name of every owner and operator of the affected EGU ; and certification language and signatures of the designate d representative and alternate. All submissions ( e.g ., monitoring plans, monitoring system certifications, and allowance transfers) for a n affected EGU would have to be submitted, signed, and certified by the designated representative or alternate. Further , upon receipt of a complete certificate of representation, the Administrator would establish a compliance***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 371 of 515 account in the ATCS for each facility with an affected EGU involved. In order to change the designated representative or alternate, a new certificat e of representation would have to be received by the Administrator. A new certificate of representation would also have to be submitted to reflect changes in the owners and operators of the affected EGU involved. However, new owners and operators would be bound by the existing certificate of representation even in the absence of such a submission. In addition to the flexibility provided by allowing an alternate to act for the designated representative ( e.g ., in circumstances where the designated representative might be unavailable), additional flexibility would be provided by allowing the designated representative and alternate to delegate authority to make electronic submissions on his or her behalf. The des ignated representative and alternate could designate agents to submit electronically certain specified documents. The previously

- described requirements for designated representatives and alternates would provide regulated entities with flexibility in assig ning responsibilities under the mass

- based trading program, while ensuring accountability by owners and operators and simplifying the administration of the proposed mass

- based trading program.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 372 of 515 2. Allowance Tracking and Compliance System The mass

- based tr ading program rules would establish the procedures and requirements for using and operating the Allowance Tracking and Compliance System (which is the electronic data system through which the Administrator would handle allowance allocation, holding, transf er, and deduction), and for determining compliance with the allowance

- holding requirements in an efficient and transparent manner. The ATCS would also provide the allowance markets with a record of ownership of allowances, dates of allowance transfers, buy er and seller information, and the serial numbers of allowances transferred. Consistent with the approach in prior EPA

administered trading programs, allowance price information would not be included in the ATCS
. The EPA’s experience is that private partie s ( e.g ., brokers) are in a better position to obtain and disseminate timely, accurate allowance price information than is the EPA. For example, because not all allowance transfers are immediately reported to the Administrator for recordation, the Administr ator would not be able to ensure that any reported price information associated with the transfers would reflect current market prices. 3. Compliance and General Accounts This section describes two types of Allowance Tracking and Compliance system account s: Compliance accounts, one of which***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 373 of 515 the Administrator would establish for each facility with an affected EGU upon receipt of the certificate of representation for the facility ; and general accounts, which could be established by any entity upon receipt by the Administrator of an application for a general account. A compliance account would be the account in which any allowances used by an affected EGU for compliance with the emissions limitations would have to be held. The designated representative and alt ernate for the affected EGU would also be the authorized account representative and alternate for the compliance account. Using facility

- level, rather than electric generating unit EGU

- level accounts, would provide owners and operators more flexibility in managing their allowances for compliance, without jeopardizing the environmental goals of the mass

- based trading program, because the facility

- level approach would avoid situations whe re an EGU would hold insufficient allowances and would be in violation of allowance

- holding requirements even though EGUs at the same facility had more than enough allowances to meet these requirements for the entire facility
. Facility

- level compliance

wou ld also be consistent with other EPA

- administered mass - based trading programs. [citations needed] General accounts could be used by any person or group for holding or trading allowances. However, allowances could not be used for compliance with emissions l imitations so long as the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 374 of 515 allowances were held in, and not properly and timely transferred out of, a general account. To open a general account, a person or group would have to submit an application for a general account, which would be similar in many way s to a certificate of representation. The application would include, in a format prescribed by the Administrator: the name and identifying information of the individual who would be the authorized account representative and of any individual who would be t he alternate authorized account representative; an identifying name for the account; the names of all persons with an ownership interest with the respect to allowances held in the account; and certification language and signatures of the authorized account representative and alternate. The authorized account representative and alternate would be authorized upon receipt of the application by the Administrator. The provisions for changing the authorized account representative and alternate, for changing the a pplication to take account of changes in the persons having an ownership interest with respect to allowances, and for delegating authority to make electronic submissions would be analogous to those applicable to comparable matters for designated representa tives and alternates. 4. Recordation of Allowance Allocations and Transfers By J une 1, 2021 , the Administrator would record allowance allocations for electric generating units EGUs for 20 22 through***E.O. 12866 Review

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. Then, b y June 1 of the year prior to the beginning of each compliance period , the Administrator would record the allowance allocations for the proposed mass

- based trading program for each
year within th at next compliance period , e.g ., for 2 0 25, 2026, and 2027 by June 1, 202 4
. Recordi ng these allowance allocations in advance of the first year for which they could be used for compliance would facilitate compliance planning by owners and operators and promote robust allowance markets, including futures markets for allowances. The proces s for transferring allowances from one account to another would be quite simple. A transfer would be submitted providing, in a format prescribed by the Administrator, the account numbers of the accounts involved, the serial numbers of the allowances involv ed, and the name and signature of the transferring authorized account representative or alternate. If the transfer form containing all the required information were submitted to the Administrator and, when the Administrator attempted to record the transfer , the transferor account included the allowances identified in the form, the Administrator would record the transfer by moving the allowances from the transferor account to the transferee account within 5 business days of the receipt of the transfer form. 5. Compliance with Emissions Limitations***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 376 of 515 Once the compliance period has ended ( e.g ., at midnight on December 31, 2024 for the first compliance period ) , facilities with affected EGUs would have a window of opportunity following the compliance period to evaluate their reported emissions and obtain any allowances that they might need to cover their emissions during the c ompli ance period . For example, the allowance transfer deadline for the first compliance period would be midnight on November May 1 , 2025 (the EPA is also requesting comment on an earlier or later allowance transfer deadline of June 1 or March 1 deadline s )
. Each allowance issued in the proposed mass

- based trading program would authorize emission of one t on of CO 2 and so would be usabl e for compliance, for the compliance period that includes the year for which the allowance was allocated or a later c ompliance period. Consequently, each affected EGU would need

– - , as of the allowance transfer deadline

– - need , to have in its facility compliance account, or to have a properly submitted transfer that would move into its compliance account, enough allowances usable for compliance to authorize its total emissions for the

co mpliance period. The authorized account representative could ident ify specific allowances to be deducted, but, in the absence of such identification or in the case of a partial identification, the Administrator would deduct on a first

- in, first

- out basis. Deducting allowances may have tax and***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 377 of 515 accounting implications, so h aving a default deduction method provi des the representatives with certainty regarding which allowances will be deducted for compliance. Allowances th at are deducted for compliance will remain in the system in an EPA account, which ensures they will not be used again. If a n affected EGU a facility were to fail to hold sufficient allowances for compliance by all affected EGUs at the facility , then the owners and operators of the facility and each affected EGU at the facility would have to provide, for dedu ction by the Administrator, two allowances allocated for the co mpliance period in the next year for every allowance that the owners and operators failed to hold as required to cover emissions. This submittal of two t imes the allowances required for the pri or period is an ongoing obligation until compliance is achieved, and there is an ongoing obligation to comply in the current period. In addition, the the se owners and operators would be subject to civil penalties for each violation in accordance with the Clean Air Act C AA , with each ton of unauthorized emissions and each day of the co mpliance period involved constituting a violation of the CAA . The EPA believes that it is important to include a requirement for an automatic deduction of allowances. The dedu ction of one allowance per allowance that the owners and operators failed to hold would offset this failure. The***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 378 of 515 automatic deduction of another allowance per allowance that the owners and operators failed to hold that could not be avoided, regardless of an y explanation provided by the owners and operators for their failure, would provide a strong incentive for compliance with the allowance

- holding requirement by ensuring that non

- compliance would be a significantly more expensive option than compliance. Suc h automatic deductions have been successfully used in prior programs including the Clean Air Interstate Rule CAIR , achieving compliance rates close to 100 percent. 6. Other Allowance Tracking and Compliance Operations Provisions These sections also would provide that the Administrator could, at his or her discretion and on his or her own motion, correct any type of error that he or she finds in an account in the Allowance Tracking and Compliance System. In addition, the Administrator could review any submi ssion under the mass

- based trading program, make adjustments to the information in the submission, and deduct or transfer allowances based on such adjusted information. These provisions are a standard part of other trading programs administered by the EPA including the Acid Rain Program ARP and Cross State Air Pollution Rule ( see 40 CFR §§ 72.96, 73.37, 97.427, and 97.428). G. Emissions M onitoring and R eporting R equirements***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 379 of 515 The EPA proposes that units subject to the mass

- based federal plan trading program would monitor and report CO 2 mass emissions in accordance with 40 CFR part 75
. The EPA is proposing to require affected EGUs in all states covered by the mass

- based federal plan trading program to monitor and report CO 2 emissions and output data by January 1, 2022
. Quarterly reporting would be required, with each quarterly report due to the Administrator 30 days after the last day in the quarter. The reporting would be in accordance with Part 40 CFR 75.60. The use of 40 CFR p art 75 certified monitoring methodologies would be required. Many EGUs that might be covered by the proposed federal plans will generally have no changes to their monitoring and reporting requirements and will continue to monitor and submit reports under 4 0 CFR p art 75 as they have under existing programs. The EPA anticipates fewer than 50 affected EGUs that would not otherwise be subject to the Acid Rain Program ARP will have to purchase and install additional CEMS and data handling systems or upgrade exist ing equipment in order to meet the monitoring and reporting requirements of this
program ( the EPA anticipates approximately 10 coal fired units and approximately 40 gas and oil fired units will qualify for an excepted monitoring methodology)
. Several of th e units not otherwise subject to the Acid Rain Program ARP are subject to the Mercury and Air Toxics Standards ( MATS ) program and , therefore ,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 380 of 515 will have already installed stack flow rate and / or CO 2 monitors necessary to comply with this rule in order to comply with the MATS . The CEMS used to comply and report data for MATS will be used for this rule to generate and report CO 2 emissions data without having to install duplicative monitors. The same CO 2 and stack gas flow rate monitored data used in conjunct ion with Hg mercury and other CEMS to calculate a toxic pollutant emission
rate may be used to calculate a CO 2 mass or CO 2 emission rate for this program
. RGGI, ARP, MATS and this rule all refer to CEMS installed and certified in accordance with 40 CFR part 75. RGGI and ARP currently require the reporting of CO 2 mass emissions on an hourly basis and cumulative totals at the end of each calendar quarter
. The same monitors and data collected may be used for multiple purposes for RGGI, ARP, MATS and this rule
. Relying on the same monitors that are certified and quality ensured in accordance with 40 CFR part 75 ensures cost efficient, consistent, and accurate data that may be used for different purposes for multiple regulatory programs. The majority of the units covered by this rule are already affected by the Acid Rain and / or Regional Greenhouse Gas Initiative RGGI programs and will have minimal additional monitoring and reporting requirements. The EPA also requests comment on requiring monitoring and reporting o f CO 2 mass and net generation for the year before the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 381 of 515 initial compliance period begins, i.e ., to commence January 1, 2021. Only the monitoring and reporting would be required in 2021

— compliance with the requirement to hold allowances would commence on the compliance period schedule that is detailed in section [&&& V.C ]. of this preamble
. The EPA also solicits comment on measures that could monitor the environmental integrity of a feder al plan. As discussed previously in [ &&& x], differences in generation incentives could lead to artificially increased generation by new EGUs or EGUs in neighboring states that are subject to different emission standards. Earlier sections discussed allocati on options and other design strategies to address potential emissions leakage in a federal plan [ &&& citation]. These efforts could be complemented by an emission and generation monitoring program that would help track key trends, suggest further design opp ortunities to support environmental integrity, and inform any related future decisions or policies. In particular, the EPA notes that the Regional Greenhouse Gas Initiative, in its founding MOU, specifically directed efforts to study this potential concer n and provided recommendations to monitor emissions leakage . RGGI’s recommendations included producing detailed, periodic monitoring reports that tracked generation and its related environmental attributes, both for generation inside the RGGI region and***E.O. 12866 Review

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ge neration located outside the RGGI region but serving load in the RGGI region
. 126 These monitoring reports rely on information collected and tracked by independent system operators in generator attribute tracking systems. Part of RGGI’s recommendations includ ed exploring necessary improvements to existing generator attribute tracking systems in order to support their ability to: determine how much electricity is being used in areas subject to RGGI (including supply by generation from within and outside of the RGGI region); determine and track the environmental attributes associated with those sources of generation, ideally reflecting the specific generation unit but alternatively based on applicable system

average attributes; identify units within the RGGI regi on and track their regulatory status; and other attributes. The EPA solicits comment on including a monitoring system to track program integrity as part of the federal plan. In particular, the EPA solicits comment on the agency’s legal authority to undertake relevant measures to develop and apply an appropriate mon itoring program as part of the federal plan. The EPA also requests comment on the proper design of a program. Such a monitoring system could be used to track overall electricity consumed and generated in

- state. It could also be

126 http://www.rggi.org/docs/il_report_final_3_14_07.pdf
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 383 of 515 designed to track the demand that is being met by different categories of units serving load in

- state: (1) in

- state units covered by the federal plan; (2) in

- state uncovered units; and (3) out

- of

- state units. At the same time, it would monitor the environmental attributes of electric ity supply, either by developing systems to track the CO 2 emissions performance associated with individual identified units, or by developing system

- average emission rates for each of the three different categories of units serving in

- state load. This typ e of program could monitor environmental integrity by tracking changes in the CO 2 emissions from generation not covered by the federal plan, i.e., uncovered in

- state units or imports from neighboring states covered by different plans . One possible method w ould be to compare t he change in emissions totals derived by multiplying the marginal increase in load served in

- state by generation not subject to the federal plan by its applicable CO 2 emission attributes compared to their historic or projected baseline generation . The EPA solicits comment on the existing availability of data on key indicators , options for acquiring and tracking any key data that is not yet widely available , and methods for analyzing that information to assess any potential change in envi ronmental performance of a federal plan due to artificial differences in generation incentives
. **VI. Implementation of the**  **F ederal**  **P lan**  **and Delegation*****E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 384 of 515 Background of Authority Under section 111(d) of the CAA, the EPA adopts E mission G uidelines ( EG ) EG s that are then implemented when the EPA approves a state or tribal 127 plan or promulgates a federal plan that implements and enforces the EG EG s for affected EGUS in
states not or areas of Indian country 128 without an approved state or tribal plan. Congress has determined that the primary responsibility for air pollution prevention and control rests with state and local agencies, while also recognizing that “Federal ... leadership is essential for the development of cooperative Federal, State, regional, and local p rograms to prevent and control air pollution.” (See section 101(a)(3) and (4) of the CAA.) Congress has also provided for Indian T ribes meeting specified eligibility criteria to implement the C AA within the exterior boundaries of their reservations or othe r areas within the tribe’s jurisdiction. (See section 301(d)(1) and (2) of the CAA.) Even in the event that it becomes necessary for the EPA to directly regulate affected EGUS under CAA section 111(d), states and eligible tribes may still seek a delegation

127 AS discussed in (citation) tribes with EGU in their areas of Indian country can apply for TAS for the purpose of developing and seeking EPA approval of a tribal implementation plan (TIP) implementing the EG, but are not required to do so. 128 As discussed i n detail in (citation), in adopting a federal plan implementing the EG s in areas of Indian country containing EGU, the EPA must determine that such a plan is “necessary or appropriate” to protect air quality. See, 40 CFR 49.11(a).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 385 of 515 of authority from the EPA to implement a federal plan, similar to the ability to take delegated authority under other CAA programs. The EPA encourages states and eligible tribes that do not submit approvable plans to request delegation of the federal plan if they wish to have primary responsibility for implementing the EG. Approved and effective state or tribal plans or delegation of the federal plan is the EPA’s preferred outcome in many circumstances where the EPA believes that state and local , or tribal , agencies have practical knowledge and enforcement resources critical to achieving the highest rate of compliance. Legally, delegation of a standard or requirement means that obligations a source may have to the EPA under a federally promulgated standard become obligations to a state or tribe (except for functions that the EPA retains for itself) upon delegation. 129 130 Delegation of the federal plan and Retained Authorities
A. Delegation of the Federal Plan and Retained Authorities

129 If the Administrator ch ooses to retain certain authorities under a standard, those authorities cannot be delegated, e.g., the authority to allow alternative methods of demonstrating compliance. 130 We note that issuance of a title V permit is not equivalent to the approval of a st ate plan or delegation of a federal plan. This has been discussed in prior rulemakings, see , e.g., Proposed Federal Plan for Commercial Industrial Solid Waste Incinerators (CISWI) (67 FR 70640, 70652; Nov. 25, 2002); Final Federal Plan for CISWI (68 FR 575 18, 57535; Oct. 3, 2003).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 386 of 515 If a state or tribe 131 intends to take delegation of the federal plan, the state or tribe should submit to the appropriate EPA Regional Office a written request for delegation of authority. The state or tribe should explain how it meets the criteria for delegation. See generall y “Good Practices Manual for Delegation of NSPS and NESHAP” (EPA, February 1983). The letter requesting delegation of authority to implement the federal plan should: (1) D emonstrate that the state or tribe has adequate resources, as well as the legal and e nforcement authority to administer and enforce the program, (2) include an inventory of affected EGUs, which includes those that have ceased operation but have not been dismantled, include an inventory of the affected units’ air emissions and a provision f or state or tribal progress reports to the EPA, (3) certify that a public hearing is has been held on the state or tribal delegation request, and (4) include a memorandum of agreement between the state or tribe and the EPA that sets forth the terms and cond itions of the delegation, the effective date of the agreement and the mechanism to transfer authority. Upon signature of the agreement, the appropriate EPA Regional Office would publish an approval notice in the Federal Register ,

131 A tribe interested in taking delegation of the federal plan must also apply, and be approved by the EPA, for TAS eligibility for that purpose. 40 CFR part 49.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 387 of 515 thereby incorporating the delegation of authority into the appropriate subpart of 40 CFR part 62. See also EPA’s Delegations Manual, Delegation 7

- 139, “Implementation and Enforcement of 111(d)(2) and 111(d)(2)/129(b)(3) federal plans.” (A copy of this delegation manual has been pla ced in the docket for this action.) If authority is not delegated to a state or tribe, the EPA will implement the federal plan. Also, if a state or tribe fails to properly implement a delegated portion of the federal plan, the EPA will assume direct implem entation and enforcement of that portion. The EPA will continue to hold inspection, information gathering, enforcement, and other parallel authorities along with the state or tribe even when a state or tribe has received delegation of the federal plan. In all cases where the federal plan is delegated, the EPA will may retain and will not transfer authority to a state or tribe to approve the following certain items promulgated in the 2015 CAA section 111(d) Clean Power Plan : . (1) [&&& DO WE HAVE A LIST OF ITEMS FOR WHICH EPA PREFERS TO MAINTAIN AUTHORITY?]
Today’s This proposed federal plan also specifies that EGU owners or operators who wish to petition the agency for any***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 388 of 515 alternative requirement should submit a request to the Regional Administrator with a copy se t to the appropriate state.
B. Mechanisms for Transferring Authority There are two mechanisms for transferring implementation authority to state and local agencies and tribes : (1) The EPA approval of a state or tribal plan after the federal plan is in effe ct; and (2) if a state or tribe does not submit or obtain approval of its own plan, the EPA delegation to a state or tribe of the authority to implement certain portions of this federal plan to the extent appropriate and if allowed by state or tribal law. Both of these options are described in more detail below. 1. Federal Plan Becomes Effective Prior to Approval of a State or Tribal Plan After EGUs in a state or area of Indian country become subject to the federal plan, the state or local agency or tribe may still adopt and submit a plan to the EPA. If the EPA determines that the state or tribal plan is satisfactory and approvable pursuant to the EG, the EPA will approve the state or tribal plan. If the EPA, on review of the submitted state or tribal plan, determines that this is not the case, the EPA will disapprove the plan and the EGUs covered in the state or tribal plan would remain subject to the federal plan until a state or tribal plan covering those EGU is approved and effective. Prior to disapprova l, the EPA will work with states and eligible***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 389 of 515 tribes to attempt to reconcile areas of the plan that are unapprovable. Upon the effective date of a an approved state or tribal plan, the federal plan would no longer apply to EGUs covered by such a plan and t he state or local agency , or the tribe, would implement and enforce the state or tribal plan in lieu of the federal plan. The timing of effectiveness of a an approved state or tribal plan in this circumstance may depend in part on the need to ensure a smoot h transition and maintain regulatory certainty. Thus, for example, under a mass

- based federal plan, we propose to handle these transitions so that they coincide with the compliance periods. The approval of a state or tribal plan would also involve a public comment process, which would give interested stakeholders including any affected EGUs, the opportunity to comment. This will assist in ensuring that compliance, program integrity, electric reliability, and other critical factors are maintained. When an EP A Regional Office approves a state or tribal plan, it will amend the appropriate subpart of 40 CFR part 62 or 40 CFR part 49, respectively, to indicate such approval, as well as the timing of its effectiveness. As discussed elsewhere in this Notice document , the EPA may also in certain circumstances approve a partial state or tribal plan (sometimes called an “abbreviated state plan”) that may***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 390 of 515 modify certain limited provisions in the federal plan trading program. For example, this could occur if a state or tr ibe wishes to handle the initial allocation of allowances in a mass

based trading program, as discussed in section &&& above. V.E of this preamble
. The partial state or tribal plan would allow for the state or tribe to assume direct authority for administering and implementing this aspect of the trading program, while the remainder of the federal plan remains in place. The procedural and submission requirements set forth in the framework regulations of 40 CFR p art 60 , s ubpart B and the EG EG s would generally apply to a partial state or tribal plan, just as they would a full state or tribal plan. The scope of the requirement, however, would be commensurate with the scope of the partial plan. For instance, if a state or tribe seeks approval of a partial plan solely to handle allowance allocations, then the required statement of legal authority would be limited to those legal authorities the state or tribe must have to implement and enforce this component of the trading pr ogram. 2. State or Tribe Takes Delegation of the Federal plan Flan The EPA, in its discretion, may delegate to state or tribal air agencies the authority to implement this federal plan. As discussed above, the EPA believes that it is advantageous and the be st use of resources for state or local agencies or tribes to agree to undertake, on the EPA’s behalf, administrative and***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 391 of 515 substantive roles in implementing the federal plan to the extent appropriate and where authorized by state or tribal law. If a
state or tribe requests delegation, the EPA will generally delegate the entire federal plan to the state or tribal agency, thereby providing authority to the state or tribe for things such as administration and oversight of compliance reporting and recordkeeping r equirements, inspections of its affected EGUs, and enforcement. The EPA will continue to hold inspection, information gathering, enforcement, and other authorities along with the state or tribe even when a state or tribe has received delegation of the fede ral plan. The delegation will not include any authorities retained by the EPA.
C. Implementing Authority The EPA Regional Administrators have been delegated the authority for implementing the federal plan. All reports required by the federal plan should be submitted to the appropriate Regional Administrator. Section II. C. B of this preamble includes Table [&&&] 2 of this preamble that lists names and addresses of the EPA Regional Office contacts and the states they cover. With respect to the administration of a federal trading program in any final federal plan for a state or tribe, group of
states or combined group of states and tribes , the Office of Air and Radiation within the Headquarters of the EPA is proposed to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 392 of 515 be the primary office within the agency w ith delegated CAA section 111(d)(2) authority. See Delegation 7

- 139, section 3(c).
D. Necessary or Appropriate Finding for Affected EGUs in Indian Country Indian T ribes may, but are not required to, submit tribal plans to implement the Emission Guidelines
. EG s . Section 301(d )(2) authorizes ) of the C AA and 40 CFR part 49 authorize the Administrator to treat an Indian T ribe in the same manner as
a state for this EGU requirement (TAS)
. (TAS) for purposes of developing and implementing a tribal plan implementing the EG. See 40 CFR 49.3; see also ‘‘ “ Indian Tribes: Air Quality Planning and Management ,’’ , ” hereafter ‘‘ “ Tribal Authority Rule ,’’ , ” (63 FR 7254, February 12, 1998). We invite comments from any of the affected tribes whether they are interested with EGU in their area of Indian country to comment on the level of their interest, if any, in developing their own plan plans
. The EPA is proposing in today’s this action to find that it is necessary and or appropriate to regulate affected EGUs in each of the three areas of Indian country that have affected EGUs under the proposed federal plan. The EPA is authorized to directly implement the Clean Air Act EG s in Indian country when it determines pursuant to finds, consistent with the authority of CAA section 301 (d) and which the EPA has exercised in 40 CFR 49.11 , that it is necessary or appropriate to do so. In the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 393 of 515 final Emission Guidelines EG s , the EPA finalized establishes emission performance rates for the four EGUs located in Indian country and mass and rate

- based emission goals for each of the three areas of Indian country with affected EGUs: areas of Indian country. These areas include lands of the Navajo Nation Nation’s reservation , lands of the Ute Tribe of the Uintah and Ouray Reservation, and lands of the Fort Mojave Tribe. [&&&citation to final EGs]. Tribe’s reservation. The EPA proposed carbon pollution emission guidelines EG s for EGUs in these areas and U.S. Territories in a Sup plemental Notice of Proposed Rulemaking. See 79 FR 65482 (Nov. 4, 2014). The four facilities with affected EGUs located in Indian country that the EPA identified in the Supplemental Notice are: the South Point Energy Center, in on the Fort Mojave Indian cou ntry Reservation geographically located within Arizona; the Navajo Generating Station, in on the Navajo Indian country Reservation geographically located within Arizona; the Four Corners Power Plant, in on the Navajo Indian country Reservation geographically lo cated within New Mexico; and the Bonanza Power Plant, in Ute on the Uintah and Ouray Indian country Reservation geographically located within Utah. The emission performance targets for these areas were finalized along with those for EGU located in the
rest o f the country in the final EGs . &&&citation
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In today’s this action, we are proposing to find that it is necessary or appropriate , in each of the three areas of Indian country that have affected EGUs, to establish a federal plans plan that apply applies to the four power plants located on the Navajo Nation, the Fort Mojave Indian Reservation, and the Uintah and Ouray Reservation of the Ute Tribe. The affected EGUs located on the Navajo Nation are in areas an area of Indian country located within the conti nental United States, U.S. , are interconnected with the western electricity grid, and are owned and operated by entities that generate and provide electricity to customers in several states , including Arizona, New Mexic o, California, Texas, and Utah.
. The affected EGU located on the Uintah and Ouray Reservation of the Ute Tribe is in an area of Indian country located within the continental U.S. , is interconnected with the western electricity grid, and is owned and operated by an entity that generates and pr ovides electricity to customers in several states. The affected EGU located on the Fort Mojave Indian Reservation is in an area of Indian country located within the continental U.S. , is interconnected with the western electricity grid, and is owned and ope rated by an entity that generates and provides electricity to customers in several states. To date, none of the three tribes on whose areas of Indian countr y the four power plants are located has ha ve expressed a clear intent to develop***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 395 of 515 and seek approval of a tribal implementation plan. Thus, absent a federal plan, the significant emissions from these four power plants would could go unregulated by the Clean Power Plan. Because the agency has finalized emission performance targets for these power plants in th e EGs, there is, in our view, little benefit to be had by not proposing to include them in a federal plan now and a potentially significant downside to not doing so ; the reductions the EPA has determined are achievable in the EGs would become more difficul t and costly for these power pants plants to achieve if they are delayed in entering into the trading program the agency intends to establish. In order to meet the performance targets, we are anticipating that the affected EGUs may need to secure allowances or ERCs (depending on the approach ultimately fina lized) during the compliance periods. They may also be able to generate and sell compliance instruments by participating in the trading program. Thus, proposing a finding that it is necessary or appropriate to establish one or more federal plans providing the ability to participate in a rate

- or mass - based trading program is in the interest of these four power plants located in areas of Indian country. We believe that this together with the facts that, as indicated above, all four EGU are interconnected wit h the western electricity grid and are owned and operated by an entity that generates and provides***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 396 of 515 electricity to customers in several states thereby making it potentially disruptive and inequitable not to include them in one or more federal plans on the s ame schedule as other affected EGU strongly supports proposing to find that it is necessary or appropriate to establish one or more applicable federal plans at this time. We recognize that the governments of these tribes may still choose to seek TAS to develop a tribal plan, and this proposed determination does not preclude the tribes from taking such actions. We also note that this proposed determination does not preclude these tribes from seeking TAS and receiving delegation to administer aspects of the any applicable federal plan
. that is ultimately promulgated. In the event a federal plan is needed, proposing a necessary or appropriate determination finding at this time wi ll allow the EPA to expeditiously promulgate a final federal plan for one or all of these power plants in the future to allow trading to occur. We will continue to consult with the governments of the Navajo Nation, Fort Mojave Indian Tribe, and the Ute Tri be of the Uintah and Ouray Reservation during the comment period for this proposal, and prior to taking any action to finalize a necessary or appropriate determination and/or a federal plan finding and/or a federal plan. Comments on the appropriateness of t he proposed finding, should be submitted***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 397 of 515 within the comment period specified in the Dates section of this preamble
. **VII. Amendments to Process for Submittal and Approval of State**  **Plans and EPA Actions** As indicated in the final rulemaking notice for the CA A section 111(d) guideline, “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units,” in this action , in addition to the proposed federal plans and model trading rules, the EPA is also proposing to amend the framework regulations and update the process for acting on CAA section 111(d) state plans under Subpart B of 40 CFR p art 60 , subpart B
. These changes would be applicable to any future CAA section 111(d) rules going f orward, not just the Clean Power Plan EGs. The EPA proposes six changes to the CAA section 111(d) process in the framework regulations to include: (1) P artial approval/disapproval mechanisms similar to CAA section 110(k)(3); ( 2 ) a conditional approval mech anism similar
to CAA section 110(k)(4); (3) a mechanism for the EPA to make calls for plan revisions similar to the "SIP

- call" provisions of
CAA s ection 110(k)(5); ( 4 ) an error correction mechanism similar
to CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar to CAA section 110(k)(1) and (2); and (6) updates to the deadlines for the EPA action
. In addition, in***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 398 of 515 this s ection, the agency is proposing an inter pretation regarding the effect under section 111 if an existing facility subject to CAA section 111(d) modifies or reconstructs. We believe these changes will significantly streamline the state plan review and approval process, be more respectful of state processes, and generally enhance the administration of the 111d
program . Section 111(d)(1) provides that the EPA “shall establish a procedure similar to that provided by CAA section [110] of this title under which each state shall submit to the Administrat or a [111(d)] plan . . ..” . .” 42 U.S.C. 7411(d)(1). Thus, the CAA directs the EPA to look to the structure of the SIP program when designing the procedures the states and agency will use to develop CAA section 111(d) plans. Notably, the CAA does not requi re the CAA section 111(d) procedures to be identical to those the EPA uses under CAA section 110 for SIPs. 132 Therefore, the EPA interprets CAA section 111(d) to provide the EPA flexibility in designing procedures that reflect the structure of those used under CAA section 110 for implementation plans, without requiring the EPA to exactly track SIP procedures when acting on section 111(d) plans.

132 See Webster’s II New Riverside University Dictionary (Riverside 198 8) (defining “similar” to mean “resembling though not completely identical”).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 399 of 515 As a gener al matter these proposed changes would simply update the CAA section 111(d) framework regulations to include several new, more flexible procedural tools that Congress introduced into section 110 in the 1990 Clean Air Act C AA Amendments. The basic procedures in the CAA section 111(d) framework regulations were promulgated in 1975 based on the structure of CAA section 110 as Congress designed it in the 1970
CAA Amendments. See 40 FR 53340

- 49 (Nov. 17, 1975). Over the years since 1970, the EPA and the states learned a great deal about the procedural limitations of the original SIP review process. The 1970 CAA only allowed the EPA to approve or disapprove SIP submittals. The agency struggled to deal responsively to situations where the EPA wa nted to work with states to get state programs approved to the extent possible, while maintaining consistency with CAA requirements. Congress responded in 1990 and enhanced the procedural mechanisms the EPA has to act on SIPs. The EPA is proposing correspo ndingly to update the CAA section 111(d) regulations in a similar fashion
. Currently, the EPA’s framework regulations for submittal and adoption of CAA section 111(d) state plans do not explicitly provide for the EPA to use some of the same procedures for approving or disapproving state plans Congress introduced into the SIP program in the 1990 Clean Air Act C AA Amendments. The EPA is proposing to amend the procedures for approval or disapproval***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 400 of 515 of CAA section 111(d) state plans to reflect the enhancements
C ongress included in CAA section 110 for agency actions on SIPs. These proposed amendments are discussed in more detail below.
A. Partial Approvals/Disapprovals First , the EPA proposes to add authority similar to that under CAA section 110(k)(3) to partially approve or disapprove a plan. 133 This is a particularly useful function when much of a state plan is approvable and the EPA and the state cannot reach resolution on only a small, severa b l e portion of the state plan. In this case, the EPA prefers no t to be in a position where it must disapprove the full plan, but rather to allow the state to move forward with those portions of the plan that are approvable
. Another valuable function for T his mechanism are those situations where the state wishes to tak e over a discrete part of a federal plan. For instance, in today’s this proposal, states will be able to seek approval of a partial state plan that will give them the ability to handle the allocation of allowances under a mass

- based federal plan.

133 We recognize that the regulations appear to already contemplate partial approval/disapprovals to some extent. See 40 CFR 60.27(a) (“The Administrator may ... extend the period fo r submission of any plan ... or portion thereof.”) (emphasis added). We note that this language only allows for extensions of time with respect to portions of state plan submissions and may not sufficiently authorize a permanent partial approval. The propose d enhancement will resolve any ambiguity that partial approvals/disapprovals are an acceptable mechanism under CAA section 111(d).***E.O. 12866 Review

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In cases w here elements of a plan are functionally severable from each other, and one element is approvable while another is not, this provision will authorize the EPA to approve one part of a plan and disapprove the other. It will also authorize the EPA to accept a nd review a state plan that is only partial in nature, if identified by the state as such, so long as the other applicable submission requirements are met (such as demonstration of legal authority and completion of the public process). When the state submi ts what it intends to be a full state plan (rather than just a partial plan), t he EPA proposes that the approvable portion of a plan must be functionally severable from the rest of the plan , and this will be the case when the following conditions are met. First, the approvable portion of the plan must not depend on the rest of the plan. In other words, the disapproval of the remaining portion of the plan must not affect the portion that is approved. Second, approval of the approvable portion must not alter the function of the submittal in a way that is contrary to the state’s intent. The partial disapproval would be a disapproval for the purposes of CAA section 111(d)(2)(A) and would trigger the EPA’s authority to issue a federal plan for the state, at least for that part of the plan that was disapproved. Incorporating this mechanism under the framework regulations for CAA section 111(d)***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 402 of 515 will enable the EPA to approve a state to implement as much of its program as is consistent with a CAA section 111(d) guideline and may reduce the scope of any federal plan that would be
necessary. B. Conditional Approvals The second mechanism is the authority under CAA section 110(k)(4) to conditionally approve a plan. Where a state has submitted a plan that substantially meets the requirements of a CAA section 111(d) e mission g uideline, but requires some specific amendments to make it fully approvable, this provision authorizes the EPA to conditionally approve the plan. The Governor or her designee must submit to the EPA a commitment that specifies the amendments to be adopted and submitted to the EPA by no later than one 1 year from the effective date of the conditional approval. If the state fails to meet its commitment, the conditional approval is treated as a disapproval. Incorporating this mechanism under the framework regulations for
CAA section 111(d) will enable the E PA to approve a state to begin to administer a substantially complete program that requires only specific changes to be fully approvable. For example, in today’s action, we are proposing to conditionally approve state plans that adopt the proposed model tr ading rule, so long as the state commits to adopt any changes in the final model trading rule necessary to ensure EG requirements are met.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 403 of 515 This provision is designed to authorize a state with a substantially complete and approvable program to begin impleme nting it, while promptly amending the program to ensure it fully complies with CAA section 111(d). C. Calls for Plan Revisions CAA section 110(k)(5) authorizes the EPA to find that a
state implementation plan SIP does not comply with the requirements of the CAA. To date, the EPA has not considered using a similar procedure pursuant to the authority under CAA section 111(d). We now propose to do so. The ability to call for plan revisions is fundamental to a program that will be implemented over many years multiple decades. Under decad Under the Clean Power Plan EGs, states have many years more than a decade to fully implement emissions standards or state measures in order to ensure affected EGUs achieve the emission go als of the EGs. Throughout this period, the EPA and the states will be monitoring their programs to ensure they are achieving the intended results. It is possible that design assumptions about the effect of control measures the states incorporate into thei r plans could prove inaccurate in retrospect and could result over time in the plan not meeting the emissions reductions required by the EGs. In that case, having a procedural mechanism available under CAA section 111(d) similar to the so

- called “SIP call” mechanism in CAA section 110(k)(5) will allow the agency***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 404 of 515 to initiate a process with the state to make necessary revisions to ensure the plan functions properly. Accordingly, the EPA is proposing to amend the framework regulations to include a provision s imilar to CAA section 110(k)(5) under which the EPA may find that a state’s CAA section 111(d) plan is substantially inadequate to comply with the requirements of the CAA and require the state to revise the plan as necessary to correct such inadequacies. C onsistent with CAA section 110(k)(5), the EPA shall notify the state of any inadequacies and establish a reasonable deadline for the state to submit required plan revisions. That deadline will not exceed 18 months after the date of the notice. The EPA will make its finding and notice to the state available to the public. 134 The effect of such a finding is that either the state submits the program corrections by the date the EPA sets in the notice, or pursuant to CAA section 111(d)(2)(A), the EPA has authority to issue a federal plan for a state that misses its deadline to correct its plan. In effect, the finding of plan inadequacy establishes a plan submittal deadline subject to the provisions of CAA section 111(d)(2) (A). A finding of failure to meet that new deadline triggers the EPA’s authority to issue a

134 Consistent with the agency’s practice under CAA section 110(k)(5), the EPA anticipates that a call for plan revisions under CAA section 111(d) will be done via notice and comment rulemaking.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 405 of 515 federal plan for the state. The EPA may promulgate a federal plan at any time following the state’s failure to timely submit an adequate plan that addresses the EPA ’s finding. While these authorities are important, the intention of having a mechanism to call for plan revisions is to have a way to initiate an orderly process to improve plans when they are not meeting program objectives. It is the EPA’s hope that a ca ll for plan revision leads to a constructive dialogue with a state or states, and ultimately, an improved and more effective CAA section 111(d) plan. The EPA is also proposing that the a gency can call for a plan revision in circumstances where a state is n ot implementing its approved state plan and , therefore , the state plan is substantially inadequate to provide for the implementation of
CAA section 111(d) standards of performance
. As discussed above, the CAA directs the EPA to develop a procedure for stat e plans under CAA section 111(d) similar to CAA section 110 SIP procedures. Calling a plan that is substantially inadequate to provide for implementation of standards of performance ( i.e ., there is a failure to implement a state plan) is one area where the EPA proposes it is appropriate to adapt the procedural mechanisms available in the SIP program to provide a similar process that assures effective state plan implementation under
CAA section 111(d). Under CAA section 110(k)(5), the EPA may***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 406 of 515 call for a r evision of a state plan “[w]henever the Administrator finds that the . . . plan . . . is substantially inadequate to . . . comply with any requirement of [the Act].” If the state does not submit a plan revision in response to the call to cure th e failure t o provide for implement ation , the EPA would have the authority to promulgate the federal plan being proposed. One critical requirement of CAA section 111(d)(1)(B) is that a state must submit a plan that “provides for the implementation and enforcement of such standards of performance” (emphasis added). If, after the EPA has approved a plan, a state fails to implement that plan, the plan has become substantially inadequate to comply with this requirement of the CAA . Under this proposal, the EPA’s remedy wou ld be to find the plan is substantially inadequate, which triggers the state’s obligation to cure, and failing that, the EPA’s authority to promulgate the federal plan. In the alternative, the EPA proposes that this authority to call a plan for failure to implement is anchored in the authority provided under CAA section 110(k)(5) to call a SIP when the a gency finds that it is “substantially inadequate to attain or maintain the relevant national ambient air quality standard.” In the context of CAA section 111, this authority translates into the EPA calling a state plan when the a gency***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 407 of 515 finds that it is substantially inadequate to achieve the emissions reductions required under the EG. If a state ha s failed to implement its plan, and that failure is pervasive enough to render the requirements of the plan ineffective, it is reasonable for the EPA to find that the state plan is substantially inadequate to achieve the emissions reductions required under the EG. The state’s failure to implement has revised the effect of the plan so that it is no longer adequate to meet the CAA ’s requirements. Error Corrections The fourth mechanism is the error correction authority under CAA section 110(k)(6). Where the EP A concludes that it has erroneously approved, disapproved, or promulgated a plan or plan revision (or part thereof), this section authorizes the agency to revise its action, in the same manner as the original action, without requiring any further submissio n from the state. Prior
to the 1990 CAA Amendments , there was some question whether the EPA could unilaterally correct a previous action on a SIP submittal without the state having to submit a new SIP. This limitation imposed unnecessary burdens on states to fix even obvious errors, because CAA section 110(a)(2) requires the state to provide notice and a public hearing on each new SIP submittal. Incorporating this mechanism into the CAA section 111(d) framework regulations will allow the EPA to fix errors in***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 408 of 515 its prior actions on state plans without imposing on the states the corresponding burd en of providing notice and a public hearing as required under the CAA section 111(d) framework regulations. 40 CFR 60.23.
D. Completeness Criteria Completeness criteria provide the agency with a means to determine whether a submission by a state includes t he minimum elements that must be met before the EPA is required to act on such submission. When submittals do not contain the necessary minimum elements, then the EPA may, without further action, find that a state has failed to submit a plan. This determin ation is ministerial in nature and requires no exercise of discretion or judgment on the agency’s part, nor does it reflect a judgment on the sufficiency or adequacy of the submitted portions of a state plan. The task is accomplished by simply comparing th e materials provided by the state as its submittal against the required criteria to determine whether the plan is complete or not. In the case of SIPs under CAA section 110(k)(1), the EPA promulgated completeness criteria in 1990 at a ppendix V to 40 CFR p a rt 51 (55 FR 5830; Feb. 16, 1990). The EPA proposes to adopt criteria similar to the criteria set out at section 2.0 of Appendix V for determining the completeness of submissions under CAA section 111(d). The completeness criteria can be grouped into : (1) A dministrative materials ; and (2) technical support.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 409 of 515 The EPA proposes that the administrative materials requirement both groups would apply for to all CAA section 111(d) rules going forward. We propose technical

- support The agency notes that the addition of c ompleteness criteria that will only be applicable to state plans in the framework regulations does not alter any of the submission requirements states already have under the Clean Power Plan EGs , at subpart UUUU. The EPA may in the future propose technical support criteria that are specific to future 111(d) rules.
. For administrative materials, the EPA is proposing completeness criteria that mirror the existing administrative criteria for SIP submittals because the two programs have similar administrative p rocesses. The EPA proposes that a complete final state plan submittal under CAA section 111(d) must include: (a (1 ) A formal letter of submittal from the Governor or her designee requesting EPA approval of the plan or revision thereof; (b ( 2 ) e vidence that the state has adopted the plan in the state code or body of regulations
. ( That evidence shall include the date of adoption or final issuance as well as the effective date of the plan, if different from the adoption/issuance date ; (c .) ; (3 ) Evidence that the state has the necessary legal authority under state law to adopt and implement the plan;***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 410 of 515 (d and (4 ) a copy of the actual regulation, or document submitted for approval and incorporation by reference into the plan. The submittal shall be a copy of the o fficial state regulation/document signed, stamped and dated by the appropriate state official indicating that it is fully enforceable by the state. The effective date of the regulation/document shall, whenever possible, be indicated in the document itself. The state’s electronic copy must be an exact duplicate of the hard copy. For revisions to the approved plan, the submittal shall indicate the changes made (for example, by redline/strikethrough) to the approved plan; (e ( 5 ) e vidence that the state followed all of the procedural requirements of the state's laws and constitution in conducting and completing the adoption/issuance of the plan; (f ( 6 ) e vidence that public notice was given of the proposed change with procedures consistent with the require ments of 40 CFR 60.23, including the date of publication of such notice; (g ( 7 ) c ertification that public hearing(s) were held in accordance with the information provided in the public notice and the state's laws and constitution, if applicable and consist ent with the public hearing requirements in 40 CFR 60.23; and***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 411 of 515 (h ( 8 ) c ompilation of public comments and the state's response thereto. These criteria, as proposed, are intended to be generic to all CAA section 111(d) plans going forward
. , with the proviso
t hat specific EG s may provide otherwise
. The technical support completeness criteria that the EPA proposes today are specific will also be generic to the CPP EG s at subpart UUUU. With respect to this set of completeness criteria, and c onsistent all CAA section 111(d) rules , with the structure of the CPP Emission
G uideline s , EPA is organizing the proposed completeness criteria for technical support materials in to three parts: components required for all CPP state plans; components required for the emissio n standards approach; and components required for the state measures approach. same proviso
. The EPA proposes that the technical support required for all plans must include each of the following: (a (1 ) D escription of the plan approach and geographic
scope ; (b) ; (2) i dentification of each designated facility , identification of emission standards for the designated facilties , and monitoring, recordkeeping , and reporting requirements that will determine compliance by each designated facility ; (3) i dentification of state CO 2 interim period goal (for 2022

- 2029), interim steps (interim step 1 for 2022

- 2024; interim***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 412 of 515 step 2 for 2025

- 2027; interim step 3 for 2028

- 2029) compliance schedules and final steps /or increments of 2030 and beyond; (c progress; ( 4 ) d emonstration that the state plan submittal is projected to achieve the state’s CO 2 emission goal; and (d emission s performance under the applicable EGs ; ( 5 ) d ocumentation of state recordkeeping and reporting requirements to determine the performance of the plan as a whole
. The EPA proposes that the technical support required for plans using the emission standards approach must include each of the following: (a) Identification of each affected EGU, identification of federally enforceable emission standards fo r the affected EGUs, and monitoring, recordkeeping and reporting requirements that will determine compliance by each affected EGU; and (b) Demonstrations ; and ( 6 ) d emonstration that each emission standard is quantifiable, non

- duplicative, permanent, verifi able, and enforceable. The EPA proposes that the technical support required for plans using the state measures approach must include each of the following: (a) Identification of each affected EGU; identification of federally enforceable emission standards for affected EGUs (if applicable); identification of backstop of federally enforceable emission standards; monitoring, recordkeeping and reporting***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 413 of 515 requirem ents; and (b) Identification of each state measure, demonstration that each state measure is quantifiable, non

- duplicative, permanent, verifiable, and enforceable. EPA proposes The EPA proposes a process similar, though not identical, to that set forth in 40 CFR 51.103 and Appendix V to 40 CFR p art 51 to make completeness determinations. Similar to
CAA section 110(k)(1)(C), under this proposal, where the EPA determines that a state submission required under CAA section 111(d) does not meet the minimum compl eteness criteria we are proposing to establish, the state will be considered to have not made the submission. The EPA further proposes that, similar to
CAA section 110(k)(1)(B), within [ &&& 60 days ] of the EPA's receipt of a state submission, but no later t han [ &&& 6 months ] after the date, if any, by which a state is required to submit the plan or revision, the Administrator shall determine whether the minimum criteria have been met. Any plan or plan revision that a state submits to the EPA, and that has not been determined by the EPA by the date [ &&& 6 months ] after receipt of the submission to have failed to meet the minimum criteria, shall on that date be deemed by operation of law to meet such minimum criteria. As with the completeness determination process for SIP submissions, the EPA’s determination that a submittal is***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 414 of 515 complete is not a finding that the submittal meets the substantive requirements of CAA section 111(d) or the guideline. That must be done via th e process for approval or disapproval of a state plan, which would be done through notice and comment rulemaking. In the completeness process, the EPA will confirm that a state’s submittal appears to have addressed the criteria for a complete submittal and , therefore, the submittal is sufficient to trigger the EPA’s obligation to act on it. But in the completeness process the agency will not assess the content of those submissions to determine if they are approvable. Accordingly, even when the EPA affirmati vely determines that a submittal is complete, it does not prevent the agency from later finding that the state plan does not meet the requirements of the Emission G uideline s EGs , including finding that the submittal failed to address a required element and must be disapproved. Similarly, when a submittal is determined to be complete by operation of law after [six 6 months ] without the EPA’s affirmative determination of completeness, the only legal consequence is that the EPA now has an obligation to act on th at submittal. Completeness by operation of law means that the submittal is deemed complete and requires the EPA’s review, whether or not the state has actually addre ssed all the required elements. Accordingly, if the agency determines that a state has fail ed to address a required element in its submittal once the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 415 of 515 EPA begins review of the state plan that is complete by operation of law, the agency must go through the process of disapproving (or partially disapproving or conditionally approving, as discussed below) that plan, unless the state and the EPA work together to cure the deficiency. In other words, the EPA cannot simply find the plan incomplete and return it to the state at that point . But the finding of completeness by operation of law in no way prev ents the EPA from subsequently concluding that the state’s submission is missing a required element of the program and making that finding as part of a disapproval of the plan. As described in the final rulemaking notice for the CAA section 111(d) Emission G uideline s EGs , a state will submit all CAA section 111(d) plans electronically. If the EPA determines that any submission fails to meet the completeness criteria discussed below , the agency may return the plan to the state and request corrections, identifying the components that are absent or insufficient to allow the EPA to perform a review of the plan. The state will not have met its obligation to submit a final plan until it r esubmits a revised state plan or supporting materials addressing the corrections the EPA identified in its incompleteness determination. The EPA is also proposing to include an exception to the criteria for complete administrative materials in cases where a***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 416 of 515 state and the EPA are “parallel processing” the final plan. Parallel processing allows a state to submit the plan prior to final adoption by the state and provides an opportunity for the state to consider EPA the EPA ’s comments prior to submission of a fi nal plan for final review and action. The EPA would propose to take action on a state plan based on a proposed state regulation. The EPA would only finalize the action if the state adopts a final plan that is legally effective under state law. The EPA woul d only approve the plan if the state addressed any corrections that the EPA identified in its proposed action on the state plan without any other material change to the plan. In this scenario, the state’s initial submittal would not be able to meet all the criteria for administrative completeness, and EPA proposes to adjust those criteria as provided for in 40 CFR Pt. 51, App. V section 2.3. Note that a plan submitted for parallel processing must still meet all the criteria for technical completeness so tha t the EPA and the public have a sufficient basis on which to evaluate and comment on the EPA’s proposed action. Finally, the EPA proposes that, in the case of an initial submittal under the CPP Emission Guidelines, the requirements set out at Part &&&60 .5760, shall serve as the completeness criteria the EPA will use to determine whether the initial submittal is complete. If those minimal submission requirements***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 417 of 515 have not been met, as determined by EPA in accordance with &&&60 .5760(b), then the state will be treated as having failed to submit a state plan.
E. Update to Deadlines for EPA Actions Finally, T he EPA proposes to update the deadlines for acting on state submittals and promulgating a federal plan under 40 CFR 60.27(b), (c), and (d) to more closely track the current versions of CAA section 110(c) and 110(k) adopted in 1990. The framework regulations for CAA section 111(d) state plans currently are parallel to the prior version of CAA section 110. They require the EPA to act on a state plan or plan re vision submittal within 4 months after the date required for submission of a plan or plan revision. 40 CFR 60.27(b). The regulations then require the EPA to issue a proposed federal plan in certain circumstances after consideration of any state hearing rec ord, 40 CFR 60.27(c), and require the EPA to promulgate the proposed federal plan within 6 months after the date required for plan submissions, id. 60.27(d). The final carbon dioxide Emission Guidelines CO 2 EG for Electric Utility Generating Units ( EGUs ) have already adjusted the deadline in 60.27(b) to require the EPA to act on a state plan under those Emission Guidelines EGs within 12 months (rather than 4 months) after the date required for submission of a plan. See 40 CFR 60.5715. However, the CPP Emis sion Guidelines Clean***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 418 of 515 Power Plan EGs did not modify the 6 month deadline for a federal plan in 60.27(d). The EPA is proposing to amend 40 CFR 60.27(b) to allow the EPA 12 months to approve or disapprove submittals of all plans or plan revisions under CAA se ction 111(d), not just those related to the Clean Power Plan under 60.5715. This change would provide the EPA with sufficient time for the steps required to approve or disapprove the submittal, which include proposing the EPA’s approval or disapproval of t he plan or plan revision, a public comment period on the EPA’s proposal, time for the EPA to review and respond to public comments, and the issuance of a final rule approving or disapproving the plan or plan revision. The EPA is also proposing to amend 40 CFR 60.27(b) to specify that the deadline for the EPA to act on a plan or plan revision is 12 months after receipt of a complete plan or plan revision, rather than 12 months after the deadline for submittal of a plan or plan revision. This amendment will a llow the EPA to have the full 12 months to act on submittals of complete plans or plan revisions. The EPA also proposes slight modifications to the provision related to issuing a proposed federal plan in 60.27(c); changing the six 6 month deadline for issuing a final federal plan in***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 419 of 515 60.27(d) to one 1 year 135 ; and, similar to the change in timing for 60.27(b) above, setting the deadline for promulgation of a federal plan to run from the date of the EPA's action on a state submittal, rathe r than from the original deadline for a state submittal. The EPA believes it is appropriate to modify these timing requirements for several reasons. First, the EPA notes that under CAA section 111(d)(2), Congress gave the EPA the "same" authority to prescr ibe a federal plan under CAA section 111(d) as it would have under CAA section 110(c) in the case of a state failure to submit a SIP. The term "same" stands in contrast to the term "similar" in CAA section 111(d)(1) (discussed above). As with the use of th e term “similar,” the EPA believes it is authorized by this language to follow the timing provisions of
CAA section 110(c) as currently enacted. Second, as a general matter, the timing requirements of current 60.27(c) and (d), which effectively require the EPA to propose and finalize a federal plan within six 6 months of the deadline for state submittals, may be outdated and unrealistic with respect to the

135 As under CAA section 110, the EPA believes that, should it fail for whatever reason to meet a deadline by which it was to take action, such as issue a federal plan, under CAA section 111(d), that failure does not thereby obviate or in any way remove the EPA’s authority or obligation to take that action. See Oklahoma v. U.S. EPA , 723 F.3d 1201, 1224 (10th Cir. 2013) (“Although the statute undoubtedly requires that the EPA promulgate a FIP within two years, it does not stand to reason that it loses its ability to do so after this two

- year period expires. Rather, the appropriate remedy when the EPA violates the statute is an order compelling agency action.”).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 420 of 515 timelines for review of state plans and the time periods for action, particularly as informed by the a gency's experience with CAA section 110 SIPs (which led to the extension of the timelines and other changes to CAA section 110 in the 1990 Amendments discussed above). Third, in the CPP Emission Guideline, the EPA has finalized a timing requirement that gives the a gency a year to approve or disapprove a state plan or revision. The existing requirement in 60.27(d) that the EPA must promulgate a federal plan within six 6 months of the initial deadline for state plans is therefore inconsistent with this provi sion. Fourth, existing 60.27(c) tracks the prior version of CAA section 110(c) with respect to the issuance of a proposed federal plan. This relatively prescriptive language is no longer present in CAA section 110(c). The procedural requirements for rulema kings under both CAA section 110 and 111(d) are set out in section 307(d) of the Act CAA , and the EPA believes those provisions are appropriate and adequate to guide its rulemaking process for CAA section 111(d) federal plans. The EPA invites comment on all of these proposed changes to the framework regulations. The EPA notes that the addition of these mechanisms to the framework regulations will make them available for all CAA section 111(d) regulations, not just those under the Clean Power Plan at 40 CFR part 60, s ubpart UUUU.***E.O. 12866 Review

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F. Proposed Interpretation regarding Existing Sources that Modify or Reconstruct In the proposed rulemaking for the CPP, the EPA proposed the interpretation that if an existing source is subject to a CAA section 111(d) state plan, and then undertakes a modification or reconstruction, the source remains subject to the state plan, while also becoming subject to the modification or reconstruction requirements. 79 FR 34830, 34903

– 4. The EPA did not finalize a position on this issu e in the final EGs rule, but indicated that it would re

- propose and take comment on this issue through this federal plan rulemaking. The EPA also stated deferral of action on this issue does not impact states’ and affected EGUs’ pending obligations under t his final rule relating to plan submission deadlines, as this issue concerns potential obligations or impacts after an existing source has already become subject to the requirements of a state plan. The EPA intends to finalize its position on this issue th rough this rulemaking, which will be well in advance of the plan performance period beginning in 2022, at which point state plan obligations on existing sources are effectuated. We noted in the Clean Power Plan proposal that CAA section 111(d) is arguably silent as to this issue. Thus, we took this to grant the agency the authority to provide a reasonable interpretation to fill in the gaps where the statute is silent.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 422 of 515 In the proposal for the CPP, we proposed to disallow existing sources to leave the CAA se ction 111(d) program through modification or reconstruction. We did this for two reasons. First, if a source did so, that could prove disruptive to the state plan. Second, allowing sources to do so could provide them an incentive to do so that would be con trary to the purposes of CAA section 111(d). We then asked for comment on “whether this interpretation is supported by the statutory text and whether this interpretation is sensible policy and will further the goals of the statute.” We received many comme nts disagreeing with this approach. After reviewing these comments, the agency believes an alternative interpretation is more appropriate in the particular context here. In order to give the public an opportunity to comment on this, we are proposing this i nterpretation here. That is, when CAA section 111(d) EG s are initially promulgated for existing stationary sources in response to corresponding CAA section 111(b) standards of performance for the same pollutant, the statute prevents new, modified or reconstructed sources (including under those particular CAA section 111(b) standards of performance and as those terms are applied in the relevant

new sou rce performance standards ( NSPS ) ) from simultaneously being subject to state plans under those particular CAA section 111(d) EG s . This interpretation gives meaning to the definition***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 423 of 515 of “existing source” in CAA section 111(a)(6) and is consistent with the d efinition of “new source” in section 111(a)(2). Further, it is consistent with the historical treatment of modified and reconstructed sources in the CAA section 111
program. The EPA notes the concerns it noted in the proposal supporting why the originally proposed interpretation was reasonable are being addressed in other ways in the final EGs, and in the proposed federal plan. In other words, there will be other ways to minimize disruption to state plans if such a modification or reconstruction were to ta ke place. We invite comment on the agency’s proposed interpretation that when an existing source modifies or reconstructs in such a way that it meets the definition of a new source, for purposes of a particular NSPS and emission guideline, it becomes a new source under the statute and is no longer subject to the CAA section 111(d) program G. Separate Finalization of these Changes The a gency intends to finalize these procedural changes and interpretation sooner than it finalizes the rest of this proposed act ion. The EPA believes these changes generally enhance and improve the framework regulations in a way that will be of benefit to the states, the EPA, and other stakeholders, and will improve the overall efficacy of the program. We believe***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 424 of 515 it is important to finalize these changes to the framework regulations relatively quickly in order to provide states and other stakeholders predictability in how the EPA intends to process state plans and submissions under CAA section 111(d). If the EPA does finalize these changes s ooner than the model trading rules or the federal plan , it will do so after the close of the comment period, and after consideration and response to any comments on these changes.
**VIII. Impacts of this Action** 
A. Endangered Species Act Consistent with the requirements of section 7(a)(2) of the Endangered Species Act (ESA), the EPA has also considered the effects of this proposed rule and has reviewed applicable ESA regulations, case law, and guidance to determine what, if any, impact there may be to listed endangered or threatened species or designated critical habitat. Section 7(a)(2) of the ESA requires federal agencies, in consultation with the U.S. Fish and Wildlife Service (FWS) and/or the National Marine Fisheries Service, to ensure that actions they a uthorize, fund, or carry out are not likely to jeopardize the continued existence of federally listed endangered or threatened species or result in the destruction or adverse modification of designated critical habitat of such species. 16 U.S.C. 1536(a)(2) . Under relevant implementing regulations, ESA section 7(a)(2) applies only to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 425 of 515 actions where there is discretionary federal involvement or control. 50 CFR 402.03. Further, under the regulations consultation is required only for actions that “may affect” listed species or designated critical habitat. 5 0 CFR § 402.14. Consultation is not required where the action has no effect on such species or habitat. Under this standard, it is the federal agency taking the action that evaluates the action and determines whether consultation is required. See 51 FR 199 26, 19949 (June 3, 1986). Effects of an action include both the direct and indirect effects that will be added to the environmental baseline. 50 CFR 402.02. Direct effects are the direct or immediate effects of an action on a listed species or its habitat. 136 Indirect effects are those that are caused by the action, later in time, and are reasonably certain to occur. Id. To trigger a consultation requirement, there must thus be a causal connection between the federal action, the effect in question, and the li sted species, and if the effect is indirect, it must be reasonably certain to occur. The EPA has considered the effects of this proposed rule and has reviewed applicable ESA regulations, case law, and

136 See Endangered Species Consultation Handbook, U.S. Fish & Wildlife Service and National Marine Fisheries Service at 4

- 25(March 1998) (providing examples of direct effects: e.g. , driving an off road vehicle through the nesting habitat of a listed species of bird and destroying a ground nest; building a housing un it and destroying the habitat of a listed species).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 426 of 5 15 guidance to determine what, if any, impact there may be to listed species or designated critical habitat for purposes of ESA section 7(a)(2) consultation. The EPA notes that the projected environmental effects of this proposal are, like the Emission Guidelines EGs that it implements, positive: reductions in over all GHG emissions, and reductions in PM and ozone

precursor emissions ( SO X and NO X), for EGUS that will be covered by the federal plan
. SO X and NO X ), for EGUS that will be covered by the federal plan
. However, the EPA’s assessment that the rule will have an overall net positive environmental effect by virtue of reducing emissions of certain air pollutants does not address whether the rule may affect any listed species or designated critical habitat for ESA section 7(a)(2) purposes and does not constitute any finding of effects for that purpose. The fact that the rule will have overall positive effects on the national and global environment does not mean that the rule may affect any listed species in its habitat or the designated critical habitat of such sp ecies within the meaning of ESA section 7(a)(2) or the implementing regulations or require ESA consultation. The EPA has considered various types of potential effects in considering whether ESA consultation is required for this rule. With respect to the pr ojected GHG emission reductions, the EPA does not believe that such reductions trigger ESA***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 427 of 515 consultation requirements under ESA section 7(a)(2). In reaching this conclusion, the EPA is mindful of significant legal and technical analysis undertaken by FWS an d the U.S. Department of the Interior in the context of listing the polar bear as a threatened species under the ESA. In that context, in 2008, FWS and DOI expressed the view that the best scientific data available were insufficient to draw a causal connec tion between GHG emissions and effects on the species in its habitat. 137 The DOI Solicitor concluded that where the effect at issue is climate change, proposed actions involving GHG emissions cannot pass the “may affect” test of the ESA section 7 regulations and , thus , are not subject to ESA consultation. The EPA has also previously considered issues relating to GHG emissions in connection with the requirements of ESA section 7(a)(2). EPA discussed this in the proposed Emissions Guidelines, see 79 FR 34933

- 34, noting In the final EGs, the agency noted that , a lthough the GHG emission reductions projected for the Emissions Guidelines were EGs are large ( the highest estimate is estimated reductions of 555 MMT about 415 million short tons of CO 2 in 2030 relative to the base case ), the EPA evaluated larger reductions in assessing this same issue in

137 See , e.g. , 73 FR 28212, 28300 (May 15, 2008); Memorandum from David Longly Bernhardt, Solicitor, U.S. Department of the Interior re: “Guidance on the Applicability of the Endangered Species Act’s Consul tation Requirements to Proposed Actions Involving the Emission of Greenhouse Gases” (Oct. 3, 2008).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 428 of 515 the context of the light duty vehicle GHG emission standards for model years 2012

- 2016 and 2017

- 2025. EPA concluded there that it knew of “ There the agency pro jected emission reductions over the lifetimes of the model years in question, 138 which are roughly five to six times those projected above and, based on air quality modeling of potential environmental effects, concluded that “EPA knows of no modeling tool wh ich can link these small, time

- attenuated changes in global metrics to particular effects on listed species in particular areas. Extrapolating from global metric to local effect with such small numbers, and accounting for further links in a causative chain , remain beyond current modeling capabilities.” EPA, Light Duty Vehicle Greenhouse Gas Standards and Corporate Average Fuel Economy Standards, Response to Comment Document for Joint Rulemaking at 4

- 102 (Docket EPA

OAR

- HQ

- 2009

- 4782 ); see also 79 FR 34934. T he EPA believes that the same conclusions apply to the present proposal, given that the federal plan will implement only a subset of the reductions projected from the Emission Guidelines as a whole (i.e., for affected EGUs in states without approved plans), and the projected CO 2 emission reductions from the Emission Guidelines are less than those projected for either of the light duty vehicle rules. See ). The EPA reached this conclusion after

138 See 75 FR at 25438 Table I.C 2

– 4 (May 7, 2010); 77 FR at 62894 Table III

– 68 (Oct. 15, 2012).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 429 of 515 evaluating issues relating to potential improvements from the fuel efficiency rule relevant to both temperature and oceanographic pH outputs. The EPA's ultimate finding was that “any potential for a specific impact [of the specific federal action] on listed species in their habitats associated w ith these very small changes in average global temperature and ocean pH is too remote to trigger the threshold for ESA section 7(a)(2).” Id. See also , e.g ., Ground Zero Center for Non

- Violent Action v. U.S. Dept. of Navy , 383 F. 3d 1082, 1091

- 92 (9th Cir. 2004 ) (where )
. The EPA similarly proposes to determine that the likelihood of jeopardy to a species from a federal this proposed action is extremely remote, and ESA does not require consultation). The EPA’s proposed concl usion is entirely consistent with DOI’s analysis regarding ESA requirements in the context of federal actions involving GHG emissions. With regard to non

- GHG air emissions, the EPA is also projecting substantial reductions of SOX SO 2 and NO x as a collateral consequence of this proposal (which will be, as stated above, only a subset of the total reductions from the Emissions Guidelines). EGs ). However, CAA section 111(d) cannot directly control emissions of criteria pollutants. And furthermore, a federal plan under CAA section 111(d)(2) does no more than prescribe emissions standards of the same stringency as the corresponding Emission Guidelines. EGs . 40 CFR***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 430 of 515 60.27(e)(1). Consequently, CAA section 111(d) provides no discretion to set a standard in a federal pla n based on potential impacts to endangered species of reduced criteria pollutant emissions. ESA s ection 7(a)(2) consultation thus is not required with respect to the projected reductions of criteria pollutant emissions. See 50 CFR 402.03; see also WildEart h Guardians v. U.S. Envt’l Protection Agency , 759 F.3d 1196, 1207

- 10 (10th Cir. 2014) ( the EPA has no duty to consult under section 7 of the ESA regarding hazardous air pollutant HAP controls that it did not require

-- and likely lacked authority to require

-- in a federal implementation plan FIP for regional haze controls under section 169A of the CAA.). Finally, EPA considered whether any other relevant effects (beyond reduction in air pollutants) may result from the establishment of standards of performance for existing affected EGUs and implementing and enforcing those standards. In this respect, this p roposal is different from the Emissions Guidelines in that it would set in place a federal plan that will set standards of performance and provide for their implementation and enforcement for affected EGU s not covered by
state plans. In the Emissions Guide lines proposal, EPA recognized that “there are substantial questions as to whether any potential for relevant effects results from any element of the proposed rule or would result instead from the separate***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 431 of 515 actions of states establishing standards of perfor mance for existing sources and implementing and enforcing those standards.” See 79 FR 34934. Under a federal plan , it is EPA that would implement a 111(d) plan. Finally, the EPA has also considered other potential effects of the rule (beyond reductions in air pollutants) and whether any such effects are “caused by” the rule and “reasonably certain to occur” within the meaning of the ESA regulatory definition of the effects of an action. 50 CFR 402.02. The EPA recognizes, for instance, that questions may

ex ist whether decisions such as increased utilization of solar or wind power could have effects on listed species. The EPA received comments on the EGs asserting that because potential increased reliance on wind or solar power may be an element of Building B lock 3, and because wind and solar facilities may in some cases have effects on listed species, the EPA must consult under the ESA on this aspect of the rule. The EPA has carefully considered the comments and the correspondence from Congress as well as th e case law and other materials cited in those documents. The EPA does not believe that the effects of potential future changes in the energy
sector

– including increased reliance on wind or solar power as a result of future potential actions by states or o ther implementing entities

– or any potential alterations in the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 432 of 515 operations of any particular facility would, at the time of promulgation of a federal plan, be sufficiently certain to occur so as to require ESA consultation on the rule. The EPA appreciates that the ESA regulations call for consultation where actions authorized, funded, or carried out by federal agencies may have indirect effects on listed species or designated critical habitat. However, as noted above, indirect effects must be caused by the action at issue and must be reasonably certain
to occur. Under a federal plan , it is the EPA that would implement a CAA section 111(d) plan. The EPA believes that even with this proposed federal plan , any effects on listed species or designated habitat are too uncertain to require consultation under ESA section 7. This is so for at least two reasons
. First, : (1) T he EPA cannot know with any certainty at this
state sta g e which states will actually become subject to a finally promulgated federal plan
. W hich affected EGUs , in which states, will be covered by this Plan can only be known after
states have failed to submit a plan, or have had their plans disapproved by the EPA . Second, ; and (2) , the federal plan as proposed will be implemented through some form of emissions trading. Emissions trading inherently provides maximum flexibility to individual affected EGUs to choose their method of compliance, including continuing to emit the relevant***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 433 of 515 pollutant at historical rates so long as the affected EGU holds sufficient credits or allowances. At this stage, point , the EPA has no meaningful information to express in any more than the broadest terms how any particular affected EGU may choose to comply with the federal plan , should it be promulgated for them based on their location in an area not covered by an approved
state plan. The Services have explained that ESA section 7(a)(2) was not intended to preclude federal actions based on potential future speculative effects. 139 These are precisely the types of speculative future activities and effects currently at issue here. The EPA requests comment on its proposed conclusion that ESA section 7 consultation is not required for this acti on. The EPA will continue to evaluate the scope and potential effects of federal planning activities for this source category to the extent federal plans are needed and implemented in specific areas and over specific sources.
B. What are the Air Impacts ?

139 See 51 FR at 19933 (describing effects that are “reasonably certain to occur” in the context of consideration of cumulative effects and distinguishing broader consideration that may be appropriate in applying a procedural statute such as the National Environmental Policy Act, as opposed to a substantive provision such as ESA section 7(a)(2) that may prohibit certain federal actions); Endangered Species Consultation Handbook, U.S. Fish & Wildlife Service and National Marine Fisheries Service at 4

- 30(March 1998) (in the same context, describing indicators that an act ivity is reasonably certain to occur as including governmental approvals of the action or indications that such approval is imminent, project sponsors’ assurance that the action will proceed, obligation of venture capital, or initiation of contracts; and n oting that the more governmental administrative discretion remains to be exercised, the less there is reasonable certainty the action will proceed).***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 434 of 515 The EPA anticipates significant emission reductions under th is propo s ed action for the utility power sector. Specifically, the EPA is proposing approaches in the form of mass

- and rate

based trading options that provide flexibility in implementing emission standards for a state’s affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 emission performance rates in the Clean Power Plan EG s . However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or will adopt a model rule. Because of this lack of information, in the Regulatory Impact Analysis ( RIA ) for this proposal, the EPA chose to examine a scenario where all states of the contiguous U.S. will be regulated under a federal plan or will adopt the model rule. Addition ally, we examine two alternative federal plan approach scenarios. The first federal plan approach assumes all states in the contiguous U.S. are regulated under a rate

- based federal plan. The second federal plan approach assumes all contiguous states are re gulated under

a mass - based federal plan
. 140

140 It is important to note that the differences between the analytical results for the rate

- based and mass

- b ased federal plan approaches presented may not be indicative of likely differences between the approaches. If one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instance s.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 435 of 515 Under the rate

- based approach, when compared to 2005, CO 2 emissions are projected to be reduced by approximately 22 percent in 2020, 28 percent in 2025, and 32 percent in 2030. Under the mass

- based approach, when compared to 2005, CO 2 emissions are projected to be reduced by approximately 23 percent in 2020, 29 percent in 2025, and 32 percent in 2030. The proposal is projected to result in substantial co

- benefits through reductions of SO 2 , NO X and PM 2.5 that will have direct public health benefits by lowering ambient levels of these pollutants and ozone. Table 12 and Table 13 of this preamble show expected CO 2 and other air pollutant emissions in the base case and reductions under the proposal for 2020, 2025, and 2030 for both rate

- based and mass

- based approaches.
**Table 12**  **. Summary of CO 2**  **and Other Air Pollutant Emission Reductions from the Base Case under Rate**  **- Based**  **Federal Plan**  **Approach CO**  **2 (millions**  **short tons) SO**  **2 (thousand**  **short tons)**  **NO X**  **(thousand short**  **tons) 2020**  Base Case 2,155 1,311 1,333 Rate

- based Federal Plan Approach 2,085 1,297 1,282 Emissions Reductions 69 14 50 **2025** Base Case 2,165 1,275 1,302 Rate

- based Federal Plan Approach 1,933 1,097 1,138 Emissions Reductions 232 178 165 **2030** Base Case 2,227 1,314 1,293 Rate

- based Federal Plan Approach 1,812 996 1,011***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 436 of 515 Emissions Reductions 415 318 282 Source: Integrated Planning Model, 2015. Note: Emissions may not sum due to rounding.
**Table 13**  **. Summary of CO 2**  **and Other Air Pollutant Emission Reductions from the Base Case under Mass**  **- Based**  **Federal Plan**  **Approach CO**  **2 (million** 

**short tons)**  **SO 2**  **(thousand short tons)**  **NO X**  **(thousand short**  **tons) 2020**  Base Case 2,155 1,311 1,333 Mass

- based Federal Plan Approach 2,073 1,257 1,272 Emissions Reductions 81 54 60 **2025** Base Case 2,165 1,275 1,302 Mass

- based Federal Plan Approach 1,901 1,090 1,100 Emissions Reductions 265 185 203 **2030** Base Case 2,227 1,314 1,293 Mass

- based Federal Plan Approach 1,814 1,034 1,015 Emissions Reductions 413 280 278 [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE]

Source: Integrated Planning Model, 2015. Note: Emissions may not sum due to rounding. The reductions in Tables 12 and 13 of this preamble do not
account for reductions in HAP that may occur as a result of this rule. For instance, the fine particulate reductions presented above do not reflect all of the reductions in many heavy metal particulates. C. What are the Energy Impacts ?***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 437 of 515 The proposed action may ha ve important energy market implications. Table 14 of this preamble presents a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate

- based and mass

- based federal plan approaches described in s ection VIII. C of this preamble and presented in the RIA for this proposal
. **Table 14**  **. Summary Table of Important Energy Market Impacts for Rate**  **- Based**  **and Mass -**  **Based Federal Plan**  **Approaches (Percent Change from Base Case)**  **Rate -**  **Based Mass**  **- Based**  **2020 2025**  **2030 2020**  **2025 2030** 
Retail electricity prices 3% 1% 1% 3% 2% 0%
Average electricity bills 3%

- 4%

- 7% 2%

- 3%

- 8% Price of coal at minemouth - 1%

- 5%

- 4%

- 1%

- 5%

- 3% Coal production for power sector use - 5%

- 14%

- 25%

- 7%

- 17%

- 24%

Price of natural gas delivered to power sector 5%

- 8% 2% 4%

- 3%

- 2%

Natural gas use for electricity generation 3%

- 1%

- 1% 5% 0%

- 4% [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE]
These figures reflect the EPA’s modeling that presumes policies that lead to generation shifts and growing use of DS

- EE***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 438 of 515 and renewable electricity generation out to 2029. If different implementation choices are made than those modelled , impacts could be dif ferent.
D. What are the Compliance Costs ? [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE] The compliance costs of this proposed action are represented in this analysis as the change in electric power generation costs between the base case and modeled federal plan approaches described in s ection VIII.B in this preamble and presented in the RIA for this proposal . The incremental cos t is the projected additional cost of complying with the proposed action in the year analyzed and includes the amortized cost of capital investment, needed new capacity, shifts between or amongst various fuels, deployment of DS

- EE programs, and other actio ns associated with compliance. These important dynamics are discussed in more detail in the RIA in the rulemaking docket. The EPA estimates the annual incremental compliance cost for the rate

- based federal plan approach to be $2.5 billion in 2020, $1.0 bi llion in 2025 and $8.4 billion in 2030
. The EPA estimates the annual incremental compliance cost for the mass

based federal plan approach to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030. More detailed cost***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 439 of 515 estimates are available in the RIA included in the rulemaking docket.
E. What are the Economic and Employment Impacts ? [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE] Based on the analysis presented in the RIA, t he proposed action is projected to result in certain changes to power system operation as a compliance with the standards. See Table 14 of this preamble for a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate

- based and mass

based federal p lan approaches described in Section VIII.B in this preamble and presented in the RIA
. Changes in price or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the produ ction process or supply those sectors. Changes in the cost of production may result in changes in prices, quantities produced, and profitability of affected firms. The EPA recognizes that these guidelines provide significant flexibilities and states implem enting the guidelines may choose to mitigate impacts to some markets outside the utility power sector. Similarly, demand for new generation or DS

- EE as a result of states implementing the guidelines can result in shifts in production and profitability for firms that supply those goods and services.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 440 of 515 Executive Order 13563 directs federal agencies to consider the effect of regulations on job creation and employment. According to the Executive Order, “our regulatory system must protect public health, welfare, s afety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science.” (Executive Order 13563, 2011) Although standard benefit

- cost analyses have not typically included a separate analysis of regulation

- induced employment impacts, we typically conduct employment analyses. While the economy continues to move toward full employment , employment impacts are of particular concern and questions may arise about their existence and magnitude. The EPA’s employment analysis includes projected employment impacts associated with modeled federal plan approaches for the electric power industry, coal and natural gas production, and DS

- EE activities. These projections are derived, in part, from a detailed model of the utility power sector used for this regulatory analysis, and U.S
. government data on employment and labor productivity. In the electricity, coal, and natural gas sectors, the EPA estimates that the proposed action could result in a net decrease of approximately 25,000 job

- years in 2025 under the rate

- based federal plan approach and approximately 26,000 job

- years in 2025 under the mass

- based approach. For***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 441 of 515 2030, the estimates of the net decrease in job

- years are 31,000 under the rate

- based approach and 34,000 under the mass

- based approach. The a gency is also offering an illustrative calculation of potential employment effects due to DS

- EE programs. Employment impacts from DS

- EE pr ograms in 2030 could range from approximately 52,000 to 83,000 jobs under the proposal
. By its nature, DS

- EE reduces overall demand for electric
power. The EPA recognizes as more efficiency is built into the U.S. power system over time, lower fuel requirements may lead to fewer jobs in the coal and natural gas extraction sectors, as well as in fossil fuel

- fired EGU construction and operation than would ot herwise have been expected. The EPA also recognizes the fact that, in many cases, employment gains and losses that might be attributable to this rule would be expected to affect different sets of people. Moreover, workers who lose jobs in these sectors may find employment elsewhere just as workers employed in new jobs in these sectors may have been previously employed elsewhere. Therefore, the employment estimates reported in these sectors may include workers previously employed elsewhere. This analysis als o does not capture potential
economy - wide impacts due to changes in prices (of fuel, electricity, labor, for example) or other factors such as improved labor productivity and reduced health care expenditures***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 442 of 515 resulting from cleaner air. For these reasons, t he numbers reported here should not be interpreted as a net national employment impact.
F. What are the Benefits of the Proposed Action ? Implementing the proposed action will generate benefits by reducing emissions of CO 2 and criteria pollutant precursor s, including SO 2 , NO X , and directly emitted particles. SO 2 and NO X are precursors to PM 2.5 (particles smaller than 2.5 microns), and NO X is a precursor to ozone. The estimated benefits associated with these emission reductions are beyond those achieved by previous EPA rulemakings including the Mercury and Air Toxics Standards rule. The health and welfare benefits from reducing air pollution are considered co

- benefits for this proposal . For this rulemaking, we were only able to quantify the climate benefits from reduced emissions of CO 2 and the health co

- benefits associated with reduced exposure to PM 2.5 and ozone. There are many additional benefits which we are not able to quantify, leading to an underestimate of monetized benefits. In summary, we estimate t he total combined climate benefits and health co

benefits for the rate

- based federal plan approach to be $3.5 to $4.6 billion in 2020, $18 to $28 billion in 2025, and $34 to $54 billion in 2030 (3 percent discount rate, 2011$). Total combined climate benef its and health co

- benefits for the mass

- based federal plan approach are estimated to be $5.3 to $8.1 billion***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 443 of 515 in 2020, $19 to $29 billion in 2025, and $32 to $48 billion in 2030 (3 percent discount rate, 2011$). A summary of the emission reductions and mone tized benefits estimated for this rule at all discount rates is provided in Tables 15 through 17 of this preamble.
**Table 15**  **. Summary of the Monetized Global Climate Benefits for the**  **Proposal (**  **Billions of 2011$)**  **a**

**Y ear**  **Discount Rate (Statistic)**  **Monetized Cli mate Benefits**  **2020 2025**  **2030 Rate**  **- based**  **Federal Plan Approach** 

**CO 2**  **Reductions (million**  **short tons)** 69 232 415 5 percent (average SC

- CO 2 ) $0.80 $3.1 $6.4 3 percent (average SC

- CO 2 ) $2.8 $10 $20 2.5 percent (average SC

- CO 2 ) $4.1 $15 $29 3 percent (95 th percentile SC

- CO 2 ) $8.2 $31 $61 **Mass -**  **based Federal Plan**  **Approach**

**CO 2**  **Reductions (million**  **short tons)** 81 265 413 5 percent (average SC

- CO 2 ) $0.94 $3.6 $6.4 3 percent (average SC

- CO 2 ) $3.3 $12 $20 2.5 percent (average SC

- CO 2 ) $4.9 $17 $29 3 percent (95 th percentile SC

- CO 2 ) $9.7 $35 $60

a Climate benefit estimates reflect impacts from CO 2 emission changes in the analysis years presented in the table and do not account for changes in non

CO 2 GHG emissions. These estimates are based on the global social cost of carbon (SC

- CO 2 ) estimates for the analysis years and are rounded to two significant figures.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 444 of 515 **Table 16**  **. Summary of the Monetized Health Co -**  **Benefits in the U.S. for the**  **Proposal , Rate**  **- based**  **Federal Plan Approach**  **( Billions**  **of 2011$)**  **a**

**Pollutant National**  **Emission Reductions**  **(thousands**

**of short tons)**  **Monetized Health Co**  ****

**benefits (3 percent**  **discount) Monetized**  **Health Co**  

** benefits** **(7 percent discount)**  **Rate -**  **based Federal Plan**  **Approach, 2020 PM**  **2.5 precursors**  **b**
SO 2 14 $0.44 to $0.99 $0.39 to $0.89
NO X 50 $0.14 to $0.33 $0.13 to $0.30 **Ozone precursor c** 
NO X (ozone season only) 19 $0.12 to $0.52 $0.12 to $0.52
Total Monetized Health Co

- benefits $0.70 to $1.8 $0.64 to $1.7 Total Monetized Health Co

- benefits combined with Monetized Climate Benefits d $3.5 to $4.6 $3.5 to $4.5
**Rate -**  **based Federal Plan**  **Approach, 2025 PM**  **2.5 precursors**  **b** SO 2 178 $6.4 to $14 $5.7 to $13 NO X 165 $0.56 to $1.3 $0.50 to $1.1 Ozone precursor c
NO X (ozone season only) 70 $0.49 to $2.1 $0.49 to $2.1 Total Monetized Health Co

- benefits $7.4 to $18 $6.7 to $16 Total Monetized Health Co

- benefits combined with Monetized Climate Benefits d $18 to $28 $17 to $26
**Rate -**  **based Federal Plan**  **Approach, 2030 PM**  **2.5 precursors**  **b** SO 2 318 $12 to $28 $11 to $25 NO X 282 $1.0 to $2.3 $0.93 to $2.1 **Ozone precursor c** ***E.O. 12866 Review

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NO X (ozone season only) 118 $0.86 to $3.7 $0.86 to $3.7 Total Monetized Health Co

- benefits $14 to $34 $13 to $31 Total Monetized Health Co

- benefits combined with Monetized Climate Benefits d $34 to $54 $33 to $51

a All estimates are rounded to two significant figures, so estimates may not sum. It is important to note that the monetized co

- benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosyste m effects or visibility impairment. Air pollution health co

- benefits are estimated using regional benefit

- per - ton estimates for the contiguous U.S. b The monetized PM 2.5 co - benefits reflect the human health benefits associated with reducing exposure to PM 2 .5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The co

- benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed Clean Power Plan EGs . PM co

- benefits are shown as a range reflecting the use of two concentration

- response functions, with the low er end of the range based on a function from Krewski et al. (2009) and the upper end based on a function from Lepeule et al. (2012). These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premat ure mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type.

c The monetized ozone co - benefits reflect the human health benefits associated with reducing exposure to ozone through reduct ions of NO X during the ozone season. Ozone co

- benefits are shown as a range reflecting the use of several different concentration

- response functions, with the lower end of the range based on a function from Bell, et al. (2004) and the upper end based on a function from Levy, et al. (2005). Ozone co

- benefits occur in the analysis year, so they are the same for all discount rates. d We estimate climate benefits associated with four different values of a one ton CO 2 reduction (model average at 2.5 percent disc ount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). Referred to as the social cost of carbon, each value increases over time. For the purposes of this table, we show the benefits associated with the model average at 3 percent discount rate, however we emphasize the importance and value of considering the full range of social cost of carbon values. We provide combined climate and health estimates based on additional discount rates in the RIA.
**Table 17**  **. Summary of the Monetized Health Co -**  **Bene fits in the**  **U.S. for the Proposal**  **, Mass -**  **based Federal Plan**  **Approach (**  **Billions of 2011$)**  **a**

**Pollutant National**  **Emission Reductions**  **(thousands**

**of short tons)**  **Monetized Health Co**  ****

**benefits (3 percent**  **discount) Monetized**  **Health Co**  

** benefits** **(7 percent discount)** ***E.O. 12866 Review

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**Mass -**  **based Federal Plan**  **Approach, 2020 PM**  **2.5 precursors**  **b** SO 2 54 $1.7 to $3.8 $1.5 to $3.4 NO X 60 $0.17 to $0.39 $0.16 to $0.36 **Ozone precursor c** 
NO X (ozone season only) 23 $0.14 to $0.61 $0.14 to $0.61 Total Monetized Health Co

- benefits $2.0 to $4.8 $1.8 to $4.4 Total Monetized Health Co

- benefits combined with Monetized Climate Benefits d $5.3 to $8.1 $5.1 to $7.7

**Mass -**  **based Federal Plan**  **Approach, 2025 PM**  **2.5 precursors**  **b** SO 2 185 $6.0 to $13 $5.4 to $12 NO X 203 $0.58 to $1.3 $0.52 to $1.2 **Ozone precursor c** 
NO X (ozone season only) 88 $0.56 to $2.4 $0.56 to $2.4 Total Monetized Health Co

- benefits $7.1 to $17 $6.5 to $16 Total Monetized Health Co

- benefits combined with Monetized Climate Benefits d $19 to $29 $18 to $27
**Mass -**  **based Federal Plan**  **Approach, 2030 PM**  **2.5 precursors**  **b** SO 2 280 $10 to $23 $9.0 to $20 NO X 278 $0.87 to $2.0 $0.79 to $1.8 **Ozone precursor c** 
NO X (ozone season only) 121 $0.82 to $3.5 $0.82 to $3.5 Total Monetized Health Co

- benefits $12 to $28 $11 to $26 Total Monetized Health Co

- benefits combined with Monetized Climate Benefits d $32 to $48 $31 to $46 [PLACEHOLDER: IMPACTS TO BE BASED ON ANALYSIS FOR 111D FINAL RULE]***E.O. 12866 Review

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a All estimates are rounded to two significant figures, so estimates may not sum. It is important to note that the monetized co

- benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosyste m effects or visibility impairment. Air pollution health co

- benefits are estimated using regional benefit

- per - ton estimates for the contiguous U.S. b The monetized PM 2.5 co - benefits reflect the human health benefits associated with reducing exposure to PM 2 .5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The co

- benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the proposed Clean Power Plan EGs . PM co

- benefits are shown as a range reflecting the use of two concentration

- response functions, with the lower end of the range based on a function from Krewski et al. (2009) and the upper end based on a function from Lepeule et al. (2012). These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estima tes by particle type.

c The monetized ozone co - benefits reflect the human health benefits associated with reducing exposure to ozone through reductions of NO X during the ozone season. Ozone co

- benefits are shown as a range reflecting the use of several dif ferent concentration

- response functions, with the lower end of the range based on a function from Bell, et al. (2004) and the upper end based on a function from Levy, et al. (2005). Ozone co

- benefits occur in the analysis year, so they are the same for all discount rates. d We estimate climate benefits associated with four different values of a one ton CO 2 reduction (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). Referred to as the social cost of carbon, each value increases over time. For the purposes of this table, we show the benefits associated with the model average at 3 percent discount rate, however we emphasize the importance and value of considering the full range of social cost of carbon values. We provide combined climate and health estimates based on additional discount rates in the RIA. The EPA has used the social cost of carbon (SC

- CO 2 ) estimates presented in the Technical Support Document: Tec hnical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May 2013, Revised Ju ly 2015) (“current TSD”) to analyze CO 2 climate impacts of this rulemaking. 141 We refer to these estimates, which were developed

141 Docket ID EPA

- HQ

- OAR

- 2013

- 0495, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by Council of Econ omic Advisers, Council on Environmental***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 448 of 515 by the U.S. government, as “SC

- CO 2 estimates.” The SC

- CO 2 is a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 emissions in a given year. It includes a wide range of anticipated climate impacts, such as net changes in agricultural productivity and human health,
pro perty damage from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. It is typically used to assess the avoided damages as a result of regulatory actions ( i.e. , benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 emissions). The SC

- CO 2 estimates used in this analysis were developed over many years, using the best science available, and with input from the public. Specifically, an interagency working group (IWG) that included the EPA and other executive branch agencies and offices used three integrated assessment models (IAMs) to develop the SC

- CO 2 estimates and recommended four global values for use in regulatory analyses. The SC

- CO 2 estimate s were first released in February 2010 and updated in

Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Managemen t and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/scc

- tsd

- final

- july

2015.pdf
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 449 of 515 2013 using new versions of each IAM. The 2010 SC

- CO 2 Technical Support Document (2010 TSD) 142 provides a complete discussion of the methods used to develop these estimates and the current TSD presents and discusses the 2013 update (including two recent minor corrections to the estimates). 143 OMB’s Office of Information and Regulatory Affairs received
comments in response to a request for public comment on the approach used to develop the estimates. After careful evaluation of the full range of comments submitted to OMB, the IWG continues to recommend the use of the SC

- CO 2 estimates in RIA . 144 With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the Na tional

142 Docket ID EPA

- HQ

- OAR

- 2009

- 0472

- 114577, T echnical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon , with participation by the Council of Economic Advisers, Council on Environmental Quality, Depar tment of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Techno logy Policy, and Department of Treasury (February 2010). Also available at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/for

agencies/Social

- Cost

- of

- Carbon

- for

- RIA.pdf
. 143 The current version of the TSD is available at: https://www.whitehouse.g ov/sites/default/files/omb/inforeg/scc

- response - to

comments

- final

- july

- 2015.pdf , Docket ID EPA

- HQ

- OAR

- 2013

- 0495, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , Interagen cy Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). 144 See https://www.whitehouse.gov/omb/oira/social

- cost

- of

- carbon for additional details, including the OMB Response to Comments and the SC

- CO 2 TSDs.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 450 of 515 Academies of Sciences, Engineering, and Medicine (Academies) to ensure that the SC

- CO 2 estimates continue to reflect the best available scientific and economic information on climate change. The Academies review will be informed by the public commen ts received and focus on the technical merits and challenges of potential approaches to improving the SC

- CO 2 estimates in future updates. See the EPA Response to Comments document for the complete response to comments received on SC

- CO 2 as part of this rul emaking. Concurrent with OMB’s publication of the response to comments on SC

- CO 2 and announcement of the Academies process, OMB posted a revised TSD that includes two minor technical corrections to the current estimates. One technical correction addressed an inadvertent omission of climate change damages in the last year of analysis (2300) in one model and the second addressed a minor indexing error in another model. On average the revised SC

- CO 2 estimates are one dollar less than the mean SC

- CO 2 estimates reported in the November 2013 revision to the May 2013 TSD. The change in the estimates associated with the 95th percentile estimates when using a 3 percent discount rate is slightly larger, as those estimates are heavily influenced by the results from th e model that was affected by the indexing

error.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 451 of 515 The EPA, as a member of the IWG on the SC

- CO 2 , has carefully examined and evaluated the minor technical corrections in the revised TSD and the public comments submitted to OMB’s SC

- CO 2 comment process. The EPA concurs with the IWG’s conclusion that it is reasonable, and scientifically appropriate, to use the current SC

- CO 2 estimates for purposes of RIA , including for this proceeding. The four SC

- CO 2 estimates are as follows: $12, $40, $60, and $120 per short ton of CO 2 emissions in the year 2020 (2011$). 145 The first three values are based on the average SC

- CO 2 from the three IAMs, at discount rates of 5, 3, and 2.5 percent, respectively. The SC

- CO 2 value at several discount rates are included because the liter ature shows that the SC

- CO 2 is quite sensitive to assumptions about the discount rate, and because no consensus exists on the appropriate rate to use in an intergenerational context (where costs and benefits are incurred by different generations). The fourth value is the 95 th
percen tile of the SC

- CO 2 from all three models at a 3 percent discount rate. It is included to represent higher

- than

- expected impacts from temperature change further out in the tails of the

145 The current version of the TSD is available at: https://www.whitehouse.gov/sites/default/files /omb/inforeg/scc

- tsd

- final

july

- 2015.pdf . The 2010 and 2013 TSDs present SC

- CO 2 in 2007$ per metric ton. The estimates were adjusted to (1) Short tons for using conversion factor 0.90718474 and (2) 2011$ using GDP Implicit Price Deflator, http://www.gpo.go v/fdsys/pkg/ECONI

- 2013

- 02/pdf/ECONI

- 2013

- 02

- Pg3.pdf
.***E.O. 12866 Review

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- CO 2 distribution (representing less likely, but potentially catastrop hic, outcomes). There are limitations in the estimates of the benefits from
t his proposal , including the omission of climate and other CO 2 related benefits that could not be monetized. The 2010 TSD discusses a number of limitations to the SC

- CO 2 analysis, including the incomplete way in which the IAMs capture catastrophic and non

- catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently, IAMs do not assign value to all of the important impacts of CO 2 recognized in the literature, such as ocean acidification or potential tipping points, for various reasons, including the inherent difficulties in valuing non

- market impacts and the fact that the science incorporated into these models understandably lags behind the most recent research. Nonetheless, these estimates and the discussion of their limitations represent the best available information about the social benefi ts of CO 2 emission reductions to inform the benefit

- cost analysis. As previously noted, the IWG plans to seek independent expert advice on technical opportunities to improve the SC

- CO 2 estimates from the Academies. The Academies process will help to ensure that the SC

- CO 2 estimates used by the federal government continue to reflect the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 453 of 515 best available science and methodologies. Additional details are provided in the TSDs. The health co

- benefits estimates represent the total monetized human health benefits for populations exposed to reduced PM 2.5 and ozone resulting from emission reductions from the federal plan approaches examined in the RIA for this proposal . Unlike the global SC

- CO 2 estimates, the air pollution health co

- benefits are estimated for the con tiguous U.S. only. We used a “benefit

- per - ton” approach to estimate the benefits of this rulemaking. To create the PM 2.5 benefit

- per - ton estimates, we conducted air quality modeling for an illustrative scenario reflecting the proposed Clean Power Plan EGs to convert precursor emissions into changes in ambient PM 2.5 and ozone concentrations. We then used these air quality modeling results in BenMAP 146 to calculate average regional benefit

- per - ton estimates using the health impact assumptions used in the PM

146 http://www.epa.gov/airquality/benmap/index.html
.***E.O. 12866 Review

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NAA QS RIA 147 and Ozone NAAQS RIAs. 148 , 149 The three regions were the Eastern U.S., Western U.S., and California. To calculate the co

benefits for t his proposal , we multiplied the regional benefit

per - ton estimates generated from modeling of the proposed Clean
Power Plan EGs standards by the corresponding regional emission reductions for th is proposal
. 150 All benefit

- per - ton estimates reflect the geographic distribution of the modeled emissions for the proposed Clean Power Plan EGs , which may not exactly match the emis sion reductions in this proposed rulemaking, and thus they may not reflect the local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location. More

147 U.S. Environmental Protection Agency (U.S. EPA). 2012. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter . Research Triangle Park, NC: Office of Air Quality Planning and Standards, Health and Environmental Impacts Division. (EPA document number EPA

- 452/R

- 12

- 003, December). Available at: http://www.epa.gov/pm/2012/finalria.pdf
. 148 U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impact Analysis. Research Triangle Park, NC: Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Air Benefit and Cost Group Research . (EPA document number EPA

- 452/R

- 08

- 003, March). Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. 149 U.S. Environmental Protection Agency (U.S. EPA). 2010. Section 3: Re

analysis of the Benefits of Attaining Alternative Ozone Stan dards to Incorporate Current Methods. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/s3

- supplemental_analysis

updated_benefits11

- 5.09.pdf
. 150 U.S. Environmental Protection Agency. 2013. Technical support document: Estimating the benefit per ton of reducing PM 2.5 precursors from 17 sectors. Research Triangle Park, NC: Office of Air and Radiation, Office of Air Quality Planning and Standards, January. Available at: http://www.epa.gov/airquality/benmap/models/Source_Apportionment_BPT_TSD_1_31 _13.pdf
.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 455 of 515 information regarding the derivation of the benefit

- per - ton estimates is available in the Clean Power Plan Final Rule RIA. PM benefit

- per - ton values are generated using two concentration

- response functions, Krewski et al. (2009) 151 and Lepeule et al. (2012) 152 . These models assume th at all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Even though we assume th at all fine particles have equivalent health effects, the benefit

per - ton estimates vary between PM 2.5 precursors depending on the location and magnitude of their impact on PM 2.5 concentrations, which drive population exposure. It is important to note tha t the magnitude of the PM 2.5 and

ozone co - benefits is largely driven by the concentration response functions for premature mortality and the value of a statistical life used to value reductions in premature mortality. For PM 2.5 , we use two key empirical st udies, one based on the American Cancer Society cohort study (Krewski et al,

151 Krewski D.; M. Jerrett; R. T. Burnett; R. Ma; E. Hughes; Y. Shi, et al. 2009. Extended Follow

- up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. Health Effects Institute. (HEI Research Report numb er 140). Boston, MA: Health Effects Institute.
152 Lepeule, J.; F. Laden; D. Dockery; J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow

- Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspec tive, 120(7), July, pp. 965

- 970.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 456 of 515 2009) and one based on the extended Six Cities cohort study (Lepuele et al, 2012). We present the PM 2.5 co - benefits results as a range based on benefit

- per - ton estimates calculate d using the concentration

- response functions from these two epidemiology studies, but this range does not capture the full range of uncertainty inherent in the co

- benefits estimates. In the RIA for this rule, which is available in the docket, we also inclu de
PM 2.5 co - benefits estimates using benefit

- per - ton estimates based on expert judgments of the effect of PM 2.5 on premature mortality (Roman et al., 2008) 153 as a characterization of uncertainty regarding the PM 2.5 - mortality relationship. For the ozone co - benefits, we present the results as a range reflecting benefit

- per - ton estimates which use several different concentration

- response functions for mortality, with the lower end of the range based on a benefit

- per - ton estimate using the function from Bell et al. (2004) 154 and the upper end based on a benefit

- per - ton estimate using the function from Levy et al.

153 Roman, H., et al. 2008. “Expert Judgment Assessment of the Mortality Impact of Changes in Ambient Fine Particulate Matter in the U.S.” Environmental Science & Technology , Vol. 42, No. 7, February, pp. 2268

– 2274. 154 Bell, M.L., et al. 2004. “Ozone and Short

- Term Mortality in 95 U.S. Urban Communities, 1987

- 2000.” Journal of the American Medical Association, 292(19), pp. 2372

- 8.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 457 of 515 (2005). 155 Similar to PM 2.5 , the range of ozone co

- benefits does not capture the full range of inherent uncertainty. In this analysis, in estimating th e benefits

- per - ton for
PM 2.5 precursors, the EPA assumes that the health impact function for fine particles is without a threshold. This is based on the conclusions of the EPA’s Integrated Science Assessment for Particulate Matter, 156 which evaluated the sub stantial body of published scientific literature, reflecting thousands of epidemiology, toxicology, and clinical studies that documents the association between elevated PM 2.5 concentrations and adverse health effects, including increased premature mortalit y. This assessment, which was twice reviewed by the EPA’s independent Science Advisory Board, concluded that the scientific literature consistently finds that a no

- threshold model most adequately portrays the PM

- mortality concentration

- response relationshi p. In general, we are more confident in the magnitude of the risks we estimate from simulated PM 2.5 concentrations that coincide with the bulk of the observed PM concentrations in the epidemiological studies that are used to estimate the benefits.

155 Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone exposure and mortality: an empiric Bayes metaregression analysis.” Epidemiology . 16(4): p. 458

- 68. 156 U.S. Environmental Protection Agency. 2009. Integrated Science Assessment for Particulate Matter (Final Report) . Research Triangle Park, NC: National Center for Environmental Assessment, RTP Division. (EPA document number EPA

600

- R

- 08

- 139F, December). Available at: http://cfpub.epa.gov/si/si_public_record_Report.cfm?dirEntryId=216546.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 458 of 515 Likewis e, we are less confident in the risk we estimate from simulated PM 2.5 concentrations that fall below the bulk of the observed data in these studies. For this analysis, policy

- specific air quality data are not available, 157 and thus, we are unable to estimat e the percentage of premature mortality associated with this specific rule that is above the lowest measured PM 2.5 levels (LML) for the two PM 2.5 mortality epidemiology studies that form the basis for our analysis. As a surrogate measure of mortality impacts above the LML, we provide the percentage of the population exposed above the lowest measured PM 2.5 level (LML) in each of the two studies, using the estimates of baseline projected PM 2.5 from the air quality modeling for the proposed guidelines use d to calculate the benefit

- per - ton estimates for the EGU sector. Using the Krewski et al. (2009) study, 88 percent of the population is exposed to annual mean PM 2.5 levels at or above the LML of 5.8 micrograms per cubic meter (μg/m 3 ). Using the Lepeule et al. (2012) study, 46 percent of the population is exposed above the LML of 8 μg/m 3
. It is important to note that baseline exposure is only one parameter in the health impact function, along with baseline incidence rates, population, and change in air quali ty.

157 In addition, site

- specific e mission reductions will depend upon how states implement the guidelines.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 459 of 515 Every benefit analysis examining the potential effects of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the underlying scientific and e conomic studies used to configure the benefit and cost models. Despite these uncertainties, we believe the air quality co

- benefit analysis for this rule provides a reasonable indication of the expected health benefits of the air pollution emission reductio ns for the illustrative analysis of this proposed action under a set of reasonable assumptions. This analysis does not include the type of detailed uncertainty assessment found in the 2012 PM 2.5 NAAQS RIA (U.S. EPA, 2012) because we lack the necessary air quality input and monitoring data to conduct a complete benefits assessment. In addition, using a benefit

- per - ton approach adds another important source of uncertainty to the benefits estimates. The 2012 PM 2.5 NAAQS benefits analysis provides an indication of the sensitivity of our results to various assumptions. We note that the monetized co

- benefits estimates shown here do not include several important benefit categories, including exposure to SO 2 , NO X , and HAP ( e.g ., mercury and hydrogen chloride), as well as ecosystem effects and visibility impairment. Although we do not have sufficient information or modeling available to provide monetized estimates for this rule,***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 460 of 515 we include a qualitative assessment of these unquantified benefits in the RIA for th is p roposal . In addition, in the RIA for th is proposal , we did not estimate changes in emissions of directly emitted particles. As a result, quantified PM 2.5 related benefits are underestimated by a relatively small amount. In the RIA for the proposed Clean Po wer Plan EGs , the benefits from reductions in directly emitted PM 2.5 were less than 10 percent of total monetized health co

- benefits across all scenarios and
years. For more information on the benefits analysis, please refer to the RIA for this rule, which is available in the rulemaking docket.
**IX. Community**  **Considerations and Environmental Justice**  **Considerations** In this section we provide an overview of the actions that the agency is taking to help ensure that vulnerable communities are not disproportionat ely impacted by this rulemaking. As described in the Executive Summary, climate change is an environmental justice EJ issue. Low

- income communities and communities of color already overburdened with pollution are likely to be disproportionately affected by , and less resilient to, the impacts of climate change. This rulemaking will provide broad benefit to communities across the nation, as its purpose is to reduce greenhouse gases GHGs , the most significant driver***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 461 of 515 of climate change. While addressing climate c hange will provide broad benefits, it is particularly beneficial to low

- income populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location) where people are most vulnerable to the impacts of climate change (a more robust discussion of the impacts of climate change on overburdened vulnerable communities is provided in the Executive Order 12898 section XII X .J of this preamble). While climate change is a global phenomenon, the ad verse effects of climate change can be very localized, as impacts such as storms, flooding, droughts, and the like are experienced in individual communities. This rule will bring other important benefits to communities across the nation. Vulnerable communities also often receive more than their fair share of conventional air pollution, with the attendant adverse health impacts. The changes in electricity generation that will result from this rule will further benefit communities by reducing existing air pollution that directly contributes to adverse localized health effects. This benefit Th ese air quality improvements will be achieved through the rulemaking th is rule because the electric generating units EGUs that emit the most greenhouse gases GHGs also have the highest emissions of conventional pollutants, such as SO 2 , NO x , fine particles , and HAP. These pollutants are known***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 462 of 515 to contribute to adverse health outcomes, including the development of heart or lung diseases, such as asthma and bronchitis, increased susceptibility to respiratory and cardiac symptoms, greater numbers of emergency room visits and hospital admissions, and premature deaths
. 158 The EPA expects that the reductions in utilization of higher

- emitting units likely to occur during the i mplementation of federal plans will produce significant reductions in emissions of conventional pollutants, particularly in overburdened communities. those communities already overburdened by pollution, which are often low

- income communities, communities of color, and indigenous communities. These reductions will have beneficial effects on air quality and public health both locally and regionally. Further, this rulemaking complements other actions already taken by the EPA to reduce conventional pollutant emi ssions and improve health outcomes for overburdened communities. By reducing millions of tons of CO 2 emissions that are contributing to global GHG levels and providing strong leadership to encourage meaningful reductions by countries across the globe, thi s rule is a significant step to address health and economic impacts of climate change that will fall disproportionately on vulnerable communities. By reducing

158 Six Common Air Pollutants. http://www.epa.gov/oaqps001/urbanair/***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 463 of 515 millions of tons of conventional air pollutants, this proposed rule will lead to better air quali ty and improved health in those communities. In the comment period for the CPP, we heard from many commenters who recognize and welcome tho se benefits. There are other ways in which the actions that result from this rulemaking may affect overburdened communities in positive or potentially adverse ways and we also heard about these from
commenters. While the agency expects overall emission decreases as a result of this rulemaking, we recognize that certain some EGUs may operate more frequently. To the ex tent that we project increases in utilization as a result of this rulemaking, we expect these increases to occur generally in lower

- emitting NGCC units, which have minimal or no emissions of SO 2 and HAP, lower emissions of particulate matter, and much lowe r emissions of NO x compared to higher

- emitting steam units. We acknowledge the concerns that have been raised on this point , but also the difficulty in anticipating prior to plan implementation where those impacts might occur. As described below, the EPA i ntends
to assess any emissions conduct an assessment of whether and where emission increases that may result from plan implementation and mitigate adverse impacts, if any, in overburdened communities.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 464 of 515 In addition to the many positive anticipated health benefits of this rulemaking, it also will increase the use of clean energy and will encourage energy efficiency. EE . These changes in the electricity generation system, which are already occurring , but may be accelerated by this program, are expected to have other positive benefits for communities. The electricity sector is, and will continue to be, investing more in RE and EE. The construction of renewable generation and the implementation of energy effici ency EE programs such as residential weatherization will bring invest invest ment and employment opportunities to the communities where they take place. It is important to ensure that all communities share in these benefits. And while we estimate that the ben efits of this program will greatly exceed its costs (as noted in the RIA for this rulemaking ) ) , it is also important to ensure that to the
extent that there are increases in electricity costs, that those do not fall disproportionately on those least able t o afford them. The EPA has engaged with community groups throughout this rulemaking and we received many comments on the issues outlined above from community groups, environmental justice EJ organizations, faith

- based organizations, public health organizat ions, and others. In This input has informed this proposed final rulemaking we address many of and prompted the***E.O. 12866 Review

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concerns EPA to consider other steps that were raised. One example is that commenters are concerned about the health, economic, and environmental impacts of climate change, but also want to ensure that ag e ncy can take in the benefits of this rulemaking are shared fairly short and that low income long term to assist states and stakeholders to consider EJ and impacts to communities are not adversely affe cted by the increased costs of electricity. In this section, we respond to these concerns. in plan development and implementation. We are working It has also prompted us to work with our federal partners to make sure that communities have information on fed eral resources available to assist them. We describe these resources below, as well as resources that the EPA will be providing to assist communities in accessing EE/RE and financial assistance programs. Finally, and importantly, we recognize that communi ties must be able to participate meaningfully in the development of this rulemaking. In this section, we discuss the steps that the EPA is going to be taking to assist communities in engaging with the agency throughout the comment period of this rulemaking
. A. Proximity Analysis The EPA is committed to ensuring that there is no disproportionate, adverse impact on overburdened communities as a result of this proposed rulemaking. To provide information***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 466 of 515 fundamental to beginning that process, the EPA has conducted an a proximity analysis for this proposed rulemaking that summarizes demographic data on the communities located near power plants , which we refer to as a proximity analysis
. 159 The EPA understands that, in order to prevent disproportionate, disproportionate ly high and adverse human health or environmental effects on these

co mmunities, both the agency and communities must have information on the communities living near facilities, including demographic data, and that accessing and using census data files requires expertise that some community groups may lack. Therefore, the EP A used census data from the American Community Survey (ACS) 2008

- 2012 to conduct a proximity analysis that can be used by communities as they engage with the agency throughout the comment period of this rulemaking. The analysis and its results are presente d in the EJ Screening Report for the Clean Power Plan, which is located in the docket for this rulemaking
at EPA

- HQ

- OAR

- 2015

- 0199. The proximity analysis provides detailed demographic information on the communities located within a 3

- mile radius of each a ffected power plant in the United States. U.S . Included in the analysis is the breakdown by percentage of community characteristics such as income and minority status. The analysis

159 The proximity analysis was conducted using the EPA’s environmental justice mapping and screening tool, EJSCREEN.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 467 of 515 shows a higher percentage of communities of color and low

- income communities living near power plants than national averages. It is important to note that the impacts of power plant emissions are not limited to a 3

- mile radius and the impacts of both potential increases and decreases in power plant emissions can be felt many miles away. Still, being aware of the characteristics of communities closest to power plants is a starting point in understanding how changes in the plant’s air emissions may affect the air quality experienced by some of those already experiencing environmental burdens. Although overall there is a higher fraction of communities of color and low

- income populations living near power plants than national averages, there are differences between rural and urban power plants. There are many rural power plants that are located n ear small communities with high percentages of low

income populations and lower percentages of communities of color. In urban areas, nearby communities tend to be both low

income communities and communities of color. In light of this difference between rur al and urban communities proximate to power plants and in order to adequately capture both the low

income and minority aspects central to environmental justice EJ considerations, we will use the term term s “vulnerable” or “overburdened” when referring to the se communities. Our intent is for this term th e s e term s to be understood in an expansive***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 468 of 515 sense, in order to capture the full scope of communities, including tribal indigenous communities most often located in rural areas, which that are central to our environ mental justice EJ and community considerations. As stated in the Executive Order 12898 discussion located in section XII X .J of this preamble, the EPA believes that all communities will benefit from this proposed rulemaking because this action directly addre sses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 emission guidelines standards for existing affected fossil fuel

- fired power plants. The EPA also believes that the information provided in the proximity analysis will promote engagement between overburdened vulnerable communities and the agency throughout the rulemaking process. In addition to providing the proximity analysis in the docket of this rulemaking, the EPA will make it publicly available on its EPA Commun ity Climate Protection Portal of the Clean Power Plan Website. Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s W eb site ( http:// www.epa.gov/cleanpowerplan ). Furthermore, the EPA has also created an interactive mapping tool that illustrates where power plants are located and provides information on a state level. This tool is available
at: http:// cleanpowerplanmaps.epa.gov/CleanPowerPlan/
. B. Community Engagement in This Rulemaking Process***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 469 of 515 The EPA has heard from overburdened vulnerable communities
t hroughout the outreach process for the Clean Power Plan that it is imperative for overburdened communities to have an understanding of how rulemakings that target climate change work. They expressed a desire to know how these rulemakings programs may benefit their communities and what the potential adverse impacts of the rulemaking rules may be on their communities. It is important We intend to the EPA that the agency provides overburdened provide communities with the informa tion that they need to engage with the agency throughout the comment period. We have received feedback from communities that public hearings, webinars and in

- person meetings are the most effective ways to engage with them and to provide them with the info rmation that they need to understand the rulemaking process. Therefore, for this rulemaking, in addition to conducting public hearings for all members of the American public (please see the dates section for information on the upcoming public hearings), th e agency will hold a national webinar for affected communities in the early stages of the comment period. The goal of this webinar will be to walk overburdened communities through the highlights of the preamble, so they have an understanding of how the rulemaking may potentially impact affect their community communit ies and they will have the contextual***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 470 of 515 information they need to actively engage with the agency thro ughout the comment period. Additionally, because we received positive feedback on the effectiveness of the face

- to

- face meetings conducted on the regional level, each region will be offering an outreach meeting(s) for overburdened communities. The goal of these meetings is to build a level of understanding on this rulemaking to enable overburdened vulnerable communities to actively engage with the agency throughout the comment period. Furthermore, we will follow up on common issues raised during the outreac h meetings with national conference calls, specifically targeted for overburdened vulnerable communities.
C. Providing Communities with Access to Additional Resources In section V.D of this preamble , we outline that we are seeking comment on whether a port ion of this set

- aside should be targeted to RE projects that benefit low

- income communities. Furthermore, the EPA is seeking comment on how an low

- income community should be defined as eligible under this set

- aside. We also seek comment on how much of the set

- aside should be designated as targeted at over

- burdened communities. We also request comment on whether the methods of approval and distribution of a llowances to projects that benefit low

- income communities should differ , and if so, in what manner, from the methods that are proposed to apply to other RE projects.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 471 of 515 As discussed below, there are also many federal programs that can help overburdened low

- inc ome populations access the benefits of renewable energy, energy efficiency RE , EE , and the economic benefits of a cleaner energy economy. In the coming months, the EPA will continue to provide information and resources for overburdened low

- income communities on existing federal, state, local, and other financial assistance programs to encourage EE/RE opportunities that are already available to communities. For example the EPA will also provide a catalog of current or recent state and local programs that have successfully helped communities adopt EE/RE measures. The goal of these resources is to help overburdened vulnerable communities gain the benefits of this rulemaking. The use of these RE/EE tools can also overburdened help low

- income households re duce their electricity consumption and bills. Additionally, as part of the resources that we will be providing overburdened low

- income communities, the EPA will provide information on the White House’s Adminstration’s Partnerships for Opportunity and Workf orce and Economic Revitalization ( POWER Initiative ) Initative and other programs that specifically target economic development assistance to***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 472 of 515 communities affected by changes in the coal industry and the utility power sector. 160 D. Federal Programs and Resour ces Available to Communities Federal agencies have a history of bringing energy efficiency EE and renewable energy RE to low

- income communities. Some examples of feder al programs that offer

resources Earlier this summer, the Administration announced a new initiative to scale up access to solar energy and cut energy bills for all Americans, in particular low

- and moderate

- income communities , and to create a more inclusive solar workforce. As part of thi s new initiative, the U.S. DOE, the U.S. Department of Housing and Urban Development, U.S. Department of Agriculture, and the EPA launched a National Community Solar Partnership to unlock access to solar energy for the nearly 50 percent of households and b usinesses that are renters or do not have adequate roof space to install solar systems, with a focus on low

- and moderate

- income communities. The Administration also set a goal to install 300 MW of RE in federally subsidized housing by 2020 and plants to provide technical assistance to make it easier to install solar energy on affordable housing, including clarifying how to use federal funding for EE and RE . To continue enhancing employment opportunities in the solar

160 http://www.eda.gov/power/
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– Do Not Cite, Quote or Release During Review*** Page 473 of 515 industry for all Americans, AmeriCorps is providing funding to deploy solar energy and create jobs in underserved communities, and DOE is working to expand solar energy education and opportunities for job training. These recent announcements build on the many existing federal programs and resou rces available to improve EE and accelerate the deployment of RE in vulnerable communities. Some examples of these resources include: the Department of Energy’s DOE ’s Weatherization Assistance Program, Health and Human Service’s Low Income Home Energy Assis tance Program, the Department of Housing and Urban Development’s goal (under the President’s Climate Action Plan) of installing 100 megawatts of RE across federally subsidized housing by 2020, the Department of Agriculture’s Energy Efficiency and Conservat ion Loan Program, and the Environmental Protection Agency’s High Cost Energy Grant Program, and the Rural Housing Service’s Multi

Family Housing Program. The U.S. Department of Housing and Urban Development supports EE improvements and the deployment of RE on affordable housing through its Energy Efficient Mortgage Program, Multifamily Property Assessed Clean Energy Pilot with the State of California, PowerSaver Program, and the use of Section 108 Community Development Block Grants. The Department of Treasu ry provides several tax credits to support RE development and EE in***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 474 of 515 low

- income communities, including the New Markets Tax Credit Program and the Low

- Income Housing Tax Credit. The EPA’s RE

Powering America’s Land Initiative
. promotes the reuse of potential ly contaminated lands, landfills and mine sites

– many of which are in low

- income communities

– for RE through a combination of tailored redevelopment tools for communities and developers, as well as site

- specific technical support. The
EPA’s Green Power P artnership is increasing community use of renewable electricity across the country and in low

- income communities. The EPA partners with EE programs throughout the country that leverage ENERGY STAR to deliver broad consumer
energy - saving benefits, of partic ular value to low

- income households who can least afford high energy bills. ENERGY STAR also works with houses of worship to reduce energy costs

– savings that can then be repurposed to their community mission, including programs and assistance to resident s in low

- income communities
. The EPA will be working with these federal partners and others to ensure that overburdened states and vulnerable communities have access to information on these programs and their resources. The federal government also has a num ber of programs to expand employment opportunities in the energy sector, including for underserved populations. Examples of these include the U.S. Department of Housing and Urban Development , DOE, and the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 475 of 515 Department of Education’s “STEM, Energy, and Econom ic Development” program; DOE’s Diversity in Science and Technology Advances National Clean Energy in Solar (DISTANCE

- Solar) Program; Grid Engineering for Accelerated Renewable Energy Deployment (GEARED); the Department of Labor’s Trade Adjustment Assistanc e Community College and Career Training (TAACCCT), Apprenticeship USA Advancing Apprenticeships in the Energy Field, Job Corps Green Training and Greening of Centers, and YouthBuild; and the EPA’s Environmental Workforce Development and Job Training (EWDJT ) program.
E. Co

- Pollutants Air quality in a given area is affected by emissions from nearby sources and may be influenced by emissions that travel hundreds of miles and mix with emissions from other sources. 161 In the Cross

- State Air Pollution Rule CSAPR the EPA used its authority to reduce emissions that significantly contribute to downwind exposures. The RIA for the final Cross

- State Air Pollution Rule CSAPR anticipates substantial health benefits for the population across a wide region. Similarly, the EP A believes that, like the Cross

- State Air Pollution Rule CSAPR , this rulemaking will result in significant health benefits because it will reduce co

- pollutant emissions of SO 2 and NO x on a regional

161 76 FR 48348.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 476 of 515 and national basis. 162 Thus, localized increases in NO x emiss ions may well be more than offset by NO x decreases elsewhere in the region that produce a net improvement in ozone and particulate concentrations across the area. Another effect of the final CO 2 emission guidelines standards for affected existing fossil fue l

- fired EGUs may be increased utilization of other, unmodified EGUs

- in particular , high efficiency gas

- fired EGUs

- with relatively low GHG emissions per unit of electrical output. These plants may operate more hours during the year and could emit pollut ants, including pollutants whose environmental effects would be localized / and

or regional rather than global as is the case with GHG emissions. Changes in utilization already occur in response to energy demands and evolving energy sources, but the final CO 2 emission guidelines standards for affected existing fossil fuel

fired EGUs can be expected to cause more such changes. Increased utilization of solid fossil fuel

- fired units generally would not increase peak concentrations of PM 2.5, NO x , or ozone around such EGUs to levels higher than those that are already occurring because peak hourly or daily emissions generally would not change; however, increased utilization may make periods of relatively high concentrations more frequent. It should be noted

162 76 FR 48347.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 477 of 515 that th e gas - fired sources likely to be dispatched more frequently have very low emissions of primary PM, SO 2, and HAP per unit of electrical output and that they must continue to comply with other CAA requirements that directly address the conventional pollutant s, including federal emission standards, rules included in state implementation plans SIPs , and conditions in title V operating permits, in addition to the guidelines in this final rulemaking. Therefore, local (or regional) air quality for these pollutants is not likely to be significantly affected. For natural gas

- fired EGUs, the EPA found that regulation of HAP emissions “is not appropriate or necessary because the impacts due to HAP emissions from such units are negligible based on the results of the stud y documented in the utility RTC.” 163 Because gas

- fired EGUs emit essentially no mercury, increased utilization will not increase methyl mercury concentrations in water bodies near these affected EGUs. In studies done by DOE/NETL comparing cost and performanc e of coal

and NGCC

- fired generation, they assumed SO 2 , NO x , PM (and Hg) emissions to be “negligible.” Their studies predict NO x emissions from a NGCC unit to be approximately 10 times lower than a subcritical or supercritical coal

- fired boiler. 164 Many, alth ough

163 65 FR 79831.
164 “Cost and Performance Baseline for Fossil Energy Plants Volume 1: Bituminous Coal and Natural Gas to Electricity” Rev 2a, September 2013 Revision 2, November 2010 DOE/NETL

- 2010/1397.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 478 of 515 not all, NGCC units are also very well controlled for emissions of NO x through the application of after combustion controls such as selective catalytic reduction.
F. Assessing Impacts of Federal Plan Implementation It is important to the EPA that th e implementation of federal plans be assessed in order to identify whether they cause any adverse impacts on communities already overburdened communities by disproportionate environmental harms and risks
. The EPA will conduct its own assessment during the implementation phase of this rulemaking to determine whether the implementation of federal plans and other air quality rules are, in fact, reducing emissions and improving air quality in all areas and , or whether there are localized air quality impacts tha t need to be addressed under the Clean other CAA authorities
. The EPA will provide trainings for communities on resources that they can use to assess localized impacts, especially effects of co

- pollutants, of plans on their communities. This training will include guidance in accessing the publicly available information that sources and states currently report that can help with ongoing assessments of federal plan impacts. For example, unit

- specific emissions data and air quality monitoring data are readily available. This information, together with the assessment that the EPA will conduct in the implementation phase of this rulemaking will enable the agency***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 479 of 515 and communities to monitor any disproportionate emissions that may result in adverse impacts and addr ess them.
EPA G. The EPA ’s Continued Engagement The EPA is committed to helping ensure that this action will not have disproportionate adverse human health or environmental effects on overburdened vulnerable communities. Throughout the implementation phase of this rulemaking, the agency will continue to provide trainings and resources to assist overburdened communities and as they engage with the agency. The EPA, through its outreach efforts during the comment period, will continue to solicit feedback from overburdened communities on what they would like additional trainings and

resources on. As described above, the EPA will assess the impacts of this rulemaking during its implementation. The EPA will house this assessment, along with the proximity analysis and other information generated throughout the implementation process, on its EPA Community Climate Protection Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s website ( ). W eb site ( http:// www.epa.gov/cleanpowerplan ). In add ition, the EPA has expanded its set of resources that are being developed to help overburdened communities understand the breadth of policy options and programs that have successfully brought EE/RE to overburdened low

- income communities. The EPA is***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 480 of 515 committe d to continuing its engagement with communities from the comment period of this rulemaking through federal plan implementation. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when crafting this rulemaking. 165 A more detailed discussion concerning the application of Executive Order 12898 in this rulemaking can be found in section XI X .J of this preamble. A summary of the EPA’s interactions with communities is in the EJ Screening Report for the Clean Power Plan, available in the docket of this rulemaking. Furthermore, the EPA’s responses to public comments, including comments received from communities, are provided in the response to comments documents located in the docket for this rule making. In summary, the EPA in this proposed rulemaking has designed an integrative approach that helps to ensure that vulnerable communities are not disproportionately impacted by this rule. The proximity analysis that the agency has conducted is a centra l component of this approach. Not only is the proximity analysis a useful tool to help identify communities that may be impacted by this rulemaking; it will also help

165 Guidance on Considering Environmental Justice During the Development o f Regulatory Actions. http:// www.epa.gov/environmentaljustice/resources/policy/considering

- ej

- in

rulemaking

- guide

- final.pdf . May 2015.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 481 of 515 communities as they engage with the EPA throughout the comment period. It will help the E PA as we help low

- income communities access EE/RE and financial assistance programs. Finally, in order to continue to ensure that overburdened communities are not disproportionately impacted by this rule, the EPA will be conducting an assessment during the implementation phase of the effects of this and other rules on air quality.
**X. Statutory and Executive Order Reviews**  Additional information about these statutes and Executive Orders can be found at http:// www2.epa.gov/laws

regulations/laws

- and

- executive

- orders
. A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review [ &&&based on preliminary analysis ] This proposed action is an economically significant regulatory action that was submitted to the Office of Management and Budget ( OMB ) for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA prepared an analysis of the potential costs and benefits associated with this action. This analysis, “[ &&& insert title of document] , ” This analysis, which is contained in the “Regulatory Impact Analysis for the Proposed Federal Plan Requirements for Greenhouse Gas Emissions from Elec tric Utility Generating Units***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 482 of 515 Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations ” (EPA

- 452/R

- 15

- 00 6 , July 2015), is available in the docket
. and is briefly summarized in section VII I of this preamble. Consistent with EO Executive Order 12866 and EO Executive Order 13563, the EPA estimated the costs and benefits for illustrative compliance two alternative federal plan approaches of to implementing the proposed federal plan and model trading rules
. The propos ed action will achieve the same levels of emissions performance as required of state plans under the CAA section 111(d) EG s for the control of CO 2 . Actions taken to comply with the guidelines will also reduce the emissions of directly

- emitted PM 2.5 , SO 2 and NO X . The benefits associated with these PM 2.5 , SO 2 and NO X reductions are referred to as co

benefits, as these reductions are not the primary objective of this rule and federal plan
. T he RIA for this proposal analyzed two implementation scenarios , whi ch we term the “rate

- based federal plan approach ” and the “mass

- base d federal plan approach ” . It is very important to note that the differences between the analytical results for the rate

- based and mass

- based federal plan approaches presented in the RIA ma y not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the proposed rule . In other words, if one approach***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 483 of 515 performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instances. It is important to note that the potential regulatory impacts presented in the Clean Power Plan Final Rule RIA and the RIA for this proposed rule are not additive. Both RIAs present estimates of the benefits and costs of achieving the emission performance rates of the Clean Power Plan EGs . In the case of the Clean Power Plan Final Rule RIA, the illustrative analysis assumes the performance rates are met under state plans. In the case of this RIA for t he proposed federal plan and model trading rules, the same performance rates are accomplished but are assumed to be achieved under the federal plan or model trading rules. The EPA has used the social cost of carbon estimates presented in the Technical Supp ort Document: T echnical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May 2013, Revised July 2015) (“current TSD”) to analyze CO 2 climate impacts of this rulemaking. We refer to these estimates, which were developed by the U.S. government, as “SC

- CO 2 estimates.” The SC

- CO 2 is an estimate of the monetary value of impacts associated with a marginal change in CO 2 emissions in a given year. The four SC

- CO 2 estimates are associated with different discount rates ( model average at 2.5***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 484 of 515 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent), and each increases over time. In this summary, the EPA provides the estimate of climate benefits associated with the SC

- CO 2 value deemed to be central in t he current TSD: the model average at 3 percent discount rate. The EPA estimates that, in 2020, the proposal will yield monetized climate benefits (in 2011$) of approximately $2.8 billion for the rate

- based approach and $3.3 billion for the

mass - based appr oach (3 percent model average). For the rate

based approach, the air pollution health co

- benefits in 2020 are estimated to be $0.7 billion to $1.8 billion (2011$) for a 3 percent discount rate and $0.64 billion to $1.7 billion (2011$) for a 7 percent disco unt rate. For the mass

- based approach, the air pollution health co

- benefits in 2020 are estimated to be $2.0 billion to $4.8 billion (2011$) for a 3 percent discount rate and $1.8 billion to $4.4 billion (2011$) for a 7 percent discount rate. The annual co mpliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2020, are approximately $2.5 billion for the rate

- based approach and $1.4 billion for the mass

- based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance cos ts) in 2020 are estimated to range from $1.0 billion to $2.1 billion (2011$) for the rate

- based approach and from $3.9 billion to 6.7 billion (2011$) for the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 485 of 515

mass - based approach, using a 3 percent discount rate (model average). The EPA estimates that, in 2 025, the proposal will yield monetized climate benefits (in 2011$) of approximately $10 billion for the rate

- based approach and $12 billion for the

mass - based approach (3 percent model average). For the rate

based approach, the air pollution health co

- bene fits in 2025 are estimated to be $7.4 billion to $18 billion (2011$) for a 3 percent discount rate and $6.7 billion to $16 billion (2011$) for a 7 percent discount rate. For the mass

- based approach, the air pollution health co

- benefits in 2025 are estimate d to be $7.1 billion to $17 billion (2011$) for a 3 percent discount rate and $6.5 billion to $16 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2025, are approximately $1.0 billion for the rate

- based approach and $3.0 billion for the mass

- based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2025 are estimated to range from $ 17 billion to $ 27 billion (2011$) for the rate

- based approach and $16 billion to $26 billion (2011$) for the mass

based approach, using a 3 percent discount rate (model average). The EPA estimates that, in 2030, the proposal will yield monetized climate benef its (in 2011$) of approximately $20***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 486 of 515 billion for the rate

- based approach and $20 billion for the

mass - based approach (3 percent model average). For the rate

based approach, the air pollution health co

- benefits in 2030 are estimated to be $14 billion to $34 billion (2011$) for a 3 percent discount rate and $13 billion to $31 billion (2011$) for a 7 percent discount rate. For the mass

- based approach, the air pollution health co

- benefits in 2030 are estimated to be $12 billion to $28 billion (2011$) for a 3 per cent discount rate and $11 billion to $26 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS

- EE program and participant costs and MRR costs in 2030, are approximately $8.4 billion for the rate

- ba sed approach and $5.1 billion for the mass

- based approach (201 1$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2030 are estimated to range from $ 26 billion to $ 45 billion (2011$) for the rate

- based approa ch and from $26 billion to $43 billion (2011$) for the mass

- based approach, using a 3 percent discount rate (model average). Table 18 and Table 19 of this preamble provide the estimates of the climate benefits, health co

- benefits, compliance costs and net benefits of the proposal for rate

- based and mass

- based federal plan approaches, respectively.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 487 of 515 **Table 18**  **. Summary of the Monetized Benefits, Compliance Costs, and Net**  **Benefits for the Proposal**  **in 2020, 2025 and 2030 Under the Rate**  **- Based**  **Federal Plan Approach [Billions of 2011$]**  **a Rate**  **- Based Approach**  **2020 2025**  **2030 Climate Benefits**  **b** 5% discount rate $0.80 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8.2 $31 $61 **Air Quality Co -**  **benefits Discount Rate** 3% 7% 3% 7% 3% 7% Air Quality Health Co

benefits c $0.70 to $1.8 $0.64 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $2.5 $1.0 $8.4
Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

Non

- Monetized Benefits Non

- monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emissi on changes and does not account for changes in non

- CO 2 GHG emissions. Also, different discount rates are applied to SC

- CO 2 than to the other estimates because CO 2 emissions are long

- lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC

- CO 2 estimated for a 3 percent discount rate. However, we emphasize the importance and value of considering the full range of SC

- CO 2 values. As shown in the RIA, climate benefits are also estimated using the other t hree SC

- CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC

- CO 2 estimates are year

- specific and increase over time.

c The air pollution health co

- benefits reflect reduced exposure to P M 2.5 and ozone associated with emission reductions of SO 2 and NO X . The range reflects the use of concentration

- response functions from different epidemiology studies. The co

- benefits do not include the benefits of reductions in directly emitted PM 2.5 . Thes e additional benefits would increase overall benefits by a few percent based on the analyses conducted for the Clean Power Plan proposed rule. The reduction in premature fatalities each year accounts***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 488 of 515 for over 98 percent of total monetized co

- benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in c ausing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. d C osts are approximated by the compliance costs estimated using the IPM for th is proposal and a discount rate o f approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and DS

- EE program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC

- CO 2 at a 3 percent discount r ate (model average). The RIA includes combined climate and health estimates based on additional discount rates.
**Table 19**  **. Summary of the Monetized Benefits, Compliance Costs, and Net Benefits for the**  **Proposal in 2020, 2025 and 2030**  **Under the Mass -**  **Based Federal**  **Plan Approach [Billions of 2011$] a**  **Mass -**  **Based Approach 2020**  **2025 2030**  **Climate Benefits b**  5% discount rate $0.9 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9.7 $35 $60

**Air Quality Co**  **- benefits Discount Rate**  Air Quality Health Co

benefits c 3% 7% 3% 7% 3% 7% $2.0 to $4.8 $1.8 to $4.4 $7.1 to $17 $6.5 to $16 $12 to $28 $11 to $26 Compliance Costs d $1.4 $3.0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non

Monetized Benefits Non

- monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum.***E.O. 12866 Review

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b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non

- CO 2 GHG emissions. Also, different discount rates are applied to SC

- CO 2 than to the other estimates because CO 2 emissions are long

- lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC

- CO 2 estimate d for a 3 percent discount rate. However, we emphasize the importance and value of considering the full range of SC

- CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC

- CO 2 estimates (model average at 2.5 percent di scount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC

- CO 2 estimates are year

- specific and increase over time.

c The air pollution health co

- benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co

- benefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted for the Clean Power Plan proposed rule. The range r eflects the use of concentration

- response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co

- benefits from PM 2.5 and ozone. These models assume that all fine par ticles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. d Costs are approximated by the complia nce costs estimated using the Integrated Planning Model for this proposal and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and DS

- EE program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC

- CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates. There are additional impor tant benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 emissions do not include important impacts like ocean acidification or potential tipping points in natural or manag ed ecosystems. Unquantified benefits also include climate benefits from reducing emissions of non

- CO 2 GHGs ( e.g. , nitrous oxide and methane) and co

- benefits from reducing direct exposure to SO 2 , NO X , and HAP ( e.g ., mercury), as well as from reducing ecosystem effects and visibility impairment. Based upon the foregoing discussion, it***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 490 of 5 15 remains clear that the benefits of this proposed action are substantial, and far exceed the costs. Additional details on benefits, co sts, and net benefits estimates are provided in th e RIA for this proposal
. B. Paperwork Reduction Act (PRA) [&&&based on preliminary analysis] The information collection requirements in this rule have been submitted for approval to OMB under the PRA. The Information Collection Request (ICR) document prepared by the EPA has been assigned the EPA ICR number [placeholder for ICR number]
. 2526.01
. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until approved by OMB. This rule does not directly impose specific requirements on state and U.S. te rritory governments with affected EGUs. The rule also does not impose specific requirements on tribal governments that have affected EGUs located in their area of Indian country . This rule does impose specific requirements on EGUs located in states, U.S. t erritories or areas of Indian country . The information collection activities in this proposed rule are consistent with those activities defined under the Carbon Pollution Emission Guidelines for Existing Stationary Sources:***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 491 of 515 Electr ic Utility Generating Unit s (79 &&&XX ( **[insert FR**  34830XXX; **number]** ; the Clean Power Plan) finalized on &&&July 31 August 3 , 2015. The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The Information Collection Request ( ICR ) document prepared by the EPA has been assigned EPA ICR number &&&XX 2526.01
. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. Aside from reading and understanding the rule, t his proposed action would impose minimal new informat ion collection burden on affected EGUs beyond what those affected EGU s would already be subject to under the authorities of CAA parts 75 and 98. OMB has previously approved the information collection requirements contained in the existing part 75 and 98

re gulations (40 CFR part 75 and 40 CFR part 98) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060

– 0626 and 2060

– 0629, respectively. Apart from certain reporting costs based on requirements in the NSPS General Provisions (40 CFR part 60, subpart A), which are mandatory for all owners/operators subject to CAA section 111 national emission standards, there are no new information collection costs, as the information required by this proposed rul e is already collected and reported by other***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 492 of 515 regulatory programs. The recordkeeping and reporting requirements are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confidentiality is made is safeguarded according to a gency policies set forth in 40 CFR part 2, subpart B. Although the EPA cannot determine at this time how many affected EGU respondents will submit information under the federal plan, the EPA has estimated an “upper bound” burden estimate for this ICR that estimates burden should every affected EGU read and understand the rule. This is the only potential respondent activity that would be requi red under the 3

- year period following publication of the final federal plan, so there are no obligations to respond in this period. The results of this “upper bound” estimate of federal plan burden are presented below: Respondents/affected entities : 1,028 Respondents’ obligation to respond : Not applicable, no responses are required during the period covered by the ICR. Estimated number of respondents : Unknown at this time, but have assumed all affected entities are respondents for an upper bound estimate. Frequency of response: None, no responses are required during the period covered by the ICR.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 493 of 515 Total estimated burden: 17,133 hours (per year)
. Burden is defined at 5 CFR 1320.3(b). Total estimated cost: $1,706,501 (per year) An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA’s regulations in 40 CFR are listed in 40 CFR part 9. Submit your comments on the a gency’s need for this information, the accuracy of the provided burden estimates and any suggested methods for minimizing respondent burden to the EPA using the docket identified at the beginning of this rule. You may also send your ICR

- related comments t o OMB’s Office of Information and Regulatory Affairs via email to oria_submissions@omb.eop.gov , Attention: Desk Officer for the EPA. Since OMB is required to make a decision concerning the ICR between 30 and 60 days after receipt, OMB must receive comments no later than **[insert date 30 days after date of**  **publication in the Federal Register]**  . The EPA will respond to any ICR

- related comments in the final rule. C. Regulatory Flexibility Act (RFA) Pursuant to section 603 of the RFA, the EPA prepared an initial regulatory flexibility analysis (IRFA) that examines the impact of the proposed rule on small entities along with***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 494 of 515 regulatory alternatives that could minimize that impact. The complete IRFA is available for review in with in the RIA in docket
EPA

- HQ

- OAR

- 2015

- 0199 and is summarized here. [ &&& Insert summary of IRFA here ] The small entities subject to the requirements of this proposed rule may include privately

- owned and publicly

- owned entities, and rural electric cooperatives that are majority owners of affected EGUs. The EPA conducted this regulatory flexibility analysis at the highest level of ownership, evaluating parent entities with the largest share of ownership in at least one potentially

- affected EGU included in EPA’s Base Case using the Integrated Planning Model (IPM) v.5.15, used in the RIA for this proposed rule. This analysis drew on parsed unit

- level estimates using IPM results for 2030. The EPA identified 223 potentially affected EGUs owned by 74 small entities included in 2030 projections from EPA’s IPM v.5.15. Fifty

- nine of these potentially affected EGUs are projected to no longer be operating by 2030 in the Base Case of EPA’s version of IPM. Twenty

- four small entities are projected to have all of their potentially affected EGUs cease operation by 2030 in this base case. The EPA estimated net compliance costs for individual EGUs for the proposed rule using components for operating and annualized capital costs, fuel costs , demand

- side energy***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 495 of 515 efficiency program costs, and revenue changes. This approach is consistent with previous proposed power sector regulations, but also adds the additional component of change in demand

- side energy efficiency program costs. Investment in demand

- side energy efficiency results in lower electricity demand, and consequently fewer emissions as production is reduced to meet the lower demand, an important emission

- reduction strategy modelled in the rate

- based and mass

- based federal plan approache s. For this analysis, the EPA used the parsed unit

level estimates to estimate three of the four components of the net compliance cost equation using IPM outputs: the change in operating and annualized capital costs, the change in fuel costs, and the chang e in revenue, where all changes are estimated as the difference between the base case and federal plan scenario. These impacts were then summed for each small entity, adjusting for ownership share. An additional analysis was performed outside of EPA’s IPM model to estimate the change in demand

- side energy efficiency program costs, based largely on
IPM

- projected outputs. As noted earlier, there are 74 small entities with potentially affected EGUs that are modeled in the IPM base case in 2030. Of these, 24 sm all entities are projected to withdraw all of their potentially affected EGUs from operation under base case conditions. This leaves 50 small entities with potentially***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 496 of 515 affected EGUs that are projected to be generating electricity in 2030. Under the rate

- ba sed federal plan approach, 7 of these 50 small entities are projected to withdraw all of their potentially affected EGUs from operation by 2030. Under the

mass - based federal plan approach, 5 of these 50 small entities are projected withdraw all of their po tentially affected EGUs from operation by 2030. Under the rate

- based federal plan approach, 23 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 9 ent ities are estimated to have net compliance cost savings greater than 3 percent of their generation revenues from affected EGUs. Under the mass

- based federal plan approach, 21 small entities are projected to incur net compliance costs greater than 3 percent of generation revenues from their potentially affected EGUs. In contrast, 11 entities are estimated to have net compliance cost savings greater than 3 percent of generation revenues from their affected EGUs. There are uncertainties and limitations in thi s analysis that may result in estimates that diverge from what we might see in reality. For example, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan. The rate

- based and mass

- based feder al***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 497 of 515 plan approaches analyzed in this IRFA are based on a scenario where all states of the contiguous U.S. will be regulated under a federal plan. Another factor to consider is that entities operating in regulated or cost

- of

- service markets are likely able t o recover compliance costs through rate adjustments; as a result these costs can be viewed as likely being over

- estimates for this set of utilities. Other uncertainties and data limitations exist and are described in the complete IRFA available for review within the RIA. As discussed earlier in this preamble, the reporting, recordkeeping and other compliance requirements are most likely covered under Part 75 and Part 98 programs for affected EGUs. Therefore, only a marginal additional cost is expected for t he monitoring, reporting and recordkeeping requirements of the proposed federal plan for affected EGUs. Owners of affected EGUs may be subject to other related rules. For example, on September 20, 2013, the EPA proposed carbon pollution standards for new f ossil fuel fired EGUs. On June 2, 2014, the EPA proposed carbon pollution standards for modified and reconstructed fossil fuel fired EGUs, in addition to the Clean Power Plan EGs, to cut carbon pollution from existing fossil fuel fired EGUs. These existing EGUs are, or will be, potentially impacted by several other recently finalized EPA rules. On February 16, 2012, the EPA issued the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 498 of 515 mercury and air toxics standards (MATS) rule (77 FR 9304) to reduce emissions of toxic air pollutants from new and existing coal

- and oil

- fired EGUs. On May 19, 2014, the EPA issued a final rule under section 316(b) of the Clean Water Act (33 U.S.C. 1326(b)). This rule establishes new standards to reduce injury and death of fish and other aquatic life caused by cooling water in take structures at existing power plants and manufacturing facilities. On June 18, 2014 (79 FR 34830), the EPA promulgated the stream electric effluent limitation guidelines (SE ELG) rule to strengthen the controls on discharges from certain steam electric power plants. On April 17, 2015 (80 FR 21302), the EPA promulgated the coal combustion residuals (CCR) rule, which establishes technical requirements for CCR landfills and surface impoundments under subtitle D of the Resource Conservation and Recovery Act (RCRA), the nation's primary law for regulating solid waste. As required by section 609(b) of the RFA, the EPA also convened a Small Business Advocacy Review (SBAR) Panel to obtain advice and recommendations from small entity representatives that potentia lly would be subject to the rule's requirements. The SBAR Panel evaluated the assembled materials and small

entity comments on issues related to elements of an IRFA. A copy of the full SBAR Panel Report is available in the rulemaking docket.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 499 of 515 The EPA also considered whether the separate changes that we are proposing to make, as explained in s ection VII of this preamble above, to the framework regulations in s ubpart B of
p art 60 of the CAA regulations would have any impacts on small entities. Si nce these changes only modify and enhance the procedures that the Administrator will follow in processing state plans and promulgating a federal plan, and do not alter the rules or requirements that states or regulated entities must follow, the agency does not believe that there will be economic impacts on small entities from this portion of this proposal. After considering the economic impacts of the proposed changes to 40 CFR 60.27, I certify those changes will not have a significant economic impact on a substantial number of small entities.
D. Unfunded Mandates Reform Act (UMRA) [&&&based on preliminary analysis] This action contains a federal mandate under UMRA, 2 U.S.C. 1531

– - 1538, that may could potentially result in expenditures of $100 million or more for state, local , and tribal governments, in the aggregate, or the private sector in any one 1 year. Accordingly, the EPA has prepared the written statement required under section 202 of UMRA that This federal plan will apply only to those EGUs located in states that do not submit approvable state plans, which is included a subset of the EGUs considered in***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 500 of 515 the docket RIA for this action and briefly summarized here. **[ &&&**  **Insert a concise summary of the written stat ement including**  **a brief description of the intergovernmental consultation.]** the final EGs (see RIA for f urther discussion of impacts). Because it is impossible to determine at this time which states might be ultimately subject to a federal plan, the EPA cannot determine whether this final rule will be subject to UMRA. However, as noted below, the Agency has done substantial outreach to government entities as part of both the federal plan and the related CAA section 111(d) rulemaking. Further, regardle ss of whether the EPA does determine that this action ultimately meets the UMRA threshold, the agency intends to do additional outreach with government entities between now and the final rule. Additionally, the EPA has determined that this action may signi ficantly or uniquely affect small governments. The EPA consulted with small governments concerning the is not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect them **.** small governments. Nevertheless, the EPA is aware that there is substantial interest in this rule among small entities (e.g., municipal and rural electric cooperatives). In light of this interest, prior to this action, the EPA sought early input from repr esentatives of small entities while formulating the provisions of the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 501 of 515 proposed regulation. Such outreach is also consistent with the President’s January 18, 2011 Memorandum on Regulatory Flexibility, Small Business, and Job Creation, which emphasizes the i mportant role small businesses play in the American economy. This outreach process has enabled the EPA to hear directly from these representatives, as the EPA developed the rule about how the EPA should approach the complex question of how to apply section 111 of the CAA to the regulation of GHGs from these source categories. We invite comments on all aspects of this proposal and its impacts, including potential adverse impacts, on small entities.
E. Executive Order 13132: Federalism [&&&based on prelimin ary analysis] Under Executive Order 13132, the EPA may not issue an action that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the federal government provides the fu nds necessary to pay the direct compliance costs incurred by state and local governments, or the EPA consults with state and local officials early in the process of developing the proposed action. The EPA has concluded that this action may have federalism implications, because it may impose substantial direct compliance costs on state or local governments, and the federal government will not provide the funds necessary to pay***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 502 of 515 those costs. As discussed in the Supporting Statement found in the docket for this rulemaking, [&&& Insert text consistent with PRA analysis]
. The EPA The EPA believes that this proposed rule may be of significant interest to state and local governments due to its relationship with the Clean Power Plan EGs. Therefore, the EPA has deter mined that consultations with state and local governments conducted during the Clean Power Plan EGs development process are also relevant to this proposed rule. Consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA consulted with state and local officials early in the process of developing the Clean Power Plan emission guidelines EGs to permit them to have meaningful and timely input into its development. As described in the Federalism discussion in the preamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501 , ; January 8, 2014), the EPA consulted with state and local officials in the process of developing the proposed standards for newly constructed EGUs. A deta iled Federalism Summary Impact Statement (FSIS) describing the most pressing issues raised in pre

- proposal and post

- proposal comments will be forthcoming with the final rule Clean Power Plan EGs , as required by section 6(b) of Executive Order 13132. In the spirit of Executive Order 13132, and consistent with the***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 503 of 515 EPA’s policy to promote communications between the EPA and state and local governments, the EPA specifically solicits comment on this proposed action from state and local officials.
F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments This proposed action has tribal implications. However, it will neither impose substantial direct compliance costs on federally recognized tribal governments, nor preempt tribal law. The units EGU potentially impacted by this proposed rulemaking located on tribal lands Indian reservations are primarily owned by private entities, and in one case, partially owned by an agency of the United States U.S. government. As a result, the tribes on whose areas of Indian country those units are located will not be directly impacted by any costs of complying with this proposed rulemaking incurred by the owners/operators of those units. There would only be tribal implications in regards to compliance c osts associated with this proposed rulemaking in the case where a tribal government has an ownership interest in a potentially affected unit EGU . A tribal government could also incur costs in the event that it seeks and is given delegated authority to enfor ce the federal plan proposed in this rulemaking. The EPA has, nevertheless, offered consultation to the tribes on whose areas of Indian country the units are located. As part of its general outreach to tribes regarding***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 504 of 515 this proposed rulemaking, the EPA rec eived feedback from a number of tribes regarding the potential overall economic impact that both the proposed Clean Power Plan and that a proposed federal plan rulemaking may have on them. In these instances, the EPA has reached out to these tribes and as part of the consultation on the Clean Power Plan engaged with them on their concerns regarding a potential federal plan. The EPA has conducted consultation with tribes on the Clean Power Plan and the Supplemental Proposal for the Clean Power Plan and will offer all tribes consultation on this proposed action. The EPA held consultations with tribes on the Clean Power Plan in the fall of 2014 before the agency issued its Supplemental Proposal for Indian Country and U.S. Territories. Addtionally Add i tionally , the EPA held consultations for tribes shortly following the release of its the supplemental proposal. The agency also held its a public hearing on the supplemental proposal on November 19, 2014, in Phoenix, Arizonia Arizona . At this time the public hearing the agency received oral comments from community members representing a number of tribes and a number of tribal officals offic i als . The agency also conducted consultation with tribes in the spring and summer of 2015. An overview of the consultations provid ed as part of the Clean Power Plan is available in section XII.F of the final Clean Power Plan rulemaking. EGs .***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 505 of 515 Additionally, the EPA engaged in meaningful dialogue with tribal stakeholders to obtain their feedback in the pre

propsal prop o sal stages of this the rulemaking. We provided an update on this proposed rulemaking on the May 28, 2015, National Tribal Air Association (NTAA) and the EPA Air Policy call. Additionally, staff attended the National Tribal Forum conference on May 20, 2015 and provided an o verview of th e Clean Power Plan and explained that the agency would be proposing a fededral plan . As required by section 7(a), the EPA’s Tribal Consultation Official has certified that the requirements of Executive Order 13175 have been met in a meaningful and timely manner. A copy of the certification is included in the docket for this action. federal plan
. Consistent with previous rulemakings impacting the power sector, there is significant tribal interest in these rulemakings because of the potential ind irect impacts that rules such as the Clean Power Plan and this proposed federal plan may have on tribes. In sections II.A, III.F and VI.E of this rulemaking the The EPA references tribes and specifically solicits additional feedback from tribal officials w e invite comments from any on all aspects of this proposed rulemaking, including whether tribes whose areas of the Indian country contain affected tribes whether they EGU(s) are interested in developing their own plan
. implementing the final EG s .***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 506 of 515 Additionally , tribal stakeholders will be included in the outreach that the agency will be conducting with those communities already overburdened communities, that is by pollution, which are often low

- income commun i ties, communities of color, and indigenous communities . The acti o ns that the agency will be tak ing are outlined in VI.E section IX of this preamble. G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks The EPA interprets EO 13045 (62 FR 19885, April 23, 1997)

as applying to those regulatory actions that concern health or safety risks, such that the analysis required under section 5

– 501 of the Order has the potential to influence the regulation. This action is not subject to EO 13045 because it does not involve dec isions on environmental health or safety risks that may disproportionately affect children. The EPA believes that the CO 2 emission reductions resulting from implementation of the proposed guidelines, as well as substantial ozone and PM2.5 emission reductio ns as a cobenefit, would further improve children’s health.
H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution , or Use
[PLACEHOLDER: RESPONSE TO BE BASED ON ANALYSIS FOR 111D FINAL***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 507 of 515 RULE] This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepared a Statement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction in coal

- fired electricity generation as a result of this rule. The EPA projects that utility power sector delivered natural gas prices will increase by up t o 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal. The analysis is available in the RIA, which is in the public docket.
I. National Technology Transfer and Advancemen t Act (NTTAA) This proposed action does not involve technical standards.
J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations

Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low

- Income Populations Executive Order 12898 (59 FR 7629; February 16, 1994) establishes federal executive policy on environmental***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 508 of 515 justice. EJ . Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice EJ part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies , and activities on minority populations and low

- income populations in the U.S. The EPA defines environmental justice EJ

as the fair treatment and meaningful involvement of all people regardless of race, colo r, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies. The EPA has this goal for all communities and persons across this Nation. It will be achieved when everyone enj oys the same degree of protection from environmental and health hazards and equal access to the decision

- making process to have a healthy environment in which to live, learn, and work. Leading up to this rulemaking the EPA summarized the public health and welfare effects of GHG emissions in its 2009 Endangerment Finding. As part of the Endangerment Finding, the Administrator considered climate change risks to minority populations and low

- income populations, finding that certain parts of the population may b e especially vulnerable based on their characteristics or circumstances. Populations that were found to be particularly vulnerable to climate change risks***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 509 of 515 include the poor, the elderly, the very young, those already in poor health, the disabled, those livi ng alone, and/or indigenous populations dependent on one or a few resources. See sections
XX X .F and XX X .G of this preamble , above, where the EPA discusses Consultation and Coordination with Tribal Governments and Protection of Children. The Administrator p laced weight on the fact that certain groups, including children, the elderly, and the poor, are most vulnerable to climate

- related health effects. The record for the 2009 Endangerment Finding summarizes the strong scientific evidence in the major assessme nt reports by the U.S. Global Change Research Program (USGCRP), , the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council (NRC) of the National Academies that the potential impacts of climate change raise environmental justic e EJ issues. These reports concluded that poor communities can be especially vulnerable to climate change impacts because they tend to have more limited adaptive capacities and are more dependent on climate

- sensitive resources such as local water and food s upplies. In addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those impacted by degradation of natural and cultural resources within established reservation boundaries and threats to traditional sub sistence lifestyles. Tribal communities whose health, economic well

- being, and cultural traditions that depend***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 510 of 515 upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated with climate change. The 2009 Endangerment Finding record also specifically noted that Southwest native cultures are especially vulnerable to water quality and availability impacts. Native Alaskan communities are already experiencing disruptive impacts, including coastal erosion and sh ifts in the range or abundance of wild species crucial to their livelihoods and well

- being. The most recent assessments continue to strengthen scientific understanding of climate change risks to minority populations and low

- income populations in the Unite d States U.S . 166 The new assessment literature provides more detailed findings regarding these populations’ vulnerabilities and projected impacts they may experience. In addition, the most recent assessment reports provide new information on how some

166 Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program, 841 pp. IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Repo rt of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 1132 pp. IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects . Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Cl imate Change [Barros, V.R., C.B. Field, D.J. Dokken, M.D. Mastrandrea, K.J. Mach, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge Universit y Press, 688 pp.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 511 of 515 communities of color m ay be uniquely vulnerable to climate change health impacts in the United States U.S . These reports find that certain climate change related impacts

— including heat waves, degraded air quality, and extreme weather events

— have disproportionate effects on low

- i ncome populations and some communities of color (in particular, populations defined jointly by ethnic/racial characteristics and geographic location) , raising environmental justice EJ concerns. Existing health disparities and other inequities in these commu nities increase their vulnerability to the health effects of climate change. In addition, assessment reports also find that climate change poses particular threats to health, well

- being, and ways of life of indigenous peoples in the United States. U.S . As the scientific literature presented above and as the 2009 Endangerment Finding illustrates, low income populations and some communities of color are especially vulnerable to the health and other adverse impacts of climate change. The EPA believes that comm unities will benefit from this proposed federal plan because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 emission guidelines standards for existing affected fossil fuel

- fired EGUs. In addition to reducing CO 2 emissions, the guidelines finalized in this rulemaking would reduce other emissions from***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 512 of 515 affected EGUs that reduce generation due to higher adoption of energy efficiency EE and renewable energy. RE . These emission reductions will include SO 2 and NO x , which form ambient PM 2.5 and ozone in the atmosphere, and hazardous air pollutants ( HAP ), , such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 NAAQS, 167 the EPA identified low

- income populations as being a vulnerable population for experiencing adverse health effects related to PM exposures. Low

- income populations have been generally found to have a higher prevalence of pre

- existing diseases, limited access to medical treatment, and increased nutritional de ficiencies, which can increase this population’s risk susceptibility to PM

- related and

ozone - related effects. 168 Therefore, I n areas where this rulemaking reduces exposure to PM 2.5 , ozone, and methylmercury, low

- income populations will also benefit from such emissions reductions. The RIA for this rulemaking, included in the docket for this rulemaking, provides additional information regarding the health and ecosystem effects associated with these emission reductions.

167 “National Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013). 168 U.S. Environmental Protection Agency (U.S. EPA). 2009. Integrated Science Assessment for Particulate Matter (Final Report) . EPA

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- 139F. National Center for Environmental Assessment

– RTP Division. December. Available on the Internet at http://www.cfpub.epa.gov/si/si_public_record_Report.cfm?dirEntryId=216546
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– Do Not Cite, Quote or Release During Review*** Page 513 of 515 Additionally, as outlined in the community and EJ considerations section IX of this preamble, the agency believes EPA has taken a number of actions to help ensure that all communities, including overburdened communities will benefit from this rulemaking because of the direct health benefits associated with the CO 2 and conventional pollutant reductions. Furthermore, this action will complement EPA actions already in place to address conventional pollutant emissions and will result in further positive health benefits for overburden communities. To help in the identification of those communities overburden ed by this rulemaking as noted in section IX.A of this preamble, the EPA has conducted a proximity analysis for this rulemaking, which is located in the docket
. not have potential disproportionat ely high and adverse human health or environmental effects on vulnerable communities. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions , when crafting determining what actions to take. 169 As described in the community and EJ considerations section of this preamble the EPA also conducted a proximity analysis, which is available in the docket of this rulemaking and is discussed in section IX of this

169 Guidance on Considering Environmental Justice During the Developme nt of Regulatory Actions. http://www.epa.gov/environmentaljustice/resources/policy/considering

- ej

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rulemaking

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- final.pdf . May 2015.***E.O. 12866 Review

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– Do Not Cite, Quote or Release During Review*** Page 514 of 515 preamb l e . Additionally, as outlined in se ctions I and IX of this preamble the EPA has engaged meaningfully with communities throughout the development of the CPP and has devised a robust outreach strategy for continual engagemen t throughout this rulemaking.**Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility**  **Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations**  Page 515 of 515 **List of Subject in 40 CFR Part 62** Environmental protection, Administrative practice and procedure, Air pollution control, Intergovernmental relations, Reporting and recordkeeping requirements.

Dated: _________________.

________________________ Gina McCarthy, Administrator.