Technical Support Docum ent (TSD) for the Transport Rule Docket ID No. EPA-HQ-OAR-2009-0491



## Other Remedy Options Evaluated

U.S. Environmental Protection Agency

Office of Air and Radiation July 2010

1OTHER OPTIONS EVALUATED

EPA considered several rem edy options for re ducing emissions from electric generating units (EGUs) that contribute significantly to nonattainment or interfere with maintenance of the air quality standards by downwind st ates. Three of the remedy options are discussed in the preamble of the proposed Transport Rule: the preferred remedy known as State Budgets/Limited Trading; and tw o other options, State Budgets/Intrastate Trading and Direct Control. See section V of the preamble of the proposed Transport

Rule for details on these remedies. As disc ussed in preamble section V, the preferred remedy, State Budgets/Limited Trading, would use state-specific emissions budgets and

allow for intrastate and limited interstate trading. This approach would assure environmental results while providing some li mited flexibility to covered sources. EPA believes the remedy options discussed in the preamble are consistent with the Court’s opinion in North Carolina v. EPA , 531 F.3d 896 (D.C. Cir. 2008).

However, EPA also considered variations of the remedies presented in the preamble of the proposed Transport Rule and other remedy concepts. Suggestions were submitted by states and other stakeholders during a robus t outreach period before EPA began crafting the proposed rule. EPA evaluated these suggest ions, as well as several permutations of the remedies presented in the proposed Transport Rule preamble.

This document summarizes the features of remedy concepts, and permutations of the remedies presented in the proposed Transpor t Rule preamble, that EPA evaluated during the process of developing the proposed Trans port Rule but decided not to present in the preamble. Sections 1 and 2 look at options wi th interstate trading and intrastate trading, respectively; section 3 looks at options with direct control; and section 4 looks at other concepts. The docket for the proposed Transpor t Rule includes letters and meeting notes on the suggestions that EPA received from stakeholders in March and April 2009 during outreach discussions before the development of the proposal.

2(1) OPTIONS WITH INTE RSTATE TRADING

This type of potential reme dy would involve: setting state emissions budgets; allocating

allowances to the covered sources within each state, with the total allocation within the state equaling the state’s budget; allowing trading of allowances; and requiring each

covered source to hold allowances -- in an amount at least equaling the source’s emissions -- that are allocated within any st ate included in the tr ading program. EPA considered several permutations of this type of potential remedy.

A. Unrestricted, regionwide interstate tradi ng. EPA considered adoption of a program of unrestricted, regionwide trad ing, similar to the cap and trade programs that EPA has implemented for the Acid Rain, NO X SIP Call, and CAIR programs. In these programs, an overall cap is set on a nationa l or regionwide basis. If a source holds an allowance for every ton of emissions, the source is in compliance with the program’s emissions limitation. EPA decided not to pursue this option. EPA decided instead to propose an option that would provide fo r limited interstate trading and greater assurance that emissions reductions necessary to eliminate significant contribution and interference with

maintenance would occur “within each State” as required by secti on 110(a)(2)(D)(i)(I). 42 U.S.C. 7410(a)(2)(D)(i); see also North Carolina , 531 F.3d at 907.

B. Interstate trading with potential of trig gering provision limiting future trading to only intrastate trading. EPA considered an appro ach of allowing regionwid e interstate trading, where a provision that limited future trading to only intrastate trading would be automatically triggered for a state if the st ate was not making reasonable progress toward elimination of significant contri bution or interference with main tenance. For each state, a

level of total emissions from covered sources would be set above the state budget and, if that level were exceeded, the s ources in the state would be lim ited thereafter to intrastate trading. EPA decided not to pursue this opt ion. On one hand, EPA was concerned that, for a given compliance year under the program, the Agency could not determine -- until the second quarter of the following year -- whether the level of total covered-source emissions in a state in the compliance year had exceeded the state budget and that an

3intrastate-trading-only requirem e nt could therefore not be im posed until 2 years after the compliance year. This would mean that tota l emissions in a state could exceed the state budget for 2 years in a row before there was any consequence for the sources in the state. On the other hand, EPA was also concerned th at sources might need a longer transition period (e.g., more than 2 years) to shift fr om complying with an interstate trading program to complying with an intrastate trading program.

C. Interstate trading w ith direct control. See section (3)A below.

(2) OPTIONS WITH INTRAS TATE TRADING

This type of potential reme dy would involve: setting state emissions budgets; allocating

allowances to the covered sources within each state, with the total allocation within the state equaling the state’s budget; allowing trading of allowances; and requiring each

covered source to hold allowances -- in an amount at least equaling the source’s emissions -- that are allocated only within the source’s state. EPA considered several permutations of this type of potential remedy.

A. Intrastate trading with a “safety valve”. EPA considered adding a provision that would allow sources to buy, and use for co mpliance, additional allowances above the state budget at a price set above the cost eff ectiveness level on which the state budget was

based to allow sources increased flexibility. EPA decided no t to pursue this option. EPA decided instead to address in the preamble an option with intrastate trading that would provide greater assurance that emissions reductions necessary to eliminate significant

contribution and interference with maintena nce would occur “within each State” as required by section 110(a)(2)(D)(i) (I). 42 U.S.C. 7410(a)(2)(D)(i); see also North

Carolina , 531 F.3d at 907.

B. Intrastate trading limited to within-compa ny trading in a state. EPA considered an approach of dividing each stat e budget among the owners of covered sources in the state and limiting trading to sources in the state w ith the same owner. EPA decided not to

4pursue this option and decided instead to addres s in the p reamble an option with intrastate trading that would not make compliance much more difficult for owners with few sources in a given state than for owners w ith several in-sta te sources.

C. Intrastate trading coupled with sub-regional trading. Th e Lake Michigan Air Directors Consortium (LADCO) suggested an approach that would allow intrastate trading and that would group states into blocks within which interstate tr ading would be allowed, with “flow control” provisions that would limit the use of banked allowances. The Texas Commission on Environmental Quality (TCEQ) also suggested the adoption of trading zones. This would result in larger allowan ce markets than an approach that only allowed intrastate trading. EPA decided not to pur sue this option. EPA decided instead to address in the preamble two separate options -- one with limited interstate trading and one with intrastate trading -- that would each provide greater assurance that emissions reductions necessary to eliminate signif icant contribution a nd interference with

maintenance would occur “within each State” as required by secti on 110(a)(2)(D)(i)(I). 42 U.S.C. 7410(a)(2)(D)(i); see also North Carolina , 531 F.3d at 907.

D. Intrastate trading w ith direct control. See section (3)B below.

(3) OPTIONS WITH DIRECT CONTROL

A. Direct control with intersta te trading. EPA considered dir ect control in the form of unit-specific performance-based standards, company-wide performance-based standards, minimum performance-based standards, or perf ormance standards based on best available retrofit technology (BART) emissions controls or reasonably available control technology (RACT) for all covered sources , along with interstate trading. The Collaborative, a group of the Ozone Trans port Commission (OTC) and LADCO states, suggested adoption of minimum control re quirements or performance standards for covered sources, state-wide emissions caps, and interstate trading with a regional emissions cap that might be more stringent th an the statewide caps. EPA decided not to pursue the option of combining direct control a nd interstate trading. With regard to both

5the direct control option a nd the interstate trading option, EP A was concerned about including, in each option, provisions that woul d afford greater assurance that emissions reductions necessary to eliminate signif icant contribution a nd interference with

maintenance would occur “within each State” as required by secti on 110(a)(2)(D)(i)(I).

Id. EPA was also concerned that the inte rstate trading option with these provisions would afford such assurance, without adding to the option the complexity associated with imposition of direct control requirements. Consequently, EPA decided to address the direct control and interstate trading options separately and include such provisions in each option.

B. Direct control with intras tate trading. The Central St ates Air Resource Agencies CenSARA suggested the imposition of perfor mance-based standards for all covered sources, along with intrastate trading. EP A decided not to pursue this option. EPA decided instead to address in the preamble two separate options -- one with intrastate trading and one with direct control -- that would each provide greater assurance that emission reductions necessary to eliminate significant contribution and interference with

maintenance would occur “within each State” as required by secti on 110(a)(2)(D)(i)(I).

Id. EPA was concerned that the intrastate trading option would provide such assurance, without adding to the option the complexity a ssociated with imposition of direct control requirements.

(4) OTHER REMEDY CONCEPTS

The Collaborative, a group of the Ozone Transport Commission (OTC) and LADCO states, suggested a comprehensive national/regi onal “framework” to address transport and other Clean Air Act issues, including the suggested adoption of minimum emissions control requirements or performance standa rds for electric generating units (EGUs) and non-EGUs, statewide emission caps, and intersta te trading with a re gional emissions cap that might be more stringent than the stat ewide caps, resulting in additional emission reductions starting in 2014. Groups of OTC st ates and LADCO states also separately made suggestions on addressing interstate pol lution transport issues from a regional

67 perspective, including an empha sis on the importance of emissions reductions in the nearterm (e.g., 2012-2016) and in the longer term (e.g., 2017-2025) and of the use of interstate trading. Many of the sugges tions by the Collaborative, OTC, and LADCO were applied in the proposed Transport Rule.