***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

1 EO 12866_EGUs Indian Country/Territories 2060-AR33 RIA_20140925



### R EGULATORY 

### I MPACT 

### A NALYSIS FOR THE 

### C ARBON 

### P OLLUTION 

### E MISSION 

### G UIDELINES 

### S UPPLEMENTAL 

### P ROPOSAL

1 Introduction

On June 18, 2014, the Environmental Prot ection Agency (EPA) proposed emission guidelines for states to follow in developing plans to addre ss greenhouse gas (GHG) emissions from existing fossil fuel-fired electric generating units (EGUs). In this supplemental action, the EPA is proposing emission guidelines for areas of Indian country and U.S. territories with existing fossil fuel-fired EGUs. Specifically, the EPA is proposing rate-based goals for carbon dioxide (CO 2 ) emissions from areas of Indian country and U.S. territories with existing fossil fuel-fired EGUs, as well as guidelines for plans to achieve the goals. This rule, as proposed, would continue progress al ready underway to reduce CO 2 emissions from existing fossil fuelfired power plants in the United States. This re gulatory impact analysis (RIA) examines the potential costs and benefits of the proposed goals.

2 Legal and Economic Basis for this Rulemaking

2.1 Statutory Requirement

On January 8, 2014, the EPA proposed standards for CO 2 emissions from newly
constructed fossil fuel-fired EGUs under secti on 111(b) of the Clean Air Act (CAA) (79 FR 1430). 1 When the EPA establishes section 111(b ) standards of performance for newly constructed, modified, or reconstr ucted sources in a particular s ource category for a pollutant that is not regulated as a criteria pollutant or hazardous air po llutant, the EPA must establish requirements for existing sources in that source category for th at pollutant under section 111(d).
Under section 111(d), the EPA develops “emission guidelines” that the states must develop plans to

meet. On June 18, 2014, the EPA proposed state-specific rate-based goals for CO 2 emissions from the power sector, as well as guidelines for states to follow in developing plans to achieve

1 79 FR 1430.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

2 those state-specific goals under the authority of CAA section 111(d). 2 In that proposal, the EPA indicated that it intended to publish a supplem ental proposal to establish emission performance goals for Indian country and U.S. territories with affected EGUs under section CAA section 111(d).

2.2 Market Failure

Many regulations are promulgated to correct ma rket failures, which lead to a suboptimal
allocation of resources within the free market . Air quality and polluti on control regulations address “negative externalities” whereby the market does not internalize the full opportunity cost of production borne by society as public goods such as air quality are unpriced.

GHG emissions impose costs on society, such as negative health and welfare impacts that
are not reflected in the market price of the goods produced through the polluting process. For this regulatory action the good produced is electricity. These social cost s associated with the health and welfare impacts are referred to as negative externalities. If an electricity producer pollutes the atmosphere when it generates electricity, this cost will be borne not by the polluting firm but by society as a whole. The market price of electric ity will fail to incorporate the full opportunity cost to society of generating el ectricity. All else equal, given this externality, the quantity of electricity generated in a free market will not be at the socially optimal level. More electricity will be produced than would occur if the power producers had to account for the full opportunity cost of production including the negative exte rnality. Consequently, absent a regulation on emissions, the social cost of the last unit of el ectricity produced will exce ed its social benefit.

2 79 FR 34830.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

3 3 Background for the Proposed Emission Guidelines

3.1 Definition of Affected Sources 3

This action proposes rate-based goals, and gui delines for plans to achieve the goals for areas of Indian country and U.S. territories with affected EGUs. The EPA is aware of three areas of Indian country with affected EGUs: lands of the Navajo Nation, lands of the Ute Tribe of the Uintah and Ouray Reservation a nd lands of the Fort Mojave Tr ibe. The EPA is aware of two
U.S. territories with affected EGUs: Puerto Rico and Guam.

As in the June 2014 proposal, the EPA is propos ing that an affected EGU be defined as 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 section 111, and that in all other respects would meet the applic ability criteria for coverage under the proposed GHG standards for new fossil fuel-fired EGUs. The January 8, 2014, proposed GHG standards for new EGUs generally define an affected EGU as any boiler, integrated gasification combined cycle (IGCC), or combustion turbine (in either simple cycle or co mbined cycle configuration) that (1) is capable of combusting at least 250 million British therma l units (Btu) per hour; (2) combusts fossil fuel for more than 10 percent of its total annual heat input (stationary combustion turbines have an additional criteria that they combust over 90 percent natura l gas); (3) sells 219,000 megawatthour (MWh) per year or one-third of its potential electrical output to a utility distribution system, whichever is greater; and (4) was not in opera tion or under construction as of January 8, 2014.

[Placeholder for specific Puerto Rico and Guam sector information.]

3.2 Proposed Goals

The goals for each area are shown in Ta ble 1. To set these area-specific CO 2 goals, the EPA analyzed the practical and affordable strategi es that are already being used to lower carbon

3 For general background information a bout the electric power sector, please s ee Chapter 2 of the RIA for the June 2014 proposal.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

4 pollution from the power sector. These strategies re flect the “building blocks” applied in the June 2014 proposal, including:

 improvements in fuel efficiency at carbon-intensive power plants

 programs that enhance the dispatch prior ity of, and spur private investments in, low emitting power sources

 programs that enhance the dispatch prior ity of, and spur private investments in, renewable power sources, and

 programs that help homes and businesses use electricity more efficiently. Each of these goal approaches presented (O ption 1 and Option 2) use the four building
blocks described above at differe nt levels of stringency. Option 1 involves greater deployment of the four building blocks but al lows a longer timeframe to comp ly (2030) whereas Option 2 has lower deployment levels of the four building bl ocks over a shorter timeframe (2025). The EPA is co-proposing two alte rnatives for the applicatio n of building block 3 (renewable energy) for U.S.
territories with affected EGUs. The first co-proposal alternative mirrors the proposed methodology from the June 2014 proposal for de termining renewable energy (RE), which applies, for each jurisdiction, an annual growth f actor to the area’s base line (that is, the year 2012) amount of RE. The EPA is also proposing this alternative for the application of building block 3 to areas of Indian country. Because e ach territory and area of Indian country has a baseline amount of RE equal to zero, the applicat ion of the growth factor (that is, multiplying the baseline amount of zero by the grow th factor) results in each of those areas having an RE amount of zero for building block 3. Therefore, appl ying the methodology from the June 2014, proposal for building block 3 results in no additional emission reductions required, and, therefore, no change to the goals for these areas. This co-proposal is labeled “Approach A” in this analysis.

The second co-proposal alternative option for U.S. territories (labeled “Approach B” in this analysis) includes an adjustment to the pr oposed methodology, which results in a positive amount of RE for building block 3 for each territor y. This adjustment is based on the EPA’s view that there is in fact potential fo r renewable generation in each of the affected areas. With this adjustment, the EPA changed the amount of RE in 2017 to be 0.37 per cent of the 2012 total***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

5 electricity generation, which is consistent with the lowest amount among the 50 states in 2012. 4 These goals are shown in Table 2.

In addition, in calculating each CO 2 emission rate goal, the EPA took into consideration the
area’s fuel mix and numerous ot her factors through the same goal-se tting process as was used in the June 2014 proposal. Thus, each goal reflects the unique conditions for each area of Indian country or U.S. territory. More de tails about the strategies applied in the building blocks used to construct the goals can be found in the preamble.

Table 1. Proposed Goals for Areas of I ndian Country and Territories – Approach A
Option 1 – Approach A Option 2 – Approach A

Area 2020-2029
Interim Goal

(lb/MWh) 2030 Goal (lb/MWh) 2020-2024
Interim Goal

(lb/MWh) 2025 Goal (lb/MWh)

Area of
Indian Country Navajo 1,993 1,993 2,034 2,033 Ute 2,016 2,016 2,049 2,043 Fort Mojave 858 858 857 857

Territory Puerto Rico 1,485 1,426 1,567 1,545 Guam 1,726 1,582 1,850 1,790

Table 2. Proposed Goals for Territories – Approach B
Option 1 – Approach B Option 2 – Approach B

Area 2020-2029
Interim Goal

(lb/MWh) 2030 Goal (lb/MWh) 2020-2024
Interim Goal

(lb/MWh) 2025 Goal (lb/MWh)

Area of
Indian Country Navajo 1,991 1,989 N/A N/A Ute 1,999 1,986 N/A N/A Fort Mojave 856 855 N/A N/A

Territory Puerto Rico 1,475 1,412 1,558 1,534 Guam 1,701 1,552 1,827 1,764

4 With 0.37%, Kentucky had the lowest percentage of renewable generation in 2012. See 79 FR 34868 and Table 4- 1 in the “GHG Abatement M easures” TSD on page 4-6.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

6 Note that under Approach A, the 2020-2029 interim goals are the same as the 2030 (Option 1) and the 2020-2024 interim goals are the same as the 2025 goal (Option 2) for each area of Indian country. This is because the first two building blocks (efficiency improvements at plants and enhancing dispatch priority of lower emitti ng generation) are required by 2020. The third and fourth building blocks (enhancing dispatch of renewable generation and improving electricity end use efficiency) are phased in between 2020 and 2030 for Option 1 and between 2020 and 2025 for Option 2. However, the application of these building blocks does not result in any adjustments to the goals for Indian country in Ap proach A. Because of this, the final goals do not change from the interim goals fo r each area of Indian country.

4 Impacts of the Proposed Goals

This proposal sets out area-specific rate-based goals but does not prescribe how each area should meet its goal. Each area will have the flexib ility to design a program to meet its goal in a manner that reflects its particular circumstances and energy and environmental policy objectives. As in the RIA for the June 2014 proposal, the anal ysis of costs and benefits in this RIA is illustrative of one set of strategies an area may choose to implement in order to meet its goal. The actual actions taken by each area, and the re sulting costs and benefits, may differ from what is presented here.

4.1 Emission Reductions, Costs, and Benefits of Goals for Areas of Indian Country

Units in areas of Indian country are expect ed to meet the proposed goals for Option 1 – Approach A and Option 2 – Approach A base d on existing generation decisions, compliance with other regulations, or in response to market-forces induced by the June 2014 proposal. As a result, we do not expect additional emission reducti ons, costs, or benefits associated with this subset of options for these EGUs. In Navajo territo ry, units are expected to shut down in order to comply with requirements for Best Available Re trofit Technology (BART) prior to the target date for the goals proposed in this action. 5 These units represented a pproximately 30 percent of
total EGU CO 2 emissions in Navajo territory in 2012. The EPA expects that the CO 2 reductions

5 http://www.epa.gov/region9/air/navajo/***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

7 resulting from these shutdowns will be sufficien t to meet the proposed goal for the Navajo territory without further ac tion if the goal is converte d to a mass-based goal.

There is one affected unit on Ut e territory. This unit was not an affected unit in the June2014 111(d) proposal, but had the option to implement a heat rate improvement in the systemwide electricity sector modeli ng conducted for that proposal usi ng the Integrated Planning Model (IPM). 6 The modeling for the state and regional co mpliance scenarios of the proposed option predicted that this unit would adopt the optional heat rate improvement by 2020, which is equivalent to the goal proposed in this action, in response to market forces induced by the regulation as modeled in the system-wide electr icity sector modeling. Th erefore, the costs and
benefits for emission reductions from this unit have already been accounted for even though the unit was not subject to the regul ation in the June 2014 analysis. 7 Finally, the goal for the Fort Mojave territory is equivalent to the 2012 baseline emissions rate fo r that area. As a result, there
are no additional actions re quired for the units in th e Fort Mojave territory.

4.2 Emission Reductions, Costs, and Benefits Goals for Territories

This section describes the estimated emission reductions, costs, and benefits associated with illustrative compliance scenarios of actions territories might take to implement the proposed goals. An electricity dispatch a nd capacity investment model for these territories comparable to IPM is not available for conducting this analysis . As described below, an engineering cost analysis was conducted for estimating the costs of the illustrative compliance strategies.

Another difference between this analysis and the analysis described in the June 2014 RIA is that this analysis does not attempt to find a least-cost solution to the illustrative compliance strategy. IPM optimizes electricit y generation decisions across the power sector in response to the modeled regulation. In the case of the June 2014 proposal, IPM found a least-cost solution to

6 See IPM results at: http://www.epa.gov/airmarkets/powersectormodeling/cleanpowerplan.html

. 7 In the analyses for the state and regional illustrative compliance analyses for Option 2 in the June 2014 proposal, this unit does not adopt the heat rate improvement in IPM in response to market forces induced by the regulation. Using that illustrative compliance scenario as the baseline, the unit could adopt a heat rate improvement with consequent benefits and costs. It is expected that the benefits would exce ed the costs in that scenario.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

8 attaining the goals across affected generating sources for two illustrative compliance strategies (see Section 3.5 of EPA 2014 for furt her details). As a result, the approach taken to estimate the costs of implementation in this supplemental propos al may result in different costs relative to an approach that would use a dispatch a nd capacity investment model like IPM.

To conduct the illustrative analysis of actions the territories might take to implement the proposed goals, the EPA used data from th e EPA Greenhouse Gas Reporting Program, Ventyx Velocity Suite, National Electric Energy Data Sy stem (NEEDS) and data provided by the EPA’s Regional Offices along with the Puerto Rico Electric Power Authority (PREPA) and Guam Power Authority. In addition, where data were not available it was necessary to make assumptions about the current oper ations of affected units. For al l EGUs, in the absence of data about future generation, we assume that output remains constant at 2012 levels.

To model compliance with the territories’ goals in this illustrative analysis, we identify abatement strategies that may be taken by sour ces affected by the regu lation to bring their existing generation-weighted average CO 2 emission rate to the level of the goal. These compliance strategies are described below, a nd the assumed costs of different abatement techniques are described here. Fo r coal units, we assume that a retrofit of $100/kw capacity is required to achieve a 6 percent heat rate impr ovement (Option 1) and a 4 percent heat rate improvement (Option 2). The capital cost of heat rate improvements was annualized using a capital charge rate of 14.29 percent, 8 the annualized capital costs are estimated to be $14,300 per
MW.

To estimate the cost of redispatch to natu ral gas combined cycle (NGCC), we assume the capacity factor for NGCC generation will increa se to 70 percent (Option 1) and 65 percent (Option 2). End use energy efficiency costs we re calculated using the same methodology applied in the original 111(d) proposal and describe d in the GHG Abatement Measures Technical Support Document 9 in the docket for that rulemaking. A discount rate of 3 percent was used to

8 See Chapter 8 of EPA’s Base Case using IPM (v5.13) documentation, available at: http://www.epa.gov/powersectormodeling/BaseCasev513.html

9 http://www2.epa.gov/sites/production/files/2014-06/documents/20140602tsd-ghg-abatement-measures.pdf***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

9 estimate the annualized costs for energy efficiency programs. 10 Reduced expenditures on fuel due to redispatch, heat rate improvements and as a results of energy efficiency have been incorporated into the analysis.

In the absence of information about the poten tial type and cost of potential future renewable generating capacity deployed, the leve lized (per megawatt-hour) cost of solar PV from AEO 2014 is used to approximate the costs associated with more stringent application of renewable generation under Approach B. This is currently the highest co st option for renewable generation in AEO 2014 and therefore may overestim ate the costs of this approach. More detail on the cost assumptions and the calculation of cost from the illustrative compliance strategies
described below can be f ound in the docket in the [PLACEHOLDER FOR FILE NAMES].

4.2.1 Emission Reductions

Through actions taken to meet the proposed standard, the affected units would reduce
emissions of CO 2 and may reduce emissions of (SO 2 ), nitrogen dioxide (NO x ), and fine particulate matter (PM 2.5 ), which would lead to lower ambient concentrations of PM 2.5 and ozone (O 3 ). Table 2 shows the total expected CO 2 reductions for Puerto Rico and Guam based on the illustrative compliance strategies described below.

Due to data limitations, we are not able to accu rately estimate the co-reductions of criteria pollutants that would occur as a result of acti ons to implement the proposed goals. The data available for emissions rates for these pollutants from units within the continental U.S. is not generalizable to the territorial units, particularly because of the proportion of generation from oilfired units in the te rritorial areas.

10 Energy efficiency costs annualized at a 7% discount rate can be found in the docket in [PLACEHOLDER FOR FILE NAME]

.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

10 Table 3. CO 2 Reductions from Illustrative Comp liance Scenario (thousand metric tons/year)
Option 1 Option 2
Approach A Approach B Approach A Approach B 2020 1,800 1,900 1,500 1,500 Puerto Rico 2025 2,700 2,800 1,900 2,100 2030 3,300 3,500 N/A N/A 2020 17 24 13 20 Guam 2025 89 99 54 63 2030 140 160 N/A N/A 2020 1,800 1,900 1,500 1,600 Total 2025 2,700 2,900 2,000 2,100 2030 3,400 3,600 N/A N/A Figures independently rounded to two significant digits. Columns may not sum. 4.2.2 Illustrative Compliance Strategies and Cost

Based on the assumptions described above, th e EPA estimated the costs of illustrative compliance strategies each territory may choose to achieve the proposed goals. For Puerto Rico, these strategies include heat rate improvements at the affected units, redispatch to NGCC, end use energy efficiency programs, and for Approach B, the cost of renewable generation. The total change in dispatch associated with energy effici ency programs was distributed to affected units based on the percentage of electri city sales attributable to t hose units in 2012. These programs are assumed to be adopted at the same level as is assumed in the rate-goa l calculation. Heat rate improvements were then assumed to be applied to all affected coal boilers with consequent reductions in fuel use. An increase in NGCC ge neration is applied and ge neration is assumed to
be diverted from affected coal- and oil-fire d units based on the propor tion of generation from those units in 2012. The generation of non-affect ed sources is assumed not to change. For Approach B, an additional emission rate impr ovement is assumed to come from incremental renewable generation, assumed for this analysis to be solar PV with a 25 percent capacity factor. This generation was assumed to displace the most expensive source of existing generation.

For Guam, the goals are assumed to be achieved through end use energy efficiency programs only. As with Puerto Rico , the change in dispatch associated with these programs is
distributed to affected units based on thei r 2012 generation. In Approach B, the additional emission rate improvement is assumed to be achieved with new solar PV generation that displaces the most expensive s ource of existing generation.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

11 Table 3 and 4 show the total costs for the illustrative compliance scenarios for Option 1. Tables 5 and 6 show the total costs for the illustrative compliance scenarios for Option 2. The
total costs also includ e monitoring, reporting, and recordkeep ing (MRR) costs associated with this proposal.

Due to the nature of this analysis, the cost s of each component of the compliance strategy technique is calculated independent ly, rather than as part of collectively using a system-wide optimization model as is done in IPM. The approach taken here allows us to report the cost of each approaches independently, whereas in a model like IPM, because it assures equilibrium in the electricity and fuel markets market, has endo genous prices in those se ctors, and identifies a least-cost strategy for compliance, it is not possible to identify independently the costs associated with each compliance method. As discussed previous ly, this our inability to use a dispatch and capacity planning model is a sign ificant difference between the an alysis done for this proposal and the analysis of the June 2014 proposal.

Table 4. Costs of Illustrative Compliance S cenario – Option 1, Approach A (millions of 2011$)

Annualized Capital and EE Costs Fuel Cost Change MRR Annualized Compliance Cost HRI Renewables EE

Puerto Rico 2020 $6.5 $0 $15 -$200 $1.6 -$170 2025 $6.5 $0 $95 -$390 $1.0 -$280 2030 $6.5 $0 $170 -$570 $1.0 -$390 2020 $0 $0 $1.3 -$2.9 $1.6 -$0.03 Guam 2025 $0 $0 $8.2 -$17 $1.0 -$7.9 2030 $0 $0 $15 -$30 $1.0 -$15 2020 $6.5 $0 $16 -$200 $3.2 -$170 Total 2025 $6.5 $0 $100 -$400 $1.9 -$290 2030 $6.5 $0 $180 -$600 $1.9 -$410 Figures independently rounded to two significant digits. Rows and columns may not sum.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

12 Table 5. Costs of Illustrative Compliance S cenario – Option 1, Approach B (millions of 2011$)
Annualized Capital and EE Costs Fuel Cost Change MRR Annualized Compliance Cost HRI Renewables EE

Puerto Rico 2020 $6.5 $13 $15 -$210 $1.6 -$180 2025 $6.5 $20 $95 -$410 $1.0 -$290 2030 $6.5 $27 $170 -$610 $1.0 -$400 2020 $0 $1.0 $1.3 -$4 $1.6 -$0.21 Guam 2025 $0 $1.5 $8.2 -$19 $1.0 -$8.4 2030 $0 $2.2 $15 -$33 $1.0 -$16 2020 $6.5 $14 $16 -$220 $3.2 -$180 Total 2025 $6.5 $21 $100 -$430 $1.9 -$300 2030 $6.5 $29 $180 -$640 $1.9 -$420 Figures independently rounded to two significant digits. Rows and columns may not sum.
Table 6. Costs of Illustrative Compliance S cenario – Option 2, Approach A (millions of 2011$)
Annualized Capital and EE Costs Fuel Cost Change MRR Annualized Compliance Cost HRI Renewables EE

Puerto Rico 2020 $6.5 $0 $10 -$160 $1.6 -$140 2025 $6.5 $0 $65 -$270 $1.0 -$200 2020 $0 $0 $0.88 -$2.2 $1.6 $0.29 Guam 2025 $0 $0 $5.6 -$10 $1.0 -$3.8 2020 $6.5 $0 $11 -$160 $3.2 -$140 Total 2025 $6.5 $0 $71 -$290 $1.9 -$210 Figures independently rounded to two significant digits. Rows and columns may not sum.
Table 7. Costs of Illustrative Compliance S cenario – Option 2, Approach B (millions of 2011$)
Annualized Capital and EE Costs Fuel Cost Change MRR Annualized Compliance Cost HRI Renewables EE

Puerto Rico 2020 $6.5 $13 $10 -$170 $1.6 -$140 2025 $6.5 $18 $65 -$300 $1.0 -$210 2020 $0 $1.0 $0.88 -$3.4 $1.6 $0.11 Guam 2025 $0 $1.4 $5.6 -$12 $1.0 -$4.2 2020 $6.5 $14 $11 -$180 $3.2 -$140 Total 2025 $6.5 $19 $71 -$310 $1.9 -$210 Figures independently rounded to two significant digits. Rows and columns may not sum.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

13 4.2.3 Benefits

Climate Benefits

In 2009, the EPA Administrator found that “s ix greenhouse gases taken in combination endanger both the public health and the public we lfare of current and future generations.” The specific public health and public welfare impacts are detailed in the 2009 Endangerment Finding
and its record.

A number of major peer-reviewed scientific assessments have been released since the administrative record concerning the Endange rment Finding closed following the EPA’s 2010
Reconsideration Denial. These assessments incl ude the “Special Report on Managing the Risks
of Extreme Events and Disasters to Advan ce Climate Change Adaptation” (SREX) (IPCC, 2012), the 2013-14 Fifth Assessment Report (AR5) (IPCC, 2013, 2014a, 2014b), the 2014 National Climate Assessment report (Melillo et al., 2014), the “Ocean Acidification: A National Strategy to Meet the Challenges of a Cha nging Ocean” (Ocean Acidification) (NRC, 2010), “Report on Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia” (Climate Stabilization Targets) (N RC, 2011a), “National Security Implications for U.S. Naval Forces” (National Security Imp lications) (NRC, 2011b), “Understanding Earth’s Deep Past: Lessons for Our Climate Future” (U nderstanding Earth’s Deep Past) (NRC, 2012a), “Sea Level Rise for the Coasts of California, Oregon, and Washington: Past, Present, and Future” (NRC, 2012b), “Climate and Social Stress: Implications for Securi ty Analysis” (Climate and Social Stress) (NRC, 2013a), and “Abrupt Im pacts of Climate Chan ge” (Abrupt Impacts) assessments (NRC, 2013b).

The EPA has reviewed these assessments a nd finds that in general, the improved understanding of the climate syst em they present are consistent with the assessments underlying the 2009 Endangerment Finding.

The IPCC AR5 assessments (IPCC, 2013, 2014a, 2014b) are generally consistent with the underlying science supporting the 2009 Endange rment Finding. For example, confidence in attributing recent warming to human causes has in creased: the IPCC stated that it is extremely likely (>95 percent confidence) th at human influences have been the dominant cause of recent***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

14 warming. Moreover, the IPCC found that the last 30 years were likely (>66 percent confidence) the warmest 30 year period in the Northern Hemis phere of the past 1400 year s, that the rate of ice loss of worldwide glaciers and the Greenland and Antarctic ice sheets has likely increased,
that there is medium confidence th at the recent summer sea ice retreat in the Arctic is larger than has been in 1450 years, and that concentrations of carbon dioxide and several other of the major greenhouse gases are higher than they have be en in at least 800,000 years. Climate-change induced impacts have been observed in changing precipitation patterns, melting snow and ice, species migration, negative impacts on crops, incr eased heat and decreased cold mortality, and altered ranges for water-borne illnesses and diseas e vectors. Additional risks from future changes include death, injury, and disrupted livelihoods in coastal zone s and regions vulnerable to inland flooding, food insecurity linked to warming, drought, and flooding, especially for poor populations, reduced access to drinking and irriga tion water for those with minimal capital in semi-arid regions, and decreased bi odiversity in marine ecosystems, especially in the Arctic and tropics, with implications fo r coastal livelihoods. The IPCC de termined that “[c]ontinued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will re quire substantial and sustained reductions of greenhouse gases emissions.”

The recently released National Climate Assessment (Melillo et al., 2014) stated, “Climate change is already affecting the American people in far reaching ways. Certain types of extreme weather events with links to climate change have become more fre quent and/or intense, including prolonged periods of heat, heavy downpours, and, in some regions, floods and droughts. In addition, warming is cau sing sea level to rise and glacier s and Arctic sea ice to melt, and oceans are becoming more acidic as they ab sorb carbon dioxide. These and other aspects of climate change are disrupting people’s lives and damaging so me sectors of our economy.”

Assessments from these bodies represent the current state of knowledge, comprehensively cover and synthesize thousands of individual studie s to obtain the majority conclusions from the body of scientific literature a nd undergo a rigorous and exacting standard of review by the peer expert community and U.S. government.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

15 Social Cost of Carbon

We estimate the global social benefits of CO 2 emission reductions expected from the proposed guidelines using the S CC estimates presented in the 2013 Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis
Under Executive Order 12866 (2013 SCC TSD). 11 We refer to these estimates, which were developed by the U.S. government, as “SCC estima tes.” The SCC is a metric that estimates the monetary value of impacts associat ed with marginal changes in CO 2 emissions in a given year. It includes a wide range of anticip ated climate impacts, such as net changes in agricultural productivity and human health, property 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 ac tions (i.e., benefits of rulemakings that have an incremental impact on cumulative global CO 2 emissions).

An interagency process that included the EP A and other executive branch entities used three integrated assessment models (IAMs) to de velop SCC estimates and selected four global values for use in regulatory an alyses. The SCC estimates were first released in February 2010 (2010 SCC TSD) 12 and updated in 2013 using new versions of each IAM. The technical

11 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 Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Coun cil, Office of Energy and Climate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised November 2013). Available at: http://www.whitehouse.gov/sites/defau lt/files/omb/assets/inforeg/technical- update-social-cost-of-carbon-forregulator-impact-analysis.pdf

. 12 Docket ID EPA-HQ-OAR-2009-0472-114577, Technical 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 Council of Economic Advi sers, Council on Environmental Quality, Department 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 Technology Policy, and Department of Treasury (February 2010). Available
at: http://www.whitehouse.gov/sites/defa ult/files/omb/inforeg/for-agencies /Social-Cost-of- Carbon-for-RIA.pdf***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

16 background on the SCC estimates are also discussed in detail in Chapter 4 of “Regulatory Impact Analysis for the Proposed Carbon Pollution Guide lines for Existing Power Plants and Emission
Standards for Modified and Reconstr ucted Power Plants” (USEPA 2014).

The four SCC estimates, updated in 2013, are as follows: $13, $46, $68, and $137 per
metric ton of CO 2 emissions in the year 2020 (2011$). 13 The first three values are based on the average SCC from the three IAMs, at discount rates of 5, 3, and 2.5 percent, respectively. SCC
estimates for several discount rates are included because the literature shows that the SCC is quite sensitive to assumptions about the discount rate, and because no consensus exists on the appropriate rate to use in an in tergenerational context (where co sts and benefits are incurred by different generations). The fourth value is the 95 th percentile of the SCC 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 SCC distribu tion (representing less likely, but potentially catastrophic, outcome s). Table 8 presents the updated global SCC estimates for the years 2020, 2025, and 2030. The SCC increases over time because future emissions are expected to produce larger incremental damages as physic al and economic systems become more stressed in response to greater climate change.

The EPA has applied the SCC estimates to the CO 2 reductions described above for the
territories. In order to calculate the dollar va lue for emission reductions, the SCC estimate for each emissions year would be applied to changes in CO 2 emissions for that year, and then discounted back to the analysis year using the same discount rate used to estimate the SCC. 14 Tables 9 and 10 report the incremental climate bene fits estimated in the analysis years for Option

13 The 2010 and 2013 TSDs present SCC in 2007$. The estim ates were adjusted to 2011$ using GDP Implicit Price Deflator, http://www.gpo.gov/fdsys/pkg/ECONI-2013-02/pdf/ECONI-2013-02-Pg3.pdf

. 14 This analysis considered the climate impacts of only CO 2 emission change. As discussed below, the climate impacts of other pollutants were not calculated for the proposed guidelines. Furthermore, the U.S. Interagency Working Group on the Social Cost of Carbon has so fa r only considered estimates for the social cost of CO 2 . While CO 2 is the dominant GHG emitted by the sector, we recognize the representative facilities within these comparisons may also have different emission rates for other climate forcers that will serve a minor role in determining the overall social cost of generation.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

17 1 (2020, 2025, and 2030). Tables 11 and 12 report the in cremental climate bene fits estimated in the analysis years for Option 2 (2020 and 2025) for the illustrative analysis of actions the territories may take to implement the proposed goals.

Table 8. Social Cost of Carbon Values per Metric Tonne (2011$)
2.5% (Average) 3% (Average) 5% (Average) 3% (95 th Percentile) 2020 $13 $46 $68 $137 2025 $15 $50 $74 $153 2030 $17 $55 $80 $170

Table 9. Estimated Global Climat e Benefits of Illustrative CO 2 Reductions – Option 1, Approach A (millions of 2011$)*

Discount Rate and Statistic 2020 2025 2030

Puerto Rico Thousand Metric tonnes of CO 2 reduced 1,800 2,700 3,300 5% (average) $23 $40 $56 3% (average) $84 $130 $180 2.5% (average) $120 $200 $260 3% (95 th percentile) $250 $410 $560

Guam Thousand Metric tonnes of CO 2 reduced 17 89 140 5% (average) $0.22 $1.3 $2.4 3% (average) $0.78 $4.5 $7.9 2.5% (average) $1.2 $6.5 $11 3% (95 th percentile) $2.3 $14 $24
Thousand Metric tonnes of CO 2 reduced 1,800 2,700 3,400 5% (average) $24 $41 $58 Total 3% (average) $85 $140 $190 2.5% (average) $130 $200 $270 3% (95 th percentile) $250 $420 $580 * The SCC values are dollar-year and emissions-year speci fic. SCC values represent only a partial accounting of climate impacts. Figures independently rounded to two significant digits. Columns may not sum.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

18 Table 10. Estimated Global Climat e Benefits of Illustrative CO 2 Reductions – Option 1, Approach B (millions of 2011$)*

Discount Rate and Statistic 2020 2025 2030

Puerto Rico Thousand Metric tonnes of CO 2 reduced 1,900 2,800 3,500 5% (average) $25 $42 $59 3% (average) $88 $140 $190 2.5% (average) $130 $210 $280 3% (95 th percentile) $260 $430 $590

Guam Thousand Metric tonnes of CO 2 reduced 24 99 160 5% (average) $0.31 $1.5 $2.7 3% (average) $1.1 $5.0 $8.7 2.5% (average) $1.6 $7.3 $13 3% (95 th percentile) $3.3 $15 $27
Thousand Metric tonnes of CO 2 reduced 1,900 2,900 3,600 5% (average) $25 $43 $62 Total 3% (average) $89 $150 $200 2.5% (average) $130 $210 $290 3% (95 th percentile) $260 $440 $620 * The SCC values are dollar-year and emissions-year speci fic. SCC values represent only a partial accounting of climate impacts. Figures independently rounded to two significant digits. Columns may not sum.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

19 Table 11. Estimated Global Climat e Benefits of Illustrative CO 2 Reductions – Option 2, Approach A (millions of 2011$)*

Discount Rate and Statistic 2020 2025

Puerto Rico Thousand Metric tonnes of CO 2 reduced 1,500 1,900 5% (average) $19 $29 3% (average) $67 $97 2.5% (average) $100 $140 3% (95 th percentile) $200 $290
Guam Thousand Metric tonnes of CO 2 reduced 13 54 5% (average) $0.16 $0.80 3% (average) $0.58 $2.7 2.5% (average) $0.87 $3.9 3% (95 th percentile) $1.7 $8.2

Total Thousand Metric tonnes of CO 2 reduced 1,500 2,000 5% (average) $19 $30 3% (average) $68 $100 2.5% (average) $100 $150 3% (95 th percentile) $200 $300 * The SCC values are dollar-year and emissions-year speci fic. SCC values represent only a partial accounting of climate impacts. Figures independently rounded to two significant digits. Columns may not sum.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

20 Table 12. Estimated Global Climat e Benefits of Illustrative CO 2 Reductions – Option 2, Approach B (millions of 2011$)*

Discount Rate and Statistic 2020 2025

Puerto Rico Thousand Metric tonnes of CO 2 reduced 1,500 2,100 5% (average) $20 $31 3% (average) $71 $103 2.5% (average) $110 $150 3% (95 th percentile) $210 $310
Guam Thousand Metric tonnes of CO 2 reduced 20 63 5% (average) $0.25 $0.95 3% (average) $0.90 $3.2 2.5% (average) $1.3 $4.7 3% (95 th percentile) $2.7 $9.7

Total Thousand Metric tonnes of CO 2 reduced 1,600 2,100 5% (average) $20 $32 3% (average) $72 $110 2.5% (average) $110 $160 3% (95 th percentile) $210 $320 * The SCC values are dollar-year and emissions-year speci fic. SCC values represent only a partial accounting of climate impacts. Figures independently rounded to two significant digits. Columns may not sum.

Health Co-Benefits

This section qualitatively desc ribes the air pollution health co-benefits associated with reducing exposure to ambient pollu tants that may come with associated emission reductions.
Because there are no additional emission reductions proposed for the areas of Indian country, the discussion that follows applies only to the U.S. territories identified in this proposal. While we expect that avoided emissions in the U.S. territori es will result in improve ments in air quality and reduce health effects associated with exposure to air pollution associated with these emissions, we have not quantified or monetized the health co-benefits of reducing th ese emissions for this rulemaking. This is because of the significant number and magnitude of data, resource, and methodological limitations that preclude us fr om doing so. For example, we do not have air***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

21 quality modeling data available to estimate the air pollution health co-benefits from implementation of these proposed guidelines. 15 This does not imply that there are no health cobenefits associated with these emission reduction s. The following describe s the important drivers of health co-benefits in a qualitative manner, focusing on two pollutants of primary interest,
PM 2.5 and O 3
. The proposed guidelines would reduce emi ssions of precursor pollutants (e.g., SO 2 , NO x , and directly emitted particles) in the terri tories, which in turn would lower ambient
concentrations of PM 2.5 and O 3 . As is described in the June 2014 proposal, reducing exposure to
PM 2.5 is associated with signi ficant human health benefits , including avoiding premature mortality for adults and infant s, cardiovascular morbidities su ch as heart attacks, hospital admissions, and respiratory morbidities such as asthma attacks, acute bronchitis, hospital and emergency department visits, work loss days, rest ricted activity days, an d respiratory symptoms. Reducing exposure to O 3 is also associated with signifi cant human health benefits, including avoiding mortality and respiratory morbidity such as fewer asthma attacks, hospital and ER visits, and school loss days.

4.2.4 Comparison of Benefits and Costs

This section presents the benefits, costs, and net benefits of the Option 1 and Option 2 illustrative compliance scenarios for both approaches to building block 3 in setting the rate-based goal. As discussed earlier, the EPA is proposing two options for rate-based CO 2 goals that reflect application of measures from four building blocks. For both Options 1 and 2, illustrative compliance scenarios, reflecting possible co mpliance approaches with area-specific CO 2 goals, are analyzed in this RIA. Additionally, fo r each option, two alternative building block 3

15 In the June 2014 proposal, we used benefits per ton (BPT) estimates combined with the proposed emission reductions to monetize health co-benefits. The BPT estimates were developed for three U.S. regions (and based on the 48 contiguous U.S. st ates) for three pollutants (SO 2 , NOx, and directly emitted particles) by combining complex source apportionment air quality modeling (to es timate ambient pollutant concentrations) with health benefits modeling (to monetize impact of pollutant concentrations on health). See Appendix 4A of the June 2014 RIA for details. The BPT estimates developed for the main proposal are not appropriate to use in estimating cobenefits for the U.S. territories becaus e those territories were not represented in the air quality modeling used to generate the BPT estimate.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

22 approaches are presented. The guidelines allow flexibility of compliance, and EPA recognizes that actual compliance may differ from the illustrative approaches analyzed in this RIA.

The EPA has used the social cost of carbon estimates to analyze CO 2 climate impacts of this rulemaking. We refer to these estimates, which were developed by the U.S. government, as
“SCC estimates.” The SCC is an estimate of the monetary value of impacts associated with a marginal change in CO 2 emissions in a given year. The four SCC estimates are associated with different discount rates (model av erage at 2.5 percent discount rate , 3 percent, and 5 percent; 95 th percentile at 3 percent), and each increases over ti me. In this comparison of benefits and costs, the EPA provides the estimate of climate benefits associated with the SCC value deemed to be central in the SCC TSD (the model average at 3% discount rate). We exp ect health co-benefits
associated with reductions in PM 2.5 , SO 2 , and NO X , but are not able to quantify them for this analysis.

As Table 13 shows, assuming a 3 percent discount rate (model average), the EPA estimates that under the proposed Option 1 – Appr oach A, the monetized climate benefits (in 2011$) range from $85 million in 2020 to $190 million in 2030. The annual, illustrative compliance costs (in 2011$) of Option 1 – Appro ach A - are estimated to be approximately - $170 million in 2020 and -$410 million in 2030. The quantified net benefits (the difference between monetized benefits and costs in 2011$) of Option 1 – Approach A are $260 million in 2020 and $600 million in 2030.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

23 Table 13. Summary of Estimated Monetized Bene fits, Compliance Costs, and Net Benefits for the Proposed Guidelines – Option 1, Approach A (millions of 2011$) a

2020 2025 2030

Puerto Rico Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $23 $84 $130 $250 $40 $130 $200 $410 $56 $180 $260 $560 Total Compliance Costs c -$170 -$280 -$390 Net Benefits d $260 $420 $580

Guam Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $0.22 $0.78 $1.2 $2.3 $1.3 $4.5 $6.5 $14 $2.4 $7.9 $11 $24 Total Compliance Costs c -$0.03 -$8.0 -$15 Net Benefits d $0.80 $12 $23

Total Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $24 $85 $130 $250 $41 $140 $200 $420 $58 $190 $270 $580 Total Compliance Costs c -$170 -$290 -$410 Net Benefits d $260 $430 $600

Non-Monetized Benefits Health effects of PM 2.5 , ozone, SO 2 and NO 2 Exposure to hazardous air pollut ants such as Hg and HCl Ecosystem effects Visibility impairment

a All estimates rounded to two signifi cant figures, so figures may not sum.

b The climate benefit estimates in this su mmary table reflect global impacts from CO 2 emission changes and do not account for changes in non-CO 2 GHG emissions. The SCC estimates are y ear-specific and increase over time.

c Total social costs are approximated by the illustrative co mpliance costs. The capital costs are annualized at a capital charge rate of 14.29 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs annualized at a 3 percent discount rate.

d The estimates of net benefits in this summary table are calculated using the global SCC at a 3 percent discount rate (model average).
As Table 14 shows, assuming a 3 percent discount rate (model average), the EPA estimates that under the proposed Option 1 – Appr oach B, the monetized climate benefits (in 2011$) are $89 million in 2020 and $200 million in 2030. The annual, illustrative compliance costs (in 2011$) of Option 1 – Approach B are es timated to be approximately -$180 million in 2020 and -$420 million in 2030. The quantified net be nefits (the difference between monetized***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

24 benefits and costs in 2011$) of Option 1 – Approach B are $270 million in 2020 and $620
million in 2030.

Table 14. Summary of Estimated Monetized Bene fits, Compliance Costs, and Net Benefits for the Proposed Guidelines – Option 1, Approach B (millions of 2011$) a

2020 2025 2030

Puerto Rico Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $25 $88 $130 $260 $42 $140 $210 $430 $59 $190 $280 $590 Total Compliance Costs c -$180 -$290 -$410 Net Benefits d $260 $430 $600

Guam Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $0.31 $1.1 $1.6 $3.3 $1.5 $5.0 $7.3 $15 $2.7 $8.7 $13 $27 Total Compliance Costs c -$0.21 -$8.4 -$16 Net Benefits d $1.3 $13 $24

Total Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $25 $89 $130 $260 $43 $150 $210 $440 $62 $200 $290 $620 Total Compliance Costs c -$180 -$300 -$420 Net Benefits d $270 $440 $620

Non-Monetized Benefits Health effects of PM 2.5 , ozone, SO 2 and NO 2 Exposure to hazardous air pollut ants such as Hg and HCl Ecosystem effects Visibility impairment

a All estimates rounded to two signifi cant figures, so figures may not sum.

b The climate benefit estimates in this su mmary table reflect global impacts from CO 2 emission changes and do not account for changes in non-CO 2 GHG emissions. The SCC estimates are y ear-specific and increase over time.

c Total social costs are approximated by the illustrative co mpliance costs. The capital costs are annualized at a capital charge rate of 14.29 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs annualized at a 3 percent discount rate.

d The estimates of net benefits in this summary table are calculated using the global SCC at a 3 percent discount rate (model average).
As Table 15 shows, assuming a 3 percent discount rate (model average), the EPA estimates that under the proposed Option 2 – Appr oach A, the monetized climate benefits (in 2011$) are $68 million in 2020 and $100 million in 2025. The annual, illustrative compliance costs (in 2011$) of Option 2 – Approach A are es timated to be approximately -$140 million in***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

25 2020 and -$210 million in 2025. The quantified net be nefits (the difference between monetized benefits and costs in 2011$) of Option 2 – Approach A are $210 million in 2020 and $310
million in 2025.

Table 15. Summary of Estimated Monetized Be nefits, Compliance Costs, and Net Benefits for the Proposed Guidelines – Opti on 2, Approach A (millions of 2011$) a

2020 2025

Puerto Rico Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $19 $67 $100 $200 $29 $97 $140 $290 Total Compliance Costs c -$140 -$200 Net Benefits d $210 $300

Guam Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $0.16 $0.58 $0.87 $1.7 $0.80 $2.7 $3.9 $8.2 Total Compliance Costs c $0.29 -$3.8 Net Benefits d $0.30 $6.4

Total Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $19 $68 $100 $200 $30 $100 $150 $300 Total Compliance Costs c -$140 -$210 Net Benefits d $210 $310

Non-Monetized Benefits Health effects of PM 2.5 , ozone, SO 2 and NO 2 Exposure to hazardous air pollutants such as Hg and HCl Ecosystem effects Visibility impairment

a All estimates rounded to two signifi cant figures, so figures may not sum.

b The climate benefit estimates in this su mmary table reflect global impacts from CO 2 emission changes and do not account for changes in non-CO 2 GHG emissions. The SCC estimates are y ear-specific and increase over time.

c Total social costs are approximated by the illustrative co mpliance costs. The capital costs are annualized at a capital charge rate of 14.29 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs annualized at a 3 percent discount rate.

d The estimates of net benefits in this summary table are calculated using the global SCC at a 3 percent discount rate (model average).
As Table 16 shows, assuming a 3 percent discount rate (model average), the EPA estimates that under the proposed Option 2 – Appr oach B, the monetized climate benefits (in 2011$) are $72 million in 2020 and $110 million in 2025. The annual, illustrative compliance***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

26 costs (in 2011$) of Option 2 – Approach B are es timated to be approximately -$140 million in 2020 and -$210 million in 2025. The quantified net be nefits (the difference between monetized benefits and costs in 2011$) of Option 2 – Approach B are $210 million in 2020 and $320
million in 2025.

Table 16. Summary of Estimated Monetized Be nefits, Compliance Costs, and Net Benefits for the Proposed Guidelines – Opti on 2, Approach B (millions of 2011$) a

2020 2025

Puerto Rico Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $20 $71 $110 $210 $31 $100 $150 $310 Total Compliance Costs c -$140 -$210 Net Benefits d $210 $310

Guam Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $0.25 $0.90 $1.3 $2.7 $0.95 $3.2 $4.7 $9.7 Total Compliance Costs c $0.11 -$4.2 Net Benefits d $0.80 $7.4

Total Climate Benefits b 5% discount rate 3% discount rate 2.5% discount rate 95th percentile at 3% discount rate $20 $72 $110 $210 $32 $110 $160 $320 Total Compliance Costs c -$140 -$210 Net Benefits d $210 $320

Non-Monetized Benefits Health effects of PM 2.5 , ozone, SO 2 and NO 2 Exposure to hazardous air pollutants such as Hg and HCl Ecosystem effects Visibility impairment

a All estimates rounded to two signifi cant figures, so figures may not sum.

b The climate benefit estimates in this su mmary table reflect global impacts from CO 2 emission changes and do not account for changes in non-CO 2 GHG emissions. The SCC estimates are y ear-specific and increase over time.

c Total social costs are approximated by the illustrative co mpliance costs. The capital costs are annualized at a capital charge rate of 14.29 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs annualized at a 3 percent discount rate.

d The estimates of net benefits in this summary table are calculated using the global SCC at a 3 percent discount rate (model average).***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

27 Based upon the foregoing discussion, it is clear th at this proposal’s cl imate benefits alone are substantial and far outweigh the compliance co sts for all of the regulatory options under the illustrative compliance approaches. The EPA could not monetize important categories of impacts. For example, in addition to reductions in CO 2 emissions, implementing these proposed guidelines is expected to reduce emissions of SO 2 and NO X , which are precursors to formation of
ambient PM 2.5 , as well as directly emitted fine particles. Therefore, reducing these emissions would also reduce human exposure to ambient PM 2.5 and ozone precursors, thus the incidence
of PM 2.5 - and ozone related health effects.

4.3 Economic and Employment Impacts

Changes in supply or demand for electricity, natu ral gas, oil, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the production process or that supply those sectors. Changes in cost of production may result in changes in price and/or quantity produced and these market changes ma y affect the profitability of firms and the
economic welfare of their consumers. The EP A recognizes that these guidelines provide significant flexibilities and the areas implem enting the guidelines may choose to mitigate impacts to some markets outside the EGU s ector. Similarly, demand for new generation or energy efficiency can result in changes in producti on and profitability for firms that supply those goods and services. The guideline s provide flexibility for area s that may want to enhance demand for goods and services from those sectors.

Executive Order 13563 directs federal agencies to consider regulatory impacts on job creation and employment. According to the Exec utive Order, “our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It mu st be based on the best available science” (Executive Order 13563, 2011). Although standard benefit-co st analyses can include macroeconomic analysis of net impacts on nationa l employment they have not typically included a separate analysis of regulation-induced empl oyment impacts in specific affected industries, 16

16 Labor expenses do, however, contribute toward total costs in the EPA’s standard benefit-cost analyses.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

28 during periods of sustained high unemployment, sector-specific employment impacts are of particular concern and questions may aris e about their existe nce and magnitude. This section qualitatively di scusses potential employment impacts of the Supplemental Proposal for areas of Indian c ountry and territories. For a mo re detailed and quantitative discussion of employment impacts, please see Chapter 6 and Appendix 6A of the RIA for the June 2014 proposal. The June 2014 analysis uses cost projections from the engineering-based IPM to project sector-specific labor demand impact s of the proposed guidelines for the electricity generation sector (fossil and rene wable), and the fuel production sect or (coal and natural gas). The June 2014 RIA also projected labor requi rements for demand-side energy efficiency
activities. In this supplemental proposal, the EPA is proposing emission guidelines for areas of Indian country and territories to use in developing plans to address greenhouse gas emissions from existing fossil fuel-fired EGUs. As mentioned in Section 4.1 of this RIA, EGUs in areas of Indian country are expected to meet the proposed goals based on existing generation decisions or compliance with other regulations for most of the evaluated options. As a result, we do not expect the proposed actions to have any impact s on employment in areas of Indian country. Under both approaches for Option 1, for terr itories of Guam and Puerto Rico, the annualized costs of the illustrative compliance stra tegies are expected to be negative for each year in the analysis as a result of reductions in fuel expenditures that outweigh other costs of reducing emission. Under Option 2, annualized cost s of the illustrative compliance scenarios for Guam and Puerto Rico are expected to be nega tive, with the exception of Guam in 2020, where annualized costs are estimated at $0.29 million for Approach A and $0.11 million for Approach B. As each area has the responsibility and flexib ility to implement polic ies and practices for compliance with Proposed EGU GHG Existing Sour ce Guidelines, and, given the wide range of approaches that may be used, quantifying the associated employment impacts is difficult. Each area has the responsibility and flexibili ty to implement policies and practices for compliance with Proposed EGU GHG Existing S ource Guidelines. Given the wide range of approaches that may be used and the lack of in tegrated electricity sect or models for Guam and Puerto Rico, the EPA did not conduct a quantita tive analysis of employ ment impacts for these
territories.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

29 EGUs may respond to these proposed guideli nes by placing new orders for efficiencyrelated or renewable energy equipment and se rvices to reduce GHG em issions. Installing and operating new equipment or improving heat rate efficiency could increase labor demand in the electricity generating sector its elf, as well as associated equipment and services sectors. Specifically, the direct employment effects of supply-side initia tives include changes in labor demand for manufacturing, instal ling, and operating higher effi ciency or renewable energy electricity generating assets s upported by the initiative while re ducing the demand for labor that would have been used by less efficient or higher emitting generating assets. Once implemented, increases in operating efficiency would impact the power sector’s demand for fuel and plans for
EGU retirement and new construction. In addition, EPA expects compliance plans to also include demand-side energy efficiency policies and programs that typically change energy consumption patterns of business and residential consumers by reduci ng the quantity of energy required for a given level of production
or service. Demand-side initiativ es generally aim to increase the use of cost-effective energy efficiency technologies (e.g., incl uding more efficient appliances and air conditioning systems, more efficient lighting devices, more effici ent design and construction of new homes and businesses), and advance efficiency improveme nts in motor systems and other industrial processes. Demand-side initiatives can also dire ctly reduce energy consumption, such as through programs encouraging changing the thermostat during the hours a building is unoccupied or motion-detecting room light switches. Such dema nd-side energy efficiency initiatives directly affect employment by encouraging firms and consum ers to shift to more efficient products and processes than would otherwise be the case. Employment in the sectors that provide these more efficient devices and services would be expected to increase, while empl oyment in the sectors that produce less efficient devices would be expected to contract. A critical component of the overall labor impacts of impl ementing the GHG guidelines is the impact of the labor associated with the dema nd-side energy efficiency activities. As the 2014 RIA indicated, the EPA anticipates that this ru le may stimulate investment in clean energy technologies and services, resulting in considerab le increases in demand-side energy efficiency in particular. We expect these increases in dema nd-side energy efficiency projects, specifically, to support a significant amount of employment in energy efficiency-related industries.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

30 4.4 Limitations of Analysis

As discussed previously, in th e absence of an optimization model for electric systems in Guam and Puerto Rico, this analysis does not attempt to find a least-cost solution to the illustrative compliance strategy. As a result, th e approach taken to estimate the costs of implementation in this supplemental proposal may result in different costs relative to an approach that would use a dispatch and capacity investment model like IPM. Additionally, this analysis only reflects an approach similar to a state-based approach modeled in the June 2014 proposal. As in the June 2014 proposal, a regional approach to meeting the goals would likely
result in lower costs.

Puerto Rico has a Renewable Portfolio St andard (RPS) which sets goals for 2015 and 2035. Guam’s RPS required 5 percent of net electr icity sales to come from renewables by 2015, rising to 25 percent by 2035. Acti ons taken to comply with th e RPS may be used by these territories in their compliance strategies to attain the rate-based goals. Accounting for these actions may result in lower total compliance co sts than those projecte d in this analysis.

For Puerto Rico, we used AEO projections for No. 2 distillate fuel, No. 6 fuel oil, coal, and natural gas for the South Atlantic region in 2020, 2025, and 2030. An additional $3.50/mmBtu was applied to the cost of natural gas to reflect the additional costs of liquefaction and transport from the Gulf region to the liquefi ed natural gas (LNG) terminal on Puerto Rico. The additional cost is based on a report deve loped by Galway, a consulting firm, and PREPA and presented in the Government Development Bank fo r Puerto Rico’s Natural Gas Diversification Strategy for PREPA. 17 Using this methodology, we project natural gas prices of $9.57/mmBtu in 2020, $10.24/mmBtu in 2025, and $10.90/mmBtu in 2030 (all figures in 2011$). Other available data suggests prices for delivered LNG could be lower. For example, U.S. Census Bureau data regarding 2012 LNG imports from Trinidad a nd Tobago and Nigeria estimates a cost of approximately $5/mmBtu (2011$).

17 http://www.gdb-pur.com/investors_resource s/documents/GNRoundtable-v2FINAL-GS.pdf***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

31 The difference between the prices of natural gas and distillate or fuel oil is responsible for a portion of the cost savings attributable to the ru le. This raises the questio n of why this disparity in price would not result in increased natural ga s generation in the absen ce of this proposal. A 2012 two-year contract between PREPA and Gas Natural Fenosa at approximately $14-
15/mmBtu 18 suggests that 2012 natural ga s prices (on which the base line generation projections for this analysis were made) were closer to the pr ices of other fuel choices but may decline in the future. EPA’s approach, using AE O-projected regional natural ga s prices with an adder for liquefaction and transport provides a consistent set of assumptions for future fuel costs, and reflects the proposed LNG strategy for PREPA. 19

Additionally, the prices of imported L NG depend on investment and operational decisions of supplying regions as well as the av ailability of infrastr ucture within the LNG receiving regions. To the extent that there may be expected benefits to enhancing its natural gas infrastructure absent this propos al, Puerto Rico might invest in enhancing its fuel switching capacity in the absence of this rule. In this scenario, the EPA may be over-estimating reductions in fuel expenditures and emissions re ductions attributable to this rule.

We apply the demand reductions resulting from energy efficiency and renewable energy investments to generation in the different areas from affected E GUs. The electricity savings from investments in energy efficiency are assumed to offset the most expensive generation – electricity from No. 2 distillate fuel boilers and combustion turb ines. The reduced generation is not assigned to any specific EGU, but is taken fr om the aggregate fleet of No. 2 distillate fuel EGUs. The fuel savings are calculated by multiply ing the electricity savings attributable to energy efficiency investments by the average fuel consumption per MWh for No. 2 distillate fuel EGUs. This value is then multiplied by the project ed future fuel prices from the AEO to derive the cost savings. Similarly, CO 2 emission reductions are calculated by multiplying the electricity savings attributable to energy effi ciency investments by the average CO 2 emission rate (lb/MWh) for the aggregate fleet of No. 2 distillate fuel EGUs. To the extent that affected EGU’s follow

18 http://www.caribbeanbusinesspr.com/prnt_ed/puerto-ri co-in-advanced-talks-with-sabine-pass-for-u.s.-lng7994.html

19 http://www.gdb-pur.com/investors_resource s/documents/GNRoundtable-v2FINAL-GS.pdf***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

32 different strategies in responding to demand re ductions from energy efficiency programs, the resulting costs and emissions reduction may di ffer from those presented in this RIA.

We welcome comments providing additional data or analysis regarding the energy systems in Guam and Puerto Rico and th e assumptions made in this analysis.

5 Statutory and Executive Order Requirements

5.1 Executive Order 12866, Regulatory Planning and Review, and Executive Order 13563, Improving Regulation and Regulatory Review

Under section 3(f) (1) of Executive Orde r 12866 (58 FR 51735, October 4, 1993), this action is an "economically signifi cant regulatory action” because it is likely to have an annual effect on the economy of $100 million or more or to adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities. The $100 million threshold can be triggered by either costs or bene fits, or a combination of them. Accordingly, the EPA submitted this action to OMB for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011), and any changes made in response to OMB recommendations have
been documented in the docket for this action.

Consistent with EO 12866 and EO 13563, the EP A estimated the costs and benefits for illustrative compliance approaches of implementing the proposed guidelines. This proposal sets goals to reduce CO 2 emissions from the electric power industr y in U.S. territories and in Indian country. Actions taken to comply with the propos ed guidelines will also reduce the emissions of directly emitted PM 2.5 , SO 2 and NO X . The benefits associated with these PM, SO 2 and NO X reductions are referred to as co-benefits, as thes e reductions are not the pr imary objective of this
rule.

The EPA has used the USG SCC estimates (i.e., the monetary value of impacts associated with a marginal change in CO 2 emissions in a given year), to analyze CO 2 climate impacts of this rulemaking. The four USG SCC estimates are asso ciated with differentdiscount rates (model average at 2.5 percent discount ra te, 3 percent, and 5 percent; 95th percentile at 3 percent), and each increases over time. In this summary, the EPA provides the estimate of climate benefits***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

33 associated with the SCC value deemed to be cen tral by the USG (the model average at 3 percent discount rate). There will be health bene fits associated with reductions of SO 2 and NO X, however, the EPA is unable to quantify air pollution health co-benefits in the U.S. territories because the benefit-per-ton values used are only appropriate for areas within the continental U.S. In addition, the EPA could not monetize other im portant benefits, including climate benefits from reducing emissions of non-CO 2 GHG and co-benefits from reducing exposure to HAP (e.g., mercury and hydrogen chloride) concentrations, as well as ecosystem and visibility benefits.

For Guam and Puerto Rico, the EPA estimates that in 2020, the illustrative compliance approach for Option 1 – Approach A will yield m onetized climate benefits of approximately $85 million with a 3 percent model average (2011$). The annual illustrative compliance costs are a savings of approximately $170 million (2011$) in 2020. The EPA estimates that in 2030, the illustrative compliance approach for Option 1 - A pproach A in Guam and Puerto Rico will yield monetized climate benefits of approximatel y $190 million with a 3 percent model average (2011$). The annual illustrative comp liance costs are a savings of approximately $410 (2011$) in 2030. For Option 2 – Approach A, the illustrative compliance approach for Guam and Puerto Rico will yield monetized climate benefits of approximately $68 million with a 3 percent model average (2011$). The annual illu strative compliance costs are a savings of approximately $140 million (2011$) in 2020. The EPA estimates that in 2025, the illustrative compliance approach for Option 2 – Approach A in Guam and Puerto Rico will yield monetized climate benefits of approximately $100 million with a 3 percent mo del average (2011$). The annual illustrative compliance costs result in a net savings of approximately $210 million (2011$) in 2030, including fuel savings associated with en ergy efficiency programs and fuel switching.

For Guam and Puerto Rico, the EPA estimates that in 2020, the illustrative compliance approach for Option 1 – Approach B will yield m onetized climate benefits of approximately $89 million with a 3 percent model average (2011$). The annual illustrative compliance costs are a savings of approximately $180 million (2011$) in 2020. The EPA estimates that in 2030, the illustrative compliance approach for Option 1 – Appr oach B in Guam and Puerto Rico will yield monetized climate benefits of approximatel y $200 million with a 3 percent model average (2011$). The annual illustrative co mpliance costs are a savings of approximately $420 million (2011$) in 2030. For Option 2 – Approach B, the illustrative compliance approach for Guam and***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

34 Puerto Rico will yield monetized climate benef its of approximately $72 million with a 3 percent model average (2011$). The annual illustrative compliance costs ar e a savings of approximately $140 million (2011$) in 2020. The EPA estimates that in 2025, the illustrative compliance approach for Option 2 in Guam and Puerto Ri co will yield monetized climate benefits of approximately $110 million with a 3 percent mo del average (2011$). The annual illustrative compliance costs result in a net savings of approximately $210 million (2011$) in 2030, including fuel savings associated with en ergy efficiency programs and fuel switching.

For affected units in Indian country, we do not expect any costs or benefits because these units are already expected to meet the proposed goal.

5.2 Paperwork Reduction Act

The information collection requirements in this proposed rule have been submitted for approval to OMB under the PRA, 44 U.S.C. 3501 et seq . The Information Collection Request (ICR) document prepared by the EPA has been assigned the EPA ICR number [Placeholder for new ICR number]

. This proposal does not directly impose speci fic requirements on EGU sources, including
those located in U.S. territories and in Indian country. The proposal also does not impose specific requirements on tribal governments that have aff ected EGUs located in their area of Indian country. For Indian country, the proposal establishes CO 2 emission performance goals that could be addressed through either tribal or federal plans. A tribe would have the opportunity under the TAR, but not the obligation, to apply to the EPA for TAS for purposes of a section 111(d) plan and, if approved by the EPA, to establish a C AA section 111(d) plan for its area of Indian country. To date, no tribe has re quested or obtained TAS eligib ility for purposes of a section 111(d) plan. For areas of Indian country with a ffected sources where a tr ibe has not applied for TAS and submitted any needed plan, if the EPA de termines that a CAA section 111(d) plan is necessary or appropriate, the EPA would have the responsibility to establish the plans. Because tribes are not required to implement section 111(d) plans and because no tribe has yet sought TAS eligibility for this purpose, this propos ed action is not antic ipated to impose any information collection burden on tribal governments over the 3-year period covered by this ICR.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

35 This proposal does impose specific requirement s on U.S. territory governments that have
affected EGUs. Their information collection re quirements are based on the recordkeeping and reporting burden associated with the requirement that the two a ffected U.S. territories (i.e., Puerto Rico and Guam) develop, implement and enforce a plan to limit CO 2 emissions from existing sources in the power sector within th ose U.S. territories. These recordkeeping and reporting requirements are specifically author ized 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 safegu arded according to agency policies set forth in 40 CFR part 2, subpart B.

The annual burden for this collection of inform ation for the territori es (averaged over the first 3 years following promulgation of this propo sed action) is estimated to be 29,200 hours at a total annual labor cost of $2.07 million. The to tal annual burden for the federal government (averaged over the first 3 years following promulga tion of this proposed action) is estimated to be 2,530 hours at a total annual labor cost of $14 1,000. Burden means the total time, effort or financial resources expended by persons to genera te, maintain, retain, or disclose or provide information to or for a federal agency. This in cludes the time needed to review instructions; develop, acquire, install and ut ilize technology and systems fo r the purposes of collecting, validating, and verifying information, processi ng and maintaining information, and disclosing and providing information; adjust the existing wa ys to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete a nd review the collection of information; and
transmit or otherwise disclose the information.

An agency may not conduct or sponsor, a nd 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.

To comment on the agency's need for this information, the accuracy of the provided burden estimates, and any suggested methods for minimizing respondent burden, the EPA has established a public docket for this rule, whic h includes this ICR, unde r Docket ID Number EPA-HQ-OAR-2013-0602. Submit any comments related to the ICR to the EPA and to OMB.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

36 See the ADDRESSES section at the beginning of the pream ble for where to submit comments to
the EPA. Send comments to OMB at the Office of Information and Regulatory Affairs, Office of Management and Budget, 725 17th Street, NW, Washington, DC 20503, Attention: Desk Officer for the EPA. Since OMB is required to make a decision concerning the ICR between 30 and 60 days after publication, a comment to OMB is be st assured of having its full effect if OMB receives it by 30 days after publication. The final rule will respond to any OMB or public comments on the information collection requ irements contained in this proposal.

5.3 Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) gene rally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a signifi cant economic impact on a substantial number of
small entities. Small entities include small businesses, small organizations and small governmental jurisdictions.

For purposes of assessing the impacts of this ru le on small entities, small entity is defined as: (1) A small business that is defined by the Small Business Administration’s (SBA’s) regulations at 13 CFR 121.201 (for the electric power generation industry, the small business size standard is an ultimate parent entity with less than 750 employees). The North American Industry Classification System (NAICS) codes for the affected industry are in Table 10 below); (2) a small governmental jurisdic tion that is a government of a c ity, county, town, school district or special district with a populat ion of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its
field.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

37 Table 10. Potentially Regulated Categories and Entities a

Category NAICS Code Examples of Potentially Regulated Entities
Industry 221112 Fossil fuel electric power generating units.

State/Territorial/Local Government 221112 b Fossil fuel electric power generating units owned by municipalities.

a Include NAICS categories for source categories that own and operate elect ric power generating units (includes boilers and stationary combined cycle combustion turbines). b State, territory or local government-o wned and operated establis hments are classified acco rding to the activity in which they are engaged.

After considering the economic impacts of this proposed rule on small entities, the EPA certifies that this action will not have a signif icant economic impact on a substantial number of
small entities.

The proposed rule will not impose any requirements on small entities. Specifically, emission guidelines established under CAA sect ion 111(d) do not impose any requirements on regulated entities and, thus, will not have a significant economic impact upon a substantial number of small entities. After emission guideline s are promulgated, each affected U.S. territory establishes standards on existing sources, and it is those requirements that could potentially impact small entities. Our analysis he re is consistent with the analysis of the analogous situation arising when the EPA establ ishes national ambient air quality standards (NAAQS), which do not impose any requirements on re gulated entities. As here with regard to U.S. territories, any impact of a NAAQS on sma ll entities would only arise when states take subsequent action to maintain and/or achieve the NAAQS through their state implementation plans. See American Trucking Assoc. v. EPA, 175 F.3d 1029, 1043-45 (D.C. Cir. 1999) (NAAQS do not have significant impacts upon small entities because NAAQS themselves impose no regulations upon small entities).

Nevertheless, the EPA is aware that there is substantial interest in the proposed rule among small entities. As detailed in section II.D of this supplem ental proposal and section III.A of the preamble to the proposed carbon pollution emission guidelin es for existing EGUs (79 FR 34845-34847, June 18, 2014), the EPA has conducted an unprecedented amount of stakeholder outreach on setting emission guidelines for existi ng EGUs. While formulating the provisions of the June 18, 2014, proposed rule, as well as this proposed rule, the EPA considered the input***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

38 provided over the course of the stakeholder outreach. Sections II. D and VI.F of this supplemental proposal and section III.B of the preamble to the June 18, 2014, proposal (79 FR 34847) describe the key issues and messages from stakeholders. Th e EPA invites comments on all aspects of this proposal and its impacts, including potential impacts on small entities.

5.4 Unfunded Mandates Reform Act (UMRA)

This proposed action does not contain a federa l mandate that may resu lt in expenditures of $100 million or more for state, 20 local and tribal governments, in the aggregate, or the private sector in any one year. The emission guidelines proposed under CAA section 111(d) do not impose any direct compliance requireme nts on EGU sources. As explaine d in section VI.B. above, the proposal also does not impose specific requirement s on tribal governments that have affected
EGUs located in their area of Indian countr y. The proposal does impose specific requirements on U.S. territory governments that have affected EGUs . Specifically, the U.S. te rritories are required to develop plans to implement the guidelines un der CAA section 111(d) for affected EGUs. The burden for U.S. territories to develop CAA sec tion 111(d) plans in the 3-year period following promulgation of the rule was estimated and is lis ted in section VI.B. of the preamble, but this burden is estimated to be below $100 million in any one year. Thus, this proposed rule is not subject to the requirements of sect ion 202 or section 205 of the UMRA.

This proposed rule is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. Specifically, the governments with affected EGUs for which this action proposes specific requirements (i.e., the U.S. territories of Puerto Rico and Gu am) are not considered small governments.

In light of the interest among governmental en tities, the EPA initiated outreach with U.S. territory and tribal governmental entities while fo rmulating the provisions of this proposed rule.

20 “State” is defined under the Unfunded Mandates Refo rm Act (UMRA) as “a State of the United States, the District of Columbia, a territory or possession of the United States, and an agency, instrumentality, or fiscal agent of a State but do es not mean a local government of a State.”***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

39 Section III.A of the preamble to the proposed carbon pollution emission guidelines for existing EGUs (79 FR 34845-34847, June 18, 2014) describes the extensive stake holder outreach the EPA has conducted on setting emission guidelines for existing EGUs. Section II.D of this supplemental proposal details the specific outreach that the EPA conducted to the U.S. territories with potentially affected EGUs. In addition, s ection VI.F of this supplemental proposal and section XI.F of the preamble to the June 18, 2014, proposed rule describe outreach to tribes and
consultation with tribal official s. The EPA considered the input provided over the course of its stakeholder outreach developi ng the provisions of these pr oposed emission guidelines.

5.5 Executive Order 13132, Federalism

This action does not have federalism implica tions. It will not have substantial direct effects on the states, on the relationship between the national government and the states or on the distribution of power and responsib ilities among the various levels of government, as specified in Executive Order 13132. Executive Order 13132 applies only to states, whereas this action proposes emission performance goals covering potent ially affected power pl ants located in the U.S. territories and in specifi ed areas of Indian country. 21 Thus, Executive Order 13132 does not apply to this action.

Nevertheless, as described in section II.D of the supplemental propos al and section III.A of the preamble to the proposed carbon pollution emission guidelin es for existing EGUs (79 FR 34845-34847, June 18, 2014), the EPA has conducted an unprecedented amount of stakeholder outreach on setting emission guidelines for exis ting EGUs. Section II.D of this supplemental proposal details the outreach that the EPA conduct ed to the U.S. territo ries with potentially affected EGUs. In addition, section VI.F of th e supplemental proposal and section XI.F of the preamble to the June 18, 2014, proposed rule descri be outreach to tribes and consultation with
tribal officials.

21 “State” or “States” are defined under E.O. 13132 as “the States of the United States of America, individually or collectively, and, where relevant, to State governments, including units of local government and other political subdivisions established by the States.”***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

40 In the spirit of Executive Or der 13132, and consistent with the EPA’s policy to promote
communications between the EPA and State and local governments, the EPA welcomes comment on this proposed action from U. S. territory and tribal officials.

5.6 Executive Order 13175, Consultation and Coordi nation with Indian Tribal Governments

Subject to Executive Orde r 13175 (65 FR 67249, November 9, 2000) the EPA may not issue a regulation that has tribal implications, th at imposes substantial direct compliance costs on tribal governments and that is no t required by statute, unless th e federal government provides the funds necessary to pay the direct compliance cost s incurred by tribal governments, or the EPA
consults with tribal officials early in the process of devel oping the proposed regulation and develops a tribal summary impact statement.

The EPA has concluded that this action may have tribal implications. However, it will neither impose substantial direct compliance costs on tribal governments, nor preempt tribal law. Tribes are not required to develop or adopt C AA programs, but they may apply to the EPA for TAS and, if approved, do so. Tribes are not required to develop plans to implement the guidelines under CAA section 111(d) for affected E GUs in their areas of Indian country. To the
extent that a tribal government seeks and attains TAS stat us for that purpose, these proposed emission guidelines would require that planning requirements be met and emission management implementation plans be executed by the tribes . The EPA notes that this proposal does not directly impose specific requirements on affect ed EGUs, including those located in Indian country, but provides guidance to any tr ibe approved by the EPA to address CO 2 emissions from EGU sources found subject to section 111(d) of th e CAA. The EPA also notes that none of the affected EGUs are owned or opera ted by tribal governments.

The June 18, 2014, proposed rule and this s upplemental proposal were developed after extensive and vigorous outreach to stakeholde rs, including tribes. Trib es were invited to participate in the national informational we binar, “Building a Comm on Understanding: Clean Air Act and Upcoming Carbon Pollution Guidelines for Existing Power Plants,” held August 27, 2013. The EPA also held a series of listening se ssions prior to developm ent of this proposed action. Tribes participated in a session on Septem ber 9, 2013, together with the state agencies, as***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

41 well as in a separate tribe- only session on September 26, 2013. In addition, an outreach meeting was held on September 9, 2013, with tribal repr esentatives from some of the 566 tribes.

As part of the outreach to tribes, EPA repres entatives also met with tribal environmental
staff with the National Tribal Air Associati on, by teleconference, on July 25, 2013, December 19, 2013, June 26, 2014, and August 4, 2014. In those teleconferences, the EPA provided background information on the GHG emission guide lines to be developed and a summary of issues being explored by the agen cy. Tribes have expressed varied points of view. Some tribes raised concerns about the impact s of the regulations on EGUs and the subsequent impact on jobs and revenue for their tribes. Other tribes expr essed concern about the impact the regulations
would have on the cost of water to their communities as a result of increased costs to the EGU that provide energy to transport the water to the tribes. Other tribes rais ed concerns about the impacts of climate change on their communities, resources, ways of life and hunting and treaty rights. The tribes were also interested in the scope of the guidelines being considered by the agency (e.g., over what time period, relationship to state and multi-state plans) and how tribes will participate in these planning activities.

The EPA conducted outreach to tribal environm ental staff and offered consultation with tribal officials in developing this action. Becau se this supplemental proposal would directly
affect sources located within I ndian country, the EPA offered cons ultation with tribal officials early in the process of developi ng the proposed regulation to perm it tribes to have meaningful and timely input into its development. The EPA sent consultation lette rs to the lead ers of all of the federally recognized tribes. The letters provided information regarding the EPA’s development of emission guidelines for existing power plants and offered consultation. The EPA held a consultation with the Ute Tribe, th e Crow Nation, and the MHA Nation on July 18, 2014. On August 22, 2014, the EPA held a consultation with the Fort Mojave Tribe. On September 15, 2014, the EPA held a consultation with the Navajo Na tion. The Navajo Nation sent a letter to the EPA on September 18, 2014, summarizing the informati on presented at the consultation and the Navajo Nation’s position on this supplemental pr oposal. One issue raised by tribal officials was the potential impacts of the June 18, 2014, proposal and this supplemental proposal on tribes with budgets that are dependent on revenue from coal mines and power plants, as well as employment at the mines and power plants. Th e tribes noted the high unemployment rates and***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

42 lack of access to basic services on their lands. Tr ibal officials also asked whether the rules will have any impact on a tribe’s ability to seek TAS. Tribal officials also expressed interest in agency actions with regard to facilitating power plant compliance with regulatory requirements. The Navajo Nation made the following recommenda tions in their letter of September 18, 2014: the Navajo Nation supports a mass-based CO 2 emission standard based on the highest historical
CO 2 emissions since 1996; the Navajo Nation requ ests that the EPA grant the Navajo Nation carbon credits and that the Navajo Nation retains ownership and control of such credits; building block 2 is not appropriate for the Navajo Na tion because there are no NGCC plants located on the Navajo Nation; building block 3 is not appropriate for the Na vajo Nation because the Navajo people already receive virtually all of their electricity from carbon-free sources (mostly hydroelectric power) and their use of electricity is negligible comp ared to the generation at the power plants; building block 4 is not appropr iate for the Navajo Nation because of the inadequate access to electricity, and the goal shou ld allow for an increase in energy consumption on the Navajo Nation; the supplemental proposal should consider the useful life of the power plants located on the Navajo Nation; and the supplemental proposal should clarify that RE projects located within the Navajo Nation that provide electricity outside the Navajo Nation should be counted toward meeting the relevant state’s RE goals under th e Clean Power Plan.

The EPA will continue the ongoing dialogue with tribal officials rega rding this proposed action. During the public comment period for this proposal, the EPA will hold meetings with
tribal environmental staff to info rm them of the content of this proposal, as well as offer further consultation with tribal elected officials, wher e it is appropriate. The EPA specifically solicits additional comment on this proposed action from tribal officials.

During the public comment period for this proposal, the EPA will hold meetings with
tribal environmental staff to info rm them of the content of this proposal, as well as offer further
consultation with tribal elected officials where it is appropriate. The EPA specifically solicits additional comment on this proposed action from tribal officials.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

43 5.7 Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks

The EPA interprets Executive Order 13045 ( 62 FR 19885, April 23, 1997) as applying to those regulatory actions that con cern health or safety risks, such that the analysis required under section 5-501 of the Executive Order has the pote ntial to influence the regulation. This action is not subject to Executive Order 13045 because it does not involve decisions on environmental health or safety risks that may disproportionate ly affect children. The EPA believes that the CO 2 emission reductions resulting from implementa tion of the proposed guidelines, as well as
substantial ozone and PM 2.5 emission reductions as a co-ben efit, would further improve
children’s health.

5.8 Executive Order 13211, Actions Concerning Regula tions that Significantly Affect Energy Supply, Distribution, or Use

This action is not a “significant energy ac tion” as defined in Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not likely to have a significant adverse effect on the supply, distribution, or use of ener gy. Affected EGUs in areas of Indian country are expected to meet the proposed goals based on existing gene ration decisions or compliance with other regulations. In U.S. territories, the EPA anticipat es a small degree of re-dispatch from coal- and oil-fired generation to natural ga s-fired generation. It is possible that some portion of this shift away from coal- and oil-fired generation may occu r in the absence of the rule, due primarily to the relatively high cost of petroleum-based fuel and electricity in th ese areas. For example, PREPA plans to add natural gas capacity at exis ting petroleum-burning plan ts. Additionally, both Guam and Puerto Rico are implementing Rene wable Portfolio Standards programs which may contribute to implementing these goals at a different cost than projected in the RIA. The “Technical Support Document for Calculating Ca rbon Pollution Goals for Existing Power Plants in U.S. Territories and in Indian Country” provides additional information about PREPA's planned expansion of natural gas electricit y generation and the Guam and Puerto Rico Renewable Portfolio Standards pr ograms. The EPA does not account for these existing trends in this analysis due to data limitations. Additionally , since the EPA estimated these impacts without***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

44 the use of an economic dispatch model, the EPA is potentially overstating the costs of implementation in these areas.

5.9 National Technology Transfer and Advancement Act

Section 12(d) of the Nationa l Technology Transfer and Advancement Act (NTTAA) of 1995 (Public Law No. 104-113; 15 U. S.C. 272 note) directs the EPA to use voluntary consensus standards (VCS) in its regulatory and procur ement activities unless to do so would be inconsistent with applicable law or otherwis e impractical. VCS are technical standards (e.g., materials specifications, test methods, sampling procedures and business practices) that are developed or adopted by one or more VCS bodies. The NTTAA directs the EPA to provide Congress, through OMB, explanations when the agency does not use available and applicable VCS. This proposed rulemaking does not involve technical standards.

The EPA welcomes comments on this aspect of the proposed rulemaking and specifically invites the public to identify potentially-appli cable VCS and to explain why such standards
should be used in this action.

5.10 Executive Order 12898: Federal Actions to A ddress Environmental Justice in Minority Populations and Low-Income Populations

Executive Order 12898 (59 FR 7629, February 16, 1994) establishes federal executive policy on environmental justice. It s main provision directs federal ag encies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disp roportionately high and adverse human health or environmental effects of their programs, polic ies and activities on minority populations and lowincome populations in the U.S.

Section II.A of the preamble to the propos ed carbon pollution emission guidelines for existing EGUs (79 FR 34841-34843, June 18, 2014) su mmarizes the public health and welfare impacts from GHG emissions that were deta iled in the 2009 Endangerment Finding under CAA***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

45 section 202(a)(1). 22 As part of the Endangerment Finding, the Administrator considered climate change risks to minority or low-income populati ons, finding that certain parts of the population may be especially vulnerable based on their ci rcumstances. These include the poor, the elderly, the very young, those already in poor health, the disabled, those living al one, and/or indigenous populations dependent on one or a few resources. The Administra tor placed weight on the fact that certain groups, including chil dren, the elderly and the poor, are most vulnerable to climaterelated health effects.

Strong scientific evidence that the potential impacts of climate change raise environmental justice issues is found in the ma jor assessment reports by the U.S. Global Change Research Program, the Intergovernmental Panel on Climate Change and the National Research
Council of the National Academie s, summarized in the record for the Endangerment Finding. Their conclusions include that poor communities can be especially vulnerable to climate change impacts because they tend to have more limite d adaptive capacities and are more dependent on
climate-sensitive resources such as local water and food supplies. In addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those on
established reservations that ar e restricted to reservation bounda ries and, therefore, have limited relocation options. Tribal communities whose health, economic well-being and cultural traditions depend upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated w ith climate change. Southwest na tive cultures are especially vulnerable to water quality and availability imp acts. Native Alaskan communities are likely to experience disruptive impacts, incl uding shifts 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 and low-income populations.

This proposed rule would limit GHG emissions by establishing CO 2 emission guidelines for use in developing secti on 111(d) plans to address CO 2 emissions from affected EGUs. In addition to reducing CO 2 emissions, implementing the proposed rule through the development of section 111(d) plans would reduce other emission s from EGUs that become dispatched less

22 “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” 74 FR 66496 (Dec. 15, 2009) (“Endangerment Finding”).***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

46 frequently due to their relatively low energy e fficiency. These emission reductions will include
SO 2 and NOx, which form ambient PM 2.5 and ozone in the atmosphere, and HAP, such as mercury and hydrochloric acid. In th e final rule revising the annual PM 2.5 NAAQS, 23 the EPA identified persons with lower socioeconomic st atus as an at-risk population for experiencing
adverse health effects related to PM exposures. Persons with lo wer socioeconomic status have been generally found to have a higher prevalen ce of pre-existing di seases, limited access to medical treatment, and increased nutritional defi ciencies, which can incr ease this population’s
risk to PM-related and ozone-related effects. 24 Therefore, in areas where this rulemaking ultimately results in reductions in exposure to PM 2.5 , ozone and methylmercury, persons with
low socioeconomic status would also benefit.

While there will be many locations with improved air quality for PM 2.5 , ozone and HAP, there may also be EGUs whose emissions of one or more of these pollutants or their precursors increase as a result of implementation of th e proposed emission guidelines for existing fossil fuel-fired EGUs. This may occur at EGUs that b ecome dispatched more intensively than in the past because they become more energy efficient. The EPA has considered the potential for such increases and the environmental justice implications of such increases.

As we noted in the preamble for the June 18, 2014, proposal, as part of a jurisdiction’s section 111(d) plan, the jurisdiction may require an affected EGU to undertake physical or operational changes to improve th e unit’s efficiency that result in an increase in the unit’s dispatch and an increase in the unit’s annual emissions of GHGs and/or other regulated pollutants. However, a jurisdicti on can take steps to avoid incr eased utilization of particular EGUs and emissions of regulated pollutants whose environmental effects would be more
localized around the affected EGU. To the extent th at jurisdictions take th is path, there would be no new environmental justice concerns in the area s near such EGUs. In addition, the applicable jurisdiction or federal permitting program can adjust its section 111(d) plan to ensure that there are no new NAAQS exceedances and that no exis ting NAAQS exceedances are made worse. For

23 “National Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013).
24 U.S. Environmental Protection Agency (U.S. EPA). 2009. Integrated Science Assessment for Particulate Matter (Final Report) . EPA-600-R-08-139F. National Center for Environmental Assessment – RTP Division. December. Available on the Internet at http://cfpub.epa.gov/ncea/cf m/recordisplay.cfm?deid=216546

.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

47 those EGUs in a permitting situation for which the EPA is the permit reviewing authority, the EPA will consider environmental justice issues as required by Executive Order 12898.

In addition to some EGUs possibly bei ng required by a jurisdiction to make modifications for increased energy efficiency, another potential eff ect of the proposed CO 2 emission guidelines for existing fossil fuel-fired EGUs would be increased utilization of other, unmodified EGUs with relatively low GHG emissions per unit of el ectrical output, in particular high efficiency gas-fired EGUs. Su ch plants would have more hours in the year in which they operate and emit pollutants, including pollutants whose environmental effects if any would be localized rather than global as is the case w ith GHG emissions. Changes in utilization already
occur now as demands for and sources of electrical energy evolve, but the proposed CO 2 emission guidelines for existing fossil fuel-fired EGUs can be expected to cause more such changes. Because gas-fired EGUs emit essentia lly no mercury, increase d utilization would not increase methylmercury concentrations in their vicinities. Increased util ization generally would not cause higher peak concentrations of PM 2.5, NOx, or ozone around such EGUs than is already occurring because peak hourly or daily emissions generally would not change, but increased utilization may make periods of relatively high co ncentrations more frequent. It should be noted that the gas-fired sources that are likely to beco me dispatched more frequently than at present have very low emissions of primary PM, SO 2 and HAP per unit of electr ical output, such that local (or regional) air quality for these pollutants is likely to be a ffected very little. 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 un its are negligible based on the results of the study documented in the utility RTC [response to comments].” 25 In studies done by the U.S. Department of Energy National En ergy Technology Laboratory comparing cost and performance of coal- and natural ga s-fired generation, they assumed SO 2 , PM (and Hg) emissions to be “negligible.” Their studies predict NOx emissions from a NGCC unit to be approximately 10 times lower than a subcritical or supercritical coal-fired boiler. Many are also very well controlled for emission of NOx through the application of afte r combustion controls such as selective catalytic reduction, although not all gas- fired sources are so equipped.

25 65 FR 79831.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

48 Depending on the specificity of the jurisdiction’ s CAA section 111(d) plan, the jurisdiction may be able to predict which EGUs and communities may be in this type of situation and to address any concerns about localized NOx concentrations in the design of the CAA section 111(d) program, or separately from the CAA section 111 (d) program but before its implementation. In any case, existing tracking systems will allow jurisd ictions and the EPA to be aware of the EGUs
whose utilization has increased most significantly, and, thus, to be ab le to prioritize our efforts to assess whether air quality has changed in the communities in the vicinity of such EGUs. There are multiple mechanisms in the CAA to address situations in which air quality has degraded significantly. In conclusion, this proposed rule would result in regional and national pollutant reductions; however, there likely w ould also be some locations with more times during the year of relatively higher concentrations of pollu tants with potential for effects on localized communities than would be experienced in the absence of the proposed rule. The EPA cannot exactly predict how emissions from specific EGUs would change as an outcome of the proposed rule due to the jurisdiction-led implementation. Th erefore, the EPA has c oncluded that it is not practicable to determine whet her there would be disproportio nately high and adverse human health or environmental effects on minority, low income or indigenous populations from this proposed rule.

In order to provide opportunities for meaningf ul involvement early on in the rule making process, the EPA has hosted webinars and conference calls on August 27, 2013, and September 9, 2013, for the June 18, 2014, proposal specifically for environmental justice and tribal communities and has taken all comments and sugges tions into consideration in the design of the emission guidelines. Additionally, after the Ju ne 18, 2014, rule was proposed the EPA hosted public hearings in Denver, Colorado, Atlanta, Georgia, Washington D.C. and Pittsburgh, Pennsylvania from July 29-August 1, 2014. Additi onally, as referenced in the public hearing section of this proposal, the EPA will also be holding a public hearing on this supplemental proposal.

The public is invited to submit comments or id entify peer-reviewed st udies and data that assess effects of exposure to the po llutants addresse d by this proposal.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

49 6 References

Intergovernmental Panel on Climate Change (IPCC). 2012: Managing the Risks of Extreme Events and Disasters to Adv ance Climate Change Adaptation . A Special Report of Working Groups I and II of the Intergovernmental Pane l on Climate Change. Cambridge University Press, Cambridge, UK, and New York, NY, USA. Intergovernmental Panel on Climate Change (IPCC). 2013. Climate Change 2013: The Physical Science Basis. Contribution of Working Gr oup I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. Intergovernmental Panel on Climate Change (IPCC). 2014a. Climate Change 2014: Impacts, Adaptation, and Vulnerability. Contribution of Working Group II to the Fifth Assessment Report of the Inte rgovernmental Pane l on Climate Change. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. Intergovernmental Panel on Climate Change (IPCC). 2014b. Climate Change 2014: Mitigation of Climate Change. Contribution of Working Gr oup III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. Melillo, Jerry M., Terese (T.C.) Ri chmond, and Gary W. Yohe, Eds. 2014. Climate Change Impacts in the United States: The Third National Climate Assessment . U.S. Global Change Research Program. Available at <http://nca2014.globalchange.gov> National Research Council (NRC). 2010. Ocean Acidification: A National Strategy to Meet the Challenges of a Changing Ocean . National Academies Pr ess. Washington, DC. National Research Council (NRC). 2011a. Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia . National Academies Press, Washington, DC. National Research Council (NRC). 2011b. National Security Implicati ons of Climate Change for U.S. Naval Forces . National Academies Press. Washington, DC. National Research Council (NRC). 2012a. Understanding Earth's Deep Past: Lessons for Our Climate Future . National Academies Press. Washington, DC National Research Council (NRC). 2012b. Sea-Level Rise for the Coasts of California, Oregon, and Washington: Past, Present, and Future . National Academies Press. Washington, DC.***E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review***

50 National Research Council (NRC). 2013a. Climate and Social Stress: Im plications for Security Analysis . National Academies Press. Washington, DC. National Research Council (NRC). 2013b. Abrupt Impacts of Climate Change: Anticipating Surprises . National Academies Pr ess. Washington, DC. U.S. Environmental Protection Agency. Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plant s and Emission Standards for Modified and Reconstructed Power Plants. June 2014. Available online at: http://www.epa.gov/ttnecas1/regda ta/RIAs/111dproposalRIAfinal0602.pdf

.